Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. EZCORP INC (876523) 10-Q published on Aug 01, 2018 at 4:10 pm
Reporting Period: Jun 29, 2018
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. 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. The carrying amount of the 2025 Convertible Notes as a separate equity-classified instrument (the “2025 Convertible Notes Embedded Derivative”) as initially calculated and is currently included under “Additional paid-in capital” in our condensed consolidated balance sheets of June 30, 2018 was $49.6 million ($39.1 million, net of tax). The 2025 Convertible Notes Embedded Derivative is expected to remain recorded in equity in our condensed consolidated balance sheets as long as it continues to meet the criteria as an equity-classified instrument in subsequent reporting periods. We incurred transaction costs of $5.5 million related to the issuance of the 2025 Convertible Notes, which we recorded as deferred financing costs and are included under “Long-term debt, net” and “Additional paid-in capital” in our condensed consolidated balance sheets. The effective interest rate for the three and nine months ended June 30, 2018 was approximately 9%. As of June 30, 2018, the remaining unamortized debt discount and issuance costs will be amortized through the 2025 Maturity Date assuming no early conversion.
Prior to November 1, 2024, the 2025 Convertible Notes will be convertible only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ended on June 30, 2018 (and only during such fiscal quarter), if the last reported sale price of our Class A Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price, as defined in the 2018 Indenture, per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our Class A Common Stock and the conversion rate on such trading day; (3) if we call any or all of the 2025 Convertible Notes for redemption, at any time prior to the close of business on the business day immediately preceding the redemption date; 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.
Our Latin America Pawn business continues to grow rapidly. In the nine months ended June 30, 2018, we opened 10 de novo stores and acquired 196 stores: 112 located in Guatemala, El Salvador, Honduras and Peru; and 84 located in Mexico. We see opportunity for further expansion in Latin America through de novo openings and acquisitions, and plan to open several additional de novo stores in Latin America during the remainder of fiscal 2018. We have provided same store net revenue information in our discussion of our Latin America Pawn segment. Operating and other expenses in our Latin America Pawn segment increased primarily as a result of costs associated with these acquisitions and de novo stores. For further description of acquisitions consummated during the current nine-months, see Note 2 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements."
transition tax, the final impact of the Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the Internal Revenue Service, and actions we may take. We are continuing to gather additional information to determine the final impact of the Act. We recognized $2.8 million for the revaluation of our deferred tax assets and liabilities upon enactment of the Act, which is included as a component of "Income tax expense" in our condensed consolidated statements of operations in the current nine-months. We anticipate recording another charge of approximately $2.0 million in the fiscal quarter ending September 30, 2018 as we have balances related to our short-term deferred tax assets and liabilities that arose during the current fiscal year when the tax rate was 24.5% that will reverse in subsequent periods when the rate will be 21%. We believe we have adequate foreign tax credit carryforwards to fully offset any transition tax on the total post-1986 foreign earnings and profit of our foreign subsidiaries as required under the Act.
Our certificate of incorporation currently authorizes us to issue up to 100 million shares of Class A Non-voting Common Stock (“Class A Common Stock”). Taking into consideration the shares that are issued and outstanding, as well as the shares that have been reserved for issuance pursuant to convertible notes, warrants and outstanding equity incentive compensation awards and the conversion of the Class B Voting Common Stock, we had approximately 700,000 shares of authorized Class A Common Stock that are available for other uses as of July 24, 2018. Therefore, our ability to issue shares of Class A Common Stock (other than pursuant to the existing reserved-for commitments), or securities or instruments that are convertible into or exchangeable for shares of Class A Common Stock, will be limited until such time as additional authorized, unissued and unreserved shares become available. During this time, for example, our ability to complete equity or equity-linked financings or other transactions (including strategic acquisitions) that involve the issuance or potential issuance of Class A Common Stock will be limited.