What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-12-14 compared with 2019-12-05 · 523 added, 721 removed, 719 unchanged (63% of the section changed)

9 unchanged sentences

Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies

Earnings Per Share

Organization and Summary of Significant Accounting Policies

Other C harge s

(Loss) Earnings Per Share

Strategic Investments

Fair Valu e Measurements

Property and Equipment

Goodwill and Other Intangibles

Stock Compensation

Related Party Transactions

Employment Agreements and Retirement Plans

Goodwill and Intangib le Assets

Common Stock and Stock Compensation

Contingencies

Segment Information

Supplemental Consolidated Financial Information and Discontinued Operations

Supplemental Consolidated Financial Information

Quarterly Information (Unaudited)

Subsequent Events

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of EZCORP, Inc.

(the “Company”) and subsidiaries as of September 30, 2019 and 2018, and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2019, and the related notes (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of September 30, 2020 and 2019, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of September 30, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated December 5, 2019 expressed an adverse opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated December 14, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As is discussed in Notes 1 and 12 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended September 30, 2020, due to adoption of ASC Topic 842, Leases .

Basis for Opinion

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Cash and cash equivalents $ 304,542 $ 157,567

Restricted cash 8,011 4,875

Pawn loans 131,323 199,058

Pawn service charges receivable, net 20,580 31,802

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Property and equipment, net 56,986 67,357

Lease right-of-use asset 183,809 —

Goodwill 257,582 300,527

Intangible assets, net 58,638 68,044

1 unchanged sentence

Deferred tax asset, net 8,931 1,998

Other assets 4,221 4,383

Total assets $ 1,197,023 $ 1,083,702

Liabilities and equity:

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Customer layaway deposits 11,008 12,915

Lease liability 49,742 —

Total current liabilities 132,467 91,086

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Deferred tax liability, net 524 1,985

Lease liability 153,040 —

Other long-term liabilities 10,849 7,302

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shares authorized:

issued and outstanding:

52,565,064 as of September 30, 2019 and 51,614,746 as of September 30, 2018

52,332,848 issued and outstanding as of September 30, 2020;

and issued and outstanding of 52,565,064 as of September 30, 2019

Class B Voting Common Stock, convertible, par value $ 0.01 per share;

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issued and outstanding:

2,970,171 as of September 30, 2020 and 2019

Additional paid-in capital 398,475 407,628

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Accumulated other comprehensive loss ( 68,068 ) ( 52,398 )

stockholders’ equity

Noncontrolling interest

Total equity 649,127 744,949

Total liabilities and equity $ 1,197,023 $ 1,083,702

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Fiscal Year Ended September 30,

2020 2019 2018

(in thousands, except per share amounts)

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Other cost of revenues 1,054 2,338 1,697

Net revenues 449,235 494,448 481,551

Operating expenses:

Operations 341,040 358,253 334,841

Administrative 49,897 55,990 53,639

Impairment of goodwill, intangible and other assets 54,666 — —

Depreciation and amortization 30,827 28,797 25,484

Loss on sale or disposal of assets and other 801 4,399 463

Other charges 20,388 — —

Total operating expenses 497,619 447,439 414,427

Operating income

Operating (loss) income ( 48,384 ) 47,009 67,124

Interest expense 22,472 32,637 27,834

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Impairment of investment in unconsolidated affiliates — 19,725 11,712

Other expense (income)

Other (income) expense ( 17 ) 1,424 ( 5,391 )

Income from continuing operations before income taxes ( 70,095 ) 4,174 55,539

Income tax expense

Income from continuing operations, net of tax

Income tax (benefit) expense ( 1,632 ) 2,406 18,389

(Loss) income from continuing operations, net of tax ( 68,463 ) 1,768 37,150

Loss from discontinued operations, net of tax — ( 457 ) ( 856 )

Net (loss) income ( 68,463 ) 1,311 36,294

Net loss attributable to noncontrolling interest — ( 1,230 ) ( 988 )

Net income attributable to EZCORP, Inc.

Basic earnings per share attributable to EZCORP, Inc.

Net (loss) income attributable to EZCORP, Inc.

$ ( 68,463 ) $ 2,541 $ 37,282

Basic (loss) earnings per share attributable to EZCORP, Inc.

— continuing operations $ ( 1.24 ) $ 0.05 $ 0.70

Diluted earnings per share attributable to EZCORP, Inc.

Diluted (loss) earnings per share attributable to EZCORP, Inc.

— continuing operations $ ( 1.24 ) $ 0.05 $ 0.66

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Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Other comprehensive (loss) income:

Foreign currency translation (loss) gain, net of income tax benefit (expense) for our investment in unconsolidated affiliate of $708 , $353 and ($446) for the years ended September 30, 2019, 2018 and 2017, respectively

Net (loss) income $ ( 68,463 ) $ 1,311 $ 36,294

Other comprehensive loss:

Foreign currency translation loss, net of income tax expense (benefit) for our investment in unconsolidated affiliate of $ 354 , $( 708 ) and $( 353 ) for the years ended September 30, 2020, 2019 and 2018, respectively

( 15,678 ) ( 10,042 ) ( 2,638 )

Comprehensive (loss) income ( 84,141 ) ( 8,731 ) 33,656

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Comprehensive (loss) income attributable to EZCORP, Inc.

$ ( 84,141 ) $ ( 7,501 ) $ 34,538

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Additional Paid-in Capital

Accumulated Other Comprehensive (Loss) Income

Noncontrolling Interest

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Noncontrolling Interest Total Equity

Value Retained

(in thousands)

Balances as of October 1, 2017

54,398 $ 544 $ 348,532 $ 347,885 $ ( 38,157 ) $ ( 2,449 ) $ 656,355

Stock compensation — — 10,711 — — — 10,711

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Taxes paid related to net share settlement of equity awards — — ( 311 ) — — — ( 311 )

Reclassification of 2019 Convertible Note Warrants to liabilities

Foreign currency translation gain

Foreign currency translation reclassification upon disposition of Grupo Finmart

Reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act — — — 1,455 ( 1,455 ) — —

Foreign currency translation (loss) gain — — — — ( 2,744 ) 106 ( 2,638 )

Equity classified conversion feature of 2024 Convertible Notes, net of tax — — 38,995 — — — 38,995

Net income (loss) — — — 37,282 — ( 988 ) 36,294

Balances as of September 30, 2018

54,585 $ 546 $ 397,927 $ 386,622 $ ( 42,356 ) $ ( 3,331 ) $ 739,408

Stock compensation — — 9,794 — — — 9,794

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Taxes paid related to net share settlement of equity awards — — ( 3,288 ) — — — ( 3,288 )

Reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act

Foreign currency translation (loss) gain

Equity classified conversion feature of 2024 Convertible Notes, net of tax

Transfer of subsidiary shares to noncontrolling interest — — 3,195 — — ( 3,195 ) —

Foreign currency translation loss — — — — ( 10,042 ) — ( 10,042 )

Deconsolidation of subsidiary — — — — — 7,756 7,756

Net income (loss) — — — 2,541 — ( 1,230 ) 1,311

Balances as of September 30, 2019

55,535 $ 556 $ 407,628 $ 389,163 $ ( 52,398 ) $ — $ 744,949

Stock compensation — — ( 5,094 ) — — — ( 5,094 )

Transfer of subsidiary shares to noncontrolling interest

Release of restricted stock 711 6 — — — — 6

Deconsolidation of subsidiary

Taxes paid related to net share settlement of equity awards — — ( 1,435 ) — — — ( 1,435 )

Foreign currency translation loss — — — ( 8 ) ( 15,670 ) — ( 15,678 )

Net income (loss)

Purchase and retirement of treasury stock ( 943 ) ( 11 ) ( 2,624 ) ( 2,523 ) — — ( 5,158 )

Net loss — — — ( 68,463 ) — — ( 68,463 )

Balances as of September 30, 2020

See Note 1 of Notes to Consolidated Financial Statements for discussion of opening balance impact as a result of corrections to prior period financial statements.

55,303 $ 551 $ 398,475 $ 318,169 $ ( 68,068 ) $ — $ 649,127

See accompanying notes to consolidated financial statements.

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Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income $ ( 68,463 ) $ 1,311 $ 36,294

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 30,827 28,797 25,484

Amortization of debt discount and deferred financing costs 13,200 19,759 17,595

Amortization of lease right-of-use asset 45,649 — —

Accretion of notes receivable discount and deferred compensation fee ( 821 ) ( 4,524 ) ( 9,150 )

Deferred income taxes ( 8,393 ) 1,616 7,916

Impairment of goodwill, intangibles and other assets 54,666 — —

Other adjustments 1,652 5,776 2,607

1 unchanged sentence

Stock compensation expense ( 5,094 ) 9,751 10,784

Loss (income) from investments in unconsolidated affiliates

Equity in net loss (gain) from investment in unconsolidated affiliates 2,429 135 ( 5,529 )

Impairment of investment in unconsolidated affiliates — 19,725 11,712

Changes in operating assets and liabilities, net of business acquisitions:

Service charges and fees receivable

Pawn service charges receivable 11,021 ( 732 ) ( 1,788 )

Inventory 17,043 ( 493 ) ( 1,074 )

Prepaid expenses, other current assets and other assets ( 875 ) 5,732 477

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Investing activities:

Loans made ( 568,368 ) ( 737,585 ) ( 707,220 )

Loans repaid 394,469 434,142 421,331

Recovery of pawn loan principal through sale of forfeited collateral 304,323 288,502 266,962

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Principal collections on notes receivable 8,000 34,067 32,396

Net cash used in investing activities

Net cash provided by (used in) investing activities 109,898 ( 27,829 ) ( 134,206 )

Financing activities:

Taxes paid related to net share settlement of equity awards ( 1,459 ) ( 3,288 ) ( 311 )

Payout of deferred consideration ( 350 ) — —

Proceeds from borrowings, net of issuance costs 912 1,064 171,409

Payments on borrowings ( 198 ) ( 196,093 ) ( 3,510 )

Repurchase of common stock ( 5,158 ) — —

Net cash (used in) provided by financing activities ( 6,253 ) ( 198,317 ) 167,588

Effect of exchange rate changes on cash and cash equivalents and restricted cash ( 2,612 ) ( 507 ) ( 654 )

Net (decrease) increase in cash and cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents and restricted cash 150,111 ( 123,136 ) 121,709

Cash and cash equivalents and restricted cash at beginning of period 162,442 285,578 163,869

Cash and cash equivalents and restricted cash at end of period $ 312,553 $ 162,442 $ 285,578

Cash paid during the period for:

Income taxes, net

Supplemental disclosure of cash flow information

Cash and cash equivalents $ 304,542 $ 157,567 $ 285,311

Restricted cash 8,011 4,875 267

Total cash and cash equivalents and restricted cash $ 312,553 $ 162,442 $ 285,578

Cash paid during the period for interest $ 8,489 $ 12,900 $ 8,412

Cash paid during the period for income taxes, net $ 9,753 $ 11,132 $ 13,676

Non-cash investing and financing activities:

Pawn loans forfeited and transferred to inventory $ 241,252 $ 301,357 $ 274,590

Dividend reinvestment acquisition of additional ownership in unconsolidated affiliate

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Formed in 1989, we have grown into a leading provider of pawn loans in the United States and Latin America.

was founded in 1989 and is a leading provider of pawn loans in the United States and Latin America.

Pawn loans are non-recourse loans collateralized by tangible property.

We also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers, and operate a small number of financial services stores in Canada.

We are dedicated to satisfying the short-term cash needs of consumers who are cash or credit constrained, focusing on delivering an industry-leading customer experience.

We also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers.

We are dedicated to satisfying the short-term cash needs of consumers, with a focus on delivering an industry-leading customer experience.

As of September 30, 2020, we operated a total of 1,005 locations, consisting of:

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• 132 pawn stores in Guatemala, El Salvador, Honduras and Peru (operating as GuatePrenda and MaxiEfectivo).

22 financial services stores in Canada (operating as CASHMAX).

We also own 34.75 % of Cash Converters International Limited (“Cash Converters International”), a publicly traded company (ASX:CCV) headquartered in Perth, Western Australia.

Cash Converters International and its controlled companies comprise a diverse group generating revenues from franchising, store operations, personal finance and vehicle finance, with operations in Australia and the United Kingdom, a 25 % equity interest in Cash Converters New Zealand and a franchise presence in 15 other countries around the world.

We have a 34.75 % equity interest in Cash Converters International Limited (“Cash Converters International”), a publicly traded company (ASX:CCV) headquartered in Perth, Western Australia with operations in Australia and the United Kingdom.

Cash Converters International and its controlled companies comprise a diverse group generating revenues from franchising store operations, personal finance and vehicle finance, controlling over 700 stores across 16 countries.

We also own 13.14 % of Rich Data Corporation (RDC), a Singapore-based software-as-a-service company that utilizes global financial services expertise, advanced artificial intelligence and non-traditional data to deliver a next-generation credit scoring and decisioning platform.

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of EZCORP, Inc.

and its consolidated subsidiaries.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and are expressed in U.S.

They include the accounts of EZCORP, Inc., and its wholly-owned subsidiaries.

We use the equity method of accounting for entities in which we have a 50% or less investment and exercise significant influence.

We account for equity investments for which we do not have significant influence and without readily determinable fair values at cost with adjustments for observable changes in price in orderly transactions for identical or similar investments of the same issuer or impairments.

All inter-company accounts and transactions have been eliminated in consolidation.

Management has the responsibility to evaluate whether there is substantial doubt about our ability to continue as a going concern for a period of one year after the date that the financial statements are issued (or available to be issued) or to provide related footnote disclosures.

We do not believe there is substantial doubt about our ability to continue as a going concern.

To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (“VIE”) model to the entity;

otherwise, the entity is evaluated under the voting interest model.

Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE.

Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally.

In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity’s economic performance as compared to other economic interest holders.

This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity’s future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to a VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees and other contractual arrangements).

This evaluation considers all relevant factors of the entity’s design including the entity’s capital structure, contractual rights to earnings or losses, subordination of our interests relative to those of other investors, as well as any other contractual arrangements that might exist that could have the potential to be economically significant.

The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.

Corrections and Reclassifications to Prior Period Financial Statements

In the second quarter of fiscal 2019, we identified errors in our previously reported financial statements during the ordinary course of account reviews and subsequent investigation of related accounts.

None of the identified errors was material to any previously reported period.

These have now been corrected in all periods presented.

The errors related to the overstatement of historical balances of pawn service charges receivable resulting from errors in the configuration of information technology reports, as well as other minor items identified in our reconciliation process.

These errors resulted in an overstatement of October 1, 2016 beginning retained earnings of $ 3.4 million .

The impact of these corrections on the consolidated financial statements, exclusive of quarterly impacts presented in previous fiscal 2019 filings, is as provided below (in thousands except per share amounts).

Consolidated Balance Sheets

December 31, 2018

As Previously Reported

Pawn service charges receivable, net

Prepaid expenses and other current assets

Deferred tax asset, net

Accounts payable, accrued expenses and other current liabilities

Retained earnings

Accumulated other comprehensive loss

December 31, 2017

As Previously Reported

Cash and cash equivalents

Pawn service charges receivable, net

Prepaid expenses and other current assets

Deferred tax asset, net

Accounts payable, accrued expenses and other current liabilities

Retained earnings

Accumulated other comprehensive loss

Consolidated Statements of Operations

Fiscal Year Ended September 30, 2018

As Previously Reported

Pawn service charges

Operations expense

Administrative expense

Income from continuing operations before income taxes

Income tax expense

Income from continuing operations, net of tax

Basic earnings per share attributable to EZCORP, Inc.

— continuing operations

Diluted earnings per share attributable to EZCORP, Inc.

— continuing operations

Fiscal Year Ended September 30, 2017

As Previously Reported

Pawn service charges

Operations expense

Administrative expense

Income from continuing operations before income taxes

Income tax expense

Income from continuing operations, net of tax

Basic earnings per share attributable to EZCORP, Inc.

— continuing operations

Diluted earnings per share attributable to EZCORP, Inc.

— continuing operations

Three Months Ended December 31, 2018

As Previously Reported

Pawn service charges

Operations expense

Administrative expense

Loss from continuing operations before income taxes

Income tax benefit

Loss from continuing operations, net of tax

Basic earnings per share attributable to EZCORP, Inc.

— continuing operations

Diluted earnings per share attributable to EZCORP, Inc.

— continuing operations

Three Months Ended December 31, 2017

As Previously Reported

Pawn service charges

Operations expense

Administrative expense

Income from continuing operations before income taxes

Income tax expense

Income from continuing operations, net of tax

Basic earnings per share attributable to EZCORP, Inc.

— continuing operations

Diluted earnings per share attributable to EZCORP, Inc.

— continuing operations

Consolidated Statements of Cash Flows

Fiscal Year Ended September 30, 2018

As Previously Reported

Deferred income taxes

Service charges and fees receivable

Accounts payable, accrued expenses and other liabilities

Income taxes, net of excess tax benefit from stock compensation

Net cash provided by operating activities*

Effect of exchange rate changes on cash and cash equivalents and restricted cash

Fiscal Year Ended September 30, 2017

As Previously Reported

Deferred income taxes

Service charges and fees receivable

Accounts payable, accrued expenses and other liabilities

Income taxes, net of excess tax benefit from stock compensation

Net cash provided by operating activities*

Three Months Ended December 31, 2018

As Previously Reported

Service charges and fees receivable

Accounts payable, accrued expenses and other liabilities

Income taxes, net of excess tax benefit from stock compensation

Net cash provided by operating activities*

Effect of exchange rate changes on cash and cash equivalents and restricted cash

Three Months Ended December 31, 2017

As Previously Reported

Service charges and fees receivable

Accounts payable, accrued expenses and other liabilities

Net cash provided by operating activities*

Effect of exchange rate changes on cash and cash equivalents and restricted cash

As previously reported amount includes the impact of adoption of accounting policies described below.

We have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.

Use of Estimates and Assumptions

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

We regularly evaluate estimates and judgments, including those related to revenue recognition, inventory, loan loss allowances, long-lived and intangible assets, share-based compensation, income taxes, contingencies and litigation.

We base our estimates on historical experience, observable trends and various other assumptions that we believe are reasonable, the results of which form the basis for making judgements about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

Actual results may differ materially from the estimates under different assumptions or conditions.

Pawn Loans and Revenue Recognition

The carrying value of our pawn loans is based on the initial amounts lent to customers and are fully collateralized.

The carrying value of our pawn loans is based on the initial amounts loaned to customers, which are fully collateralized.

We record pawn service charges using the effective interest method over the life of the loan for all pawn loans we believe to be collectible.

We base our estimate of collectible loans on several inputs, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following months.

Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition.

Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our results of operations 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 net realizable value of the item.

Of our consolidated pawn loans outstanding as of September 30, 2019, $ 92.8 million is attributable to Texas and Florida stores.

Of our consolidated pawn loans outstanding balance of $ 131.3 million as of September 30, 2020, $ 51.9 million ( 40 %) is attributable to stores in Texas and $ 14.8 million ( 11 %) is attributable to stores in Florida.

Merchandise Sales Revenue Recognition

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We recognize the satisfaction of the performance obligation and record merchandise sales revenue and the related cost when merchandise inventory is sold and delivered to the customer or, in the case of a layaway sale, when we receive the final payment.

Customers have a limited period of time to return merchandise for a refund or exchange, and actual returns for refunds are insignificant.

Sales tax collected on the sale of inventory is excluded from the amount recognized as sales and instead recorded as a liability in “Accounts payable, accrued expenses and other current liabilities” in our consolidated balance sheets until remitted to the appropriate governmental authorities.

Customers have a limited period of time to return merchandise for a refund or exchange, and actual returns for refunds are not material.

Sales tax collected on the sale of inventory is excluded from the amount recognized as sales and is recorded as a liability in “Accounts payable, accrued expenses and other current liabilities” in our consolidated balance sheets until remitted to the appropriate governmental authorities.

We recognize the satisfaction of the performance obligation and record scrapping (precious metals and stones) sales revenue and the related cost when scrap inventory is legally transferred to the refiner and the refiner obtains control of the inventory.

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Future declines in the value of gold prices may cause an increase in reserve rates pertaining to jewelry inventory.

Situations that may result in excess or obsolete inventory include changes in business and economic conditions, changes in consumer confidence caused by changes in market conditions ,decreases in demand for our products or inventory obsolescence resulting from changes in technology.

During fiscal 2020, we took a charge of $ 2.6 million to merchandise cost of sales for inventory provisions primarily related to the write-off of excess and obsolete inventory due to the impact of COVID-19.

With respect to our Mexico pawn operations, we do not own the forfeited collateral;

however, we assume the risk of loss on such collateral and are solely responsible for its care and disposition and as such, record such collateral under “Inventory, net” in our consolidated balance sheets.

however, we assume the risk of loss on such collateral and are solely responsible for its care and disposition and, therefore, record such collateral under “Inventory, net” in our consolidated bal ance sheets.

The amount of inventory from our Mexico pawn operations classified as “Inventory, net” in our consolidated balance sheets was $ 12.9 million and $ 26.9 million as of September 30, 2020 and 2019, respectively.

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Historically, we have not experienced any losses due to such cash concentrations.

Notes Receivable

As discussed under “Notes Receivable from Grupo Finmart Divestiture” in Note 5, in September 2017 we restructured the repayment arrangements for certain promissory notes that we had received from Grupo Finmart in connection with the divestiture of Grupo Finmart in September 2016.

We accounted for the restructuring as new notes receivable for which the modification was more than minor, recognizing $ 3.0 million of discount remaining on the original notes receivable as a gain, which we included in our income statement as a component of “Interest income” in fiscal 2017.

As part of the restructuring of the notes receivable, we negotiated a deferred compensation amount of up to $ 14.0 million which we are accounting for as “Interest income” under the effective interest method, accreting to its ultimate estimated settlement amount at September 2020.

We review the payment history, creditworthiness, projected cash flows and related assumptions of Grupo Finmart and Alpha Holding, S.A.

(“AlphaCredit”) (the guarantor of such notes receivable) in determining whether our notes receivable and deferred compensation amounts are collectible.

Prior to the restructuring, we amortized the discount on our notes receivable into “Interest income” under the effective interest method over the life of the notes receivable.

We currently accrue interest under the terms of the repayment schedules.

These items are included in “Corporate items” and “Latin America Pawn” within our segment disclosure in Note 15 .

As of September 30, 2019 , we have included no impairment due to non-collectability on our notes receivable.

In September 2019, Grupo Finmart repaid the remainder of the loan principal and the first approximate $ 6.0 million of the deferred compensation amount.

At September 30, 2019, the only amounts remaining receivable are $ 8.0 million of the deferred compensation fee due in fiscal 2020 and interest on that amount.

The precise amount will vary slightly due to movements in the exchange rate on the peso-denominated note.

Restricted Cash

Restricted cash consists of $ 8.0 million held in escrow pending resolution of a pre-closing tax indemnity claim related to the sale of Grupo Finmart.

Equity Method Investments

We account for our investment in Cash Converters International and RDC using the equity method.

We account for our investment in Cash Converters International and RDC under the equity method.

Since Cash Converters International’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag.

Thus, income reported for fiscal years ended September 30, 2020, 2019 and 2018 represents our percentage interest in the results of Cash Converters International’s operations for the twelve-month periods ended June 30, 2020, 2019 and 2018, respectively.

Because Cash Converters International publicly files semi-annual financial reports with the Australian Securities & Investments Commission as of and for the periods ended June 30 and December 31, we make estimates for our equity in Cash Converters International’s net income (loss) for Cash Converters International three-month periods ended March 31 (our

reporting period ended June 30) and September 30 (our reporting period ended December 31).

Because Cash Converters International publicly files semi-annual financial reports with the Australian Securities & Investments Commission as of and for the periods ended June 30 and December 31, we make estimates for our equity in Cash Converters International’s net income (loss) for the three-month periods ended March 31 (our reporting period ended June 30) and September 30 (our reporting period ended December 31).

Those estimates may vary from actual results.

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We measure and record all other-than-temporary impairments as of the date of our reporting period.

We accounted for the negative basis in our investment in Cash Converters International generated as a result of impairments and other items as a reduction in our portion of Cash Converters International goodwill.

To the extent Cash Converters International recognizes future impairments in its goodwill, we will not record our share of such impairments until the negative basis is restored.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets having indefinite lives are not subject to amortization.

We test goodwill and intangible assets with indefinite useful lives for potential impairment annually as of September 30, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

We enter into operating lease agreements for real estate related to pawn locations and corporate offices.

We determine if an arrangement contains a lease at inception by determining whether there is an identified asset and whether the arrangement conveys the right to control the use of the identified asset.

Operating lease liabilities are recognized at the lease commencement date based on the present value of fixed lease payments using the Company’s incremental borrowing rate.

As our leases generally do not include an implicit rate, we compute our incremental borrowing rate based on information available at the lease commencement date applying the portfolio approach to groups of leases with similar characteristics.

Right-of-use operating assets are recognized based on the initial present value of fixed lease payments over the lease term.

Our lease terms include options to extend the lease when it is reasonably certain we will exercise its option.

We used incremental borrowing rates that match the duration of the remaining lease terms of our operating leases on a fully collateralized basis upon adoption as of October 1, 2019 to initially measure our lease liability.

We evaluate renewal options periodically for any changes in assumptions.

Effective October 1, 2019, we adopted ASC Topic 842:

Leases (“ASC 842”).

Upon adoption, we elected to utilize the modified retrospective method, including not to account for lease and non-lease components separately.

Lease components generally include rent, taxes and insurance, and non-lease components generally include common area maintenance.

Right-of-use assets are tested for impairment in the same manner as long-lived assets.

Under ASC 842, lease expense is recognized on a straight-line basis over the lease term with variable lease expense recognized in the period in which the costs are incurred.

Our lease portfolio consists of pawn locations and corporate offices with leases terms ranging from three to ten years , including options to renew.

We generally account for the initial lease term of our pawn locations as up to ten years .

Our primary corporate office is leased through March 2029 with escalating rent payments annually and includes two five-year extension options at the end of the initial lease term.

Definite-lived Intangible Assets

Goodwill and indefinite-lived intangible assets are not subject to amortization.

We test goodwill and indefinite-lived intangible assets for impairment annually as of September 30, or more frequently if an event occurs or circumstances change that could indicate a potential impairment.

We compare the fair value of our reporting units with their carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, without exceeding the total amount of goodwill allocated to that reporting unit.

We perform our impairment analyses utilizing the income approach.

This approach uses future cash flows and estimated terminal values for each of our reporting units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if there is an impairment.

This approach uses estimated future cash flows and terminal values for each of our reporting units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if there is an impairment.

We have determined that our reporting units are equivalent to our operating segments for fiscal 2020.

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We use discount rates that are commensurate with the risks and uncertainties inherent in the respective businesses and in our internally developed forecasts.

Discount rates used in fiscal 2019 goodwill valuations ranged from 10 % to 15 % similar to rates used in fiscal 2018.

In testing other intangible assets for potential impairment, we apply key assumptions that are consistent with those utilized in our goodwill impairment test.

In performing our goodwill impairment analysis as of September 30, 2019, we acknowledge the existence of a control premium relative to our market capitalization representing the incremental amount a buyer would pay to acquire a controlling stake.

Our control premium was assessed on the evaluation of our average market capitalization during the fourth quarter of fiscal 2019 rather than only at the end of the period.

If all equity interests in EZCORP were to be sold, we expect that a further premium would be paid for the Class B Voting Common Stock, none of which is publicly traded.

We will continue to monitor our market capitalization in future periods relative to our underlying business performance to determine an appropriate control premium for purposes of our goodwill impairment analysis.

Changes in the economic conditions or regulatory environment could negatively affect our key assumptions.

Future negative developments including a decline in loan portfolio performance, merchandise sales or demand for our products, a decline in precious metal commodity values, or inflation in costs relative to revenues in our Latin American operations in Guatemala, Honduras, El Salvador or Peru could lead to potential impairment of the $ 34.5 million in goodwill recorded in our “GPMX” reporting unit within our Latin America reporting segment.

At September 30, 2019, the estimated fair value of GPMX exceeded its carrying value by 7 % .

We may perform a qualitative assessment in making our determination of whether it is more likely than not goodwill and other intangible assets are impaired under appropriate accounting guidance on an annual basis in future reporting periods.

Discount rates used in fiscal 2020 for the goodwill impairment analysis ranged from 11 % to 19 %.

In testing other indefinite-lived intangible assets for potential impairment, we apply key assumptions that are consistent with those utilized in our goodwill impairment test.

We may perform a qualitative assessment in making our determination of whether it is more likely than not goodwill and other indefinite-lived intangible assets are impaired in future reporting periods.

In addition to the assumptions discussed above pertaining to the income approach, we consider the assessment of potential triggering events to be a critical estimate.

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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.

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:

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 or legislative changes prohibiting us from offering our loan products.

An impairment loss is recognized if the future undiscounted cash flows associated with the asset and the estimated fair value of the asset are less than the asset's carrying value.

Valuation of Long-Lived Assets

The carrying values of long-lived assets, inclusive of right of use (ROU) assets, are periodically reviewed whenever events or changes in circumstances indicate that the carrying value may not be recoverable, such as historical operating losses or plans to close stores before the end of their previously estimated useful lives.

A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets.

The estimate of cash flows includes management's assumptions of cash inflows and outflows directly resulting from the use of those assets in operations.

In addition to the assumptions associated with the determination of projected future cash flows, we consider the assessment of potential triggering events to be a critical estimate.

When a potential impairment has occurred, an impairment write-down is recorded if the carrying value of the long-lived asset exceeds its fair value.

Software Development Costs and Cloud Computing Arrangements

We capitalize certain costs incurred in connection with developing or obtaining software for internal use and amortize the costs on a straight-line basis over the estimated useful lives of each system, typically five years.

Net capitalized development costs are included in “Capital expenditures, net” in our consolidated statements of cash flows.

We consider whether cloud computing arrangements include a software license.

In evaluating whether our arrangements include a software license, we consider whether we have the contractual right to take possession of the software at any time during the hosting period without significant penalty and whether it is feasible for us to either run the software on our own hardware or contract with another party unrelated to the vendor to host the software.

If a cloud computing arrangement includes a software license, then we account for the software license element of the arrangement consistent with the acquisition of other software licenses.

In evaluating whether our cloud computing arrangements include a software license, we consider whether we have the contractual right to take possession of the software at any time during the hosting period without significant penalty and whether it is feasible for us to either run the software on our own hardware or contract with another party unrelated to the vendor to host the software.

If a cloud computing arrangement includes a software license, we account for the software license element of the arrangement consistent with the acquisition of other software licenses.

If a cloud computing arrangement does not include a software license, we account for the arrangement as a service contract.

Insurance Recoveries

We incur legal costs with respect to a variety of issues on an ongoing basis.

To the extent that such costs are reimbursable under applicable insurance policies and we believe it is probable such costs will be reimbursed and such reimbursements can be reasonably estimated, we record a receivable from the insurance enterprise and a recovery of the costs in our statements of operations.

When such recoveries are received, they are generally recorded under “Operating activities” in our consolidated statements of cash flows.

All loss contingencies are recorded gross of the insured recoveries as applicable .

Business Combinations

We allocate the total acquisition price to the fair value of assets and liabilities acquired under the acquisition method with goodwill representing the excess of purchase price over the fair value of net assets acquired.

We immediately expense transaction costs.

We expense transaction costs as incurred.

We recognize any adjustments to provisional amounts and goodwill that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, with the effect on current period earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.

Convertible Debt Securities

In accounting for our 2.375 % Convertible Senior Notes Due 2025 (the “2025 Convertible Notes”) and the 2.875 % Convertible Senior Notes Due 2024 (the “2024 Convertible Notes”) at issuance, we separated the securities into debt and equity components pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion.

In accounting for our convertible debt securities at issuance, we separated the securities into debt and equity components pursuant to the accounting standards for convertible debt instruments that may be fully or partially settled in cash upon conversion.

The carrying value of the liability components was calculated by measuring the fair value of similar liabilities that do not have an associated conversion feature, including discount rates of approximately 8 %.

The excess of the principal amount over the fair value of the liability component was recorded as a discount with a corresponding increase in additional paid-in capital.

The debt discounts will be accreted to “Interest expense” over the respective terms of the 2025 Convertible Notes and the 2024 Convertible Notes using the effective interest method.

The debt discounts will be accreted to “Interest expense” over the respective terms of the convertible debt securities using the effective interest method.

The amount recorded to “Additional paid-in capital” will not be remeasured as long as they continue to meet the conditions for equity classification.

We account for the conversion premium of the 2025 Convertible Notes and the 2024 Convertible Notes under the treasury method in accordance with our accounting policy, which assumes settlement of the conversion premium (equal to the as-converted value over the face principal amount) in shares of our Class A Common Stock.

We account for the conversion premium of the convertible debt securities under the treasury method in accordance with our accounting policy, which assumes settlement of the conversion premium (equal to the as-converted value over the face principal amount) in shares of our Class A Common Stock.

Foreign Currency

Empeño Fácil’s functional currency is the Mexican peso, and the functional currencies of our other operations included in our Latin America Pawn segment include the Guatemalan quetzal (Guatemala), United States dollar (El Salvador), Honduran lempira (Honduras) and Peruvian sol (Peru).

The functional currency of our wholly owned foreign subsidiary in Canada is the Canadian dollar.

Our foreign subsidiaries' balance sheet accounts are translated from their respective functional currencies into United States dollars at the exchange rate at the end of each quarter, and their earnings are translated into United States dollars

at the average exchange rate each quarter.

Our foreign subsidiaries use the local currency of their respective countries as their functional currency.

Assets and liabilities of our foreign subsidiaries' balance sheet accounts and our equity method investments are translated from their respective functional currencies into United States dollars at the exchange rate at the end of each quarter, and their earnings are translated into United States dollars at the average exchange rate each quarter.

We present resulting translation adjustments as a separate component of stockholders’ equity.

Our equity investment in Cash Converters International is translated from Australian dollars into United States dollars at the exchange rates as of Cash Converters International’s balance sheet date each reporting period.

The related interest in Cash Converters International’s net income is translated at the average exchange rate for each six -month period reported by Cash Converters International.

Foreign currency transaction gains and losses not accounted for as translations as discussed above are included under “Other expense (income)” in our consolidated statements of operations.

Foreign currency transaction gains and losses not accounted for as translations are included in “Other expense (income)” in our consolidated statements of operations.

These gains were $ 0.5 million, $ 0.3 million and $ 0.4 million for fiscal 2020, 2019 and 2018, respectively.

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Our policy is to recognize expense on performance-based awards, where satisfaction of the performance condition is probable, ratably over the awards’ vesting period and recognize expense on awards that only have service requirements on a straight-line basis.

Tax Cuts and Jobs Act of 2017

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law.

Among other things, the Act reduced the U.S.

federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.

The corporate tax rate reduction was effective as of January 1, 2018 and, accordingly, reduced our federal statutory rate for fiscal 2018 to a blended rate of 24.5 % , and further reduced our federal statutory rate to 21% in fiscal 2019.

We recognized a $ 2.1 million charge for the revaluation of our deferred tax assets and liabilities to the reduced tax rate upon enactment of the Act in fiscal 2018.

In addition, we recorded a charge of approximately $ 2.6 million to record a valuation allowance against foreign tax credit carryforwards which are not more likely than not to be utilized as a result of changes in tax law enacted as part of the Act in fiscal 2018.

Both items are included as components of "Income tax expense" in our consolidated statements of operations.

In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.

This ASU allows entities to reclassify from accumulated other comprehensive income to retained earnings the stranded tax effects resulting from the Act.

The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

As allowed, we early adopted ASU 2018-02 on a prospective basis as of January 1, 2018 and reclassified $ 1.5 million of accumulated foreign currency translation associated with our unconsolidated affiliate Cash Converters International, resulting from the stranded tax effects from the reduction of our effective tax rate, from accumulated other comprehensive loss to retained earnings.

Our policy is to release income tax effects from accumulated other comprehensive income on a segregated unit of account basis.

We account for income taxes using the asset and liability method.

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We believe adequate provisions for income taxes have been made for all periods.

We recognize interest and penalties related to unrecognized tax benefits as “Income tax expense” in our consolidated statements of operations, which were $ 0.2 million in each of 2019 , 2018 and 2017 .

We recognize interest and penalties related to unrecognized tax benefits as “Income tax expense” in our consolidated statements of operations.

We consider our assessment of the recognition of deferred tax assets as well as estimates of uncertain tax positions to be critical estimates.

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There were no participating securities outstanding during fiscal 2020, 2019 and 2018 requiring the application of the two-class method.

When we are in a loss position for the period, dilutive securities are excluded from the calculation of earnings per share, as they would have an anti-dilutive effect.

Our capital stock consists of two classes of common stock designated as Class A Non-Voting Common Stock (“Class A Common Stock”) and Class B Voting Common Stock (“Class B Common Stock”).

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We are required to reserve the number of authorized but unissued shares of Class A Common Stock that would be issuable upon conversion of all outstanding shares of Class B Common Stock.

Use of Estimates and Assumptions

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, collectability of notes receivable, loan loss allowances, long-lived and intangible assets, income taxes, potential impairments of investments, contingencies and litigation.

We base our estimates on historical experience, observable trends and various 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.

Impact of COVID-19

In December 2019, a novel strain of coronavirus “COVID-19” was identified in Wuhan, China.

COVID-19 has caused a global health emergency and was declared a worldwide pandemic by the World Health Organization on March 11, 2020.

In an effort to slow and contain the spread of COVID-19, local, state and national governments implemented various measures, which have impacted businesses worldwide.

Many of these measures have expired or been rescinded, but some are continuing and others are being reimplemented or considered for reimplementation as COVID-19 continues to spread at rapid rates in many parts of the U.S.

We began to see the impact of COVID-19 to our operations in mid-March when the closure of non-essential businesses and the implementation of stay-at-home requirements began in our geographic locations.

During the third quarter, we were able to keep virtually all of our stores in the U.S.

and Mexico open for business and operating under enhanced safety measures and restrictions on occupancy, but store closure orders in our GPMX countries (Guatemala, El Salvador, Honduras and Peru) had a more severe impact on our business.

Since that time and continuing through the fourth quarter, we have been able to keep virtually all of our stores open for business.

Starting in mid-March and continuing through most of the fourth quarter, we experienced a significant decline in pawn loan originations and associated loan balances as a result of a change in customer borrowing behaviors due to COVID-19.

This reduced activity resulted in net revenue losses for the year, which were partially offset by a strong increase in merchandise sales.

The factors described above impacted the forecast of future net revenues and earnings and resulted in lower present value of future cash flows.

We recorded a goodwill impairment charge of $ 41.3 million in the second quarter of fiscal 2020.

In addition, we (a) determined an impairment had occurred in the fair values of trade names of previously acquired entities in our Mexico and GPMX reporting units and recorded a related impairment of $ 2.9 million and $ 1.7 million respectively, and (b) determined the carrying amount of certain long-lived asset groups were not recoverable and recorded a related impairment of $ 1.1 million, all in the second quarter of 2020.

The full extent and duration of the COVID-19 impact on the global economy generally, and on our business specifically, is currently unknown and cannot be reasonably estimated.

The pandemic has had an adverse effect on our net revenues and earnings in fiscal 2020.

We expect the impact of the pandemic, and the recovery therefrom, will continue to adversely affect net revenues and earnings into fiscal 2021.

A prolonged pandemic and recovery may have an adverse effect on our results of operations, financial position and liquidity in future periods.

Recently Adopted Accounting Policies

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification ("ASC") 350-40 to determine which implementation costs to defer and recognize as an asset.

This ASU generally aligns the guidance on recognizing implementation costs incurred in a cloud computing arrangement that is a service contract with that for implementation costs incurred to develop or obtain internal-use software, including hosting arrangements that include an internal-use software license.

Our hosting arrangements that are service contracts include various third-party software applications.

We adopted this ASU during the first quarter of fiscal 2019 on a prospective basis for all service contracts entered into after adoption, with no material impact upon adoption.

In November 2016, the FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230):

Restricted Cash.

This ASU requires the inclusion of restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

We adopted this ASU during the first quarter of fiscal 2019 with no impact on our financial position or results of operations.

However, we have recast our statements of cash flows on a retrospective basis to include restricted cash when reconciling the beginning-of-period and end-of-period total amounts.

In August 2016, the FASB issued ASU 2016-15 Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and Cash Payments.

This ASU provides guidance on eight specific cash flow issues.

We adopted this ASU during the first quarter of fiscal 2019 on a prospective basis with no impact on our financial position, results of operations or cash flows.

In May 2016, the FASB issued ASU 2016-01, Financial Instruments (Subtopic 825-10).

The amendments in this ASU make targeted improvements to GAAP primarily as it pertains to equity investments (not including equity method of accounting), fair value disclosures, balance sheet presentation, and other items pertaining to financial instruments.

We adopted this ASU during the first quarter of fiscal 2019 on a prospective basis, as applicable, with no impact on our financial position, results of operations or cash flows upon adoption.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606).

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) to defer the effective date to December 15, 2017 for annual reporting periods beginning after that date, with early adoption permitted, but not before the original effective date of December 15, 2016.

The core principle of this ASU, and the subsequently issued ASUs modifying or clarifying this ASU, is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

To achieve this core principle, the guidance provides that an entity should apply the following steps:

(1) identify the contract(s) with a customer;

(2) identify the performance obligations in the contract;

(3) determine the transaction price;

(4) allocate the transaction price to the performance obligations in the contract;

and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

The new standard allows for two methods of adoption:

(a) full retrospective adoption, meaning the standard is applied to all periods presented, or (b) modified retrospective adoption, meaning the cumulative effect of applying the new standard is recognized as an adjustment to the opening retained earnings balance.

We adopted this ASU and related guidance as of October 1, 2018 using the modified retrospective method.

We evaluated the impact of ASC 606 on our consolidated financial position, results of operations, cash flows and disclosure requirements noting no material impact to our consolidated financial statements or disclosures.

See Note 15 for disaggregated information about our sources of revenue and accounting policies above for enhanced disclosures.

Additionally, we have concluded that ASC 606 does not impact our revenue recognition for pawn service charges or consumer loan fees as we believe neither of those revenue streams are within the scope of ASC 606.

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848) — Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate.

ASU 2020-04 is effective upon issuance through December 31, 2022.

This ASU has not had a significant impact on our consolidated financial statements and related disclosures to date.

We will continue to assess the applicability to any future arrangements.

Effective October 1, 2019, we adopted ASC - Leases (Topic 842) which requires companies to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet using the modified retrospective method provided under ASU 2018-11, Leases- (Topic 842):

Targeted Improvements.

Additionally, we elected the package of practical expedients under Accounting Standards Codification ("ASC") 842 as well as the transition guidance elections to not separate lease and non-lease components for leases under ASC 842.

Further, we have elected an accounting policy to not record right-of-use assets and lease liabilities for leases that have a duration of 12 months or less.

See Note 12 for additional discussion.

Recently Issued Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework.

This ASU modifies the disclosure requirements for fair value measurements in Accounting Standards Codification (“ASC”) 820.

The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted based upon guidance issued within the ASU.

A reporting entity should apply the amendment either retrospectively or prospectively based on the specific guidance within the ASU.

We do not anticipate that the adoption of the ASU will have a material effect on our disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This ASU, along with subsequently issued related ASUs, requires financial assets (or groups of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected, among other provisions.

The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

A reporting entity should generally apply the amendment on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting periods in which the amendment is effective.

We have not identified any impacts to our financial statements that we believe will be material as a result of the adoption of the ASU, although we continue to evaluate the impact of adoption.

We believe we are following an appropriate timeline to allow for proper recognition, presentation and disclosure upon adoption of this ASU which is effective for fiscal 2021.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).

This ASU requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets.

The provisions of this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

We are in the process of evaluating the impact of adopting ASU 2016-02 on our consolidated financial position, results of operations and cash flows, and anticipate a material impact on our consolidated financial position.

We are currently assessing the potential impact this ASU and related ASUs on our consolidated financial statements, though the adoption will result in a material increase in the assets and liabilities reflected on our consolidated balance sheets.

We will complete our implementation to allow for proper recognition, presentation and disclosure upon adoption of the ASU which is effective for fiscal 2020.

We plan to adopt this ASU using the optional prospective transition method provided under ASU 2018-11, Leases, (Topic 842):

Targeted Improvement which was issued in July 2018, allowing for application of ASU 2016-02 at the adoption date.

In August 2020, the FASB issued its Accounting Standards Update (“ASU”) 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”).

ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The ASU 2020-06 amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

We are assessing the amendments in ASU 2020-06 to determine the impact on our consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) (ASU 2016-13).

ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets.

The ASU amends the impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables.

The amendment requires entities to consider other factors, such as economic conditions and future economic conditions.

We are still assessing the amendments in ASU 2016-13 and do not expect the amendments will have a significant impact on our consolidated financial statements and related disclosures.

ASU 2016-13 is effective for the first quarter of fiscal 2021 .

OTHER CHARGES

Strategic Initiatives .

During the fourth quarter of fiscal 2020, we began to implement strategic initiatives to refocus on our core pawn business and optimize our cost structure in order to improve our bottom line performance and position the Company for sustainable growth.

The initiatives focused on workforce reductions, closure of our CASHMAX operations, store closures and write-offs of other miscellaneous charges.

Charges and adjustments related to our initiatives are summarized below:

• $ 6.4 million in severance and other payroll-related costs related to a headcount reduction in the corporate office;

• $ 4.9 million in costs related to the closure of the CASHMAX business and related operations, primarily consisting of severance and other payroll-related costs, net asset write-offs, impairment of internally developed software and contract termination costs;

• $ 4.1 million in costs primarily related to the closure of four stores in U.S.

Pawn and three stores in Latin America Pawn, consisting primarily of severance and other payroll-related costs and reserves on net assets;

• $ 5.0 million in other miscellaneous charges, primarily consisting of impairment of internally developed software and contract termination costs.

(in millions) Accrued Charges at September 30, 2019 Charges and Adjustments Payments and Adjustments Accrued Charges at September 30, 2020

Cash charges:

Labor reduction costs $ — $ 6.4 $ 0.5 $ 5.9

CASHMAX shutdown costs — 1.8 1.0 0.8

Store closure costs — 1.8 — 1.8

Other — 2.5 0.3 2.2

$ — $ 12.5 $ 1.8 $ 10.7

Non-cash charges:

Labor reduction costs $ —

CASHMAX shutdown costs 3.1

Store closure costs 2.3

Fiscal 2019 Acquisitions

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In December 2018, we acquired assets related to five pawn stores in Mexico for an aggregate purchase price of $ 0.3 million in cash, of which $ 0.1 million was recorded as goodwill.

We expect substantially all goodwill attributable to the fiscal 2019 acquisitions to be deductible for tax purposes.

We have concluded that these acquisitions were immaterial to our overall consolidated financial results and, therefore, have omitted information that would otherwise be required.

Substantially all goodwill attributable to the fiscal 2019 acquisitions is deductible for tax purposes.

We have concluded these acquisitions were immaterial to our overall consolidated financial results and, therefore, have omitted information that would otherwise be required.

Fiscal 2018 Acquisitions

Camira Administration Corp.

and Subsidiaries (“GPMX”) in Fiscal 2018

On October 6, 2017, we completed the acquisition of 100 % of the outstanding stock of Camira Administration Corp.

and subsidiaries (“GPMX”)

In October 2017, we completed the acquisition of 100 % of the outstanding stock of Camira Administration Corp.

and subsidiaries (“GPMX”), a business that, at the time, owned and operated 112 stores located in Guatemala, El Salvador, Honduras and Peru.

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Consequently, we made a final payment of $ 1.6 million in January 2018 in satisfaction of the contingent purchase price obligation, after reduction for certain adjustments under the SPA, yielding a total purchase price of $ 61.7 million.

All Other Fiscal 2018 Acquisitions

On June 25, 2018, we acquired 40 pawn stores operating under the name “Montepio San Patricio” in and around Mexico City, the largest market in Mexico.

In June 2018, we acquired 40 pawn stores operating under the name “Montepio San Patricio” in and around Mexico City, the largest market in Mexico.

The acquisition of these stores was our largest acquisition in Mexico to date and significantly strengthened our competitive position in the strategically important Mexico City metropolitan area.

The physical space in these stores is substantially larger than our average store in Mexico, giving us the capacity to increase their focus on general merchandise pawn loan and retail activities.

On June 11, 2018, we acquired 23 pawn stores operating under the name “Presta Dinero,” giving us a presence in a number of cities within seven central-Mexico states in which we already had stores.

In June 2018, we acquired 23 pawn stores operating under the name “Presta Dinero,” giving us a presence in a number of cities within seven central-Mexico states in which we already had stores.

These stores complemented our existing stores, allowing us to achieve synergies in management and administration while giving us a presence in new cities and neighborhoods.

On December 4, 2017, we acquired 21 pawn stores located in the Mexican state of Sinaloa operating under the name “Bazareño.” The Bazareño stores made up the largest chain of pawn stores in Culiacan, the capital city of Sinaloa, giving us the number one position in that market and an important strategic presence in the northwest region of Mexico.

In December 2017, we acquired 21 pawn stores located in the Mexican state of Sinaloa operating under the name “Bazareño.” The Bazareño stores made up the largest chain of pawn stores in Culiacan, the capital city of Sinaloa, giving us the number one position in that market and an important strategic presence in the northwest region of Mexico.

The purchase prices of the above acquisitions were paid in cash.

During the first quarter of fiscal 2019, we finalized accounting for the Montepio San Patricio and Presta Dinero acquisitions, and increased associated deferred tax assets by $ 1.8 million with an offsetting reduction in goodwill.

These acquisitions, collectively referred to as "All Other" below, were individually immaterial and we have therefore omitted or aggregated certain disclosures.

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The acquisitions described above were all attributable to our Latin America Pawn segment.

Including the revision of values and finalization of accounting for certain assets associated with the acquisition of Montepio San Patricio and Presta Dinero, the allocation of the consideration for the net acquired assets from our fiscal 2018 business combinations was as follows:

The allocation of the consideration for the acquired net assets from our fiscal 2018 acquisitions was as follows:

GPMX All Other

(in thousands)

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Property and equipment, intangible assets, deferred taxes and other assets, net* 11,671 13,678

Goodwill 34,816 7,770

Accounts payable, deferred taxes and other liabilities ( 6,723 ) 1,621

Total consideration $ 61,716 $ 35,153

Intangible assets consist primarily of $ 9.8 million and $ 6.6 million in trade names acquired with indefinite useful lives, for GPMX and All Other, respectively.

As discussed in Note 1, certain adjustments were made to pawn service charges receivable and associated goodwill balances.

* As September 30, 2018 i ntangible assets consist primarily of $ 9.8 million and $ 6.6 million in trade names acquired with indefinite useful lives, for GPMX and All Other, respectively.

The factors contributing to the recognition of goodwill, which is recorded in our Latin America Pawn segment, were based on several strategic and synergistic benefits we expect to realize from the acquisitions, including expansion of our store base as well as the ability to further leverage our pawn expertise, investments in information technology and other back office and support functions of our existing Mexico pawn business.

We expect none of the goodwill resulting from these business combinations will be deductible for tax purposes.

None of the goodwill resulting from these business combinations is deductible for tax purposes.

The results of the acquired businesses have been included in our consolidated financial statements beginning after the acquisition dates as indicated above in our Latin America Pawn segment with revenue and net income amounts as presented below.

Such net income does not include acquisition-related costs of approximately $ 0.6 million for fiscal 2018, which were expensed as incurred and primarily included under “Administrative” expense in our consolidated statements of operations.

It is impracticable to provide historical supplemental pro forma financial information for GPMX and All Other acquisitions due to a variety of factors, including complexity of restructured entities acquired and access to historical information, such as

information necessary to eliminate intercompany transactions.

Fiscal Year Ended September 30, 2018

Fiscal 2017 Acquisitions

In August 2017, we acquired certain assets related to two pawn stores in Central Texas and one pawn store in Las Vegas, Nevada.

The aggregate purchase price for these transactions in total was $ 2.3 million in cash, of which $ 0.4 million was recorded as goodwill.

For additional discussion of the Central Texas acquisition, see Note 11 .

We expect substantially all goodwill attributable to the fiscal 2017 acquisitions will be deductible for tax purposes.

We have concluded that these acquisitions were immaterial to our overall consolidated financial results and, therefore, have omitted information that would otherwise be required.

EARNINGS PER SHARE

Components of basic and diluted earnings per share and excluded antidilutive potential common shares are as follows:

Fiscal Year Ended

September 30, 2018

Revenue Net Income

GPMX $ 46.5 $ 8.0

All Other 7.5 1.3

(LOSS) EARNINGS PER SHARE

Components of basic and diluted (loss) earnings per share and excluded antidilutive potential common shares are as follows:

Fiscal Year Ended September 30,

2020 2019 2018

(in thousands, except per share amounts)

Net income from continuing operations attributable to EZCORP (A)

Net (loss) income from continuing operations attributable to EZCORP (A) $ ( 68,463 ) $ 2,998 $ 38,138

Loss from discontinued operations, net of tax (B) — ( 457 ) ( 856 )

Net income attributable to EZCORP (C)

Net (loss) income attributable to EZCORP (C) $ ( 68,463 ) $ 2,541 $ 37,282

Weighted average outstanding shares of common stock (D) 55,313 55,341 54,456

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Weighted average common stock and common stock equivalents (E) $ 55,313 $ 55,984 $ 57,896

Basic earnings per share attributable to EZCORP:

Continuing operations (A / D)

Basic (loss) earnings per share attributable to EZCORP:

Continuing operations (A/E) $ ( 1.24 ) $ 0.05 $ 0.70

Discontinued operations (B / D) — ( 0.01 ) ( 0.02 )

Basic earnings per share (C / D)

Diluted earnings per share attributable to EZCORP:

$ ( 1.24 ) $ 0.04 $ 0.68

Diluted (loss) earnings per share attributable to EZCORP:

Continuing operations (A / E) $ ( 1.24 ) $ 0.05 $ 0.66

Discontinued operations (B / E) — ( 0.01 ) ( 0.02 )

Diluted earnings per share (C / E)

Diluted (loss) earnings per share (C / E) $ ( 1.24 ) $ 0.04 $ 0.64

Potential common shares excluded from the calculation of diluted earnings per share above*:

Restricted stock** 2,786 2,121 2,218

See Note 8 for discussion of the terms and conditions of the potential impact of the 2019 Convertible Notes Warrants, 2024 Convertible Notes and 2025 Convertible Notes.

As required by ASC 260-10-45-19, amount excludes all potential common shares for periods when there is a loss from continuing operations.

Includes antidilutive share-based awards as well as performance-based and market conditioned share-based awards that are contingently issuable, but for which the condition for issuance has not been met as of the end of the reporting period.

* See Note 9 for discussion of the terms and conditions of the potential impact of the 2024 Convertible Notes and 2025 Convertible Notes.

This amount excludes all potential common shares for periods when there is a loss from continuing operations.

** Includes antidilutive share-based awards as well as performance-based share-based awards that are contingently issuable, but for which the condition for issuance has not been met as of the end of the reporting period.

STRATEGIC INVESTMENTS

As of September 30, 2019 , we owned 214,183,714 shares, or approximately 34.75 % , of Cash Converters International, which is, as a result, our unconsolidated affiliate.

As of September 30, 2020, we owned 214,183,714 shares, or approximately 34.75 %, of Cash Converters International.

Our total investment in Cash Converters International was acquired between November 2009 and June 2018 for approximately $ 96.1 million, including the acquisition of 57,631,230 shares in June 2018 for $ 14.0 million (increasing our ownership by three percentage points) in connection with an underwritten placement of 123.3 million shares by Cash Converters International for AUD $ 39.5 million, excluding related costs.

Our equity in Cash Converters International’s net income was $ 0.1 million , $ 5.5 million and $ 4.9 million in fiscal 2019 , 2018 and 2017 , respectively.

Cash Converters International did not declare or pay a dividend in fiscal 2019.

We recorded dividends from Cash Converters International of $ 1.2 million in fiscal 2017 , which were reinvested.

Our equity in Cash Converters International’s net loss was $ 2.1 million and $ 0.1 million in fiscal 2020 and 2019, and our equity in net income was $ 5.5 million in 2018.

Cash Converters International did not declare or pay a dividend in fiscal 2020, 2019 or 2018.

Cash Converters International’s accumulated undistributed after-tax earnings included in our consolidated retained earnings were $ 13.7 million as of September 30, 2020.

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Non-current assets 172,833 152,483

Total assets $ 330,016 $ 326,309

Current liabilities $ 68,028 $ 77,434

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Fiscal Year Ended June 30,

2020 2019 2018

(in thousands)

Gross revenues $ 187,025 $ 201,365 $ 201,800

Gross profit 112,511 111,932 128,366

Net (loss) profit ( 7,032 ) ( 1,210 ) 17,443

Through fiscal 2019, the fair value of our investment in Cash Converters International, as estimated by reference to its quoted market price per share and the applicable foreign currency exchange rate, declined from its value at September 30, 2018 and ended each quarter below its carrying value.

For the first and second quarters of fiscal 2019, we determined that our investment was impaired and that such impairment was "other-than-temporary." In reaching this conclusion, we considered all available evidence, including evidence in existence as of September 30, 2018 as discussed below.

At September 30, 2020 , the fai r value of our investment in Cash Converters International, as estimated by reference to its quoted market price per share, was greater than its carrying value.

Additionally, we noted the following developments subsequent to September 30, 2018:

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The fair value of our investment in Cash Converters International was $ 6.2 million below its carrying value as of September 30, 2019, which we determined was not other-than temporary primarily as a result of the subsequent settlement of the remaining Queensland, Australia class action lawsuit and recovery of share price.

See Note 18 for discussion of resolution of the Queensland, Australia class action lawsuit.

During fiscal 2018, the fair value of our investment in Cash Converters International, as estimated by reference to its quoted market price per share, declined from September 30, 2017 and ended below its carrying value as of September 30, 2018.

As of September 30, 2018, we determined that our investment was impaired and that such impairment was other-than-temporary.

In reaching this conclusion, we considered all available evidence, including the following:

(i) positive earnings reported for the previous two years;

(ii) resolution of Australian Securities and Investment Commission Enforceable Undertaking in May 2018;

(iii) executive turnover including announcement of its chief executive officer’s departure in August 2018;

(iv) outstanding Queensland class action litigation;

(v) ongoing uncertainty around Australian legislative action;

(vi) continued cessation of dividend payments;

(vii) available analyst reports including associated future earnings and cash flow forecasts;

and (viii) the prolonged drop in Cash Converters International’s stock price.

As a result, we recognized an other-than-temporary impairment in Cash Converters International of $ 11.7 million ( $ 9.2 million , net of taxes) in fiscal 2018.

The above impairments increased the difference between the amount at which our investment was carried and the amount of underlying equity in net assets of Cash Converters International as discussed in Note 1 and were recorded under “Impairment of investment” in our consolidated statements of operations in the “Other International” segment.

We will continue to monitor the fair value of our investment in Cash Converters International for other-than-temporary impairments in future reporting periods and may record additional impairment charges should the fair value of our investment in Cash Converters International further decline below its carrying value for an extended period of time.

We will continue to monitor the fair value of our investment in Cash Converters International for other-than-temporary impairments in future reporting periods and may record additional impairment charges should the fair value of our investment in Cash Converters International decline below its carrying value for an extended period of time.

See Note 6 for the fair value and carrying value of our investment in Cash Converters International.

We hold a 13.14 % ownership in "RDC" and recognized a $ 0.3 million net loss for fiscal year 2020.

FAIR VALUE MEASUREMENTS

Our assets and liabilities discussed below are classified in one of the following three categories based on the inputs used to develop their fair values:

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values.

Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The fair value hierarchy is defined into the following three categories:

• Level 1 — Quoted market prices in active markets for identical assets or liabilities.

• Level 2 — Other observable market-based inputs or unobservable inputs that are corroborated by market data.

and Level 3 — Unobservable inputs that are not corroborated by market data.

We have elected not to measure at fair value any eligible items for which fair value measurement is optional.

Recurring Fair Value Measurements

The table below presents our financial assets (liabilities) that were carried and measured at fair value on a recurring basis:

September 30, 2019

September 30, 2018

Financial Assets (Liabilities):

Balance Sheet Location

(in thousands)

2019 Convertible Notes Hedges — Level 2

Prepaid expenses and other current assets

2019 Convertible Notes Embedded Derivative — Level 2

Current maturities of long-term debt, net

We repaid our outstanding 2.125 % Cash Convertible Senior Notes Due 2019 in June 2019 with expiration of the associated cash-settled call options (the “2019 Convertible Notes Hedges”) and the 2019 Convertible Notes derivative instrument (the “2019 Convertible Notes Embedded Derivative”).

There were no transfers in or out of Level 1, Level 2 or Level 3 for financial assets or liabilities measured at fair value on a recurring basis during the periods presented.

• Level 3 — Unobservable inputs that are not corroborated by market data.

Financial Assets and Liabilities Not Measured at Fair Value

The tables below present our financial assets and liabilities that were not measured at fair value (including those discussed below the following tables) on a recurring basis:

Carrying Value

Estimated Fair Value

September 30, 2019

Fair Value Measurement Using

The tables below present our financial assets and liabilities that were not measured at fair value:

Carrying Value Estimated Fair Value

September 30, 2020 September 30, 2020 Fair Value Measurement Using

Level 1 Level 2 Level 3

(in thousands)

Financial assets:

Notes receivable from Grupo Finmart, net

2.89 % promissory note receivable due April 2024

$ 1,148 $ 1,148 $ — $ — $ 1,148

Investments in unconsolidated affiliates 32,458 32,597 24,833 — 7,764

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8.5 % unsecured debt due 2024

CASHMAX secured borrowing facility

Carrying Value

Estimated Fair Value

September 30, 2018

Fair Value Measurement Using

872 872 — — 872

Carrying Value Estimated Fair Value

September 30, 2019 September 30, 2019 Fair Value Measurement Using

Level 1 Level 2 Level 3

(in thousands)

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Notes receivable from Grupo Finmart, net $ 7,182 $ 7,582 $ — $ — $ 7,582

2.89 % promissory note receivable due April 2024

1,117 1,117 — — 1,117

Investments in unconsolidated affiliates 34,516 28,308 20,252 — 8,056

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2025 Convertible Notes 126,210 138,345 — 138,345 —

2025 Convertible Notes

8.5 % unsecured debt due 2024

Based primarily on the short-term nature of cash and cash equivalents, pawn loans, pawn service charges receivable, current consumer loans, fees and interest receivable and other debt, we estimate that their carrying value approximates fair value.

We consider our cash and cash equivalents to be measured using Level 1 inputs and our pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt to be measured using Level 3 inputs.

1,092 1,092 — — 1,092

CASHMAX secured borrowing facility 634 634 — — 634

Based primarily on the short-term nature of cash and cash equivalents, pawn loans, pawn service charges receivable and other debt, we estimate that their carrying value approximates fair value.

We consider our cash and cash equivalents to be measured using Level 1 inputs and our pawn loans, pawn service charges receivable and other debt to be measured using Level 3 inputs.

Significant increases or decreases in the underlying assumptions used to value pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt could significantly increase or decrease these fair value estimates.

For background information regarding the notes receivable, see “Notes Receivable from Grupo Finmart Divestiture” below.

We measured the fair value of the notes receivable under a discounted cash flow approach considering the estimated credit ratings for Grupo Finmart and AlphaCredit and as determined with external consultation, with discount rates of primarily 7 % as of September 30, 2019 .

Certain of the significant inputs used for the valuation were not observable in the market.

Significant increases or decreases in the underlying assumptions used to value the notes receivable could significantly increase or decrease these fair value estimates.

In March 2019, we deconsolidated a previously consolidated variable interest entity ("RDC") over which we no longer have the power to direct the activities that most significantly affect its economic performance.

After the deconsolidation and prior to RDC’s third-party capital raise in August 2019, we held the following interests in RDC:

A 5 % equity interest and a call option to repurchase an additional 43 % equity interest for $ 1 in September 2019 in the event that RDC had not received a qualified third party investment.

These interests were recorded at a combined fair value of $ 2.8 million and included in "Investments in unconsolidated affiliates" in our consolidated balance sheets.

A $ 9.1 million non-interest bearing convertible promissory note due January 2021, which was automatically convertible into a 10 % equity interest when RDC received a qualified third party investment.

This note was recorded at its fair value of $ 6.8 million .

In conjunction with the deconsolidation and recording of the above amounts, we recognized a loss of $ 0.3 million , included in "Other income" in our consolidated statements of operations included in our "Other International" segment and in "Other adjustments" in our consolidated statements of cash flows for fiscal 2019.

In August 2019, RDC received a qualified third party investment causing recognition of a loss of $ 1.9 million on expiration of the call option, included in "Other expense (income)" in our consolidated statements of operations included in our "Other International" segment and in "Other adjustments" in our consolidated statements of cash flows.

Additionally, the carrying value of the convertible promissory note due January 2021 of $ 7.4 million was converted into a 10 % equity interest which together with the previous 5 % equity interest is accounted for under the equity method and yielding a resulting interest of 13 % after dilution.

The RDC equity interest approximated its carrying value as of September 30, 2019 .

The equity method of accounting is followed based on our 13 % ownership, combined with board representation.

The net investment value is included in “Investment in unconsolidated affiliates” on our balance sheet at September 30, 2019.

In March 2019, we received $ 1.1 million in previously escrowed seller funds as a result of settling certain indemnification claims with the seller of GPMX.

In April 2019, we loaned the $ 1.1 million back to the seller of GPMX in exchange for a promissory note.

The note bears interest at the rate of 2.89 % per annum and is secured by certain marketable securities owned by the seller and held in a U.S.

brokerage account.

All principal and accrued interest is due and payable in April 2024.

The note approximated its carrying value as of September 30, 2019 .

In September 2020, we received the final payment from AlphaCredit on the notes receivable related to the sale of Grupo Finmart and recorded the amount under “Restricted cash” in our consolidated balance sheet as of September 30, 2020.

In August 2019, AlphaCredit notified us of an indemnity claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined.

The inputs used to generate the fair value of the investment in unconsolidated affiliate (Cash Converters International) were considered Level 1 inputs.

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We included no control premium for owning a large percentage of outstanding shares.

We use the equity method of accounting for our 13.14 % ownership in a previously consolidated variable interest entity, RDC, over which we no longer have the power to direct the activities that most significantly affect its economic performance.

We believe its fair value approximates carrying value although such fair value is highly variable and includes significant unobservable inputs.

We measured the fair value of the 2024 and 2025 Convertible Notes using quoted price inputs.

The 2024 and 2025 Convertible Notes are not actively traded, and thus the price inputs represent a Level 2 measurement.

The notes are not actively traded, and thus the price inputs represent a Level 2 measurement.

As the quoted price inputs are highly variable from day to day, the fair value estimates disclosed above could significantly increase or decrease.

Notes Receivable from Grupo Finmart Divestiture in Fiscal 2016

Subsequent to the sale of Grupo Finmart in September 2016, we determined that we retained a variable interest in Grupo Finmart, including notes receivable and a guarantee liability of the future cash outflows of certain Grupo Finmart foreign exchange forward contracts with a backup guarantee provided by AlphaCredit for any payments we make under the guarantee.

We determined that we are not the primary beneficiary of Grupo Finmart subsequent to its disposition as we lack a controlling financial interest in Grupo Finmart.

During fiscal 2019 and 2018, we collected $ 34.1 million and $ 32.4 million , respectively, in principal and deferred compensation on these notes receivable.

As of September 30, 2017, all of the notes receivable (other than the Parent Loan Notes discussed below) had been repaid and the guarantee liability had been extinguished.

As of September 30, 2017, only two promissory notes (referred to as the “Parent Loan Notes”), one of which was denominated in Mexican pesos, remained outstanding from the Grupo Finmart sale, with a total aggregate principal amount of $ 60.9 million .

In September 2017, we and AlphaCredit amended the Parent Loan Notes as follows:

The outstanding principal amount (including the $ 18.3 million that would otherwise have been payable on September 27, 2017) was payable on a monthly basis over the remaining two years , commencing October 27, 2017.

The per annum interest rate was increased from 4 % to 10 % for the dollar-denominated note and from 7.5 % to 14.5 % for the peso-denominated note.

Accrued interest was also payable monthly, commencing October 27, 2017.

An additional deferred compensation fee totaling $ 14.0 million , payable $ 6.0 million on September 27, 2019, $ 4.0 million on March 27, 2020 and $ 4.0 million on September 27, 2020.

The first $ 6.0 million installment of the deferred compensation fee was received in September 2019.

The actual amount was slightly less than $ 6.0 million due to changes in the foreign currency translation rate.

The Parent Loan Notes could be prepaid in full voluntarily at any time and are subject to mandatory prepayment in certain circumstances.

Upon any prepayment, whether voluntary or mandatory, Grupo Finmart must pay all outstanding principal, all accrued but unpaid interest and an amount equal to the sum of (1) all remaining interest payments that would otherwise be due through the end of the term and (2) the remaining unpaid balance of the

deferred compensation fee.

If a prepayment had occurred on or before June 30, 2019, the deferred compensation fee would have been reduced to $ 10.0 million .

The Parent Loan Notes, as amended, are fully guaranteed by AlphaCredit.

As further consideration for these amendments, AlphaCredit agreed to terminate our indemnification obligations with respect to representations and warranties and certain other matters under the Purchase Agreement, dated as of July 1, 2016, that the parties entered into in connection with the sale of Grupo Finmart (the “Purchase Agreement”).

Those representations and warranties were originally scheduled to survive until March 27, 2018.

AlphaCredit also agreed to terminate all indemnity claims existing at the time of the amendment and to release to us the outstanding balance ( $ 4.1 million ) held in escrow pending resolution of indemnification claims.

We accounted for this amendment as an extinguishment of the original Parent Loan Notes, recognizing $ 3.0 million of remaining discount as a gain included in “Interest income” in our consolidated statements of operations.

We remain obligated to indemnify AlphaCredit for any tax obligations arising from the Grupo Finmart business that are attributable to periods prior to the completion of the sale in September 2016, referred to as “pre-closing taxes.” Those obligations continue until the expiration of the statute of limitations applicable to the pre-closing periods.

In August 2019, AlphaCredit notified us of a potential indemnity claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined.

We review the financial statements of Grupo Finmart and AlphaCredit including the calculation of synthetic credit spreads as described above in making our determination that the Parent Loan Notes are collectible on an ongoing basis.

As of September 30, 2019, Grupo Finmart had repaid all amounts due to date in accordance with the amortization schedule, including all principal amounts and the initial $ 6.0 million installment of the deferred compensation fee, along with interest through September 27, 2019.

The only amount remaining due is the final $ 8.0 million of the deferred compensation fee due in fiscal 2020 and interest that will continue to accrue on that amount.

In March 2019, we received $ 1.1 million in previously escrowed seller funds as a result of settling certain indemnification claims with the seller of GPMX.

In April 2019, we loaned the $ 1.1 million back to the seller of GPMX in exchange for a promissory note.

The note bears interest at the rate of 2.89 % per annum and is secured by certain marketable securities owned

by the seller and held in a U.S.

brokerage account.

All principal and accrued interest is due and payable in April 2024.

The note approximated its carrying value as of September 30, 2020.

PROPERTY AND EQUIPMENT

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September 30,

(in thousands)

(in thousands) Carrying

Amount Accumulated

Depreciation Net Book

Value Carrying

Amount Accumulated

Depreciation Net Book

Land $ 4 $ — $ 4 $ 4 $ — $ 4

Buildings and improvements 105,137 ( 75,445 ) 29,692 103,486 ( 68,895 ) 34,591

Furniture and equipment 127,793 ( 101,888 ) 25,905 127,531 ( 96,142 ) 31,389

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and Intangible Asset Balances

The following table presents the balance of each major class of indefinite-lived intangible asset:

September 30,

(in thousands)

Pawn licenses

Software 33,729 ( 33,190 ) 539 34,245 ( 33,528 ) 717

Construction in progress 846 — 846 656 — 656

$ 267,509 $ ( 210,523 ) $ 56,986 $ 265,922 $ ( 198,565 ) $ 67,357

GOODWILL AND INTANGIBLE ASSETS

We test goodwill and intangible assets with indefinite useful lives for impairment annually, or more frequently when there are events or circumstances that indicate a potential impairment exists.

During the second quarter of fiscal 2020, there was an indicator of impairment due to a decline in our market capitalization.

We performed a quantitative analysis as of March 31, 2020 utilizing the income approach.

This approach uses future cash flows and estimated terminal values for each reporting unit (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if an impairment exists.

The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly traded companies that are similar but not identical from an operational and economic standpoint.

There is inherent uncertainty associated with these key assumptions, including the duration of the economic downturn associated with COVID-19 and the recovery period.

As a result of our quantitative analysis, we determined the fair value of each of our reporting units was below its carrying value because of the impact of COVID-19, including a significant decline in pawn loan balances due to changes in typical customer behavior and mandated store closures in our GPMX countries.

These factors impacted the forecast of future net revenues and earnings and resulted in lower present value of future cash flows.

We recorded a goodwill impairment charge of $ 41.3 million in the second quarter of fiscal 2020.

These impairments were recorded under "Impairment of goodwill, intangible and other assets" in the Consolidated Statements of Operations.

We further evaluated events and circumstances as of September 30, 2020 and determined there were no indicators of impairment.

The following table presents the changes in the carrying value of goodwill by segment:

Latin America Pawn

Pawn Latin America Pawn Consolidated

(in thousands)

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Balances as of September 30, 2019 $ 251,752 $ 48,775 $ 300,527

Acquisitions*

Measurement period adjustments 176 ( 149 ) 27

Goodwill impairment * ( 10,000 ) ( 31,340 ) ( 41,340 )

Effect of foreign currency translation changes — ( 1,632 ) ( 1,632 )

Balances as of September 30, 2020 $ 241,928 $ 15,654 $ 257,582

As discussed in Note 1 and Note 2, certain adjustments were made to pawn service charges receivable, deferred taxes and associated goodwill balances.

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset:

* Represents cumulative goodwill impairment.

The following table presents the balance of each major class of intangible assets:

September 30,

Carrying Amount

Accumulated Amortization

Net Book Value

Carrying Amount

Accumulated Amortization

Net Book Value

(in thousands)

Non-compete agreements

Non-amortizing intangible assets:

Trade names $ 19,094 $ 19,938

Accumulated impairment losses ( 4,598 ) —

$ 14,496 $ 19,938

Pawn licenses 9,509 9,517

$ 24,005 $ 29,455

Amortizing intangible assets:

Internally developed software $ 67,457 $ 59,436

Accumulated amortization ( 33,646 ) ( 24,280 )

Accumulated impairment losses $ ( 2,579 ) —

$ 31,232 $ 35,156

Non-compete agreements $ 3,417 $ 3,563

Accumulated amortization ( 3,394 ) ( 3,399 )

Other $ 5,600 $ 5,598

Accumulated amortization ( 2,222 ) ( 2,329 )

$ 3,378 $ 3,269

Intangible assets, net $ 58,638 $ 68,044

The amortization of most definite-lived intangible assets is recorded as amortization expense and included under “Depreciation and amortization” expense in our consolidated statements of operations.

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The following table presents our estimate of future amortization expense for definite-lived intangible assets:

Fiscal Year Ended September 30,

Amortization expense

Fiscal Year Ended September 30, Amortization expense

(in thousands)

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The following tables present our debt instruments outstanding, contractual maturities and interest expense:

September 30, 2019

September 30, 2018

Debt Discount and Issuance Costs

September 30, 2020 September 30, 2019

Gross Amount Debt Discount and Issuance Costs Carrying

Amount Gross Amount Debt Discount and Issuance Costs Carrying

(in thousands)

2024 Convertible Notes $ 143,750 $ ( 26,557 ) $ 117,193 $ 143,750 $ ( 32,439 ) $ 111,311

2019 Convertible Notes Embedded Derivative

2025 Convertible Notes 172,500 ( 39,336 ) 133,164 172,500 ( 46,290 ) 126,210

2025 Convertible Notes

8.5 % unsecured debt due 2024*

CASHMAX secured borrowing facility*

872 — 872 1,092 — 1,092

CASHMAX* — — — 634 ( 653 ) ( 19 )

Total $ 317,122 $ ( 65,893 ) $ 251,229 $ 317,976 $ ( 79,382 ) $ 238,594

Less current portion 213 — 213 214 — 214

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* Amounts translated from Guatemalan quetzals and Canadian dollars as of the applicable period end.

Certain disclosures omitted due to materiality considerations.

Schedule of Contractual Maturities

Less Than 1 Year

More Than 5 Years

Total Less Than

1 Year 1 - 3 Years 3 - 5 Years

(in thousands)

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8.5 % unsecured debt due 2024

CASHMAX secured borrowing facility

872 213 427 232

Total $ 317,122 $ 213 $ 427 $ 316,482

* Excludes the potential impact of embedded derivatives.

Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Term Loan Facility:

Contractual interest expense

Amortization of debt discount and deferred financing costs

Total interest expense

2019 Convertible Notes:

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or (4) upon the occurrence of specified corporate events, as defined in the 2018 Indenture.

On or after November 1, 2024 until the close of business on the business day immediately preceding the 2025

Maturity Date, holders of 2025 Convertible Notes may, at their option, convert their 2025 Convertible Notes at any time, regardless of the foregoing circumstances.

On or after November 1, 2024 until the close of business on the business day immediately preceding the 2025 Maturity Date, holders of 2025 Convertible Notes may, at their option, convert their 2025 Convertible Notes at any time, regardless of the foregoing circumstances.

We may not redeem the 2025 Convertible Notes prior to May 1, 2022.

At our option, we may redeem for cash all or any portion of the 2025 Convertible Notes on or after May 1, 2022, if the last reported sale price of the Class A Common Stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The redemption price will be equal to 100 % of the principal amount of the 2025 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

We measured the fair value of the liability component of the 2025 Convertible Notes under a discounted cash flow approach considering our synthetic credit rating, as determined with external consultation, including inputs that are not observable in the market.

The fair value of the liability component was estimated by calculating the present value of the cash flows using a discount rate of 8 % for a similarly structured liability with no conversion feature, maturing in seven years.

The fair value of the liability component was estimated by calculating the present value of the cash flows using a discoun t rate of 8 % for a similarly stru ctured liability with no conversion feature, maturing in seven years .

Our estimate resulted in an initial carrying value of the liability component of the 2025 Convertible Notes of $ 121.3 million with an associated original issue discount of $ 51.2 million, exclusive of deferred financing costs, accreted to the face value of the 2025 Convertible Notes based on the effective interest method through the 2025 Maturity Date.

We accounted for the conversion feature of the 2025 Convertible Notes as a separate equity-classified instrument (“2025 Convertible Notes Embedded Derivative”).

The carrying amount of the 2025 Convertible Notes conversion feature (the “2025 Convertible Notes Embedded Derivative”) is currently included under “Additional paid-in capital” in our consolidated balance sheets of September 30, 2020 and was initially calculated as $ 49.6 million ($ 39.1 million, net of tax).

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If one of the conversion conditions is met in any future fiscal quarter, we will classify our net liability under the 2025 Convertible Notes as a current liability in the consolidated balance sheets as of the end of that fiscal quarter.

If none of the conversion conditions have been met in a future fiscal quarter prior to the one -year period immediately preceding the 2025 Maturity Date, we will classify our net liability under the 2025 Convertible Notes as a non-current liability in the consolidated balance sheets as of the end of that fiscal quarter.

If none of the conversion conditions have been met in a future fiscal quarter prior to the one-year period immediately preceding the 2025

Maturity Date, we will classify our net liability under the 2025 Convertible Notes as a non-current liability in the consolidated balance sheets as of the end of that fiscal quarter.

If the note holders elect to convert their 2025 Convertible Notes prior to maturity, any unamortized discount and transaction costs will be recognized as expense at the time of conversion.

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We may not redeem the 2024 Convertible Notes prior to July 6, 2021.

At our option, we may redeem for cash all or any portion of the 2024 Convertible Notes on or after July 6, 2021, if the last reported sale price of the Class A Common Stock has been at least 130 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which we provide notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.

The redemption price will be equal to 100 % of the principal amount of the 2024 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

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Our estimate resulted in an initial carrying value of the liability component of the 2024 Convertible Notes of $ 102.7 million with an associated original issue discount of $ 41.0 million, exclusive of deferred financing costs, accreted to the face value of the 2024 Convertible Notes based on the effective interest method through the 2024 Maturity Date.

We accounted for the conversion feature of the 2024 Convertible Notes as a separate equity-classified instrument (the “2024 Convertible Notes Embedded Derivative”), initially recorded as $ 39.8 million ( $ 25.3 million , net of tax), inclusive of deferred financing costs, on the issuance date and included under “Additional paid-in capital” in our consolidated balance sheet, including an allocated portion of the deferred financing costs.

financing costs, on the issuance date and included under “Additional paid-in capital” in our consolidated balance sheet, including an allocated portion of the deferred financing costs.

The 2024 Convertible Notes Embedded Derivative is expected to remain recorded in equity in our consolidated balance sheets as long as it continues to meet the criteria as an equity-classified instrument in subsequent reporting periods.

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In July 2017, we used $ 34.4 million of net proceeds from the 2024 Convertible Notes offering to repurchase and retire $ 35.0 million aggregate principal amount of 2019 Convertible Notes.

The 2019 Convertible Notes were issued pursuant to an indenture dated June 23, 2014 (the “2014 Indenture”) by and between EZCORP and Wells Fargo Bank, National Association, as the trustee.

The 2019 Convertible Notes were issued in a private offering and resold under Rule 144A under the Securities Act of 1933.

The 2019 Convertible Notes paid interest semi-annually in arrears at a rate of 2.125 % per annum on June 15 and December 15 of each year.

The 2019 Convertible Notes matured on June 15, 2019 (the "2019 Maturity Date") , and the remaining $ 195.0 million aggregate principal amount outstanding plus accrued interest was repaid using cash on hand.

The effective interest rate for fiscal 2019 was approximately 8 % .

The cash-settled call options (the “2019 Convertible Notes Hedges”) purchased in conjunction with the issuance of the 2019 Convertible Notes expired worthless.

2019 Convertible Notes Warrants

In connection with the issuance of the 2019 Convertible Notes, we also sold net-share-settled warrants (the “2019 Convertible Notes Warrants”) in privately negotiated transactions with the option counterparties for the purchase of up to approximately 14.3 million shares of our Class A Common Stock at a strike price of $ 20.83 per share, for total proceeds of $ 25.1 million , net of issuance costs, which was recorded as an increase in stockholders' equity.

The 2019 Convertible Notes Warrants have customary anti-dilution provisions similar to those in the 2019 Convertible Notes.

As a result of the 2019 Convertible Notes Warrants, we will experience dilution to our diluted earnings per share if our average closing stock price exceeds $ 20.83 for any fiscal quarter before expiration of the warrants.

The 2019 Convertible Notes Warrants expire on various dates from September 2019 through May 2020 and, if exercised, must be settled in net shares of our Class A Common Stock.

Therefore, upon expiration of the 2019 Convertible Notes Warrants, we would issue shares of Class A Common Stock to the purchasers of the 2019 Convertible Notes Warrants that represent the value by which the price of the Class A Common Stock exceeds the strike price stipulated within the particular warrant agreement, if any.

As of September 30, 2019 , there were a maximum of 8.8 million shares of Class A Common Stock issuable under the 2019 Convertible Notes Warrants outstanding.

Extinguishment of Debt

On September 12, 2016, we and certain of our subsidiaries (as guarantors) entered into a financing agreement with certain lenders and Fortress Credit Co LLC (as collateral and administrative agent) that provided us with a senior secured credit facility in an aggregate principal amount of $ 100 million , subject to various terms and conditions contained in the financing agreement.

The credit facility (the “Term Loan Facility”) consisted of an initial term loan of $ 50 million that was drawn on September 12, 2016 and a delayed draw term loan of up to $ 50 million .

Borrowings under the facility bore interest at an annual rate initially equal to the London Interbank Offered Rate (“LIBOR”) plus 7.5 % , and we paid a monthly fee of 2.75 % per annum on the average daily unused portion of the delayed draw term loan facility and a quarterly loan servicing fee of $ 15,000 .

In July 2017, we used $ 51.6 million of net proceeds from the 2024 Convertible Notes offering to repay all outstanding borrowings under the Term Loan Facility and terminated that facility, including the undrawn delayed draw term loan commitment.

The lenders have released all related security interests in our assets.

Also in July 2017, we used $ 34.4 million of net proceeds from the 2024 Convertible Notes offering to repurchase and retire $ 35.0 million aggregate principal amount of 2019 Convertible Notes.

We unwound a portion of the 2019 Convertible Notes Hedges and 2019 Convertible Notes Warrants corresponding to the repurchased and retired 2019 Convertible Notes.

We received $ 0.6 million in connection with the partial settlement of the 2019 Convertible Notes Hedges and paid $ 0.5 million in connection with the partial settlement of 2.2 million of the outstanding 2019 Convertible Notes Warrants.

We recorded a one-time charge of $ 5.3 million in the fourth quarter of fiscal 2017 related to these transactions included under “Interest expense” in our consolidated statements of operations, including write-off of unamortized debt discount and issuance costs.

In connection with the issuance of the 2019 Convertible Notes, we also sold net-share-settled warrants (the “2019 Convertible Notes Warrants”).

The 2019 Convertible Notes Warrants allowed for the purchase of up to approximately 14.3 million shares of our Class A Common Stock at a strike price of $ 20.83 per share.

We accounted for the Class A Common Stock issuable upon exercise under the treasury stock method.

The 2019 Convertible Notes Warrants began to expire on a daily basis after we repaid the 2019 Convertible Notes and the last of the unexpired 2019 Convertible Notes Warrants expired in May 2020.

As of September 30, 2020, there were no 2019 Convertible Notes Warrants outstanding, and no shares of Class A Common Stock were ever issued pursuant to the 2019 Convertible Notes Warrants.

CASHMAX Secured Borrowing Facility

In November 2018, we entered into a receivables securitization facility with a third-party lender (the "lender") to provide funding for installment loan originations in our Canadian CASHMAX business.

Under the facility, a variable interest entity (the "trust") has the right, subject to various conditions, to borrow up to CAD $ 25 million from the lender (the "third-party loan") and use the proceeds to purchase interests in installment loan receivables generated by CASHMAX.

The trust uses collections on the transferred receivables to pay various amounts in accordance with an agreed priority arrangement, including expenses, its obligations under the third-party loan and, to the extent available, amounts owed to CASHMAX with respect to the purchase price of the transferred receivables and CASHMAX's retained interest in the receivables.

CASHMAX has no obligation with respect to the third-party loan or the transferred receivables except to (a) service the underlying installment loans on behalf of the trust and (b) pay amounts owing under or repurchase the underlying installment loans in the event of a breach by CASHMAX or in certain other limited circumstances.

The facility is nonrecourse to EZCORP, allowed borrowing through November 2019, and fully matures in November 2021.

Our obligation under the facility as of September 30, 2019 was $ 0.6 million .

In November 2018, we entered into a receivable's securitization facility with a third-party lender (the "lender") to provide funding for installment loan originations in our Canadian CASHMAX business.

Under the facility, a variable interest entity (the "trust") had the right, subject to various conditions, to borrow up to CAD $ 25 million from the lender (the "third-party loan") and use the proceeds to purchase interests in installment loan receivables generated by CASHMAX.

The trust used collections on the transferred receivables to pay various amounts in accordance with an agreed priority arrangement, including expenses, its obligations under the third-party loan and, to the extent available, amounts owned to CASHMAX with respect to the purchase price of the transferred receivables and CASHMAX's retained interest in the

CASHMAX had no obligation with respect to the third-party loan or the transferred receivables except to (a) service the underlying installment loans on behalf of the trust and (b) pay amounts owed under or repurchase the underlying installment loans in the event of a breach by CASHMAX or in certain other limited circumstances.

The facility was nonrecourse to EZCORP (subject to certain limited guaranty obligations), allowed borrowing through November 2019, and was to fully mature in November 2021.

As part of the closure of the operations of our CASHMAX business, we terminated this facility in September 2020.

COMMON STOCK AND STOCK COMPENSATION

Common Stock Repurchase Program

In December 2019, our Board of Directors (the "Board") authorized the repurchase of up to $ 60.0 million of our Class A Common Stock over three years .

Repurchases under the program were suspended in March 2020 in order to preserve liquidity as a result of uncertainties regarding the COVID-19 pandemic, and no share repurchases under the program were executed for the remainder of fiscal 2020.

Through March 2020, we repurchased and retired 943,149 shares of our Class A Common Stock for $ 5.2 million, which amount was allocated between "Additional paid-in capital" and "Retained earnings" in our consolidated balance sheets.

Stock Compensation

On May 1, 2010 our Board of Directors approved the adoption of the EZCORP, Inc.

2010 Long-Term Incentive Plan (the “2010 Plan”).

The 2010 Plan permits grants of options, restricted stock awards and stock appreciation rights covering up to 5,485,649 shares of our Class A Common Stock plus any shares that become available for issuance under either the 2010 Plan or prior plans as a result of forfeitures or cancellations of awards without delivery of shares or as a result of withholding shares to satisfy tax withholding obligations.

In February 2015, March 2015, March 2016, December 2016, December 2017 and November 2018, the Board of Directors and the voting stockholder approved the addition of 643,673 , 1,081,200 , 185,026 , 500,000 , 1,100,000 and 400,000 shares, respectively, to the 2010 Plan.

In April and May 2019, we granted our seven new non-employee directors a total of 60,088 restricted stock awards with a grant date fair value of primarily $ 10.64 per share.

In November 2018, we granted 59,812 restricted stock awards to non-employee directors with a grant date fair value of $ 9.18 per share.

2010 Long-Term Incentive Plan (the “LTI Plan”).

The LTI Plan permits grants of options, restricted stock awards and stock appreciation rights covering up to 5,485,649 shares of our Class A Common Stock plus any shares that become available for issuance under either the LTI Plan or prior plans as a result of forfeitures or cancellations of awards without delivery of shares or as a result of withholding shares to satisfy tax withholding obligations.

In December 2017 and November 2018, the Board of Directors and the voting stockholder approved the addition of 1,100,000 and 400,000 shares, respectively, to the LTI Plan.

The purpose of our LTI Plan is to retain the services of valued employees and directors and to incentivize such persons to make contributions to our company and motivate excellent performance.

Under the LTI Plan, we grant awards of restricted stock or restricted stock units to employees and non-employee directors.

Awards granted to employees are typically subject to performance and service conditions.

Awards granted to non-employee directors are time-based awards subject only to service conditions.

Awards are measured at the grant date fair value with compensation costs associated with the awards recognized over the requisite service period, usually the vesting period, on a straight-line basis.

In November 2019 and May 2020, we granted 222,912 and 12,346 , respectively, shares of restricted stock to our non-employee directors with a grant date fair value of $ 4.89 and $ 5.24 , respectively.

These awards vested on September 30, 2020 and were subject only to service conditions.

In December 2017, we granted 1,308,533 restricted stock awards to employees and 84,250 restricted stock awards to non-employee directors with a grant date fair value of primarily $ 9.75 per share.

The awards granted to non-employee directors vested on September 30, 2018 and were subject only to service conditions.

In July 2019 and November 2018, we granted 61,138 and 971,615 , respectively, restricted stock unit awards to employees with a grant date fair value of primarily $ 10.04 and $ 9.18 per share, respectively.

The awards granted to employees vest on September 30, 2021, subject to the achievement of certain adjusted net income and adjusted diluted earnings per share performance targets.

As of September 30, 2019 , we considered the achievement of these performance targets probable.

The number of long-term incentive award shares and units granted are generally determined based on our share price as of the close on the last trade day immediately preceding October 1 each year, which was $ 10.70 for these fiscal 2019 awards.

In December 2017, we granted 1,308,533 restricted stock unit awards to team members and 84,250 restricted stock awards to non-employee directors with a grant date fair value of primarily $ 9.75 per share.

Our long-term incentive awards are generally granted based on our share price as of the close on the last trade day immediately preceding October 1 each year, which was $ 9.50 for these fiscal 2018 awards.

For the awards granted to team members, 190,725 vested on September 30, 2018 as later approved by the compensation committee of the board of directors in November 2018 with regard to achievement of earnings before interest, taxes, depreciation and amortization ("EBITDA") performance targets, and 1,117,808 will vest on September 30, 2020, subject to the achievement of certain EBITDA performance targets.

As of September 30, 2019 , we considered the achievement of these performance targets probable.

For the awards granted to employees, 190,725 vested on September 30, 2018.

In November 2020, the People and Compensation Committee of the Board of Directors determined that the performance targets for the remaining employee awards were partially achieved, and 446,983 of such awards will vest on December 14, 2020.

In addition, 81,896 awards were canceled, resulting in a reversal of $ 0.80 million of previously recognized stock compensation expense.

In July 2019 and November 2018, we granted 61,138 and 971,615 , respectively, restricted stock awards to employees with a grant date fair value of primarily $ 10.04 and $ 9.18 per share, respectively.

In November 2020, the People and Compensation Committee determined that the performance targets for such awards were not probable of achievement.

This resulted in the cancellation of 458,960 awards and the reversal of $ 2.9 million of previously recognized stock compensation expense.

In April and May 2019, we granted 60,088 restricted stock awards to our seven new non-employee directors with a grant date fair value of primarily $ 10.64 per share.

In November 2018, we granted 59,812 restricted stock awards to our non-employee directors with a grant date fair value of $ 9.18 per share.

The awards granted to non-employee directors vested on September 30, 2019 and were subject only to service conditions.

In November and December 2016 and April 2017, we granted 931,260 restricted stock unit awards to team members and 72,500 restricted stock awards to non-employee directors, each with a grant date fair value of approximately $ 9.60 per share.

Our long-term incentive awards are generally granted based on our share price as of the close on the last trade day immediately preceding October 1 each year, which was $ 11.06 for these fiscal 2017 awards.

The awards granted to team members vest on September 30, 2019, subject to the achievement of certain EBITDA performance targets.

As of September 30, 2019 , we considered the achievement of these performance targets to be probable.

In November and December 2016 and April 2017, we granted 931,260 restricted stock awards to employees and 72,500 restricted stock awards to non-employee directors, each with a grant date fair value of approximately $ 9.60 per share.

The awards granted to employees vested on September 30, 2019 and 463,467 shares were released.

The awards granted to non-employee directors vested over two years , 50 % on September 30, 2017 and 50 % on September 30, 2018 and were subject only to service conditions.

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Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Share-based compensation costs $ ( 5,094 ) $ 9,751 $ 10,784

Income tax benefits on share-based compensation

Income tax expense (benefit) on share-based compensation 420 ( 1,098 ) ( 1,656 )

The following table presents a summary of stock compensation activity:

Shares Weighted

Outstanding as of September 30, 2019 3,451,024 $ 9.28

Granted 1,472,578 5.73

Vested and released (a) ( 989,223 ) 8.67

Forfeited ( 2,825,459 ) 8.59

Outstanding as of September 30, 2020 1,108,920 $ 5.65

360,489 shares were withheld to satisfy related federal income tax withholding.

(a) 268,798 shares were withheld to satisfy related federal income tax withholding.

The following table presents a summary of the fair value of shares granted:

Fiscal Year Ended September 30,

2020 2019 2018

(in millions except per share amounts)

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Total grant date fair value of shares vested $ 5.1 $ 11.8 $ 2.3

Awards with performance and time-based vesting provisions are generally valued based upon the underlying share price as of the issuance date.

(a) Awards with performance and time-based vesting provisions are generally valued based upon the underlying share price as of the issuance date.

We have not declared or paid any dividends and currently do not anticipate paying any dividends in the immediate future.

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Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Domestic* $ ( 31,989 ) $ ( 9,609 ) $ 28,645

Foreign ( 38,106 ) 13,783 26,894

$ ( 70,095 ) $ 4,174 $ 55,539

* Includes the majority of our corporate administrative costs.

See Note 14 for information pertaining to segment contribution.

The following table presents the significant components of the income tax provision from continuing operations:

The following table presents the significant components of the income tax provision:

Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Federal $ ( 6,631 ) $ 431 $ ( 26 )

State and foreign 10,544 704 9,288

3,913 1,135 9,262

Federal* ( 1,561 ) ( 4,264 ) 9,498

State and foreign ( 3,984 ) 5,535 ( 371 )

Total income tax expense

The year ended September 30, 2018 includes a $ 2.1 million charge resulting from the remeasurement of our domestic net deferred tax assets based on the new corporate income tax rate as a result of the Act, as well as $ 2.6 million charge resulting from recording a valuation allowance against foreign tax credit carryforwards that do not meet the “more likely than not” threshold to be utilized as a result of tax law changes included in the Act.

The following table presents a reconciliation of income taxes calculated at the statutory rate and the provision for income taxes attributable to continuing operations:

( 5,545 ) 1,271 9,127

Total income tax (benefit) expense $ ( 1,632 ) $ 2,406 $ 18,389

* The year ended September 30, 2018 includes a $ 2.1 million charge resulting from the remeasurement of our domestic net deferred tax assets based on the new corporate income tax rate as a result of the Tax Cuts and Jobs Act(“the Act”), as well as $ 2.6 million charge resulting from recording a valuation allowance against foreign tax credit carryforwards that do not meet the “more likely than not” threshold to be utilized as a result of tax law changes included in the Act.

The following table presents a reconciliation of income taxes calculated at the statutory rate and the provision for income taxes:

Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

Income tax expense at the federal statutory rate

Income tax (benefit) expense at the federal statutory rate $ ( 14,720 ) $ 878 $ 13,623

State taxes, net of federal benefit 951 184 1,265

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Non-deductible items 772 2,088 2,214

Tax credits — ( 551 ) ( 615 )

Foreign rate differential ( 1,671 ) 1,080 1,405

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Change in tax rate resulting from enactment of the Act — — 2,558

Total income tax expense

Non-deductible impairment 9,093 — —

Other 654 234 ( 303 )

Total income tax (benefit) expense $ ( 1,632 ) $ 2,406 $ 18,389

Effective tax rate 2 % 58 % 33 %

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Foreign tax credit 1,696 2,638

Capital loss carryforward

State and foreign net operating loss carryforwards 15,990 15,806

Book over tax depreciation 4,651 2,659

Other 4,350 2,159

Total deferred tax assets before valuation allowance 62,981 53,711

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Total deferred tax liabilities 36,050 35,604

Net deferred tax asset (liability)

Net deferred tax asset $ 8,407 $ 13

As of September 30, 2020, we had state net operating loss carryforwards of approximately $ 123.0 million, which begin to expire in 2021 if not utilized.

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Deferred tax assets and liabilities are recorded for the estimated tax impact of temporary differences between the tax basis and book basis of assets and liabilities.

The Company has elected to account for the tax on Global Intangible Low-Taxed Income (“GILTI”) as a period cost and therefore has not recorded deferred taxes related to GILTI on its foreign subsidiaries.

A valuation allowance is established against a deferred tax asset when it is more likely than not that the deferred tax asset will not be realized.

Our valuation allowance has been established to offset certain state and foreign net operating loss carryforwards, capital loss carryforwards and foreign tax credit carryforwards that are not more likely than not to be utilized prior to expiration.

The valuation allowance increased by $ 3.3 million in fiscal 2019, primarily due to the recording of a valuation allowance against the foreign tax credit carryforwards generated during the year which we believe are not more likely than not to be utilized, offset by a decrease of $ 3.0 million due to the expiration of a capital loss carryforward that expired unused for which a valuation allowance had been recorded.

The valuation allowance increased by $ 0.4 million in fiscal 2020, primarily due to the recording of a valuation allowance for losses generated during the year in certain foreign jurisdictions which we believe are not more likely than not to be utilized partially offset by a decrease for certain foreign tax credits for which we amended a tax return to take a deduction instead of a foreign tax credit thereby reversing the deferred tax asset and corresponding valuation allowance.

We believe our results from future operations will generate sufficient taxable income in the appropriate jurisdictions such that it is more likely than not that the remaining deferred tax assets will be realized.

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Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

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All of the above unrecognized tax benefits, if recognized, would impact our effective tax rate for the respective period of each ending balance.

We are subject to U.S., Mexico, Canada, Guatemala, Honduras, El Salvador, and Peru income taxes as well as income taxes levied by various state and local jurisdictions.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense.

During 2020, 2019, and 2018, the Company recognized income tax expense consisting of interest and penalties of $ 1.2 million, $ 0.2 million and $( 0.3 ) million, respectively, due to the accrual of current year interest and penalties on existing positions offset by the reversal of previous accruals due to the lapse of the statute of limitations.

The total amount of accrued interest and penalties was $ 1.5 million and $ 0.3 million in 2020 and 2019, respectively.

We are subject to U.S., Mexico, Canada, Guatemala, Honduras, El Salvador, Peru and the Netherlands income taxes as well as income taxes levied by various state and local jurisdictions.

With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2014.

We believe that adequate provisions have been made for any adjustments that may result from tax examinations.

RELATED PARTY TRANSACTIONS

Asset Purchase Agreement

The Company entered into an Asset Purchase Agreement, dated June 8, 2017, with Cash Solution Centers, LLC ("CSC"), pursuant to which the Company agreed to acquire, for an aggregate purchase price of $ 700,329 in cash, certain assets used in the operation of two pawn stores located in Central Texas.

Chism, who was appointed Chief Financial Officer of the Company effective May 9, 2017, was the owner of a 28 % interest in CSC.

We completed the acquisition on August 14, 2017.

Following completion of this transaction, Mr.

Chism does not own any interest in any pawn-related businesses outside of his interest in the Company.

The terms of this transaction were reviewed and approved by the Audit Committee of the Board of Directors pursuant to the Company's Policy for Review and Evaluation of Related Party Transactions.

Cash Converters International

The beneficial owner of our Class B Voting Common Stock received AUD $ 120,000 in annual consulting fees from our 34.75 % owned unconsolidated affiliate Cash Converters International during fiscal 2019, 2018 and 2017.

We lease and sublease various facilities and certain equipment under operating and capital leases.

Future minimum rentals due under non-cancelable leases and annual future minimum rentals expected under subleases are as follows:

Fiscal Year Ended September 30,

Operating Lease Payments

Sublease Revenue

(in thousands)

After an initial lease term of generally three to 10 years, our real property lease agreements typically allow renewals in three to five -year increments.

Our lease agreements generally include rent escalations throughout the initial lease term.

Rent escalations are included in the above amounts, with certain future rental payments contingent on increases in a consumer price index.

For financial reporting purposes, the aggregate rentals over the lease term, including lease renewal options that are reasonably assured, are expensed on a straight-line basis.

The following table presents the amount of net rent recognized as expense:

The weighted-average remaining lease term for operating leases as of September 30, 2020 was 5.2 years, which includes options to extend when it is reasonably certain that we will exercise the option.

The weighted average incremental borrowing rate used to measure the lease liability as of September 30, 2020 was 7.37 %.

The details of our right-of-use asset and lease liability recognized upon adoption of ASC 842 was computed based on the consumer price index and foreign currency exchange rate as applicable then in effect and excluding executory costs on October 1, 2019, were as follows (in thousands):

Right-of-use asset $ 246,028

Straight-line rent accrual ( 8,479 )

Net lease right-of-use asset $ 237,549

Lease liability, current $ 45,272

Lease liability, non-current 200,756

Total lease liability $ 246,028

In connection with the preparation of our consolidated financial statements for the year ended September 30, 2020, we identified an error relating to certain leases on the adoption of ASC 842 at October 1, 2019.

The error impacted the lease right-of-use asset and total lease liability, both of which were overstated by approximately $ 18.0 million on adoption.

We concluded the impact on the interim financial statements during fiscal 2020 was immaterial and corrected the balances as of September 30, 2020.

The income statement impact of this correction was immaterial.

The components of lease expense included in "Operations" and "Administrative" expense, based on the underlying lease use, in our consolidated statements of operations is as follows (in thousands):

Fiscal Year Ended September 30,

(in thousands)

Gross rent expense from continuing operations

Sublease rent revenue from continuing operations

Net rent expense from continuing operations

Operating lease expense $ 62,925

Variable lease expense 11,846

Total lease expense $ 74,771

As of September 30, 2020, maturities of lease liabilities under ASC 842 by fiscal year were as follows (in thousands):

2021 $ 66,079

Thereafter 41,639

Total lease liabilities 246,168

Portion representing interest 43,386

Total net lease liabilities 202,782

Current portion 49,742

Total long term net lease liabilities $ 153,040

In December 2014, we entered into a non-cancelable 13 -year operating lease for our corporate offices, with rent payments beginning February 2016 and ending March 2029.

Annual rent, net of square footage subsequently terminated as a result of negotiations with the landlord, escalated from $ 2.5 million at lease inception to $ 3.9 million in the terminal year of the lease.

Annual rent, net of square footage subsequently terminated as a result of negotiations with the landlord, escalate from $ 2.5 million at lease inception to $ 3.9 million in the terminal year of the lease.

The lease includes two five-year extension options at the end of the initial lease term.

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During fiscal 2017 and 2016, we initiated subleases for a portion of our corporate operating office lease for estimated minimum future sublease payments of approximately $ 12.2 million.

In addition to the above subleases, during fiscal 2018 we entered into an amendment to the operating lease surrendering another

15 % of the initial leased premises.

As a result, sublease payments are expected to fully offset our original operating lease obligations through August 2023, with renewal options available until the end of the master operating lease in March 2029.

During the second quarter of fiscal 2015, we entered into cancelable subleases for our Miami office and a non-cancelable Mexico City sublease for an estimated minimum future sublease payment of approximately $ 4.6 million .

Sublease payments are expected to offset substantially all of our original operating lease obligations over the nine -year period beginning March 2015 and ending September 2024 in the case of the Miami lease.

The sublease tenant elected to terminate the lease early, effective October 31, 2018 and paid $ 0.7 million as result of the buyout clause.

We entered into a new sublease effective June 2019 to September 2024.

Sublease payments are expected to offset substantially all of our original operating lease obligations.

The Mexico City lease and sublease expired in fiscal 2019.

EMPLOYMENT AGREEMENTS AND RETIREMENT PLANS

Employment Agreements

We provide the following severance benefits to our executive officers:

Each of our executive officers will receive salary continuation for one year if his or her employment is terminated without cause.

Generally, restricted stock awards, including those granted to the executive officers, provide for accelerated vesting of some or all of the unvested shares in the event of the holder’s death or disability.

Retirement Plans

We sponsor a 401(k) retirement savings plan under which eligible team members may contribute a portion of pre-tax earnings.

The plan provides for a discretionary match of participants’ elective deferrals in the form of either cash or our Class A Common Stock.

The Company discretionary match of the participants’ elective deferrals has been made in the form of cash since 2016, and the ability to invest additional funds into Company stock is prohibited.

A participant vests in the Company matching contributions pro rata over their first three years of service.

All of a participant’s matching contributions will vest to 100 % in the event of their death, disability or should the plan terminate due to a change in control.

The following table presents matching contribution information for our 401(k) plan, which were made in cash:

Fiscal Year Ended September 30,

(in thousands)

Matching contributions to EZCORP Inc.

401(k) Plan and Trust

We also provide a non-qualified Supplemental Executive Retirement Plan for selected executives.

Funds in the Supplemental Executive Retirement Plan vest over three years from the grant date, with one-third vesting each year .

All of a participant’s Supplemental Executive Retirement Plan funds from all grants vest 100 % in the event of the participant’s death or disability or the termination of the plan due to a change in control.

In addition, the Supplemental Executive Retirement Plan funds are 100 % vested when a participant attains his or her normal retirement age (generally 60 years old and five years of active service) while actively employed by us.

Expense of contributions to the Supplemental Executive Retirement Plan is recognized based on the vesting schedule.

The following table provides contribution and amortized expense amounts related to the Supplemental Executive Retirement Plan:

In addition to the above subleases, during fiscal 2018 we entered into an amendment to the operating lease surrendering another 15 % of the initial leased premises.

As a result, sublease payments were expected to fully offset our original operating lease obligations through August 2023, with renewal options available until the end of the master operating lease in March 2029.

During the second quarter of fiscal 2015, we entered into cancellable subleases for our Miami office for an estimated minimum future sublease payment of approximately $ 2.9 million.

Sublease payments are expected to offset substantially all of our original operating lease obligations over the nine-year period beginning March 2015 and ending September 2024.

Prior to the adoption of ASC 842, future minimum undiscounted lease payments due under non-cancelable leases as of September 30, 2019 for each subsequent year were as follows (in thousands):

2020 $ 69,291

Thereafter 39,256

The following table presents the amount of net rent recognized as expense under ASC Topic 840 - Leases (in thousands):

Fiscal Year Ended September 30,

(in thousands)

Contributions to the Supplemental Executive Retirement Plan

Amortized expense due to Supplemental Executive Retirement Plan

Gross rent expense from continuing operations $ 65,295 $ 61,821

Sublease rent revenue from continuing operations ( 35 ) ( 109 )

Net rent expense from continuing operations $ 65,260 $ 61,712

As a result of the COVID-19 pandemic, we believe there was a significant adverse change in the business climate that impacted the office leasing market and a significant decrease in the market prices of an asset or asset group that affected the value of the right of use asset for our corporate office.

We determined the undiscounted cash flows of the subleases did not exceed the net book value of the right of use asset.

We then determined the discounted cash flows of the subleases did not exceed the book value of the right of use asset, and an impairment charge of $ 5.0 million was recorded in the fourth quarter of fiscal 2020 and is recorded under "Impairment of goodwill, intangible and other assets" in the Consolidated Statements of Operations.

We recorded $ 29.2 million in non-cash additions to our right of use assets and lease liabilities for the fiscal year ended September 30, 2020.

CONTINGENCIES

Currently and from time to time, we are involved in various claims, suits, investigations and legal proceedings, including the lawsuit described below.

While we are unable to determine the ultimate outcome of any current litigation or regulatory actions

(except as noted below), we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity.

Federal Securities Litigation — In July 2015 and August 2015, two substantially identical lawsuits were filed in the United States District Court for the Western District of Texas.

Those lawsuits were subsequently consolidated into a single action under the caption In re EZCORP, Inc.

Securities Litigation (Master File No.

1:15-cv-00608-SS).

The original complaint related to the Company’s announcement on July 17, 2015 that it will restate its financial statements for fiscal 2014 and the first quarter of fiscal 2015, and alleged generally that the Company issued materially false or misleading statements concerning the Company, its finances, business operations and prospects and that the Company misrepresented the financial performance of the Grupo Finmart business.

In January 2016, the plaintiffs filed an Amended Class Action Complaint (the "Amended Complaint"), which asserted that the Company and Mark E.

Kuchenrither, our former Chief Financial Officer, violated Section 10(b) of the Securities Exchange Act and Rule 10b-5, issued materially false or misleading statements concerning the Company and its internal controls, specifically regarding the financial performance of Grupo Finmart.

The plaintiffs also allege that Mr.

Kuchenrither, as a controlling person of the Company, violated Section 20(a) of the Securities Exchange Act.

In October 2016, the Court granted the defendants’ motion to dismiss and dismissed the Amended Complaint without prejudice.

In November 2016, the plaintiffs filed a Second Amended Consolidated Class Action Complaint (“Second Amended Complaint”), raising the same claims previously dismissed by the Court, but reducing the class period (November 7, 2013 to October 20, 2015 instead of November 6, 2012 to October 20, 2015).

In May 2017, the Court granted the defendants’ motion to dismiss with regard to claims related to accounting errors relating to Grupo Finmart’s bad debt reserve calculations for “nonperforming” loans, but denied the motion to dismiss with regard to claims relating to accounting errors related to certain sales of loan portfolios to third parties.

Following discovery on the surviving claims, the plaintiff filed a Motion for Leave to File a Third Amended Complaint, seeking to revive the "nonperforming" loan claims that the Court previously dismissed, and on July 26, 2018, the Court granted the plaintiff's motion for leave to amend, thus accepting the Third Amended Consolidated Class Action Complaint.

The Court issued an order certifying the class and approving the class representative and class counsel in February 2019, and we appealed that order to the U.S.

Fifth Circuit Court of Appeals, which appeal was granted in March 2019.

On May 30, 2019, the parties agreed to a mediated settlement of all remaining claims and entered into a Memorandum of Understanding regarding that settlement.

The proposed settlement provides for the payment of $ 4.9 million by the defendants.

On July 18, 2019, the parties entered into a Stipulation and Agreement of Settlement reflecting the terms of the agreed settlement, which was preliminarily approved by the Court on August 5, 2019.

The proposed settlement remains subject to several conditions, including final Court approval at a Settlement Hearing scheduled for December 6, 2019.

The settlement amount (which was covered by applicable directors' and officers' liability insurance) was paid into escrow on September 12, 2019.

The accrued settlement and offsetting restricted cash are included in "Accounts payable, accrued expenses and other current liabilities" and "Prepaid expenses and other current assets" in our consolidated balance sheets as of September 30, 2019.

Currently, and from time to time, we are involved in various claims, suits, investigations and legal proceedings.

While we are unable to determine the ultimate outcome of any current litigation or regulatory actions, we do not believe the resolution of any particular matter will have a material adverse effect on our financial condition, results of operations or liquidity.

SEGMENT INFORMATION

We are organized into operating segments based on geographic areas.

These operating segments have been aggregated into three reportable business segments as follows:

During the first quarter of fiscal 2020, we revised the financial information our chief operating decision maker (our chief executive officer) reviews for operational decision-making purposes and for allocation of capital to include the separate financial results of our Lana business.

Our historical segment results have been recast to conform to current presentation.

We currently report segment information as follows:

Pawn — All pawn activities in the United States;

Latin America Pawn — all pawn activities in Mexico, Central America and South America;

and Other International — primarily our equity interest in the net income of Cash Converters International and consumer finance activities in Canada.

Segment information is prepared on the same basis that our chief operating decision maker reviews financial information for operational decision-making purposes.

There are no material inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements.

• Latin America Pawn —All pawn activities in Mexico and other parts of Latin America;

• Lana — Our digital customer-centric engagement platform;

• Other International — Primarily our equity interest in the net income of Cash Converters International.

There are no inter-segment revenues presented below, and the amounts below were determined in accordance with the same accounting principles used in our condensed consolidated financial statements.

While we expect the operations of the Lana segment to have a positive impact on pawn loan redemption rates and therefore pawn service charges and yield, the pawn service charges will all be reported in our pawn segments rather than allocated to the Lana segment.

Only discrete revenues related to the Lana segment will be reported in the Lana segment results.

As a digital offering, Lana has no separate physical store locations.

Fiscal Year Ended September 30, 2020

Latin America Pawn

International

Total Segments

Corporate Items

Pawn Latin America Pawn Lana Other

International Total Segments Corporate Items Consolidated

(in thousands)

7 unchanged sentences

Other cost of revenues — 101 — 953 1,054 — 1,054

Operating expenses (income):

Net revenues 359,235 87,096 34 2,870 449,235 — 449,235

Segment and corporate expenses (income):

Operations 261,608 69,916 4,270 5,246 341,040 — 341,040

Administrative — — — — — 49,897 49,897

Impairment of goodwill, intangible and other assets 10,000 35,938 — 1,149 47,087 7,579 54,666

Depreciation and amortization 11,030 7,315 1,058 68 19,471 11,356 30,827

Loss on sale or disposal of assets and other

Loss (gain) on sale or disposal of assets and other 385 ( 72 ) — ( 20 ) 293 508 801

Other Charges 3,106 1,715 3,258 3,802 11,881 8,507 20,388

Interest expense — 685 — 549 1,234 21,238 22,472

1 unchanged sentence

Equity in net loss of unconsolidated affiliates — — — 2,429 2,429 — 2,429

Impairment of investment in unconsolidated affiliates

Other expense (income)

Other (income) expense — ( 156 ) — 6 ( 150 ) 133 ( 17 )

Segment contribution (loss) $ 73,106 $ ( 26,659 ) $ ( 8,552 ) $ ( 10,359 ) $ 27,536

Income from continuing operations before income taxes

Income (loss) from continuing operations before income taxes $ 27,536 $ ( 97,631 ) $ ( 70,095 )

Fiscal Year Ended September 30, 2019

Latin America Pawn

International

Total Segments

Corporate Items

Pawn Latin America Pawn Lana Other

International Total Segments Corporate Items Consolidated

(in thousands)

7 unchanged sentences

Other cost of revenues — — — 2,338 2,338 — 2,338

Net revenues 385,959 105,196 — 3,293 494,448 — 494,448

Operating expenses (income):

Operations 269,003 74,199 7,675 7,376 358,253 — 358,253

Administrative — — — — — 55,990 55,990

Impairment of goodwill, intangible and other assets — — — — — — —

Depreciation and amortization 11,879 6,267 10 219 18,375 10,422 28,797

3 unchanged sentences

Equity in net income of unconsolidated affiliates — — — 135 135 — 135

Impairment of investment

Impairment of investment in unconsolidated affiliates — — — 19,725 19,725 — 19,725

Other income — ( 93 ) — 1,895 1,802 ( 378 ) 1,424

Segment contribution (loss) $ 101,675 $ 24,124 $ ( 7,685 ) $ ( 26,830 ) $ 91,284

1 unchanged sentence

Fiscal Year Ended September 30, 2018

Latin America Pawn

International

Total Segments

Corporate Items

Pawn Latin America Pawn Lana Other

International Total Segments Corporate Items Consolidated

(in thousands)

7 unchanged sentences

Other cost of revenues — — — 1,697 1,697 — 1,697

Net revenues 378,955 96,173 — 6,423 481,551 — 481,551

Operating expenses (income):

Operations 263,094 61,553 — 10,194 334,841 — 334,841

Administrative — — — — — 53,639 53,639

Impairment of goodwill and intangibles assets — — — — — — —

Depreciation and amortization 12,869 4,068 — 184 17,121 8,363 25,484

3 unchanged sentences

Equity in net income of unconsolidated affiliates — — — ( 5,529 ) ( 5,529 ) — ( 5,529 )

Impairment of investment in unconsolidated affiliates — — — 11,712 11,712 — 11,712

Other income ( 3 ) ( 42 ) — ( 132 ) ( 177 ) ( 5,214 ) ( 5,391 )

Segment contribution $ 102,721 $ 33,161 $ — $ ( 10,006 ) $ 125,876

1 unchanged sentence

The following table presents separately identified segment assets:

Latin America Pawn

International

Pawn Latin America Pawn Lana Other

International Corporate Total

(in thousands)

Assets as of September 30, 2020

Pawn loans $ 106,340 $ 24,983 $ — $ — $ — $ 131,323

Pawn service charges receivable, net 17,931 2,649 — — — 20,580

Inventory, net 75,807 20,084 — — — 95,891

Total assets 690,157 191,827 4,528 34,118 276,393 1,197,023

Assets as of September 30, 2019

Pawn loans $ 157,408 $ 41,650 $ — $ — $ — 199,058

Pawn service charges receivable, net 27,623 4,179 — — — 31,802

Inventory, net 142,266 37,089 — — — 179,355

The net assets of our Latin America Pawn segment, exclusive of intercompany amounts and inclusive of certain other assets not separately identified above, were $ 205.3 million as of September 30, 2019 .

The following tables provide geographic information required by ASC 280-10-50-41:

Total assets 635,152 202,565 5,918 35,041 205,026 1,083,702

The net assets of our Latin America Pawn segment, exclusive of intercompany amounts and inclusive of certain other assets not separately identified above, w ere $ 194.8 million as o f September 30, 2020.

The following tables provide geographic information:

Fiscal Year Ended September 30,

2020 2019 2018

(in thousands)

United States $ 638,844 $ 650,413 $ 635,780

Mexico 131,965 138,897 122,702

Other Latin America 48,146 52,288 45,554

5 unchanged sentences

United States $ 36,361 $ 43,274

Mexico 15,141 18,566

Other Latin America 5,484 5,432

1 unchanged sentence

Total long-lived assets $ 56,986 $ 67,357

SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION AND DISCONTINUED OPERATIONS

SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION

The following table provides information on net amounts included in our consolidated balance sheets:

Supplemental Consolidated Financial Information

The following table provides information on net amounts included in our consolidated balance sheets and consolidated statements of cash flows:

September 30,

(in thousands)

Cash and cash equivalents

Restricted cash

Cash and cash equivalents and restricted cash

Gross pawn service charges receivable $ 27,259 $ 41,838

7 unchanged sentences

Income taxes prepaid and receivable 15,298 10,248

Restricted cash

2019 Convertible Notes Hedges

Prepaid expenses and other current assets $ 32,903 $ 25,921

Property and equipment, gross

Accumulated depreciation

Property and equipment, net

Accounts payable $ 19,114 $ 25,946

12 unchanged sentences

Other long-term liabilities $ 10,849 $ 7,302

Jewelry Scrap Receivable

In November 2018, our principal refiner that processed our scrap jewelry announced Chapter 11 bankruptcy restructuring proceedings in the U.S.

As of September 30, 2019 we had $ 3.6 million of total receivables outstanding which have been fully reserved for and which is included in "Loss on sale or disposal of assets and other" and "Reserve on jewelry scrap receivable" in our consolidated statements of operations and cash flows, respectively.

We continue to monitor the bankruptcy process and may record recoveries of such reserved amounts in a future period as we gather more information.

Valuation and Qualifying Accounts

The following table provides information on our valuation and qualifying accounts not disclosed elsewhere:

Balance at Beginning of Period

Charged to Expense

Charged to Revenue

Balance at End of Period

Description Balance at Beginning of Period Charged to Expense Charged to Revenue Deductions Balance at End of Period

(in thousands)

16 unchanged sentences

QUARTERLY INFORMATION (UNAUDITED)

We revised certain historical amounts below as further described in Note 1 .

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

First Quarter Second Quarter Third Quarter Fourth Quarter

(in thousands, except per share amounts)

1 unchanged sentence

Total revenues $ 222,435 $ 223,283 $ 210,233 $ 166,860

(Loss) income from continuing operations, net of tax

Loss from discontinued operations, net of tax

Net (loss) income

Net loss attributable to noncontrolling interest

Net (loss) income attributable to EZCORP, Inc.

Basic earnings per share attributable to EZCORP, Inc.:

Continuing operations

Discontinued operations

Basic earnings per share

Diluted earnings per share attributable to EZCORP, Inc.:

Continuing operations

Discontinued operations

Diluted earnings per share

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Net revenues 130,069 127,365 102,184 89,617

Net income (loss) 1,238 ( 40,874 ) ( 5,487 ) ( 23,340 )

Basic earnings (loss) per share $ 0.02 $ ( 0.74 ) $ ( 0.10 ) $ ( 0.42 )

Diluted earnings (loss) per share $ 0.02 $ ( 0.74 ) $ ( 0.10 ) $ ( 0.42 )

First Quarter Second Quarter Third Quarter Fourth Quarter

(in thousands, except per share amounts)

1 unchanged sentence

Total revenues $ 215,695 $ 214,730 $ 202,465 $ 214,339

Net revenues 130,049 127,690 115,853 120,856

(Loss) income from continuing operations, net of tax ( 3,660 ) 2,659 3,361 ( 592 )

1 unchanged sentence

Net (loss) income ( 3,843 ) 2,641 3,158 ( 645 )

Net income (loss) attributable to noncontrolling interest

Net (loss) income attributable to noncontrolling interest ( 477 ) ( 753 ) — —

Net (loss) income attributable to EZCORP, Inc.

$ ( 3,366 ) $ 3,394 $ 3,158 $ ( 645 )

Basic earnings per share attributable to EZCORP, Inc.:

Continuing operations

Discontinued operations

Basic earnings per share

$ ( 0.06 ) $ 0.06 $ 0.06 $ ( 0.01 )

Diluted earnings per share attributable to EZCORP, Inc.:

Continuing operations

Discontinued operations

Diluted earnings per share

Fiscal 2019 Quarterly Impacts

In the fourth quarter of fiscal 2019, RDC received a qualified third-party investment causing recognition of a loss of $ 1.9 million on expiration of our call option.

In the third quarter of fiscal 2019, we recorded a $ 6.1 million adjustment in our Latin America segment to correct the calculation of certain transaction tax liabilities in prior periods, comprised of a $ 4.6 million reduction in merchandise sales and a $ 1.5 million increase in interest expense.

In the first quarter of fiscal 2019 as a result of our principal scrap jewelry refiner announcing Chapter 11 bankruptcy restructuring proceedings in the U.S., we recorded a reserve of $ 4.4 million which is included in "Loss on sale or disposal of assets and other" in our consolidated statements, of which $ 0.8 million was recovered in the second quarter of fiscal 2019 and included in "Loss on sale or disposal of assets and other."

In the first and second quarters of fiscal 2019, we recorded impairments of $ 13.3 million ( $ 10.3 million , net of taxes) and $ 6.5 million ( $ 5.0 million , net of taxes), respectively, of our investment in Cash Converters International.

Fiscal 2018 Quarterly Impacts

In the fourth quarter of fiscal 2018, we recorded an $ 11.7 million impairment ( $ 9.2 million net of tax) of our investment in Cash Converters International.

During the first and third quarters of fiscal 2018, we recorded a $ 1.6 million and $ 3.3 million benefit, respectively, associated with the expiration of a statute of limitations on uncertain tax positions included under “Income tax expense” in our consolidated statements of operations.

Additionally, in the first and fourth quarters of fiscal 2018 we recorded $ 2.8 million and $ 1.9 million , respectively, for the revaluation of our deferred tax assets and liabilities upon enactment of the Tax Cuts and Jobs Act of 2017 included under "Income tax expense" in our consolidated statements of operations.

Interest expense during our third and fourth quarters of fiscal 2018 began trending higher as a result of the issuance of 2025 Convertible Notes as further discussed in Note 8 .

In the third quarter of fiscal 2018, we settled a derivative action originally filed July 2014 with a total of $ 6.5 million paid into a settlement fund.

After payment of an approved $ 1.3 million fee award to the plaintiff's attorneys, the remaining $ 5.2 million of the settlement fund was paid to the Company because, as a derivative action, the lawsuit was brought on behalf of the Company.

We recorded that amount under "Other (income) expense" in our consolidated statements of operations for the third quarter of fiscal 2018.

SUBSEQUENT EVENTS

Cash Converters International Limited

Subsequent to September 30, 2019 (on October 21, 2019), Cash Converters International agreed to settle the sole remaining class action lawsuit previously filed on behalf of borrowers residing in Queensland, Australia who took out personal loans from Cash Converters between July 30, 2009 and June 30, 2013.

Cash Converters International agreed to pay AUD $ 42.5 million , subject to court approval.

We estimate recording a charge of approximately $ 10.0 million for our share of the settlement from Cash Converters International in fiscal 2020 related to this event, in addition to our regularly included share of their earnings.

Cash Converters International has indicated that it expects to pay the settlement amount with cash on hand and cash flow from operations.

$ ( 0.06 ) $ 0.06 $ 0.06 $ ( 0.01 )

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data