Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2009
Commission File No. 000-19424
EZCORP, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
74-2540145 |
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.) |
1901 Capital Parkway
Austin, Texas 78746
(Address of principal executive offices)
Registrants telephone number: (512) 314-3400
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
þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
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, all 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, 2009, 45,682,294 shares of the registrants Class A Non-voting Common Stock, par
value $.01 per share, and 2,970,171 shares of the registrants Class B Voting Common Stock, par
value $.01 per share, were outstanding.
EZCORP, INC.
INDEX TO FORM 10-Q
PART I
|
|
|
Item 1. |
|
Financial Statements |
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
46,546 |
|
|
$ |
29,812 |
|
|
$ |
27,444 |
|
Pawn loans |
|
|
94,648 |
|
|
|
68,022 |
|
|
|
75,936 |
|
Payday loans, net |
|
|
7,649 |
|
|
|
6,598 |
|
|
|
7,124 |
|
Auto title loans, net |
|
|
1,126 |
|
|
|
|
|
|
|
1 |
|
Pawn service charges receivable, net |
|
|
16,693 |
|
|
|
10,061 |
|
|
|
12,755 |
|
Signature loan fees receivable, net |
|
|
5,105 |
|
|
|
5,086 |
|
|
|
5,406 |
|
Auto title loan fees receivable, net |
|
|
352 |
|
|
|
|
|
|
|
|
|
Inventory, net |
|
|
57,141 |
|
|
|
39,444 |
|
|
|
43,209 |
|
Deferred tax asset, net |
|
|
15,809 |
|
|
|
9,007 |
|
|
|
10,926 |
|
Federal income tax receivable |
|
|
|
|
|
|
454 |
|
|
|
|
|
Prepaid expenses and other assets |
|
|
14,866 |
|
|
|
5,622 |
|
|
|
9,115 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
259,935 |
|
|
|
174,106 |
|
|
|
191,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in unconsolidated affiliate |
|
|
34,784 |
|
|
|
37,248 |
|
|
|
38,439 |
|
Property and equipment, net |
|
|
49,752 |
|
|
|
38,661 |
|
|
|
40,079 |
|
Deferred tax asset, non-current |
|
|
9,090 |
|
|
|
5,620 |
|
|
|
8,139 |
|
Goodwill |
|
|
100,742 |
|
|
|
24,779 |
|
|
|
24,376 |
|
Other assets, net |
|
|
17,892 |
|
|
|
5,585 |
|
|
|
5,771 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
472,195 |
|
|
$ |
285,999 |
|
|
$ |
308,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Liabilities and stockholders equity: |
|
|
|
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|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
|
$ |
10,000 |
|
|
$ |
|
|
|
$ |
|
|
Accounts payable and other accrued expenses |
|
|
33,958 |
|
|
|
24,120 |
|
|
|
29,425 |
|
Customer layaway deposits |
|
|
3,603 |
|
|
|
2,254 |
|
|
|
2,327 |
|
Federal income taxes payable |
|
|
1,988 |
|
|
|
|
|
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
49,549 |
|
|
|
26,374 |
|
|
|
31,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
|
27,500 |
|
|
|
|
|
|
|
|
|
Deferred gains and other long-term liabilities |
|
|
3,352 |
|
|
|
2,909 |
|
|
|
3,672 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
|
|
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|
Class A Non-voting Common Stock, par value
$.01 per share; Authorized 54 million
shares; 45,692,294 issued and 45,682,294
outstanding at June 30, 2009; 38,497,830
issued and 38,470,731 outstanding at June
30, 2008; 38,564,331 issued and 38,554,331
outstanding at September 30, 2008 |
|
|
457 |
|
|
|
385 |
|
|
|
386 |
|
Class B Voting Common Stock, convertible,
par value $.01 per share; 3 million shares
authorized; 2,970,171 issued and outstanding |
|
|
30 |
|
|
|
30 |
|
|
|
30 |
|
Additional paid-in capital |
|
|
215,961 |
|
|
|
134,598 |
|
|
|
135,895 |
|
Retained earnings |
|
|
181,703 |
|
|
|
118,139 |
|
|
|
134,170 |
|
Treasury stock, at cost; 10,000 shares at
June 30, 2009 and September 30, 2008;
30,000 shares at June 30, 2008 |
|
|
(12 |
) |
|
|
(35 |
) |
|
|
(12 |
) |
Accumulated other comprehensive income (loss) |
|
|
(6,345 |
) |
|
|
3,599 |
|
|
|
2,581 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
391,794 |
|
|
|
256,716 |
|
|
|
273,050 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
472,195 |
|
|
$ |
285,999 |
|
|
$ |
308,720 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
1
Condensed Consolidated Statements of Operations (Unaudited)
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|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands, except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
81,309 |
|
|
$ |
53,635 |
|
|
$ |
234,902 |
|
|
$ |
170,472 |
|
Pawn service charges |
|
|
32,880 |
|
|
|
22,691 |
|
|
|
92,777 |
|
|
|
67,384 |
|
Signature loan fees |
|
|
30,815 |
|
|
|
31,223 |
|
|
|
98,409 |
|
|
|
94,917 |
|
Auto title loan fees |
|
|
1,030 |
|
|
|
|
|
|
|
1,666 |
|
|
|
|
|
Other |
|
|
1,740 |
|
|
|
521 |
|
|
|
4,901 |
|
|
|
1,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
147,774 |
|
|
|
108,070 |
|
|
|
432,655 |
|
|
|
334,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
50,965 |
|
|
|
31,460 |
|
|
|
147,816 |
|
|
|
101,732 |
|
Signature loan bad debt |
|
|
8,618 |
|
|
|
8,545 |
|
|
|
23,174 |
|
|
|
24,847 |
|
Auto title loan bad debt |
|
|
104 |
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
88,087 |
|
|
|
68,065 |
|
|
|
261,512 |
|
|
|
207,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
|
|
53,833 |
|
|
|
39,873 |
|
|
|
151,955 |
|
|
|
117,308 |
|
Administrative |
|
|
9,687 |
|
|
|
8,527 |
|
|
|
29,892 |
|
|
|
25,418 |
|
Depreciation and amortization |
|
|
3,254 |
|
|
|
3,081 |
|
|
|
9,471 |
|
|
|
9,027 |
|
(Gain) loss on sale / disposal of assets |
|
|
(146 |
) |
|
|
284 |
|
|
|
(967 |
) |
|
|
527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
66,628 |
|
|
|
51,765 |
|
|
|
190,351 |
|
|
|
152,280 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
21,459 |
|
|
|
16,300 |
|
|
|
71,161 |
|
|
|
55,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(59 |
) |
|
|
(165 |
) |
|
|
(257 |
) |
|
|
(359 |
) |
Interest expense |
|
|
428 |
|
|
|
72 |
|
|
|
1,064 |
|
|
|
228 |
|
Equity in net income of unconsolidated affiliate |
|
|
(851 |
) |
|
|
(997 |
) |
|
|
(3,163 |
) |
|
|
(3,162 |
) |
Other |
|
|
11 |
|
|
|
11 |
|
|
|
38 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
21,930 |
|
|
|
17,379 |
|
|
|
73,479 |
|
|
|
58,424 |
|
Income tax expense |
|
|
7,545 |
|
|
|
6,552 |
|
|
|
25,946 |
|
|
|
22,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,385 |
|
|
$ |
10,827 |
|
|
$ |
47,533 |
|
|
$ |
36,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.30 |
|
|
$ |
0.26 |
|
|
$ |
1.01 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.29 |
|
|
$ |
0.25 |
|
|
$ |
1.00 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
48,628 |
|
|
|
41,419 |
|
|
|
46,932 |
|
|
|
41,380 |
|
Diluted |
|
|
49,279 |
|
|
|
43,325 |
|
|
|
47,724 |
|
|
|
43,269 |
|
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
2
Condensed Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In thousands) |
|
Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
47,533 |
|
|
$ |
36,398 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,471 |
|
|
|
9,027 |
|
Payday loan and auto title loan loss provisions |
|
|
6,295 |
|
|
|
5,666 |
|
Deferred taxes |
|
|
626 |
|
|
|
(856 |
) |
Net (gain) loss on sale or disposal of assets |
|
|
(967 |
) |
|
|
527 |
|
Share-based compensation |
|
|
2,753 |
|
|
|
2,826 |
|
Income from investment in unconsolidated affiliate |
|
|
(3,163 |
) |
|
|
(3,162 |
) |
Changes in operating assets and liabilities, net of business acquisitions: |
|
|
|
|
|
|
|
|
Service charges and fees receivable, net |
|
|
768 |
|
|
|
1,196 |
|
Inventory, net |
|
|
905 |
|
|
|
(120 |
) |
Prepaid expenses, other current assets, and other assets, net |
|
|
(2,571 |
) |
|
|
271 |
|
Accounts payable and accrued expenses |
|
|
(4,663 |
) |
|
|
(1,327 |
) |
Customer layaway deposits |
|
|
286 |
|
|
|
198 |
|
Deferred gains and other long-term liabilities |
|
|
(265 |
) |
|
|
(46 |
) |
Excess tax benefit from stock-based compensation |
|
|
(1,724 |
) |
|
|
(352 |
) |
Federal income taxes |
|
|
3,566 |
|
|
|
(5,003 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
58,850 |
|
|
|
45,243 |
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
Loans made |
|
|
(317,064 |
) |
|
|
(245,280 |
) |
Loans repaid |
|
|
204,806 |
|
|
|
152,840 |
|
Recovery of pawn loan principal through sale of forfeited collateral |
|
|
113,040 |
|
|
|
80,751 |
|
Additions to property and equipment |
|
|
(14,350 |
) |
|
|
(13,094 |
) |
Acquisitions, net of cash acquired |
|
|
(41,002 |
) |
|
|
(15,467 |
) |
Dividends from unconsolidated affiliate |
|
|
1,634 |
|
|
|
1,745 |
|
Proceeds from sale of assets |
|
|
1,062 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(51,874 |
) |
|
|
(38,505 |
) |
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and warrants |
|
|
4,907 |
|
|
|
189 |
|
Stock issuance costs related to acquisitions |
|
|
(442 |
) |
|
|
|
|
Excess tax benefit from stock-based compensation |
|
|
1,724 |
|
|
|
352 |
|
Debt issuance costs |
|
|
(1,178 |
) |
|
|
|
|
Proceeds from bank borrowings |
|
|
40,000 |
|
|
|
|
|
Payments on bank borrowings |
|
|
(32,885 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
12,126 |
|
|
|
541 |
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
19,102 |
|
|
|
7,279 |
|
Cash and cash equivalents at beginning of period |
|
|
27,444 |
|
|
|
22,533 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
46,546 |
|
|
$ |
29,812 |
|
|
|
|
|
|
|
|
|
Non-cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Pawn loans forfeited and transferred to inventory |
|
$ |
109,258 |
|
|
$ |
81,115 |
|
Foreign currency translation adjustment |
|
$ |
8,926 |
|
|
$ |
(997 |
) |
Cumulative effect of adopting a new accounting principle |
|
$ |
|
|
|
$ |
106 |
|
Acquisition-related stock issuance |
|
$ |
71,197 |
|
|
$ |
|
|
Issuance of common stock to 401(k) plan |
|
$ |
|
|
|
$ |
135 |
|
See Notes to Interim Condensed Consolidated Financial Statements (unaudited).
3
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 2009
Note A: Basis of Presentation
The accompanying unaudited interim 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. Our management has included all adjustments it considers
necessary for a fair presentation. These adjustments are of a normal, recurring nature except for
those related to acquired businesses (described in Note C). The accompanying financial statements
should be read with the Notes to Consolidated Financial Statements included in our Annual Report on
Form 10-K for the year ended September 30, 2008. The balance sheet at September 30, 2008 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. Certain prior period balances have been reclassified to conform to the
current presentation.
Our business is subject to seasonal variations, and operating results for the three and nine-month
periods ended June 30, 2009 (the current quarter and current year-to-date period) are not
necessarily indicative of the results of operations for the full fiscal year.
Note B: Significant Accounting Policies
CONSOLIDATION: The consolidated financial statements include the accounts of EZCORP, Inc. and its
wholly owned subsidiaries. All significant inter-company accounts and transactions have been
eliminated in consolidation. We account for our interest in Albemarle & Bond Holdings, plc using
the equity method.
PAWN LOAN AND SALES REVENUE RECOGNITION: We record pawn service charges using the interest method
for all pawn loans we believe to be collectible. We base our 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 two to three months. Unexpected variations in any of these
factors could change our estimate of collectible loans, affecting our earnings and financial
condition. If a pawn loan is not repaid, we value the forfeited collateral (inventory) at the
lower of cost (pawn loan principal) or market (net realizable value) of the property. We record
sales revenue and the related cost when this inventory is sold. Sales tax collected upon the sale
of inventory is excluded from the amount recognized as sales and instead is recorded as a liability
in Accounts payable and other accrued liabilities on our balance sheets until remitted to the
appropriate governmental authorities.
SIGNATURE LOAN CREDIT SERVICE REVENUE RECOGNITION: We earn credit service fees when we assist
customers in obtaining signature loans from unaffiliated lenders. We initially defer recognition
of the fees we expect to collect, net of direct expenses, and recognize that deferred net amount
over the life of the related loans. We reserve the percentage of credit service fees we expect not
to collect. Accrued fees related to defaulted loans reduce credit service fee revenue upon loan
default, and increase credit service fee revenue upon collection. Signature loan credit service
revenue is included in Signature loan fees on our statements of operations.
SIGNATURE LOAN CREDIT SERVICE BAD DEBT: We issue letters of credit to enhance the creditworthiness
of our credit service customers seeking signature loans from unaffiliated lenders. The letters of
credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon
demand, the principal and accrued interest owed the lenders by the borrowers plus any insufficient
funds fee. Although amounts paid under letters of credit may be collected later, we charge those
amounts to signature loan bad debt upon default. We record recoveries under the letters of credit
as a reduction of bad debt at the time of collection. After attempting collection of bad debts
internally, we occasionally sell them to an unaffiliated company as another method of recovery. We
account for the sale of defaulted accounts in the same manner as internal collections of defaulted
accounts.
The majority of our credit service customers obtain short-term signature loans with a single
maturity date. These short-term loans, with maturity dates averaging about 18 days, are considered
defaulted if they have not been repaid or renewed by the maturity date. Other credit service
customers obtain installment loans with a series of payments
due over as much as a five-month period. If one payment of an installment loan is delinquent, that
one payment is considered defaulted. If more than one installment payment is delinquent at any
time, the entire loan is considered defaulted.
4
ALLOWANCE FOR LOSSES ON SIGNATURE LOAN CREDIT SERVICES: We provide an allowance for losses we
expect to incur under letters of credit for brokered signature loans that have not yet matured.
The allowance is based on recent loan default experience adjusted for seasonal variations. It
includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including
principal, accrued interest, and insufficient funds fees, net of the amounts we expect to collect
from borrowers (Expected LOC Losses). Changes in the allowance are charged to signature loan bad
debt. We include the balance of Expected LOC Losses in Accounts payable and other accrued
expenses on our balance sheets. At June 30, 2009, the allowance for Expected LOC Losses on
signature loans was $1.5 million and our maximum exposure for losses on letters of credit, if all
brokered signature loans defaulted and none was collected, was $22.2 million. This amount includes
principal, interest, and insufficient funds fees. Based on the expected loss and collection
percentages, we also provide an allowance for the signature loan credit service fees we expect not
to collect, and charge changes in this allowance to signature loan fee revenue.
PAYDAY LOAN REVENUE RECOGNITION: We accrue fees in accordance with state laws on the percentage of
payday loans we believe to be collectible. Accrued fees related to defaulted loans reduce fee
revenue upon loan default, and increase fee revenue upon collection. Payday loan fee revenue is
included in Signature loan fees on our statements of operations.
PAYDAY LOAN BAD DEBT: We consider a loan defaulted if it has not been repaid or renewed by the
maturity date. Although defaulted loans may be collected later, we charge the loan principal to
signature loan bad debt upon default, leaving only active loans in the reported balance. We record
collections of principal as a reduction of signature loan bad debt when collected. After
attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company
as another method of recovery. We account for the sale of defaulted accounts in the same manner as
internal collections of defaulted accounts.
PAYDAY LOAN ALLOWANCE FOR LOSSES: We also provide an allowance for losses on payday loans that
have not yet matured and related fees receivable, based on recent loan default experience adjusted
for seasonal variations. We charge any changes in the principal valuation allowance to signature
loan bad debt. We record changes in the fee receivable valuation allowance to signature loan fee
revenue.
INVENTORY: If a pawn loan is not redeemed, we record the forfeited collateral at cost (the
principal amount of the pawn loan). We do not record loan loss allowances or charge-offs on the
principal portion of pawn loans, as they are fully collateralized. In order to state inventory at
the lower of cost (specific identification) or market (net realizable value), we record an
allowance for shrinkage and excess, obsolete, or slow-moving inventory. The allowance is based on
the type and age of merchandise and recent sales trends and margins. At June 30, 2009, the
inventory valuation allowance was $6.0 million, or 9.4% of gross inventory. We record changes in
the inventory valuation allowance as cost of goods sold.
INTANGIBLE ASSETS: Goodwill and other intangible assets having indefinite lives are not subject to
amortization. They are tested for impairment each July 1st, or more frequently if
events or changes in circumstances indicate that they might be impaired. We recognized no
impairment of our intangible assets in the current or prior year periods. We amortize intangible
assets with definite lives over their estimated useful lives, using the straight-line method.
PROPERTY AND EQUIPMENT: We record property and equipment at cost. We depreciate these assets on a
straight-line basis using estimated useful lives of 2 to 8 years for furniture, equipment, and
software development costs. We depreciate leasehold improvements over the shorter of their
estimated useful life (typically 10 years) or the reasonably assured lease term at the inception of
the lease. Property and equipment is shown net of accumulated depreciation of $99.2 million at
June 30, 2009.
VALUATION OF TANGIBLE LONG-LIVED ASSETS: We assess the impairment of tangible long-lived assets
whenever events or changes in circumstances indicate that the net recorded amount may not be
recoverable. The following factors could trigger an impairment review: 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; or significant negative industry trends. When we determine that the net
recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based
on the excess of the assets net recorded amount over the estimated fair value. No impairment of
tangible long-lived assets was recognized in the current or prior year periods.
5
FOREIGN CURRENCY TRANSLATION: Our equity investment in Albemarle & Bond is translated from the
U.K. pound into U.S. dollars at the exchange rate as of Albemarle & Bonds balance sheet date. The
related interest in Albemarle & Bonds net income is translated at the average exchange rate for
each six-month period reported by Albemarle & Bond. The functional currency of our wholly-owned
Empeño Fácil pawn segment is the Mexican peso. Empeño Fácils balance sheet accounts are
translated into U.S. dollars at the exchange rate at the end of each quarter, and its earnings are
translated into U.S. dollars at the average exchange rate each quarter. We present resulting
translation adjustments from Albemarle & Bond and Empeño Fácil as a separate component of
stockholders equity. Foreign currency transaction gains and losses have not been significant, and
are reported as Other expense in our statements of operations.
INCOME TAXES: We account for income taxes using the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying value of assets and liabilities and their tax bases and
for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which the related
temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized when the rate change is enacted.
SHARE-BASED COMPENSATION: We account for share-based compensation in accordance with the fair
value recognition provisions of SFAS No. 123(R), Share-based Payment. We estimate the grant-date
fair value of options using the Black-Scholes-Merton option-pricing model and amortize that fair
value to compensation expense on a straight-line basis over the options vesting periods. The fair
value of restricted shares is measured as the closing market price of our stock on the date of
grant, which is amortized over the vesting period for each grant.
SEGMENTS: We account for our operations in accordance with SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. We manage our business operations and internal
reporting as three reportable segments. See Note L for further discussion and separate data for
each segment.
FAIR VALUE: We adopted SFAS No. 157, Fair Value Measurements and SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities on October 1, 2008, resulting in no impact
on our financial position, results of operations or cash flows. Among other requirements, SFAS No.
157 defines fair value, establishes a framework for measuring fair value and expands disclosure
about the use of fair value to measure assets and liabilities. SFAS No. 159 permits entities to
choose, at specified election dates, to measure eligible items at fair value (the fair value
option) and requires an entity to report in earnings at each subsequent reporting date those
unrealized gains and losses on items for which the fair value option has been elected. Upfront
costs and fees related to items for which the fair value option is elected shall be recognized in
earnings as incurred and not deferred. Upon adoption of SFAS No. 159, we elected not to measure
any eligible items at fair value.
We determine the fair value of financial instruments by reference to various market data and other
valuation techniques, as appropriate. Unless otherwise disclosed, the fair values of financial
instruments approximate their recorded values, due primarily to their short-term nature. We
consider investments with maturities of 90 days or less when purchased to be cash equivalents. The
recorded value of our outstanding debt is assumed to estimate its fair value, as it has no
prepayment penalty and a floating interest rate based on market rates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In December 2007, FASB issued SFAS No. 141, Business
Combinations Revised (SFAS No. 141(R)). SFAS No. 141(R) establishes principles and
requirements for how an acquirer in a business combination: (1) recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, and any
non-controlling interest in an acquiree, (2) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase price, and (3) determines what information
to disclose to enable users of the consolidated financial statements to evaluate the nature and
financial effects of the business combination. Among other changes, SFAS No. 141(R) will require
us to immediately expense transaction costs that have historically been included in the purchase
price allocation
under existing guidance. SFAS No. 141(R) will apply prospectively to any acquisitions we complete
on or after October 1, 2009.
6
In April 2008, FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible
Assets, which amends the list of factors an entity should consider in developing renewal or
extension assumptions used in determining the useful life of recognized intangible assets under
SFAS No. 142, Goodwill and Other Intangible Assets. The new guidance applies to (1) intangible
assets that are acquired individually or with a group of other assets and (2) intangible assets
acquired in both business combinations and asset acquisitions. Under FSP FAS 142-3, entities
estimating the useful life of a recognized intangible asset must consider their historical
experience in renewing or extending similar arrangements or, in the absence of historical
experience, must consider assumptions that market participants would use about renewal or
extension. We must adopt FSP FAS 142-3 in our fiscal year ending September 30, 2010. We do not
expect adoption of FSP FAS 142-3 to have a material effect on our financial position, results of
operations or cash flows.
In April 2009, FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of
Financial Instruments, which requires disclosures about the fair value of financial instruments in
interim and annual financial statements. We adopted this standard on June 30, 2009, resulting in
no effect on our financial position, results of operations or cash flows.
In May 2009, FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165). SFAS No. 165
establishes principles and standards related to the accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are issued. SFAS No. 165
requires us to recognize, in the financial statements, subsequent events that provide additional
information about conditions that existed at the balance sheet date. Subsequent events that provide
information about conditions that did not exist at the balance sheet date shall not be recognized
in the financial statements under SFAS No. 165. We adopted this standard on June 30, 2009,
resulting in no effect on our financial position, results of operations or cash flows.
In June 2009, FASB issued SFAS No. 167, Amendments to FASB Interpretation No 46(R) (SFAS No.
167). SFAS No. 167 retains the scope of Interpretation 46(R) with the addition of entities
previously considered qualifying special purpose entities, as the concept of these entities was
eliminated in SFAS No. 166. We must adopt this standard in our fiscal year beginning October 1,
2010. We expect adoption of SFAS No. 167 will have no effect on our financial position, results of
operations or cash flows.
In June 2009, FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principlesa replacement of FASB Statement No. 162
(SFAS No. 168). Under SFAS No. 168, the FASB Accounting Standards Codification will become the
only source of authoritative U.S. generally accepted accounting principles (U.S. GAAP) to be
applied by non-governmental entities. On the effective date of this statement, the Codification
will supersede all existing non-SEC accounting and reporting standards. We must adopt this
standard September 30, 2009. As the Codification does not create new accounting rules but only
provides a comprehensive system to reorganize existing U.S. GAAP in a single authoritative source,
its adoption will have no effect on our financial position, results of operations or cash flows.
7
Note C: Acquisitions
On October 22, 2007, we completed the acquisition of twenty Mexico pawnshops from MMFS Intl., S.A.
de C.V, a subsidiary of Mister Money Holdings, Inc., for $15.5 million cash and direct transaction
costs.
The purchase price was allocated as follows (in thousands):
|
|
|
|
|
Current assets: |
|
|
|
|
Pawn loans |
|
$ |
3,230 |
|
Pawn service charges receivable, net |
|
|
224 |
|
Inventory, net |
|
|
940 |
|
Deferred tax asset |
|
|
41 |
|
Prepaid expenses and other assets |
|
|
40 |
|
|
|
|
|
Total current assets |
|
|
4,475 |
|
|
|
|
|
|
Property and equipment |
|
|
800 |
|
Non-compete agreement |
|
|
2,000 |
|
Goodwill |
|
|
8,156 |
|
Other assets, net |
|
|
131 |
|
|
|
|
|
Total assets |
|
$ |
15,562 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Accrued liabilities |
|
$ |
(30 |
) |
Customer deposits |
|
|
(65 |
) |
|
|
|
|
Total liabilities |
|
|
(95 |
) |
|
|
|
|
Net assets acquired |
|
$ |
15,467 |
|
|
|
|
|
The results of the acquired stores have been consolidated with our results since their acquisition.
Pro forma results of operations have not been presented because the acquisition was not material
to our consolidated financial position or results of operations. The goodwill noted above was
recorded in the Empeño Fácil Mexico pawn segment and is expected to be fully deductible for tax
purposes over the fifteen years following the acquisition.
On November 13, 2008, we acquired the operating assets of 11 pawnshops in the Las Vegas, Nevada
area that operated under the Pawn Plus, Pawn Place and ASAP Pawn brands for approximately $34.4
million. The purchase price was paid by issuing approximately 1.1 million shares of our Class A
Non-voting Common Stock valued at $17.3 million, paying $17.0 million to the seller and incurring
$0.1 million in transaction costs. We estimated the fair value of the stock issued in the asset
purchase at $15.45 per share, based on the market price of our stock surrounding the closing date
of the acquisition.
Since the date of acquisition, the total purchase price increased approximately $48,000 due to
additional transaction related costs that were not known at the point of acquisition. We engaged
an external valuation specialist as part of our process in determining the fair values. Taking
into consideration their updated analysis and facts learned after the acquisition, the preliminary
purchase price allocation was adjusted.
The estimated fair values of the assets acquired and liabilities assumed are preliminary. We are
gathering information to finalize the valuation of assets and liabilities. Any subsequent
adjustments to separately identified tangible or intangible assets will be recorded with an
offsetting adjustment to goodwill. We will complete the valuation within a year of the
acquisition. Other assets recorded include the estimated $6.7 million value of pawn licenses
acquired. As these are considered indefinite lived intangible assets, they will not be amortized
but will be tested at least annually for potential impairment.
The factors contributing to the recognition of goodwill were based on several strategic and
synergistic benefits we expect to realize from the acquisition. These benefits include a greater
presence in a prime pawn market, a meaningful entry into the auto title loan business, increased
scale and the ability to implement certain processes and practices at the acquired stores in our
existing and planned other operations. The goodwill arising from this
acquisition was recorded in the U.S. Pawn segment and is expected to be fully deductible for tax
purposes over the fifteen years following the acquisition.
8
The results of the acquired stores have been consolidated with our results since their acquisition.
Pro forma results of operations have not been presented because the acquisition was not material
to our consolidated financial position or results of operations.
The purchase price is preliminarily allocated as follows, including the adjustments discussed above
(in thousands):
|
|
|
|
|
Current assets: |
|
|
|
|
Pawn loans |
|
$ |
5,442 |
|
Payday loans, net |
|
|
55 |
|
Auto title loans, net |
|
|
1,090 |
|
Pawn service charges receivable, net |
|
|
1,231 |
|
Signature loan fees receivable, net |
|
|
7 |
|
Auto title loan fees receivable, net |
|
|
84 |
|
Inventory, net |
|
|
2,860 |
|
Deferred tax asset, net |
|
|
334 |
|
Prepaid expenses and other assets |
|
|
79 |
|
|
|
|
|
Total current assets |
|
|
11,182 |
|
|
|
|
|
|
Property and equipment, net |
|
|
392 |
|
Goodwill |
|
|
16,312 |
|
Other assets, net |
|
|
6,711 |
|
|
|
|
|
Total assets |
|
$ |
34,597 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable and other accrued expenses |
|
$ |
(27 |
) |
Customer layaway deposits |
|
|
(135 |
) |
|
|
|
|
Total liabilities |
|
|
(162 |
) |
|
|
|
|
Net assets acquired |
|
$ |
34,435 |
|
|
|
|
|
On December 31, 2008, we acquired through a merger all of the capital stock of Value Financial
Services, Inc. (VFS) for a total estimated acquisition price of $77.7 million plus the assumption
of VFSs debt of $30.4 million, aggregating to approximately $108.1 million. VFS operated 67 pawn
stores, located mostly in Florida. See our registration statement on Form S-4 (File number
333-153703), as amended and filed with the SEC on December 2, 2008, for a detailed description of
the procedure for calculation and payment of the merger consideration to VFS shareholders.
The total purchase price was comprised of the issuance of approximately 4.1 million shares of
EZCORPs Class A Non-voting Common Stock originally valued at $64.6 million, $13.6 million of cash
paid to VFS shareholders, and transaction costs of $0.9 million, less $1.4 million of cash
acquired. We estimated the fair value of the stock issued in the acquisition at $15.92 per share,
based on the average daily closing market price of our stock from two days before to two days after
the announcement of the merger agreement.
Since the date of acquisition, the total purchase price increased approximately $0.3 million due to
additional transaction related costs identified after the point of acquisition. We engaged an
external valuation specialist as part of our process in determining the fair values. Taking into
consideration their updated analysis and facts learned after the acquisition, the preliminary
purchase price allocation was adjusted.
The estimated fair values of the assets acquired and liabilities assumed are preliminary. We are
gathering information to finalize the valuation of assets and liabilities. Any subsequent
adjustments to separately identified tangible or intangible assets will be recorded with an
offsetting adjustment to goodwill. We will complete the valuation within a year of the
acquisition. Other assets recorded include the estimated $4.9 million fair value of the acquired
trademark and trade names and $0.6 million of favorable lease assets. As we expect to use the
trademark
and trade names indefinitely, they will not be amortized but will be tested at least annually for
potential impairment. The favorable lease assets will be amortized over the related lease terms
used for straight-line rent purposes.
9
The factors contributing to the recognition of goodwill were based on several strategic and
synergistic benefits we expect to realize from the acquisition. These benefits include a greater
presence in prime pawn markets including making us the largest pawnshop operator in Florida,
expected administrative savings, increased scale and the ability to implement certain processes and
practices at the acquired company in our existing and future operations. The goodwill arising from
this acquisition was recorded in the U.S. Pawn segment and is not expected to be deductible for tax
purposes due to the acquisition being a stock acquisition rather than an asset acquisition.
The purchase price is preliminarily allocated as follows, including the adjustments discussed above
(in thousands):
|
|
|
|
|
Current assets: |
|
|
|
|
Pawn loans |
|
$ |
17,886 |
|
Pawn service charges receivable, net |
|
|
3,491 |
|
Inventory, net |
|
|
16,265 |
|
Deferred tax asset, net |
|
|
4,557 |
|
Federal income taxes receivable |
|
|
53 |
|
Prepaid expenses and other assets |
|
|
1,434 |
|
|
|
|
|
Total current assets |
|
|
43,686 |
|
|
|
|
|
|
Property and equipment, net |
|
|
5,580 |
|
Deferred tax asset, non-current |
|
|
1,578 |
|
Goodwill |
|
|
61,542 |
|
Other assets, net |
|
|
5,830 |
|
|
|
|
|
Total assets |
|
$ |
118,216 |
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
Current maturities of long-term debt |
|
$ |
(4,000 |
) |
Accounts payable and other accrued expenses |
|
|
(9,276 |
) |
Customer layaway deposits |
|
|
(872 |
) |
|
|
|
|
Total Current liabilities |
|
|
(14,148 |
) |
|
|
|
|
|
Long-term debt |
|
|
(26,385 |
) |
|
|
|
|
Total Liabilities |
|
|
(40,533 |
) |
|
|
|
|
Net assets acquired |
|
$ |
77,683 |
|
|
|
|
|
The total purchase price presented above excludes contingent consideration paid under the terms of
the acquisition, which depended on the price at which VFS shareholders sold their EZCORP shares.
Between the closing of the acquisition and June 30, 2009, we paid $10.7 million of contingent
consideration to VFS shareholders related to the sale of approximately 3.9 million EZCORP shares.
At June 30, 2009, approximately 0.2 million shares remained eligible for contingent payments if the
EZCORP shares were sold by May 5, 2009. In accordance with accounting rules for contingent
payments based on the acquirers stock price, all contingent consideration paid was recorded as a
reduction of the additional paid-in capital recorded with the stock issuance and did not change the
total recorded purchase price. See our registration statement on Form S-4 (File number
333-153703), as amended and filed with the SEC on December 2, 2008, for a detailed description of
the terms of the contingent payments to VFS shareholders.
Separate audited historical financial statements of VFS for the year ended December 31, 2007 and
unaudited interim financial statements for the nine months ended September 30, 2008 are presented
in our registration statement on Form S-4 (File number 333-153703) filed with the SEC on December
2, 2008.
The results of the acquired stores have been consolidated with our results since their acquisition.
The following table summarizes unaudited pro forma condensed combined statements of operations
assuming the acquisition had occurred on the first day of fiscal 2008. Although VFSs historical
fiscal year ends on a different date than that of
EZCORP, all VFS data included in the pro forma information are actual amounts for the periods
indicated. We have not finalized our purchase price allocation, and accordingly, this pro forma
information does not include all potential adjustments to that allocation or costs related to the
acquisition.
10
We expect and have realized operating synergies and administrative savings. These come primarily
from using the best practices from EZCORP and VFS in each business, economies of scale, reduced
administrative support staff and the closure of VFSs corporate offices. The pro forma information
does not include any potential operating efficiencies or cost savings from expected synergies. The
pro forma information is not necessarily an indication of the results that would have been achieved
had the acquisition been completed as of the date indicated or that may be achieved in the future.
As VFS was acquired December 31, 2008, the information presented below for the three months ended
June 30, 2009 includes the results from VFS, requiring no pro forma adjustments for that period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited and Pro Forma) |
|
|
|
(In thousands, except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
81,309 |
|
|
$ |
74,055 |
|
|
$ |
262,817 |
|
|
$ |
237,289 |
|
Pawn service charges |
|
|
32,880 |
|
|
|
30,453 |
|
|
|
101,627 |
|
|
|
90,099 |
|
Signature loan fees |
|
|
30,815 |
|
|
|
31,223 |
|
|
|
98,409 |
|
|
|
94,917 |
|
Auto title loan fees |
|
|
1,030 |
|
|
|
|
|
|
|
1,666 |
|
|
|
|
|
Other |
|
|
1,740 |
|
|
|
884 |
|
|
|
5,373 |
|
|
|
2,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
147,774 |
|
|
|
136,615 |
|
|
|
469,892 |
|
|
|
424,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
50,965 |
|
|
|
43,833 |
|
|
|
164,967 |
|
|
|
142,305 |
|
Signature loan bad debt |
|
|
8,618 |
|
|
|
8,545 |
|
|
|
23,174 |
|
|
|
24,847 |
|
Auto title loan bad debt |
|
|
104 |
|
|
|
|
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
88,087 |
|
|
|
84,237 |
|
|
|
281,598 |
|
|
|
257,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations |
|
|
53,833 |
|
|
|
49,585 |
|
|
|
162,824 |
|
|
|
146,343 |
|
Administrative |
|
|
9,687 |
|
|
|
11,333 |
|
|
|
35,249 |
|
|
|
35,237 |
|
Depreciation and amortization |
|
|
3,254 |
|
|
|
3,558 |
|
|
|
9,744 |
|
|
|
10,482 |
|
(Gain) loss on sale/disposal of assets |
|
|
(146 |
) |
|
|
293 |
|
|
|
(938 |
) |
|
|
588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
66,628 |
|
|
|
64,769 |
|
|
|
206,879 |
|
|
|
192,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
21,459 |
|
|
|
19,468 |
|
|
|
74,719 |
|
|
|
64,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
369 |
|
|
|
396 |
|
|
|
1,296 |
|
|
|
1,336 |
|
Equity in net income of unconsolidated affiliate |
|
|
(851 |
) |
|
|
(997 |
) |
|
|
(3,163 |
) |
|
|
(3,162 |
) |
Other |
|
|
11 |
|
|
|
11 |
|
|
|
38 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
21,930 |
|
|
|
20,058 |
|
|
|
76,548 |
|
|
|
66,724 |
|
Income tax expense |
|
|
7,545 |
|
|
|
7,623 |
|
|
|
27,129 |
|
|
|
25,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,385 |
|
|
$ |
12,435 |
|
|
$ |
49,419 |
|
|
$ |
41,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.30 |
|
|
$ |
0.27 |
|
|
$ |
1.02 |
|
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.29 |
|
|
$ |
0.26 |
|
|
$ |
1.01 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
48,628 |
|
|
|
45,477 |
|
|
|
48,285 |
|
|
|
45,438 |
|
Diluted |
|
|
49,279 |
|
|
|
47,383 |
|
|
|
49,077 |
|
|
|
47,327 |
|
The table above includes an actual (for the three months ended June 30, 2009) or pro forma
loss of interest income from cash paid to former VFS shareholders through June 30, 2009 for
contingent consideration. It does not include a pro forma loss of interest income for any
contingent payments that will be required on the sale of the 0.2 million EZCORP shares remaining
eligible for contingent consideration at June 30, 2009, as we do not yet know the amount
of contingent consideration we will pay related to those shares, if any. As discussed above, we
expect little to no additional claims for contingent consideration.
11
The following items occurred in the six months ended March 31, 2008 and, as a result, are included
in pro forma results for the nine-month period ended June 30, 2008 but are excluded from the
quarter then ended. Included in pro forma administrative expense in the nine months ended June 30,
2008 is a non-recurring $1.2 million charge for the write-off of costs related to VFSs previously
planned initial public offering, which it abandoned to pursue the acquisition by EZCORP. Included
in the pro forma administrative expense in the nine months ended June 30, 2008 is a non-recurring
charge of $0.8 million for VFSs in-process development of a point of sale system that was
abandoned and replaced by EZCORPs point of sale system.
Note D: Earnings Per Share
We compute basic earnings per share on the basis of the weighted average number of shares of common
stock outstanding during the period. We compute diluted earnings per share on the basis of the
weighted average number of shares of common stock plus the effect of dilutive potential common
shares outstanding during the period using the treasury stock method. Dilutive potential common
shares include outstanding stock options, warrants and restricted stock awards.
Components of basic and diluted earnings per share are as follows (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income (A) |
|
$ |
14,385 |
|
|
$ |
10,827 |
|
|
$ |
47,533 |
|
|
$ |
36,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of common stock (B) |
|
|
48,628 |
|
|
|
41,419 |
|
|
|
46,932 |
|
|
|
41,380 |
|
Dilutive effect of stock options, warrants, and restricted stock |
|
|
651 |
|
|
|
1,906 |
|
|
|
792 |
|
|
|
1,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common stock and common stock equivalents (C) |
|
|
49,279 |
|
|
|
43,325 |
|
|
|
47,724 |
|
|
|
43,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (A/B) |
|
$ |
0.30 |
|
|
$ |
0.26 |
|
|
$ |
1.01 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (A/C) |
|
$ |
0.29 |
|
|
$ |
0.25 |
|
|
$ |
1.00 |
|
|
$ |
0.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options, warrants and restricted stock grants have been excluded from the
computation of diluted earnings per share because the assumed proceeds upon exercise, as defined by
SFAS No. 123(R), were greater than the cost to re-acquire the same number of shares at the average
market price, and therefore the effect would be anti-dilutive.
As described in Note C, we issued approximately 1.1 million shares of our Class A Non-voting Common
Stock on November 13, 2008 and approximately 4.1 million shares on December 31, 2008 in conjunction
with the completion of two acquisitions on those dates. The additional shares have been included
in our calculations of weighted average shares outstanding since the dates of the acquisitions.
The year-to-date dilutive effect of the additional shares will increase in the remainder of fiscal
2009 as they are outstanding for a larger portion of the year.
Note E: Investment in Unconsolidated Affiliate
At June 30, 2009, we owned 16,298,875 common shares of Albemarle & Bond Holdings, plc, or
approximately 29.58% of Albemarle & Bonds total outstanding shares. The investment is accounted
for using the equity method. Since Albemarle & Bonds fiscal year ends three months prior to ours,
we report the income from this investment on a three-month lag. Albemarle & Bond files interim and
annual financial reports for its fiscal periods ending December 31 and June 30. The income
reported for our year-to-date period ended June 30, 2009 represents our percentage interest in the
estimated results of Albemarle & Bonds operations from July 1, 2008 to March 31, 2009.
12
Below is summarized financial information for Albemarle & Bonds most recently reported results
(using average exchange rates for the periods indicated):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
Turnover (gross revenues) |
|
$ |
45,977 |
|
|
$ |
50,660 |
|
Gross profit |
|
|
34,859 |
|
|
|
36,574 |
|
Profit after tax (net income) |
|
|
7,718 |
|
|
|
7,230 |
|
Note F: Contingencies
Currently and from time to time, we are defendants in various legal and regulatory actions. While
we cannot determine the ultimate outcome of these actions, we believe their resolution will not
have a material adverse effect on our financial condition, results of operations or liquidity.
However, we cannot give any assurance as to their ultimate outcome.
Note G: Comprehensive Income
Certain revenues, expenses, gains and losses are excluded from net income and instead are included
as a component of total stockholders equity. Comprehensive income includes these items plus all
items recognized in net income. Comprehensive income for the quarter and year-to-date periods
ended June 30, 2009 was $15.7 million and $38.6 million. For the comparable 2008 periods,
comprehensive income was $11.5 million and $37.4 million. 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. At June 30, 2009, the
accumulated balance of foreign currency activity excluded from net income was $(7.6) million, net
of applicable tax of $1.3 million. The net $(6.3) million is presented as Accumulated other
comprehensive income (loss) in the balance sheet at June 30, 2009.
Note H: Long-term Debt
Our syndicated credit agreement provides for, among other things, (i) an $80 million revolving
credit facility, maturing December 31, 2011, that we may, under the terms of the agreement, request
to be increased to a total of $110 million and (ii) a $40 million term loan, maturing December 31,
2012. Our term loan requires $2.5 million quarterly principal payments. At June 30, 2009, $37.5
million was outstanding under the term loan, but the $80 million revolving credit facility remained
unused.
Pursuant to the credit agreement, we may choose either a Eurodollar rate or the base rate. We may
choose to pay interest to the lenders for outstanding borrowings at the Eurodollar rate plus 175 to
250 basis points or the base rate plus 0 to 50 basis points, depending upon the leverage ratio
computed at the end of each calendar quarter. Our rates are currently at the minimum of the range.
Regardless of our leverage ratio and as an inducement to our lenders, we paid interest at the
Eurodollar rate plus 250 basis points from December 31, 2008 through June 30, 2009. On the unused
amount of the revolving credit facility, we pay a commitment fee of 25 to 30 basis points depending
on the leverage ratio calculated at the end of each quarter. Terms of the credit agreement
require, among other things, that we meet certain financial covenants. We were in compliance with
all covenants at June 30, 2009 and expect to remain in compliance based on our current and
anticipated performance. The payment of dividends is prohibited and additional debt is restricted.
Upon acquiring VFS, we assumed VFSs outstanding debt of $30.4 million. Immediately after the
acquisition, on December 31, 2008, we repaid and terminated VFSs outstanding bank debt of $30.1
million plus accrued interest. The remaining $0.3 million of VFSs debt we assumed in the
acquisition was comprised of outstanding debentures that we repaid and retired in early January
2009 with no prepayment penalty.
Deferred financing costs of $1.0 million related to our credit agreement are included in Other
assets, net in our June 30, 2009 balance sheet. These costs are being amortized to interest
expense over their three-year estimated useful life.
13
Note I: Goodwill and Other Intangible Assets
The following table presents the balance of each major class of indefinite-lived intangible asset
at the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
September 30, 2008 |
|
|
|
(In thousands) |
|
Pawn licenses |
|
$ |
8,229 |
|
|
$ |
1,549 |
|
|
$ |
1,549 |
|
Trade Name |
|
|
4,870 |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
100,742 |
|
|
|
24,779 |
|
|
|
24,376 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
113,841 |
|
|
$ |
26,328 |
|
|
$ |
25,925 |
|
|
|
|
|
|
|
|
|
|
|
The following table presents the gross carrying amount and accumulated amortization for each
major class of definite-lived intangible asset at the specified dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
September 30, 2008 |
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
(In thousands) |
|
License application fees |
|
$ |
345 |
|
|
$ |
(334 |
) |
|
$ |
345 |
|
|
$ |
(311 |
) |
|
$ |
345 |
|
|
$ |
(318 |
) |
Real estate finders fees |
|
|
556 |
|
|
|
(357 |
) |
|
|
556 |
|
|
|
(340 |
) |
|
|
556 |
|
|
|
(345 |
) |
Non-compete agreements |
|
|
2,534 |
|
|
|
(1,095 |
) |
|
|
2,998 |
|
|
|
(712 |
) |
|
|
2,899 |
|
|
|
(829 |
) |
Favorable lease asset |
|
|
644 |
|
|
|
(63 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,079 |
|
|
$ |
(1,849 |
) |
|
$ |
3,899 |
|
|
$ |
(1,363 |
) |
|
$ |
3,800 |
|
|
$ |
(1,492 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense from definite-lived intangible assets for the quarter and
year-to-date periods ended June 30, 2009 was $121,000 and $359,000. For the comparable 2008
periods, amortization expense was $146,000 and $414,000. The favorable lease asset is amortized to
rent expense and is included in Operations expense on our statements of operations. The following
table presents our estimate of amortization expense for definite-lived intangible assets for each
of the five succeeding fiscal years as of October 1, 2008, including the effect of current year
acquisitions (in thousands):
|
|
|
|
|
Fiscal Year |
|
Amortization Expense |
|
2009 |
|
$ |
480 |
|
2010 |
|
$ |
472 |
|
2011 |
|
$ |
465 |
|
2012 |
|
$ |
433 |
|
2013 |
|
$ |
30 |
|
These amounts exclude amortization of the favorable lease asset, which is amortized to rent expense
over the related lease terms. As acquisitions and dispositions occur in the future, amortization
expense may vary from these estimates.
Note J: Common Stock, Warrants, Options, and Share-based Compensation
Our income includes the following share-based compensation expense, determined in accordance with
the fair value provisions of SFAS No. 123(R):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Gross share-based compensation cost |
|
$ |
971 |
|
|
$ |
902 |
|
|
$ |
2,753 |
|
|
$ |
2,826 |
|
Income tax benefit |
|
|
(320 |
) |
|
|
(275 |
) |
|
|
(946 |
) |
|
|
(874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation cost, net of tax benefit |
|
$ |
651 |
|
|
$ |
627 |
|
|
$ |
1,807 |
|
|
$ |
1,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Stock option and warrant exercises resulted in the issuance of 53,649 shares of Class A
Non-voting Common Stock in the current quarter for total proceeds of $0.2 million. For the current
year-to-date period, 1,501,063 shares of Class A Non-voting Common Stock were issued for total
proceeds of $4.9 million. Also, on October 2, 2008, restrictions lapsed on 324,000 restricted
shares granted in October 2006 to our Chief Executive Officer and the Chairman of our Board of
Directors. On January 14, 2009, restrictions lapsed on 120,000 restricted shares granted in
January 2004 to our Chief Executive Officer. These restriction lapses resulted in the increase in
the shares of Class A Non-voting Common Stock outstanding.
Effective October 1, 2008, the Compensation Committee of the Board of Directors approved an award
of restricted stock to 54 key employees and the Board of Directors approved an award of restricted
stock to our independent directors. In total, we awarded 143,500 shares of restricted stock. The
key employees awards will vest October 1, 2011 and the independent directors awards will vest 50%
per year on October 1, 2009 and 2010. The aggregate market value of the restricted stock on the
award date was $2.6 million.
In conjunction with the November 13, 2008 acquisition of 11 pawnshops in the Las Vegas, Nevada
area, we issued approximately 1.1 million shares of our Class A Non-voting Common Stock valued at
$17.3 million. In conjunction with the December 31, 2008 acquisition of VFS, we issued
approximately 4.1 million shares of our Class A Non-voting Common Stock valued at $64.6 million.
Both of these acquisitions and the total consideration issued are described more fully in Note C,
Acquisitions.
Note K: Income Taxes
The current quarters effective tax rate is 34.4% of pretax income compared to 37.7% for the prior
year quarter. For the current year-to-date period, the effective tax rate is 35.3% compared to
37.7% in the prior year-to-date period. The decrease in effective tax rates is primarily due to
the current year refund claim for prior year tax credits, current year tax credits, and a lower
expected Texas margin tax than in the prior year period.
15
Note L: Operating Segment Information
We manage our business and internal reporting as three reportable segments with operating results
reported separately for each segment.
|
|
|
The U.S. Pawn Operations segment offers pawn related activities in our 370 domestic pawn
stores, offers signature loans in 77 pawn stores and six EZMONEY stores and offers auto
title loans in 35 pawn stores. |
|
|
|
The Empeño Fácil segment offers pawn related activities in 47 Mexico pawn stores. |
|
|
|
The EZMONEY Operations segment offers signature loans in 474 domestic EZMONEY stores and
offers auto title loans in 246 of these EZMONEY stores. |
There are no inter-segment revenues, and the amounts below were determined in accordance with the
same accounting principles used in our consolidated financial statements. The following tables
present operating segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
|
|
(in thousands) |
|
Three Months Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
78,519 |
|
|
$ |
2,790 |
|
|
$ |
|
|
|
$ |
81,309 |
|
Pawn service charges |
|
|
31,409 |
|
|
|
1,471 |
|
|
|
|
|
|
|
32,880 |
|
Signature loan fees |
|
|
523 |
|
|
|
|
|
|
|
30,292 |
|
|
|
30,815 |
|
Auto title loan fees |
|
|
430 |
|
|
|
|
|
|
|
600 |
|
|
|
1,030 |
|
Other |
|
|
1,706 |
|
|
|
34 |
|
|
|
|
|
|
|
1,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
112,587 |
|
|
|
4,295 |
|
|
|
30,892 |
|
|
|
147,774 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
49,157 |
|
|
|
1,808 |
|
|
|
|
|
|
|
50,965 |
|
Signature loan bad debt |
|
|
237 |
|
|
|
|
|
|
|
8,381 |
|
|
|
8,618 |
|
Auto title loan bad debt |
|
|
30 |
|
|
|
|
|
|
|
74 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
63,163 |
|
|
|
2,487 |
|
|
|
22,437 |
|
|
|
88,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
37,719 |
|
|
|
1,441 |
|
|
|
14,673 |
|
|
|
53,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
25,444 |
|
|
$ |
1,046 |
|
|
$ |
7,764 |
|
|
$ |
34,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
51,799 |
|
|
$ |
1,836 |
|
|
$ |
|
|
|
$ |
53,635 |
|
Pawn service charges |
|
|
21,378 |
|
|
|
1,313 |
|
|
|
|
|
|
|
22,691 |
|
Signature loan fees |
|
|
650 |
|
|
|
|
|
|
|
30,573 |
|
|
|
31,223 |
|
Auto title loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
74,348 |
|
|
|
3,149 |
|
|
|
30,573 |
|
|
|
108,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
30,301 |
|
|
|
1,159 |
|
|
|
|
|
|
|
31,460 |
|
Signature loan bad debt |
|
|
202 |
|
|
|
|
|
|
|
8,343 |
|
|
|
8,545 |
|
Auto title loan bad debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
43,845 |
|
|
|
1,990 |
|
|
|
22,230 |
|
|
|
68,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
24,831 |
|
|
|
1,065 |
|
|
|
13,977 |
|
|
|
39,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
19,014 |
|
|
$ |
925 |
|
|
$ |
8,253 |
|
|
$ |
28,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
|
|
(in thousands) |
|
Nine Months Ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
227,494 |
|
|
$ |
7,408 |
|
|
$ |
|
|
|
$ |
234,902 |
|
Pawn service charges |
|
|
88,558 |
|
|
|
4,219 |
|
|
|
|
|
|
|
92,777 |
|
Signature loan fees |
|
|
1,766 |
|
|
|
|
|
|
|
96,643 |
|
|
|
98,409 |
|
Auto title loan fees |
|
|
991 |
|
|
|
|
|
|
|
675 |
|
|
|
1,666 |
|
Other |
|
|
4,866 |
|
|
|
35 |
|
|
|
|
|
|
|
4,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
323,675 |
|
|
|
11,662 |
|
|
|
97,318 |
|
|
|
432,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
143,167 |
|
|
|
4,649 |
|
|
|
|
|
|
|
147,816 |
|
Signature loan bad debt |
|
|
581 |
|
|
|
|
|
|
|
22,593 |
|
|
|
23,174 |
|
Auto title loan bad debt |
|
|
72 |
|
|
|
|
|
|
|
81 |
|
|
|
153 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
179,855 |
|
|
|
7,013 |
|
|
|
74,644 |
|
|
|
261,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
102,764 |
|
|
|
4,024 |
|
|
|
45,167 |
|
|
|
151,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
77,091 |
|
|
$ |
2,989 |
|
|
$ |
29,477 |
|
|
$ |
109,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
165,749 |
|
|
$ |
4,723 |
|
|
$ |
|
|
|
$ |
170,472 |
|
Pawn service charges |
|
|
64,089 |
|
|
|
3,295 |
|
|
|
|
|
|
|
67,384 |
|
Signature loan fees |
|
|
2,131 |
|
|
|
|
|
|
|
92,786 |
|
|
|
94,917 |
|
Auto title loan fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
1,224 |
|
|
|
4 |
|
|
|
|
|
|
|
1,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
233,193 |
|
|
|
8,022 |
|
|
|
92,786 |
|
|
|
334,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
98,853 |
|
|
|
2,879 |
|
|
|
|
|
|
|
101,732 |
|
Signature loan bad debt |
|
|
741 |
|
|
|
|
|
|
|
24,106 |
|
|
|
24,847 |
|
Auto title loan bad debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
133,599 |
|
|
|
5,143 |
|
|
|
68,680 |
|
|
|
207,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
72,831 |
|
|
|
2,810 |
|
|
|
41,667 |
|
|
|
117,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
60,768 |
|
|
$ |
2,333 |
|
|
$ |
27,013 |
|
|
$ |
90,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles store operating income, as shown above, to our consolidated
income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in thousands) |
|
Consolidated store operating income |
|
$ |
34,254 |
|
|
$ |
28,192 |
|
|
$ |
109,557 |
|
|
$ |
90,114 |
|
Administrative expenses |
|
|
9,687 |
|
|
|
8,527 |
|
|
|
29,892 |
|
|
|
25,418 |
|
Depreciation and amortization |
|
|
3,254 |
|
|
|
3,081 |
|
|
|
9,471 |
|
|
|
9,027 |
|
(Gain) loss on sale / disposal of assets |
|
|
(146 |
) |
|
|
284 |
|
|
|
(967 |
) |
|
|
527 |
|
Interest income |
|
|
(59 |
) |
|
|
(165 |
) |
|
|
(257 |
) |
|
|
(359 |
) |
Interest expense |
|
|
428 |
|
|
|
72 |
|
|
|
1,064 |
|
|
|
228 |
|
Equity in net income of unconsolidated affiliate |
|
|
(851 |
) |
|
|
(997 |
) |
|
|
(3,163 |
) |
|
|
(3,162 |
) |
Other |
|
|
11 |
|
|
|
11 |
|
|
|
38 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes |
|
$ |
21,930 |
|
|
$ |
17,379 |
|
|
$ |
73,479 |
|
|
$ |
58,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
The following table presents separately identified segment assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
|
|
(in thousands) |
|
Assets at June 30, 2009: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pawn loans |
|
$ |
91,451 |
|
|
$ |
3,197 |
|
|
$ |
|
|
|
$ |
94,648 |
|
Payday loans, net |
|
|
463 |
|
|
|
|
|
|
|
7,186 |
|
|
|
7,649 |
|
Auto title loans, net |
|
|
695 |
|
|
|
|
|
|
|
431 |
|
|
|
1,126 |
|
Inventory, net |
|
|
54,115 |
|
|
|
3,026 |
|
|
|
|
|
|
|
57,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total separately identified recorded segment assets |
|
$ |
146,724 |
|
|
$ |
6,223 |
|
|
$ |
7,617 |
|
|
$ |
160,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered signature loans outstanding from
unaffiliated lenders |
|
$ |
260 |
|
|
$ |
|
|
|
$ |
20,673 |
|
|
$ |
20,933 |
|
Brokered auto title loans outstanding from
unaffiliated lenders |
|
$ |
133 |
|
|
$ |
|
|
|
$ |
1,040 |
|
|
$ |
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pawn loans |
|
$ |
63,741 |
|
|
$ |
4,281 |
|
|
$ |
|
|
|
$ |
68,022 |
|
Payday loans, net |
|
|
421 |
|
|
|
|
|
|
|
6,177 |
|
|
|
6,598 |
|
Auto title loans, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory, net |
|
|
37,303 |
|
|
|
2,141 |
|
|
|
|
|
|
|
39,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total separately identified recorded segment assets |
|
$ |
101,465 |
|
|
$ |
6,422 |
|
|
$ |
6,177 |
|
|
$ |
114,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered signature loans outstanding from
unaffiliated lenders |
|
$ |
390 |
|
|
$ |
|
|
|
$ |
22,009 |
|
|
$ |
22,399 |
|
Brokered auto title loans outstanding from
unaffiliated lenders |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at September 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pawn loans |
|
$ |
71,393 |
|
|
$ |
4,543 |
|
|
$ |
|
|
|
$ |
75,936 |
|
Payday loans, net |
|
|
472 |
|
|
|
|
|
|
|
6,652 |
|
|
|
7,124 |
|
Auto title loans, net |
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
Inventory, net |
|
|
40,357 |
|
|
|
2,852 |
|
|
|
|
|
|
|
43,209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total separately identified recorded segment assets |
|
$ |
112,222 |
|
|
$ |
7,395 |
|
|
$ |
6,653 |
|
|
$ |
126,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokered signature loans outstanding from
unaffiliated lenders |
|
$ |
384 |
|
|
$ |
|
|
|
$ |
23,169 |
|
|
$ |
23,553 |
|
Brokered auto title loans outstanding from
unaffiliated lenders |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Brokered loans are not recorded as an asset on our balance sheets, as we do not own a
participation in the loans made by independent lenders. We monitor the principal balance of these
loans, as our credit service fees, auto title loan fees and bad debt are directly related to their
volume due to the letters of credit we issue on these loans. The balances shown above are the
gross principal balances of the loans outstanding at the specified dates.
18
|
|
|
Item 2. |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
The discussion in this section contains forward-looking statements that are based on our current
expectations. Actual results could differ materially from those expressed or implied by the
forward-looking statements due to a number of risks, uncertainties and other factors identified in
Part II, Item 1A, Risk Factors of this report.
Three Months Ended June 30, 2009 vs. Three Months Ended June 30, 2008
The following table presents selected, unaudited, consolidated financial data for our three-month
periods ended June 30, 2009 and 2008 (the current and prior year quarters):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Percentage |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(in thousands) |
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
81,309 |
|
|
$ |
53,635 |
|
|
|
51.6 |
% |
Pawn service charges |
|
|
32,880 |
|
|
|
22,691 |
|
|
|
44.9 |
% |
Signature loan fees |
|
|
30,815 |
|
|
|
31,223 |
|
|
|
(1.3 |
)% |
Auto title loan fees |
|
|
1,030 |
|
|
|
|
|
|
|
N/A |
|
Other |
|
|
1,740 |
|
|
|
521 |
|
|
|
234.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
147,774 |
|
|
|
108,070 |
|
|
|
36.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
50,965 |
|
|
|
31,460 |
|
|
|
62.0 |
% |
Signature loan bad debt |
|
|
8,618 |
|
|
|
8,545 |
|
|
|
0.9 |
% |
Auto title loan bad debt |
|
|
104 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
88,087 |
|
|
$ |
68,065 |
|
|
|
29.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,385 |
|
|
$ |
10,827 |
|
|
|
32.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2009 vs. Nine Months Ended June 30, 2008
The following table presents selected, unaudited, consolidated financial data for our nine-month
periods ended June 30, 2009 and 2008 (the current and prior year-to-date periods):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
Percentage |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(in thousands) |
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
234,902 |
|
|
$ |
170,472 |
|
|
|
37.8 |
% |
Pawn service charges |
|
|
92,777 |
|
|
|
67,384 |
|
|
|
37.7 |
% |
Signature loan fees |
|
|
98,409 |
|
|
|
94,917 |
|
|
|
3.7 |
% |
Auto title loan fees |
|
|
1,666 |
|
|
|
|
|
|
|
N/A |
|
Other |
|
|
4,901 |
|
|
|
1,228 |
|
|
|
299.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
432,655 |
|
|
|
334,001 |
|
|
|
29.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
147,816 |
|
|
|
101,732 |
|
|
|
45.3 |
% |
Signature loan bad debt |
|
|
23,174 |
|
|
|
24,847 |
|
|
|
(6.7 |
)% |
Auto title loan bad debt |
|
|
153 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
$ |
261,512 |
|
|
$ |
207,422 |
|
|
|
26.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
47,533 |
|
|
$ |
36,398 |
|
|
|
30.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
19
Consolidated signature loan data (combined payday loan and credit service activities) are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue |
|
$ |
30,815 |
|
|
$ |
31,223 |
|
|
$ |
98,409 |
|
|
$ |
94,917 |
|
Bad debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net defaults, including interest on brokered loans |
|
|
8,020 |
|
|
|
8,054 |
|
|
|
23,169 |
|
|
|
23,578 |
|
Insufficient funds fees, net of collections |
|
|
248 |
|
|
|
267 |
|
|
|
723 |
|
|
|
862 |
|
Change in valuation allowance |
|
|
313 |
|
|
|
177 |
|
|
|
(880 |
) |
|
|
191 |
|
Other related costs |
|
|
37 |
|
|
|
47 |
|
|
|
162 |
|
|
|
216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net bad debt |
|
|
8,618 |
|
|
|
8,545 |
|
|
|
23,174 |
|
|
|
24,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fee revenue less bad debt |
|
$ |
22,197 |
|
|
$ |
22,678 |
|
|
$ |
75,235 |
|
|
$ |
70,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average signature loan balance outstanding during period (a) |
|
$ |
26,396 |
|
|
$ |
27,514 |
|
|
$ |
28,350 |
|
|
$ |
28,311 |
|
Signature loan balance at end of period (a) |
|
$ |
28,582 |
|
|
$ |
28,997 |
|
|
$ |
28,582 |
|
|
$ |
28,997 |
|
Participating stores at end of period |
|
|
557 |
|
|
|
532 |
|
|
|
557 |
|
|
|
532 |
|
Signature loan bad debt, as a percent of fee revenue |
|
|
28.0 |
% |
|
|
27.4 |
% |
|
|
23.5 |
% |
|
|
26.2 |
% |
Net default rate (a) (b) |
|
|
5.2 |
% |
|
|
5.0 |
% |
|
|
4.8 |
% |
|
|
4.8 |
% |
|
|
|
(a) |
|
Signature loan balances include payday loans (net of valuation allowance) recorded on
our balance sheets and the principal portion of active brokered loans outstanding from
unaffiliated lenders, the balance of which is not included on our balance sheets. |
|
(b) |
|
Principal defaults net of collections, as a percentage of signature loans made and
renewed. |
20
Overview
At 897 locations open on June 30, 2009, we lend or provide credit services to individuals who do
not have cash resources or access to credit to meet their short-term cash needs. We offer pawn
loans in our 370 domestic pawn stores (operating as EZPAWN or Value Pawn) and 47 Mexico pawn stores
(operating as Empeño Fácil). Pawn loans are non-recourse loans collateralized by tangible
personal property. At these stores, we also sell merchandise, primarily collateral forfeited from
our pawn lending operations, to customers looking for good value. In our 480 EZMONEY stores (six
of which are managed by our U.S. Pawn Operations segment) and 77 of our domestic pawn stores open
June 30, 2009, we offer short-term non-collateralized loans, often called payday loans, or
fee-based credit services to customers seeking loans (collectively, signature loans). In 246 of
our EZMONEY stores and 35 of our domestic pawn stores, we offer 30-day auto title loans
collateralized by the titles to borrowers automobiles, or fee-based credit services to customers
seeking auto title loans (collectively, auto title loans).
We manage our business as three segments. The U.S. Pawn Operations segment offers pawn related
activities in all 370 U.S. pawn stores, signature loans in 77 U.S. pawn stores and six EZMONEY
stores, and auto title loans in 35 U.S. pawn stores. The Empeño Fácil segment offers pawn related
activities in all 47 Mexico pawn stores. The EZMONEY Operations segment offers signature loans in
474 EZMONEY stores and offers auto title loans in 246 of these stores. This segment accounts for
approximately 98% of our consolidated signature loan revenues and 58% of our auto title loan
revenues in the current quarter. The following tables present store data by operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009 |
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
Stores in operation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
377 |
|
|
|
45 |
|
|
|
476 |
|
|
|
898 |
|
New openings |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
Acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold, combined, or closed |
|
|
(1 |
) |
|
|
|
|
|
|
(4 |
) |
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
376 |
|
|
|
47 |
|
|
|
474 |
|
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of stores during the period |
|
|
377 |
|
|
|
46 |
|
|
|
475 |
|
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2009 |
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
Stores in operation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
300 |
|
|
|
38 |
|
|
|
471 |
|
|
|
809 |
|
New openings |
|
|
|
|
|
|
8 |
|
|
|
16 |
|
|
|
24 |
|
Acquired |
|
|
77 |
|
|
|
1 |
|
|
|
|
|
|
|
78 |
|
Sold, combined, or closed |
|
|
(1 |
) |
|
|
|
|
|
|
(13 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
376 |
|
|
|
47 |
|
|
|
474 |
|
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of stores during the period |
|
|
355 |
|
|
|
42 |
|
|
|
473 |
|
|
|
870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of ending stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pawn |
|
|
370 |
|
|
|
47 |
|
|
|
|
|
|
|
417 |
|
Signature loan stores adjoining domestic pawn stores |
|
|
6 |
|
|
|
|
|
|
|
151 |
|
|
|
157 |
|
Signature loan stores free standing |
|
|
|
|
|
|
|
|
|
|
323 |
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores in operation |
|
|
376 |
|
|
|
47 |
|
|
|
474 |
|
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores offering signature loans |
|
|
83 |
|
|
|
|
|
|
|
474 |
|
|
|
557 |
|
Total stores offering auto title loans |
|
|
35 |
|
|
|
|
|
|
|
246 |
|
|
|
281 |
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
Stores in operation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
300 |
|
|
|
26 |
|
|
|
456 |
|
|
|
782 |
|
New openings |
|
|
|
|
|
|
4 |
|
|
|
13 |
|
|
|
17 |
|
Acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold, combined, or closed |
|
|
|
|
|
|
|
|
|
|
(14 |
) |
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
300 |
|
|
|
30 |
|
|
|
455 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of stores during the period |
|
|
300 |
|
|
|
28 |
|
|
|
459 |
|
|
|
787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, 2008 |
|
|
|
U.S. Pawn |
|
|
Empeño |
|
|
EZMONEY |
|
|
|
|
|
|
Operations |
|
|
Fácil |
|
|
Operations |
|
|
Consolidated |
|
Stores in operation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
300 |
|
|
|
4 |
|
|
|
427 |
|
|
|
731 |
|
New openings |
|
|
|
|
|
|
6 |
|
|
|
47 |
|
|
|
53 |
|
Acquired |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
20 |
|
Sold, combined, or closed |
|
|
|
|
|
|
|
|
|
|
(19 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
|
300 |
|
|
|
30 |
|
|
|
455 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of stores during the period |
|
|
300 |
|
|
|
24 |
|
|
|
446 |
|
|
|
770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of ending stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pawn |
|
|
294 |
|
|
|
30 |
|
|
|
|
|
|
|
324 |
|
Signature loan stores adjoining domestic pawn stores |
|
|
6 |
|
|
|
|
|
|
|
150 |
|
|
|
156 |
|
Signature loan stores free standing |
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores in operation |
|
|
300 |
|
|
|
30 |
|
|
|
455 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stores offering signature loans |
|
|
77 |
|
|
|
|
|
|
|
455 |
|
|
|
532 |
|
Total stores offering auto title loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earn pawn service charge revenues on our pawn lending. While allowable service charges
vary by state and loan size, a majority of our U.S. pawn loans earn 20% per month, or 240%
annually. Our average U.S. pawn loan amount typically ranges between $80 and $100 but varies
depending on the valuation of each item pawned. The total U.S. loan term ranges between 60 and 120
days, consisting of the primary term and grace period. In Mexico, pawn service charges range from
13% to 20% per month, but a majority of our pawn loans earn 18% net of applicable taxes. The total
Mexico pawn loan term is 40 days, consisting of the primary term and grace period.
In our pawnshops, we acquire inventory for retail sales primarily through pawn loan forfeitures
and, to a lesser extent, through purchases of customers merchandise. The gross profit on sales of
inventory depends primarily on our assessment of the loan or purchase value at the time the
property is either accepted as loan collateral or purchased. Improper value assessment in the
lending or purchasing process can result in lower margins or reduced marketability of the
merchandise.
22
One indicator of lower marketability is how long we have held the inventory. The table below
summarizes the age of our inventory and the related valuation allowance on a consolidated basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
|
(Dollars in thousands) |
|
Jewelry: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross inventory held one year or less |
|
$ |
27,424 |
|
|
|
79.1 |
% |
|
$ |
20,362 |
|
|
|
81.5 |
% |
Gross inventory held more than one year |
|
|
7,235 |
|
|
|
20.9 |
% |
|
|
4,624 |
|
|
|
18.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total jewelry inventory, gross |
|
|
34,659 |
|
|
|
100.0 |
% |
|
|
24,986 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General merchandise: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross inventory held one year or less |
|
|
26,414 |
|
|
|
92.9 |
% |
|
|
17,456 |
|
|
|
93.1 |
% |
Gross inventory held more than one year |
|
|
2,022 |
|
|
|
7.1 |
% |
|
|
1,302 |
|
|
|
6.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general merchandise, gross |
|
|
28,436 |
|
|
|
100.0 |
% |
|
|
18,758 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross inventory held one year or less |
|
|
53,838 |
|
|
|
85.3 |
% |
|
|
37,818 |
|
|
|
86.5 |
% |
Gross inventory held more than one year |
|
|
9,257 |
|
|
|
14.7 |
% |
|
|
5,926 |
|
|
|
13.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory, gross |
|
|
63,095 |
|
|
|
100.0 |
% |
|
|
43,744 |
|
|
|
100.0 |
% |
Valuation allowance |
|
|
(5,954 |
) |
|
|
(9.4 |
%) |
|
|
(4,300 |
) |
|
|
(9.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventory, net |
|
$ |
57,141 |
|
|
|
|
|
|
$ |
39,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We record a valuation allowance for shrinkage and excess, obsolete, or slow-moving inventory based
on the type and age of merchandise and recent sales trends and margins. We generally establish a
higher allowance percentage on general merchandise, as it is more susceptible to obsolescence, and
establish a lower allowance percentage on jewelry, as it retains much greater commodity value. The
total allowance was 9.4% of gross inventory at June 30, 2009 compared to 9.8% at June 30, 2008.
Changes in the valuation allowance are charged to merchandise cost of goods sold.
At June 30, 2009, 295 of our 480 EZMONEY stores and 44 of our 370 domestic pawn stores offered
credit services to customers seeking signature loans from unaffiliated lenders. We do not
participate in any of the loans made by the lenders, but earn a fee for helping customers obtain
credit and for enhancing customers creditworthiness by providing letters of credit.
In connection with our credit services, the unaffiliated lenders offer customers two types of
signature loans. In all stores offering signature loan credit services, customers can obtain
short-term loans, with principal amounts up to $1,500 but averaging about $550. Terms of these
short-term loans are generally less than 30 days, averaging about 18 days, with due dates
corresponding with the customers next payday. We typically earn a fee of 20% of the loan amount
for our short-term loan credit services. In 89 of the EZMONEY stores offering credit services,
customers can obtain longer-term unsecured installment loans from the unaffiliated lenders. The
installment loans typically carry terms of about five months with ten equal installment payments
due on customers paydays. Installment loan principal amounts range from $1,525 to $3,000, but
average about $2,000. With each semi-monthly or bi-weekly installment payment, we earn a fee of
10% of the initial loan amount. At June 30, 2009, short-term loans comprised 97% of the balance of
signature loans brokered through our credit services, and installment loans comprised the remaining
3%.
We earn payday loan fee revenues on our payday loans. In 33 domestic pawn stores and 185 EZMONEY
stores, we make payday loans subject to state law. The average payday loan amount is approximately
$430 and the term is generally less than 30 days, averaging about 17 days. We typically charge a
fee of 15% to 22% of the loan amount for a 7 to 23-day period.
At June 30, 2009, 246 of our EZMONEY stores and 35 of our U.S. pawn stores offered auto title
loans, or credit services to assist customers in obtaining auto title loans from unaffiliated
lenders. Auto title loans are 30-day loans secured by the titles to customers automobiles. Loan
principal amounts range from $150 to $9,000, but average about $700. We earn a fee of 12.5% to 25%
of auto title loan amounts.
23
On October 22, 2007, we completed the acquisition of twenty Mexico pawnshops from MMFS Intl., S.A.
de C.V., a subsidiary of Mister Money Holdings, Inc. for $15.5 million cash and direct transaction
costs. Results of the acquired stores are included in our consolidated results from the date of
acquisition, which includes most of the prior year-to-date period.
On November 13, 2008, we acquired 11 pawnshops located in the Las Vegas, Nevada area that operated
under the Pawn Plus, Pawn Place and ASAP Pawn brands for total consideration of approximately $34.4
million plus direct transaction costs. Approximately half the purchase consideration was funded
with the issuance of EZCORP Class A Non-voting Common Stock and the remaining half was funded in
cash. Results of the acquired stores are included in our results from the date of acquisition.
On December 31, 2008, we acquired Value Financial Services, Inc. (VFS). We acquired VFSs 67
pawn stores, mostly in Florida, for a total acquisition price of $77.7 million, plus the assumption
of VFSs debt of $30.4 million, for an aggregate cost of approximately $108.1 million. In
accordance with accounting rules for contingencies based on our stock price, this excludes $10.7
million of contingent payments made since the acquisition. The contingent payments were recorded
as a reduction of Additional paid-in capital. We do not expect any additional contingent payments.
Results of the acquired stores are included in our results of operations beginning January 1,
2009.
For the current quarter, consolidated total revenues increased 37%, or $39.7 million to $147.8
million, compared to the prior year quarter. Same store total revenues increased 2%, with the
remainder of the increase coming from acquired stores. The overall increase in total consolidated
revenues was comprised of a $27.7 million increase in merchandise and jewelry scrapping sales, a
$10.2 million increase in pawn service charges, $1.0 million in auto title loan fees introduced
this year and a $1.2 million increase in other revenues, partially offset by a $0.4 million
decrease in signature loan fees. The 78 pawn stores acquired in the December 2008 quarter
contributed total revenues of $35.1 million, store operating income of $6.1 million, operating
income of $5.3 million, and net income of $3.2 million. The acquired stores contributed
approximately $0.04 diluted earnings per share in the current quarter after the effect of shares
issued in the acquisitions.
In the current quarter, the U.S. Pawn Operations segment contributed $6.4 million greater store
operating income compared to the prior year quarter, primarily from the $6.1 million store
operating income at acquired domestic pawn stores. Our Empeño Fácil segment contributed $0.1
million greater store operating income compared to the prior year quarter. Our EZMONEY Operations
segment store operating income decreased $0.5 million, due to lower fees net of bad debt and higher
operating costs at new and existing stores. After a $1.2 million increase in administrative
expenses and a $0.4 million improvement in gain on the disposal of assets, operating income
increased $5.2 million to $21.5 million. After a $0.5 million increase in net interest expense, a
$0.1 million decrease in our equity in the net income of Albemarle & Bond and a $1.0 million
increase in income taxes, our consolidated net income improved to $14.4 million from $10.8 million
in the prior year quarter.
24
Results of Operations
Three Months Ended June 30, 2009 vs. Three Months Ended June 30, 2008
The following discussion compares our results of operations for the quarter ended June 30, 2009 to
the quarter ended June 30, 2008. The discussion should be read with the accompanying financial
statements and related notes.
U.S. Pawn Operations Segment
The following table presents selected financial data for the U.S. Pawn Operations segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
Sales |
|
$ |
78,519 |
|
|
$ |
51,799 |
|
Pawn service charges |
|
|
31,409 |
|
|
|
21,378 |
|
Signature loan fees |
|
|
523 |
|
|
|
650 |
|
Auto title loan fees |
|
|
430 |
|
|
|
|
|
Other |
|
|
1,706 |
|
|
|
521 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
112,587 |
|
|
|
74,348 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
49,157 |
|
|
|
30,301 |
|
Signature loan bad debt |
|
|
237 |
|
|
|
202 |
|
Auto title loan bad debt |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
63,163 |
|
|
|
43,845 |
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
37,719 |
|
|
|
24,831 |
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
25,444 |
|
|
$ |
19,014 |
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
Gross margin on sales |
|
|
37 |
% |
|
|
42 |
% |
Annualized inventory turnover |
|
|
3.7x |
|
|
|
3.5x |
|
Average pawn loan balance per pawn store at quarter end |
|
$ |
247 |
|
|
$ |
217 |
|
Average inventory per pawn store at quarter end |
|
$ |
146 |
|
|
$ |
127 |
|
Average yield on pawn loan portfolio (a) |
|
|
150 |
% |
|
|
145 |
% |
Pawn loan redemption rate |
|
|
79 |
% |
|
|
80 |
% |
Average signature loan balance per store offering signature loans at
quarter end (b) |
|
$ |
9 |
|
|
$ |
11 |
|
Average auto title loan balance per store offering auto title loans at
quarter end (c) |
|
$ |
24 |
|
|
$ |
|
|
|
|
|
(a) |
|
Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenues for the period
divided by the average pawn loan balance during the period. |
|
(b) |
|
Signature loan balances include payday loans (net of valuation allowance) recorded on our balance sheets and
the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is
not included on our balance sheets. |
|
(c) |
|
Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets and
the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is
not included on our balance sheets. |
The U.S. Pawn segment total revenues increased $38.2 million, or 51% from the prior year
quarter to $112.6 million. Same store total revenues increased $3.1 million, or 4% , and acquired
stores contributed $35.1 million. The overall increase in total revenues was comprised of a $26.7
million increase in merchandise and jewelry scrapping sales, a $10.0 million increase in pawn
service charges, a $1.2 million increase in other revenues and $0.4 million in auto title loan
revenues, offset by a $0.1 million decrease in signature loan revenues. The U.S. Pawn segment
accounted for 76% of our consolidated total revenues in the current quarter.
Our current quarter U.S. pawn service charge revenues increased $10.0 million, or 47% from the
prior year quarter to $31.4 million. Same store pawn service charges increased $1.6 million, or
8%, and acquired stores contributed $8.4 million. The same store improvement was due primarily to a
6% higher average same store pawn loan balance.
25
The table below presents our sales volume, gross profit, and gross margins in the U.S. Pawn
Operations segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
Merchandise sales |
|
$ |
48.2 |
|
|
$ |
34.1 |
|
Jewelry scrapping sales |
|
|
30.3 |
|
|
|
17.7 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
78.5 |
|
|
$ |
51.8 |
|
|
|
|
|
|
|
|
|
|
Gross profit on merchandise sales |
|
$ |
18.5 |
|
|
$ |
14.4 |
|
Gross profit on jewelry scrapping sales |
|
$ |
10.8 |
|
|
$ |
7.1 |
|
|
|
|
|
|
|
|
|
|
Gross margin on merchandise sales |
|
|
38.5 |
% |
|
|
42.3 |
% |
Gross margin on jewelry scrapping sales |
|
|
35.6 |
% |
|
|
39.9 |
% |
Overall gross margin |
|
|
37.4 |
% |
|
|
41.5 |
% |
The current quarters merchandise sales gross profit increased $4.1 million, or 28% from the prior
year quarter to $18.5 million. This was due to $14.9 million in sales from the 77 domestic pawn
stores acquired in November and December 2008, partially offset by a $0.8 million, or 2% decrease
in same store sales and a 3.8 percentage point decrease in gross margins to 38.5%. Same store
sales of general merchandise increased 4%, while same store jewelry sales decreased 5% as gold
jewelry has become more expensive and as customer purchases of luxury items slowed in the current
environment. The decrease in gross margins was due primarily to more aggressive discounting of
jewelry in a more challenging retail environment in the current quarter.
The current quarters gross profit on jewelry scrapping sales increased $3.7 million, or 53% from
the prior year quarter to $10.8 million on greater volume and a 4.3 percentage point decrease in
gross margins to 35.6%. Acquired stores contributed $4.2 million, offset by a $0.5 million same
store decrease in scrap gross profit. Including $11.3 million from acquired stores, scrapping
revenues increased $12.7 million, or 72%, on 75% more volume, partially offset by a 2% decrease in
proceeds realized per gram of jewelry scrapped. Jewelry scrapping sales in both the current and
prior year quarters include the sale of approximately $0.5 million of loose diamonds removed from
scrapped jewelry. Primarily as a result of the increased volume, scrap cost of goods increased
$8.9 million.
The segments signature loan contribution, or fee revenues less bad debt, decreased $0.2 million
compared to the prior year quarter to $0.3 million. The decrease resulted from lower fee revenues
on a lower average loan balance and an increase in bad debt to 45.3% of fees, from 31.1% in the
prior year quarter.
The U.S. pawn segment began offering auto title loans with its acquisition of 11 pawnshops in the
Las Vegas, Nevada area in mid-November 2008 and expanded to a total of 35 stores by June 30, 2009.
The segments auto title loan contribution, or fees less bad debt, was $0.4 million in the current
quarter, with bad debt at 7.0% of fees.
Operations expense increased to $37.7 million (60% of net revenues) in the current quarter from
$24.8 million (57% of net revenues) in the prior year quarter. The increase in dollar and
percentage terms was primarily due to higher operating costs at acquired stores.
In the current quarter, the $19.1 million greater net revenues from U.S. pawn activities and the
$0.4 million in auto title loan contribution, partially offset by the $0.2 million decrease in
signature loan contribution and the $12.9 million higher operations expense, resulted in a $6.4
million overall increase in store operating income from the U.S. Pawn Operations segment. Acquired
stores comprised $6.1 million of the $6.4 million increase in store operating income. For the
current quarter, the U.S. Pawn Operations segment made up 74% of consolidated store operating
income compared to 68% in the prior year quarter.
26
Empeño Fácil Segment
The following table presents selected financial data for the Empeño Fácil segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
2,790 |
|
|
$ |
1,836 |
|
Pawn service charges |
|
|
1,471 |
|
|
|
1,313 |
|
Other |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
4,295 |
|
|
|
3,149 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
1,808 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
Net revenues |
|
|
2,487 |
|
|
|
1,990 |
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
1,441 |
|
|
|
1,065 |
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
1,046 |
|
|
$ |
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
Gross margin on sales |
|
|
35 |
% |
|
|
37 |
% |
Annualized inventory turnover |
|
|
2.5x |
|
|
|
2.5x |
|
Average pawn loan balance per pawn store at quarter end |
|
$ |
68 |
|
|
$ |
143 |
|
Average inventory per pawn store at quarter end |
|
$ |
64 |
|
|
$ |
71 |
|
Average yield on pawn loan portfolio (a) |
|
|
180 |
% |
|
|
135 |
% |
|
|
|
(a) |
|
Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenues for the period divided by the
average pawn loan balance during the period. |
The average exchange rate used to translate Empeño Fácils current quarter results was 22%
lower than in the prior year quarter. This devaluation of the peso affected all revenue and
expense items. A 46% higher store operating income in local currency resulted in a $0.1 million
improvement in store operating income to $1.0 million when translated into U.S. dollars. The
following comments discuss the segments results after translation to U.S. dollars.
Empeño Fácils total revenues increased $1.1 million, or 36% in the current quarter to $4.3
million. Same store total revenues increased 1%, and new stores contributed $1.1 million. The
overall increase in total revenues was comprised of a $0.9 million increase in merchandise and
jewelry scrapping sales and a $0.2 million increase in pawn service charges. The Empeño Fácil
segment accounted for 3% of our consolidated total revenues in the current quarter.
Empeño Fácils pawn service charge revenues increased $0.2 million, or 12% in the current quarter
to $1.5 million. Same store pawn service charges decreased approximately $0.1 million, or 9%, and
new stores contributed $0.3 million. The same store decrease was due to a $1.4 million lower
average loan balance mostly from the peso devaluation, partially offset by a 45 percentage point
improvement in total average yield to 180%. The yield increased primarily due to an increase in
pawn service charge rates in certain geographic areas compared to the prior year. The total
average loan balance per store decreased due to new stores and a devaluation of the peso between
the periods.
27
The table below presents our sales volume, gross profit, and gross margins in the Empeño Fácil
segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Merchandise sales |
|
$ |
2,285 |
|
|
$ |
1,614 |
|
Jewelry scrapping sales |
|
|
505 |
|
|
|
222 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
2,790 |
|
|
$ |
1,836 |
|
|
|
|
|
|
|
|
|
|
Gross profit on merchandise sales |
|
$ |
845 |
|
|
$ |
585 |
|
Gross profit on jewelry scrapping sales |
|
$ |
137 |
|
|
$ |
92 |
|
|
|
|
|
|
|
|
|
|
Gross margin on merchandise sales |
|
|
37.0 |
% |
|
|
36.2 |
% |
Gross margin on jewelry scrapping sales |
|
|
27.1 |
% |
|
|
41.4 |
% |
Overall gross margin |
|
|
35.2 |
% |
|
|
36.9 |
% |
The current quarters merchandise gross profit increased $0.3 million from the prior year quarter
to $0.8 million. This was due to a $0.1 million, or 4% same store sales increase and $0.6 million
in sales from new stores, combined with a 0.8 percentage point increase in gross margins to 37.0%.
The gross profit on jewelry scrapping sales was $0.1 million in both the current and prior year
quarters, as higher proceeds were offset by a lower gross margin.
Operations expense increased to $1.4 million (58% of net revenues) in the current quarter from $1.1
million (54% of net revenues) in the prior year quarter. The increase was due primarily to new
stores which typically produce a loss in their first six to nine months of operation.
In the current quarter, the $0.5 million greater net revenues were partially offset by the $0.4
million higher operations expense, resulting in a $0.1 million increase in store operating income
from the Empeño Fácil segment. Empeño Fácil made up 3% of consolidated store operating income in
both the current and prior year quarters.
28
EZMONEY Operations Segment
The following table presents selected financial data for the EZMONEY Operations segment:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Signature loan fees |
|
$ |
30,292 |
|
|
$ |
30,573 |
|
Auto title loan fees |
|
|
600 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
30,892 |
|
|
|
30,573 |
|
|
|
|
|
|
|
|
|
|
Signature loan bad debt |
|
|
8,381 |
|
|
|
8,343 |
|
Auto title loan bad debt |
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
22,437 |
|
|
|
22,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
14,673 |
|
|
|
13,977 |
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
7,764 |
|
|
$ |
8,253 |
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
Signature loan bad debt as a percent of signature loan fees |
|
|
27.7 |
% |
|
|
27.3 |
% |
Auto title loan bad debt as a percent of auto title loan fees |
|
|
12.3 |
% |
|
|
|
|
Average signature loan balance per store offering signature loans at
quarter end (a) |
|
$ |
59 |
|
|
$ |
62 |
|
Average auto title loan balance per store offering title loans at quarter
end (b) |
|
$ |
6 |
|
|
$ |
|
|
|
|
|
(a) |
|
Signature loan balances include payday loans (net of valuation allowance) recorded on our balance sheets and the principal
portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance
sheets. |
|
(b) |
|
Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets and the principal
portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance
sheets. |
The EZMONEY Operations segment total revenues increased $0.3 million, or 1% to $30.9 million,
compared to the prior year quarter. The $0.4 million, or 1% decrease in same store total revenues
was more than offset by $0.7 million of revenue at new stores net of closed stores, including the
11 Florida stores closed in June 2008. We believe the same store revenue decrease was primarily
due to higher levels of unemployment and increased competition in some areas. As unemployment
levels have risen, fewer potential customers qualify for a payday loan (a necessary condition) and
consumer confidence and the consumers willingness to take out a loan, even if employed, is lower.
The EZMONEY Operations segment accounted for 21% of our current quarters consolidated total
revenues.
The segments signature loan net revenues decreased $0.3 million, or 1% to $21.9 million in the
current quarter. The decrease was primarily due to a lower average signature loan balance, with
bad debt marginally higher at 27.7% of fees compared to 27.3% in the prior year quarter.
The segments net revenues from auto title loans were $0.5 million in the current quarter, with bad
debt at 12.3% of related fees. These loans were not offered in the prior year quarter. We expect
continued growth in the contribution from auto title loans as the product matures in the 246
EZMONEY stores currently offering the product and as it is introduced into additional stores.
Operations expense increased to $14.7 million (65% of net revenues) from $14.0 million (63% of net
revenues) in the prior year quarter. The increase was mostly from additional labor, rent, and
other costs at new and existing stores net of stores closed.
In the current quarter, the $0.3 million lower net revenues from signature loans and $0.7 million
greater operations expense were partially offset by the $0.5 million net revenues from auto title
loans, resulting in a $0.5 million net
decrease in store operating income from the EZMONEY Operations segment. In the current quarter,
EZMONEY Operations made up 23% of consolidated store operating income compared to 29% in the prior
year quarter.
29
Other Items
The items discussed below affect our consolidated financial results, but are not allocated among
segments.
Administrative expenses in the current quarter were $9.7 million (11% of net revenues) compared to
$8.5 million (13% of net revenues) in the prior year quarter. Excluding $0.4 million current
quarter expense directly attributable to the 78 stores acquired in November and December 2008 and a
$0.6 million settlement of a lawsuit in the prior year quarter, administrative expenses increased
$1.4 million. This increase was primarily due to a $0.7 million increase in administrative labor
and benefits as we continued to build the infrastructure to support our growth and a $0.5 million
increase in professional fees.
Depreciation and amortization expense was $3.3 million in the current quarter, compared to $3.1
million in the prior year quarter. Depreciation on assets placed in service, primarily related to
acquired pawn stores and new EZMONEY and Empeño Fácil stores, was largely offset by assets that
were retired or became fully depreciated in the period.
In the current quarter, we recognized a $0.1 million net gain on the disposal of assets as
insurance proceeds received for destroyed assets exceeded the net book value of those assets, most
of which were replaced. In the prior year quarter, we incurred a $0.3 million loss on disposal of
assets primarily due to the closure of eleven Florida EZMONEY stores.
We earned $0.1 million of interest income on our invested cash in the current quarter, for an
annualized rate of return of 0.5%. In the prior year quarter, we earned $0.2 million of interest
income on our invested cash, yielding 2.5%. The yield decreased due to lower market rates in the
current quarter.
We borrowed $40 million on December 31, 2008 to complete the VFS acquisition, and repaid $2.5
million of these borrowings on April 3, 2009. Our $0.4 million interest expense represents the
interest on the borrowed funds, the amortization of deferred financing costs and the commitment fee
on our unused available credit. With no debt outstanding in the prior year quarter, interest
expense of $0.1 million represented primarily the amortization of deferred financing costs and the
commitment fee on our line of credit. Our outstanding term debt requires $2.5 million quarterly
principal payments.
Our equity in the net income of Albemarle & Bond decreased $0.1 million, or 15% in the current
quarter to $0.9 million. On a constant currency basis, our equity interest in the net income of
Albemarle & Bond increased 14%.
The current quarter income tax expense was $7.5 million (34.4% of pretax income) compared to $6.6
million (37.7% of pretax income) for the prior year quarter. The decrease in effective tax rate is
primarily due to the current quarter refund claim for prior year tax credits, current quarter tax
credits, and a lower expected Texas margin tax than in the prior year period.
Consolidated operating income for the current quarter improved $5.2 million over the prior year
quarter to $21.5 million. Contributing to this were the $6.4 million and $0.1 million increases in
store operating income in our U.S. Pawn and Empeño Fácil segments and the $0.4 million improvement
in gain on disposal of assets, partially offset by the $0.5 million lower store operating income in
the EZMONEY segment and the $1.2 million increase in administrative expenses. After a $0.5 million
increase in net interest expense, a $1.0 million increase in income taxes and other smaller items,
net income improved to $14.4 million from $10.8 million in the prior year quarter. Stores acquired
in November and December 2008 contributed $3.2 million of the net income growth.
30
Nine Months Ended June 30, 2009 vs. Nine Months Ended June 30, 2008
The following discussion compares our results of operations for the nine months ended June 30, 2009
to the nine months ended June 30, 2008. The discussion should be read with the accompanying
financial statements and related notes.
U.S. Pawn Operations Segment
The following table presents selected financial data for the U.S. Pawn Operations segment:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
227,494 |
|
|
$ |
165,749 |
|
Pawn service charges |
|
|
88,558 |
|
|
|
64,089 |
|
Signature loan fees |
|
|
1,766 |
|
|
|
2,131 |
|
Auto title loan fees |
|
|
991 |
|
|
|
|
|
Other |
|
|
4,866 |
|
|
|
1,224 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
323,675 |
|
|
|
233,193 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
143,167 |
|
|
|
98,853 |
|
Signature loan bad debt |
|
|
581 |
|
|
|
741 |
|
Auto title loan bad debt |
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
179,855 |
|
|
|
133,599 |
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
102,764 |
|
|
|
72,831 |
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
77,091 |
|
|
$ |
60,768 |
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
Gross margin on sales |
|
|
37 |
% |
|
|
40 |
% |
Annualized inventory turnover |
|
|
3.7x |
|
|
|
3.5x |
|
Average pawn loan balance per pawn store at quarter end |
|
$ |
247 |
|
|
$ |
217 |
|
Average inventory per pawn store at quarter end |
|
$ |
146 |
|
|
$ |
127 |
|
Average yield on pawn loan portfolio (a) |
|
|
151 |
% |
|
|
146 |
% |
Pawn loan redemption rate |
|
|
80 |
% |
|
|
79 |
% |
Average signature loan balance per store offering signature loans at
quarter end (b) |
|
$ |
9 |
|
|
$ |
11 |
|
Average auto title loan balance per store offering auto title loans at
quarter end (c) |
|
$ |
24 |
|
|
$ |
|
|
|
|
|
(a) |
|
Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenues for the
period divided by the average pawn loan balance during the period. |
|
(b) |
|
Signature loan balances include payday loans (net of valuation allowance) recorded on our balance sheets
and the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of
which is not included on our balance sheets. |
|
(c) |
|
Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets
and the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of
which is not included on our balance sheets. |
The U.S. Pawn segment year-to-date total revenues increased 39%, or $90.5 million to $323.7
million, compared to the prior year-to-date period. Same store total revenues increased $16.0
million, or 7%, and acquired stores contributed $74.5 million. The overall increase in total
revenues was comprised of a $61.7 million increase in merchandise and jewelry scrapping sales, a
$24.5 million increase in pawn service charges, a $3.7 million increase in other revenues, and $1.0
million in auto title loan fees, offset by a $0.4 million decrease in signature loan revenues. The
U.S. Pawn segment accounted for 75% of our consolidated total revenues in the current year-to-date
period.
U.S. pawn service charge revenues increased $24.5 million, or 38% from the prior year-to-date
period to $88.6 million. Same store pawn service charges increased $6.6 million, or 10% primarily
due to a 9% higher average same store pawn loan balance. Acquired stores generated $17.8 million
of pawn service charges.
31
The table below presents our sales volume, gross profit, and gross margins in the U.S. Pawn
Operations segment:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
Merchandise sales |
|
$ |
150.1 |
|
|
$ |
116.8 |
|
Jewelry scrapping sales |
|
|
77.4 |
|
|
|
48.9 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
227.5 |
|
|
$ |
165.7 |
|
|
|
|
|
|
|
|
|
|
Gross profit on merchandise sales |
|
$ |
57.6 |
|
|
$ |
47.2 |
|
Gross profit on jewelry scrapping sales |
|
$ |
26.7 |
|
|
$ |
19.7 |
|
|
|
|
|
|
|
|
|
|
Gross margin on merchandise sales |
|
|
38.4 |
% |
|
|
40.4 |
% |
Gross margin on jewelry scrapping sales |
|
|
34.5 |
% |
|
|
40.3 |
% |
Overall gross margin |
|
|
37.1 |
% |
|
|
40.4 |
% |
Merchandise gross profit increased $10.4 million, or 22% from the prior year-to-date period to
$57.6 million. This was due to a $0.5 million same store sales increase and $32.8 million in sales
from the 77 domestic pawn stores acquired in November and December 2008, partially offset by a 2.0
percentage point decrease in gross margins to 38.4%. The decrease in gross margins was due
primarily to more aggressive discounting of jewelry in a more challenging retail environment in the
current year.
The gross profit on jewelry scrapping sales increased $7.0 million, or 36% from the prior
year-to-date period to $26.7 million on greater volume, partially offset by a 5.8 percentage point
decrease in gross margins to 34.5%. Acquired stores contributed $8.7 million, offset by a $1.7
million same store decrease in scrap gross profit. Including $22.5 million from acquired stores,
scrapping revenues increased $28.5 million, or 58%, on 58% more volume. Jewelry scrapping sales
include the current year-to-date period sale of approximately $0.7 million of loose diamonds
removed from scrapped jewelry, compared to approximately $0.8 million in the prior year-to-date
period. Generally, we forward contract the price we will receive from the refiner 30 to 90 days in
advance of the delivery of specified quantities of jewelry. In the last two years, we have
periodically adjusted the amount we lend on jewelry and pay to purchase jewelry from customers,
increasing the cost of these items. As a result of the greater volume and a higher average cost
per gram of jewelry scrapped, scrap cost of goods increased approximately $21.4 million.
The segments signature loan contribution, or fee revenues less bad debt, decreased $0.2 million
when compared to the prior year-to-date period to $1.2 million due to a lower average loan balance.
Signature loan bad debt improved to 32.9% of fees from 34.8% in the prior year-to-date period.
The U.S. pawn segment began offering auto title loans with its acquisition of 11 pawnshops in the
Las Vegas, Nevada area in mid-November 2008 and expanded to a total of 35 stores by June 30, 2009.
The segments auto title loan contribution, or fees less bad debt, was $0.9 million in the current
year-to-date period, with bad debt at 7.3% of fees.
Operations expense increased to $102.8 million (57% of net revenues) in the current year-to-date
period from $72.8 million (55% of net revenues) in the prior year-to-date period. The increase in
dollar and percentage terms was primarily due to higher operating costs at acquired stores.
In the current year-to-date period, the $45.5 million greater net revenues from U.S. pawn
activities and the $0.9 million in auto title loan contribution, partially offset by the $29.9
million higher operations expense and a $0.2 million decrease in signature loan contribution,
resulted in a $16.3 million overall increase in store operating income from the U.S. Pawn
Operations segment. Acquired stores comprised $12.9 million of the $16.3 million increase in store
operating income. For the current year-to-date period, the U.S. Pawn Operations segment made up
70% of consolidated store operating income compared to 67% in the prior year-to-date period.
32
Empeño Fácil Segment
The following table presents selected financial data for the Empeño Fácil segment:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
7,408 |
|
|
$ |
4,723 |
|
Pawn service charges |
|
|
4,219 |
|
|
|
3,295 |
|
Other |
|
|
35 |
|
|
|
4 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
11,662 |
|
|
|
8,022 |
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
4,649 |
|
|
|
2,879 |
|
|
|
|
|
|
|
|
Net revenues |
|
|
7,013 |
|
|
|
5,143 |
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
4,024 |
|
|
|
2,810 |
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
2,989 |
|
|
$ |
2,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
Gross margin on sales |
|
|
37 |
% |
|
|
39 |
% |
Annualized inventory turnover |
|
|
2.2x |
|
|
|
2.7x |
|
Average pawn loan balance per pawn store at quarter end |
|
$ |
68 |
|
|
$ |
143 |
|
Average inventory per pawn store at quarter end |
|
$ |
64 |
|
|
$ |
71 |
|
Average yield on pawn loan portfolio (a) |
|
|
164 |
% |
|
|
137 |
% |
|
|
|
(a) |
|
Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenues for the period divided by the
average pawn loan balance during the period. |
The average exchange rate used to translate Empeño Fácils current period results was 21%
lower than in the prior year-to-date period. This devaluation of the peso affected all revenue and
expense items. A 63% higher store operating income in local currency resulted in a $0.7 million,
or 28% improvement in store operating income to $3.0 million when translated into U.S. dollars.
The following comments discuss the segments results after translation to U.S. dollars.
All components of the current periods results grew as the average store count increased from 24
stores in the prior year-to-date period to 42 in the current year-to-date period. The results of
the 20 stores acquired on October 22, 2007 are included in the prior years results from the
acquisition date. The current periods results reflect three full quarters contribution from
those stores and the contribution from other stores opened since the beginning of the prior
year-to-date period.
Empeño Fácils total revenues increased $3.6 million, or 45% in the current year-to-date period to
$11.7 million. Same store total revenues increased $0.5 million, or 6%, and new stores contributed
$3.1 million. The overall increase in total revenues was comprised of a $2.7 million increase in
merchandise and jewelry scrapping sales and a $0.9 million increase in pawn service charges.
Empeño Fácil accounted for 3% of our consolidated total revenues in the period.
Empeño Fácils pawn service charge revenues increased $0.9 million, or 28% in the current
year-to-date period to $4.2 million. Same store pawn service charges decreased approximately 1%,
and new stores contributed $0.9 million. The same store decrease was due to a $0.7 million lower
average loan balance, partially offset by a 27 percentage point improvement in total average yield
to 164%. The yield increased primarily due to an increase in pawn service charge rates in certain
geographic areas compared to the prior year. The average loan balance per store decreased due to
new stores and a devaluation of the peso between the periods.
33
The table below presents our sales volume, gross profit, and gross margins in the Empeño Fácil
segment:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Merchandise sales |
|
$ |
6,167 |
|
|
$ |
4,101 |
|
Jewelry scrapping sales |
|
|
1,241 |
|
|
|
622 |
|
|
|
|
|
|
|
|
Total sales |
|
$ |
7,408 |
|
|
$ |
4,723 |
|
|
|
|
|
|
|
|
|
|
Gross profit on merchandise sales |
|
$ |
2,340 |
|
|
$ |
1,587 |
|
Gross profit on jewelry scrapping sales |
|
$ |
419 |
|
|
$ |
257 |
|
|
|
|
|
|
|
|
|
|
Gross margin on merchandise sales |
|
|
37.9 |
% |
|
|
38.7 |
% |
Gross margin on jewelry scrapping sales |
|
|
33.8 |
% |
|
|
41.3 |
% |
Overall gross margin |
|
|
37.2 |
% |
|
|
39.0 |
% |
The current periods merchandise gross profit increased $0.8 million from the prior year-to-date
period to $2.3 million. This was due to a $0.3 million, or 8% same store sales increase and $1.8
million of sales from new and acquired stores, partially offset by a 0.8 percentage point decrease
in gross margins to 37.9%.
The current periods gross profit on jewelry scrapping sales increased $0.2 million, or 63% from
the prior year-to-date period to $0.4 million. This was due to a $0.6 million increase in jewelry
scrapping sales, partially offset by a 7.5 percentage point decrease in margins.
Operations expense increased to $4.0 million (57% of net revenues) from $2.8 million (55% of net
revenues) in the prior year-to-date period. The increase was due primarily to new stores which
typically produce a loss for their first six to nine months of operation.
In the current year-to-date period, the $1.9 million greater net revenues were partially offset by
$1.2 million higher operations expense, resulting in a $0.7 million overall increase in store
operating income. Empeño Fácil made up 3% of consolidated store operating income in the current
and prior year-to-date periods.
34
EZMONEY Operations Segment
The following table presents selected financial data for the EZMONEY Operations segment:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
Signature loan fees |
|
$ |
96,643 |
|
|
$ |
92,786 |
|
Auto title loan fees |
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
97,318 |
|
|
|
92,786 |
|
|
|
|
|
|
|
|
|
|
Signature loan bad debt |
|
|
22,593 |
|
|
|
24,106 |
|
Auto title loan bad debt |
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
74,644 |
|
|
|
68,680 |
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
45,167 |
|
|
|
41,667 |
|
|
|
|
|
|
|
|
Store operating income |
|
$ |
29,477 |
|
|
$ |
27,013 |
|
|
|
|
|
|
|
|
|
Other data: |
|
|
|
|
|
|
|
|
Signature loan bad debt as a percent of signature loan fees |
|
|
23.4 |
% |
|
|
26.0 |
% |
Auto title loan bad debt as a percent of auto title loan fees |
|
|
12.0 |
% |
|
|
|
|
Average signature loan balance per store offering signature loans at
quarter end (a) |
|
$ |
59 |
|
|
$ |
62 |
|
Average auto title loan balance per store offering title loans at quarter
end (b) |
|
$ |
6 |
|
|
$ |
|
|
|
|
|
(a) |
|
Signature loan balances include payday loans (net of valuation allowance) recorded on our balance sheets and the principal
portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance
sheets. |
|
(b) |
|
Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets and the principal
portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance
sheets. |
The EZMONEY Operations segment total revenues increased $4.5 million, or 5% in the current
year-to-date period to $97.3 million. This was due to a $1.7 million, or 2% same store increase
and $2.8 million of total revenues at new stores net of closed stores, including the 11 Florida
stores closed in June 2008. The EZMONEY Operations segment accounted for 22% of our consolidated
total revenues in the current year period.
The segments signature loan net revenues increased $5.4 million, or 8% to $74.1 million in the
current year-to-date period. The increase resulted from the contribution from new stores net of
closed stores and a 2.6 percentage point improvement in bad debt to 23.4% of fees. The improvement
in bad debt was due to continuing improvements in the store level execution of servicing the
customer and the loan, as well as enhanced productivity measurement tools and enhanced use of
technology in our collections department.
The segments net revenues from auto title loans were $0.6 million in the current year-to-date
period, with bad debt at 12.0% of fees. These loans were not offered in the prior year period. We
expect continued growth in the contribution from auto title loans as the product matures in the 246
EZMONEY stores currently offering the product and as it is introduced into additional stores.
Operations expense increased to $45.2 million (61% of net revenues) from $41.7 million (61% of net
revenues) in the prior year-to-date period. The increase was mostly from additional labor, rent,
and other costs at new and existing stores net of stores closed.
In the current year-to-date period, the $5.4 million higher signature loan net revenues, $0.6
million net revenues from auto title loans and $3.5 million greater operations expense resulted in
a $2.5 million net increase in store operating income from the EZMONEY Operations segment. For the
current year-to-date period, EZMONEY Operations made up 27% of consolidated store operating income
compared to 30% in the prior year-to-date period.
35
Other Items
The items discussed below affect our consolidated financial results, but are not allocated among
segments.
Administrative expenses in the current year-to-date period were $29.9 million (11% of net revenues)
compared to $25.4 million (12% of net revenues) in the prior year-to-date period. Excluding $1.3
million current year expense directly attributable to the 78 stores acquired in November and
December 2008 and a $0.6 million settlement of a lawsuit in the prior year, administrative expenses
increased $3.8 million. This increase was primarily due to a $3.0 million rise in administrative
labor and benefits as we continued to build the infrastructure to support our growth and a $0.4
million increase in professional fees. In the current year-to-date period, we realized a $1.1
million cash tax savings upon the exercise of stock options granted in 1998 to our Chief Financial
Officer and Chairman of the Board. Terms of the grants required us to pay a bonus to the
executives equal to the tax savings realized. Although these items were cash neutral, the tax
savings were recorded primarily as an addition to stockholders equity, while the bonus was
recorded as administrative expense. This charge is included in the current year-to-date period
administrative labor and benefits. We do not expect this to recur, as no other outstanding options
contain similar terms.
Depreciation and amortization expense was $9.5 million in the current year-to-date period, compared
to $9.0 million in the prior year. Depreciation on assets placed in service, primarily related to
acquired pawn stores and new EZMONEY and Empeño Fácil stores, was largely offset by assets that
were retired or became fully depreciated in the period.
In the current year-to-date period, we recognized a $1.0 million net gain on the disposal of assets
as insurance proceeds received for destroyed assets exceeded the net book value of those assets,
most of which were replaced. In the prior year period, we incurred a $0.5 million loss on disposal
of assets.
We earned $0.3 million of interest income on our invested cash in the current year-to-date period
for an annualized rate of return of 1.0%. In the prior year-to-date period, we earned $0.4 million
of interest income on our invested cash, yielding 2.9%. The yield decreased due to lower market
rates in the current period.
We borrowed $40 million on December 31, 2008 to complete the VFS acquisition, and repaid $2.5
million of these borrowings on April 3, 2009. Our $1.1 million interest expense represents
interest on the borrowed funds, the amortization of deferred financing costs and the commitment fee
on our unused available credit. With only short-term borrowings in the prior year-to-date period,
interest expense of $0.2 million represented primarily the amortization of deferred financing costs
and the commitment fee on our line of credit. Our outstanding term debt requires $2.5 million
quarterly principal payments.
Our equity in the net income of Albemarle & Bond was $3.2 million in both the current and prior
year periods. On a constant currency basis, our equity interest in the net income of Albemarle &
Bond increased 21%.
The current year-to-date income tax expense was $25.9 million (35.3% of pretax income) compared to
$22.0 million (37.7% of pretax income) in the prior year period. The decrease in effective tax
rate is primarily due to the current year refund claim for prior year tax credits, current year tax
credits, and a lower expected Texas margin tax than in the prior year-to-date period.
Consolidated operating income for the current year-to-date period improved $16.0 million, or 29%
over the prior year-to-date period to $71.2 million. Contributing to this were the $16.3 million,
$2.5 million and $0.7 million increases in store operating income in our U.S. Pawn, EZMONEY and
Empeño Fácil segments and the $1.5 million improvement in gain on disposal of assets, partially
offset by the $4.5 million increase in administrative expenses. After a $0.9 million increase in
net interest expense and a $3.9 million increase in income taxes and other smaller items, net
income improved $11.1 million to $47.5 million. Stores acquired in November and December 2008
contributed $6.4 million of the net income growth.
36
Liquidity and Capital Resources
In the current year-to-date period, our $58.9 million cash flow from operations consisted of (a)
net income plus several non-cash items, aggregating to $62.6 million, net of (b) $3.7 million of
normal, recurring changes in operating assets and liabilities. In the prior year-to-date period,
our $45.2 million cash flow from operations consisted of (a) net income plus several non-cash
items, aggregating to $50.4 million, net of (b) $5.2 million of normal, recurring changes in
operating assets and liabilities. The primary differences in cash flow from operations between the
two periods were an increase in collected pawn service charges and signature loan fees and an
increase in the gross profit on sales of inventory, net of higher operating expenses and taxes
paid. Much of the increased cash flow was from the acquired pawn stores.
The $51.9 million of net cash used in investing activities during the current year-to-date period
was funded by cash flow from operations and $7.1 million of borrowings net of repayments. Our most
significant investments were the $23.8 million of cash used in the acquisition of 67 VFS stores
(including contingent consideration payments), $17.2 million of cash used in the acquisition of 11
pawnshops in the Las Vegas, Nevada area and $14.4 million of additions to property and equipment.
These investments were partially offset by $0.8 million of customer loan repayments and principal
recovery through the sale of forfeited pawn loan collateral in excess of the amount of loans made,
the $1.6 million of dividends received from an unconsolidated affiliate, the $1.1 million proceeds
from disposal of assets and $6.6 million of cash and tax benefits received from the exercise of
stock options and warrants.
In the VFS acquisition on December 31, 2008, we assumed VFSs $30.4 million of debt. To complete
the acquisition, we borrowed $40.0 million on our new credit agreement. We subsequently retired
VFSs debt and later repaid $2.5 million of our term loan. Upon the closing of our new credit
facility, we paid $1.2 million of debt issuance costs. In the current year-to-date period, we paid
$0.4 million for the issuance of acquisition-related stock.
The net effect of these and other smaller cash flows was a $19.1 million increase in cash on hand,
providing a $46.5 million ending cash balance.
We typically invest our excess cash in institutional mutual funds that hold short-term, high
quality investments. At June 30, 2009, $34.4 million of our excess funds were invested in the
Invesco AIM Premier Portfolio fund and the Invesco AIM Liquid Assets Portfolio fund. These funds
invest primarily in short-term money market instruments that blend top-tier, high quality U.S.
dollar denominated obligations, including: securities issued by the U.S. government and its
agencies, bankers acceptances, certificates of deposit and time deposits from banks, repurchase
agreements, commercial instruments, municipal securities and master notes. Each of these funds is
participating in the U.S. Treasury Departments Temporary Guaranty Program for Money Market Funds,
currently approved through September 18, 2009. The majority of our operating cash is held at Wells
Fargo Bank.
Below is a summary of our cash needs to meet future aggregate contractual obligations (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period |
|
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than |
|
Contractual Obligations |
|
Total |
|
|
year |
|
|
1-3 years |
|
|
4-5 years |
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations |
|
$ |
37.5 |
|
|
$ |
10.0 |
|
|
$ |
20.0 |
|
|
$ |
7.5 |
|
|
$ |
|
|
Interest on long-term debt obligations |
|
|
2.7 |
|
|
|
1.2 |
|
|
|
1.3 |
|
|
|
0.2 |
|
|
|
|
|
Operating lease obligations |
|
|
134.6 |
|
|
|
32.1 |
|
|
|
52.2 |
|
|
|
28.6 |
|
|
|
21.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
174.8 |
|
|
$ |
43.3 |
|
|
$ |
73.5 |
|
|
$ |
36.3 |
|
|
$ |
21.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition to the contractual obligations in the table above, we are obligated under letters of
credit issued to unaffiliated lenders as part of our credit service operations. At June 30, 2009,
our maximum exposure for losses on letters of credit, if all brokered signature loans defaulted and
none was collected, was $22.2 million. At that date, our maximum exposure for losses on letters of
credit, if all brokered auto title loans defaulted and none was collected, was $1.2 million. Auto
title loans are secured by customers automobiles. These amounts include principal, interest,
insufficient funds fees and late fees.
37
In addition to the operating lease obligations in the table above, we are responsible for the
maintenance, property taxes, and insurance at most of our locations. In the most recent fiscal
year ended September 30, 2008, these collectively amounted to $10.6 million. This amount will
increase in fiscal 2009 with the addition of the 78 pawn stores acquired in the first quarter and
the other planned store openings in the remainder of the fiscal year.
The operating lease obligations in the table above include expected rent for all our store
locations for the full expected lease terms. Of the 480 EZMONEY signature loan stores, 157 adjoin
an EZPAWN store. The lease agreements at approximately 80% of the remaining 323 free-standing
EZMONEY stores contain provisions that limit our exposure to additional rent at these stores to
only a few months if laws were enacted that had a significant negative effect on our operations at
these stores. If such laws were passed, the space currently utilized by stores adjoining EZPAWN
stores could be re-incorporated into the EZPAWN operations.
In the fiscal year ending September 30, 2009, we plan to open approximately 30 Empeño Fácil pawn
stores in Mexico and 17 new signature loan stores in the U.S. This includes the nine Empeño Fácil
pawn stores and 16 signature loan stores opened through June 30, 2009. In the remaining three
months of fiscal 2009, we expect an additional $2.8 million of capital expenditures plus the
funding of working capital and start-up losses related to these store openings. We believe these
new stores will create a drag on earnings and cash flow in their first year of operations before
turning profitable.
Our syndicated credit agreement provides for, among other things, (i) an $80 million revolving
credit facility maturing December 31, 2011 that we may, under the terms of the agreement, request
to be increased to a total of $110 million and (ii) a $40 million term loan maturing December 31,
2012. Our term loan requires $2.5 million quarterly principal payments. At June 30, 2009, $37.5
million was outstanding under the term loan, but the $80 million revolving credit facility remained
unused. Terms of the credit agreement require, among other things, that we meet certain financial
covenants. We were in compliance with all covenants at June 30, 2009 and expect to remain in
compliance based on our expected future performance. The payment of dividends is prohibited and
additional debt is restricted under our credit agreement.
We anticipate that cash flow from operations, cash on hand and availability under our revolving
credit facility will be adequate to fund our contractual obligations, planned store growth, capital
expenditures and working capital requirements during the coming year.
Off-Balance Sheet Arrangements
We issue letters of credit (LOCs) to enhance the creditworthiness of our credit service customers
seeking signature loans and auto title loans from unaffiliated lenders. The LOCs assure the
lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal
and accrued interest owed them by the borrowers plus any insufficient funds fee or late fee. We do
not record on our balance sheet the loans related to our credit services as the loans are made by
unaffiliated lenders. We do not consolidate the unaffiliated lenders results with our results as
we do not have any ownership interest in the lenders, do not exercise control over them and do not
otherwise meet the criteria for consolidation as prescribed by FASB Financial Interpretation No. 46
regarding variable interest entities.
We include an allowance for Expected LOC Losses in Accounts payable and other accrued expenses on
our balance sheet. At June 30, 2009, the allowance for Expected LOC Losses was $1.6 million. At
that date, our maximum exposure for losses on letters of credit, if all brokered signature and auto
title loans defaulted and none was collected, was $23.4 million. This amount includes principal,
interest, insufficient funds fees and late fees.
We have no other off-balance sheet arrangements.
38
Seasonality
Historically, pawn service charges are highest in our fourth fiscal quarter (July through
September) due to a higher average loan balance during the summer lending season. Merchandise
sales are highest in the first and second fiscal quarters (October through March) due to the
holiday season, jewelry sales surrounding Valentines Day and the impact of tax refunds in the
United States. Jewelry scrapping sales are heavily influenced by the timing of decisions to scrap
excess jewelry inventory. Jewelry scrapping sales generally are greatest during our fourth fiscal
quarter (July through September). This results from relatively low jewelry merchandise sales in
that quarter and the higher loan balance, leading to a higher dollar amount of loan forfeitures in
the summer lending season providing more inventory available for sale.
Signature loan fees are generally highest in our third and fourth fiscal quarters (April through
September) due to a higher average loan balance during the summer lending season. Signature loan
bad debt, both in dollar terms and as a percentage of related fees, is highest in the third and
fourth quarters and lowest in the second quarter due primarily to the impact of tax refunds.
The net effect of these factors is that net revenues and net income typically are strongest in the
fourth fiscal quarter and weakest in the third fiscal quarter. Our cash flow typically is greatest
in the second fiscal quarter due to a high level of loan redemptions and sales in the income tax
refund season.
Use of Estimates and Assumptions
Managements Discussion and Analysis of Financial Condition and Results of Operations is based on
our condensed consolidated financial statements. We prepared those statements according to
accounting principles generally accepted in the United States for interim financial information.
We must make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate our estimates and judgments, including those related to revenue recognition,
inventory, allowance for losses on signature loans and auto title loans, long-lived and intangible
assets, income taxes, contingencies and litigation. We base our estimates on historical
experience, observable trends and other assumptions that we believe are reasonable under the
circumstances. We use 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.
|
|
|
Item 3. |
|
Quantitative and Qualitative Disclosures about Market Risk |
The following discussion about our market risk disclosures involves forward-looking statements.
Actual results could differ materially from those projected in the forward-looking statements. We
are exposed to market risk related to interest rates, gold values, and changes in foreign currency
exchange rates. We also are exposed to regulatory risk in relation to our credit services, payday
loans, auto title loans and pawn operations. We do not use derivative financial instruments.
Our earnings are affected by changes in interest rates as our debt has a variable rate. If
interest rates average 50 basis points more than our current rate in the remaining three months of
the fiscal year ending September 30, 2009, our interest expense during those three months would
increase by approximately $45,000. This amount is determined by considering the impact of the
hypothetical interest rate on our variable-rate term debt at June 30, 2009, including mandatory
quarterly principal repayments of $2.5 million.
Our earnings and financial position are affected by changes in gold values and the resulting impact
on pawn lending and jewelry sales. The proceeds of scrap sales and our ability to sell excess
jewelry inventory at an acceptable margin depend on gold values. The impact on our financial
position and results of operations of a hypothetical change in gold values cannot be reasonably
estimated. For further discussion, you should read Risk Factors in Part I, Item 1A of our Annual
Report on Form 10-K for the year ended September 30, 2008.
Our earnings and financial position are affected by foreign exchange rate fluctuations related to
our equity investment in Albemarle & Bond and our Empeño Fácil pawn operations. Albemarle & Bonds
functional currency is the U.K. pound, and Empeño Fácils functional currency is the Mexican peso.
The impact on our results of operations and financial position of hypothetical changes in the
exchange rates between the U.S. dollar and the U.K.
pound or the Mexican peso cannot be reasonably estimated due to the interrelationship of operating
results and exchange rates.
39
The translation adjustment from Albemarle & Bond representing the weakening of the U.K. pound
during the quarter ended March 31, 2009 (included in our June 30, 2009 results on a three-month lag
as described above) was a $0.2 million decrease to stockholders equity. On June 30, 2009, the
U.K. pound strengthened to £1.00 to $1.6520 U.S. from $1.4214 U.S. at March 31, 2009.
The translation adjustment from Empeño Fácil representing the strengthening of the Mexican peso
during the quarter ended June 30, 2009 was a $1.5 million increase to stockholders equity. We
have currently assumed permanent reinvestment of earnings and capital in Mexico. Accumulated
translation gains or losses related to any future repatriation of earnings or capital would impact
our earnings in the period of repatriation. On June 30, 2009, the peso strengthened to $1.00
Mexican peso to $0.0757 U.S. from $0.0695 at March 31, 2009.
We cannot predict the future valuation of the U.K. pound or Mexican peso or how further movements
in them could affect our future earnings or financial position.
Forward-Looking Information
This Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of Financial
Condition and Results of Operations, 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. We intend that all forward-looking statements be subject to the safe
harbors created by these laws. All statements other than statements of historical information are
forward-looking and may contain information about financial results, economic conditions, trends,
planned store openings, the effect of acquisitions and known uncertainties. These statements are
often, but not always, made with words or phrases like may, should, could, predict,
potential, believe, expect, anticipate, seek, estimate, intend, plan, projection,
outlook, expect, will, and similar expressions. All forward-looking statements are based on
our current expectations regarding important risk factors. Actual results could differ materially
from those expressed in the forward-looking statements due to a number of risks and uncertainties,
many of which are beyond our control. In addition, we cannot predict all of the risks and
uncertainties that could cause our actual results to differ from those expressed in the
forward-looking statements. Accordingly, you should not regard any forward-looking statement as a
representation that the expected results will be achieved. Important risk factors that could cause
results or events to differ from current expectations are identified in Part II, Item 1A, Risk
Factors, of this Quarterly Report and discussed in Part I, Item 1A, Risk Factors of our Annual
Report on Form 10-K for the year ended September 30, 2008. These factors are not intended to be an
all-encompassing list of risks and uncertainties that may affect our operations, performance,
development and results. You are cautioned not to overly rely on these forward-looking statements,
which are current only as of the date of this report. We undertake no obligation to release
publicly the results of any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date of this report, including changes in our business
strategy or planned capital expenditures, store growth plans, the effect of acquisitions, the
macro-economic environment, unemployment, or to reflect unanticipated events.
40
|
|
|
Item 4. |
|
Controls and Procedures |
(a) Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial
Officer, we have evaluated the effectiveness of the design and operation of our 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, 2009. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of June 30, 2009, our disclosure controls and procedures are
effective to ensure that information required to be disclosed in reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms. Disclosure controls and procedures include those controls and procedures
that are designed to ensure that information required to be disclosed in the reports that we file
or submit under the Exchange Act is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosures.
Notwithstanding the foregoing, a control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that all control issues or instances of fraud, if
any, have been detected. Our disclosure controls and procedures are designed to provide reasonable
assurance of achieving their objectives, as described above, and our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures are effective at that
reasonable assurance level as of June 30, 2009.
(b) Changes in Internal Controls
There were no changes in our internal control over financial reporting during the quarter ended
June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting, except as described below.
We have made certain internal control changes in our pawn operations acquired in November and
December 2008. We made these control changes to subject our acquired operations to the same or
similar controls as currently utilized in the remainder of our operations and accounting.
41
PART II
|
|
|
Item 1. |
|
Legal Proceedings |
See Note F, Contingencies, in the Notes to Interim Condensed Consolidated Financial Statements
included in this filing and incorporated herein by reference.
Changes in laws and regulations affecting our financial services and products could have a material
adverse effect on our operations and financial performance. Our financial products and services
are subject to extensive regulation under various federal, state, and local laws and regulations.
Legislative and regulatory efforts have increasingly concentrated on attempts to regulate,
prohibit, or severely restrict our financial services and products, particularly signature loans,
by limiting the number of loans a borrower could obtain, establishing rates that effectively
prohibit our ability to operate profitably, or restricting or effectively eliminating the
availability of our products and services to particular groups such as the military. Currently,
there are a number of bills pending in the United States Congress to regulate signature loans that
are more restrictive than the state statutes under which we currently operate. Some of these
federal bills would also limit the rate we can charge on pawn loans. There has been similar state
legislation in many states in which we operate, including Texas where a majority of our signature
loans are made. In Mexico, similar restrictions, disclosure requirements, and rate limits are
proposed from time to time. We can give no assurance that additional local, state, or federal
legislation will not be enacted, or that existing laws and regulations will not be changed, that
would have a material adverse effect on our operations or financial performance.
Other important risk factors that could affect our operations and financial performance, or that
could cause results or events to differ from current expectations, are described in Part I, Item
1A, Risk Factors of our Annual Report on Form 10-K for the year ended September 30, 2008. These
factors are supplemented by those discussed under Quantitative and Qualitative Disclosures about
Market Risk in Part I, Item 3 of this report and in Part II, Item 7A of our Annual Report on Form
10-K for the year ended September 30, 2008.
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
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 |
42
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 6, 2009 |
By: |
/s/ Dan N. Tonissen
|
|
|
|
(Signature) |
|
|
|
Dan N. Tonissen |
|
|
|
Senior Vice President,
Chief Financial Officer &
Director |
|
43
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
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 |
44