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12
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO
FEE REQUIRED]
For the transition period from ______________ to
_____________
Commission File Number 0-19424
_______________________________
EZCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2540145
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1901 Capital Parkway
Austin, Texas 78746
(Address of principal executive offices)
(Zip Code)
(512) 314-3400
(Registrant's telephone number, including area code)
NA
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes X No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
The only class of voting securities of the registrant
issued and outstanding is the Class B Voting Common Stock,
par value $.01 per share, 100% of which is owned by two
record holders which are affiliates of the registrant.
There is no trading market for the Class B Voting Common
Stock.
As of March 31, 1996, 6,980,591 shares of the
registrant's Class A Non-Voting Common Stock, par value $.01
per share and 5,019,176 shares of the registrant's Class B
Voting Common Stock, par value $.01 per share were
outstanding.
EZCORP, INC.
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1996 and September 30, 1995 1
Condensed Consolidated Statements of Operations -
Three and Six Months Ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1996 and 1995 3
Notes to Interim Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 6
PART II. OTHER INFORMATION 10
SIGNATURE 12
PART I
Item 1. Financial Statements (Unaudited)
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
March 31, September 30,
1996 1995
ASSETS: --------- -------------
Current assets:
Cash and cash equivalents $ 9,900 $ 4,593
Pawn loans receivable 28,893 39,782
Service charge receivable 8,671 11,452
Inventories (net) 36,128 41,575
Other 4,984 9,839
------- -------
Total current assets 88,576 107,241
Property and equipment, net 35,020 36,596
Other assets:
Excess purchase price over
net assets acquired 13,337 13,574
Other 6,877 7,177
------- -------
Total assets $143,810 $164,588
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Borrowings under credit
agreement $ 21,000 $ -
Accounts payable and
accrued expenses 8,549 10,026
Other 2,448 2,271
------- -------
Total current liabilities 31,997 12,297
Long-term debt less current
maturities 1,330 42,916
Stockholders' equity:
Preferred stock none outstanding - -
Class A Non-voting Common stock
6,980,591 shares outstanding at
March 31, 1996 (6,967,867 at
September 30, 1995) 70 70
Class B Voting Common stock
5,019,176 shares outstanding 50 50
Additional paid-in capital 114,301 114,236
Retained earnings (3,166) (4,209)
------- -------
111,255 110,147
Other (772) (772)
------- -------
Total stockholders' equity 110,483 109,375
------- -------
Total liabilities and
stockholders' equity $143,810 $164,588
======= =======
See Notes to Interim Condensed Consolidated Financial
Statements (unaudited).
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
1996 1995 1996 1995
--------- -------- -------- -------
Revenues:
Sales $28,721 $25,870 $60,837 $57,311
Pawn service charges 16,797 17,369 36,112 35,681
------ ------ ------ ------
Total revenues 45,518 43,239 96,949 92,992
Cost of goods sold 24,837 21,670 52,830 47,730
------ ------ ------ ------
Net revenues 20,681 21,569 44,119 45,262
Operating expenses:
Operations 15,214 15,696 31,769 32,695
Administrative 2,732 3,346 5,673 6,246
Depreciation and
amortization 1,851 1,779 3,745 3,535
------ ------ ------ ------
Total operating
expenses 19,797 20,821 41,187 42,476
------ ------ ------ ------
Operating income 884 748 2,932 2,786
Interest expense 521 756 1,283 1,492
------ ------ ------ ------
Income (loss) before
income taxes 363 (8) 1,649 1,294
Income tax expense 145 11 607 472
------ ------- ------- --------
Net income (loss) $ 218 $ (19) $ 1,042 $ 822
====== ======= ======= ========
Earnings (loss) per share $ 0.02 $(0.00) $ 0.09 $ 0.07
====== ======= ======= ========
Weighted average shares
outstanding 11,990,723 11,978,719 11,985,721 11,978,521
========== ========== ========== ==========
See Notes to Interim Condensed Consolidated Financial
Statements (unaudited).
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Ended
March 31,
---------------
1996 1995
------- -------
OPERATING ACTIVITIES:
Net income $ 1,042 $ 822
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 3,745 3,535
Changes in operating assets
and liabilities:
Decrease in service
charge receivable 2,781 840
Decrease in inventories 5,447 1,332
Increase/(decrease) in accounts
payable and accrued expenses (1,477) 810
Decrease in income taxes payable - (3,469)
Decrease in income taxes recoverable 4,236 -
Other 656 (1,453)
------ ------
Net cash provided by
operating activities 16,430 2,417
INVESTING ACTIVITIES:
Pawn loans forfeited and
transferred to inventories 28,722 25,978
Pawn loans made (74,630) (97,471)
Pawn loans repaid 56,797 75,598
------- -------
Net decrease in loans 10,889 4,105
Additions to property, plant,
and equipment (2,184) (4,791)
Sale of assets 761 -
Issuance of notes receivable
to related parties - (3,000)
------- -------
Net cash provided/(used)
in investing activities 9,466 (3,686)
FINANCING ACTIVITIES:
Proceeds from bank borrowings 1,000 6,500
Payments on borrowings (21,589) (5,071)
-------- -------
Net cash provided/(used)
by financing activities (20,589) 1,429
-------- -------
Increase in cash and cash equivalents 5,307 160
Cash and cash equivalents at
beginning of period 4,593 6,267
------ ------
Cash and cash equivalents at
end of period $ 9,900 $ 6,427
====== ======
See Notes to Interim Condensed Consolidated Financial
Statements (unaudited).
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 1996
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring entries) considered necessary for a fair
presentation have been included. The accompanying financial
statements should be read with the Notes to Consolidated
Financial Statements included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1995.
The Company's business is subject to seasonal
variations, and operating results for the three- and six-
month periods ended March 31, 1996 are not necessarily
indicative of the results of operations for the full fiscal
year.
Note B - Accounting Principles and Practices
The provision for federal income taxes has been
calculated based on the Company's estimate of its effective
tax rate for the full fiscal year.
For purposes of comparison, the Company reclassified
$1.4 million and $3.0 million of scrap jewelry sold to
"sales" from "cost of goods sold" for the three- and six-
month periods ended March 31, 1995, respectively.
The Company provides inventory reserves for shrinkage
and cost in excess of market value. The Company estimates
these reserves using analysis of sales trends, inventory
aging, sales margins and shrinkage on inventory. As of
March 31, 1996, inventory reserves were $7.8 million.
During fiscal 1995, the Company established a $7.7
million provision for the closing and consolidation of
thirty-two (32) of its stores and for the write-down of
included tangible and intangible assets. As of March 31,
1996, thirty-one (31) of these stores had closed and one (1)
was still in operation. The March 31, 1996 accrued
liability for store closings is $0.8 million, principally
for estimated rent obligations. The $6.9 million reduction
in the provision is attributable to the write-down of fixed
and intangible assets for the thirty-one (31) stores that
have closed and other closing expenditures.
In October 1995, the Financial Accounting Standards
Board issued FASB Statement No. 123, "Accounting for Stock
Based Compensation" which prescribes accounting and
reporting standards for all stock-based compensation plans.
The Company is required to adopt the Statement for its
fiscal year that begins October 1, 1996 and is presently
evaluating the Statement. The Company has yet to decide
upon the alternatives provided in the Statement.
Note C - Earnings Per Share
Earnings per share calculations assume exercise of all
outstanding stock options and warrants using the treasury
stock method of calculation. The per share calculation
excludes these common equivalent shares as their effect is
anti-dilutive.
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 1996
Note D - Litigation
The Company is involved in litigation relating to
claims that arise from time to time from normal business
operations. Currently, the Company is a defendant in
several lawsuits. Some of these lawsuits involve claims for
substantial amounts. While the ultimate outcome of these
lawsuits involving the Company cannot be ascertained, after
consultation with counsel, it is management's opinion that
the resolution of these suits will not have a material
adverse effect on the Company's financial condition. See
Item 1. Legal Proceedings.
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
Second Quarter Ended March 31, 1996 vs. Second Quarter Ended
March 31, 1995
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the three months ended March 31, 1996 and 1995.
Three Months Ended % or
March 31, Point
1996 1995 Changea
------- -------- -------
Net Revenues:
Salesb $28,721 $25,870 11.0%
Pawn service charges 16,797 17,369 (3.3%)
------ ------ ------
Total revenuesb 45,518 43,239 5.3%
Cost goods soldb 24,837 21,670 14.6%
------ ------ ------
Net revenues $20,681 $21,569 (4.1%)
====== ====== ======
Other Data:
Gross profit as a
percent of salesb 13.5% 16.2% (2.7 pts.)
Average annual
inventory turnover 2.5x 1.3x 1.2x
Average inventory balance
per location as of the
end of the quarter $151 $240 (37.1%)
Average loan balance per
location as of the end
of the quarter 120 135 (11.1%)
Average yield on loan
portfolio 212% 203% 9.0 pts.
Redemption rate 78% 75% 3.0 pts.
Expenses as a Percent of Total Revenues:b
Operating 33.4% 36.3% (2.9 pts.)
Administrative 6.0 7.7 (1.7 pts.)
Depreciation and
amortization 4.1 4.1 - pts.
Interest, net 1.1 1.7 (0.6 pts.)
Locations in Operation:
Beginning of period 238 243
Acquired - -
Established 2 7
Sold, combined or closed - -
---- ----
End of period 240 250
==== ====
Average locations in operation
during the periodc 239.0 246.5
===== =====
a In comparing the period differences between dollar
amounts or store counts, a percentage change is used.
In comparing the period differences between two
percentages, a percentage point (pt.) change is used.
b Sales from scrap and wholesale activity were
reclassified from cost of goods sold to sales. All
1995 amounts have been adjusted as a result of this
reclassification.
c Average locations in operation during the period is
calculated based on the average of the pawnshops
operating at the beginning and end of such period.
Six Months Ended March 31, 1996 vs. Six Months Ended March
31, 1995
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the six months ended March 31, 1996 and 1995.
Six Months Ended % or
March 31, Point
1996 1995 Changea
------- ------- -------
Net Revenues:
Salesb $60,837 $57,311 6.2%
Pawn service charges 36,112 35,681 1.2%
------ ------ ------
Total revenuesb 96,949 92,992 4.3%
Cost of goods soldb 52,830 47,730 10.7%
------ ------ ------
Net revenues $44,119 $45,262 (2.5%)
====== ====== ======
Other Data:
Gross profit as a
percent of salesb 13.2% 16.7% (3.5 pts.)
Average annual
inventory turnover 2.5x 1.8x 0.7x
Average inventory
balance per location
as of the end of the
quarter $151 $240 (37.1%)
Average loan balance per
location as of the end
of the quarter 120 135 (11.1%)
Average yield on loan
portfolio 209% 201% 8.0 pts.
Redemption rate 77% 75% 2.0 pts.
Expenses as a Percent of Total Revenues:b
Operating 32.8% 35.2% (2.4 pts.)
Administrative 5.9 6.7 (0.8 pts.)
Depreciation and
amortization 3.9 3.8 0.1 pts.
Interest, net 1.3 1.6 (0.3 pts.)
Locations in Operation:
Beginning of period 261 234
Acquired - -
Established 4 16
Sold, combined or closed (25) -
---- ----
End of period 240 250
==== ====
Average locations in operation
during the periodc 250.5 242.0
===== =====
a In comparing the period differences between dollar
amounts or store counts, a percentage change is used.
In comparing the period differences between two
percentages, a percentage point (pt.) change is used.
b Sales from scrap & wholesale activity were reclassified
from cost of goods sold to sales. All 1995 amounts
have been adjusted as a result of this
reclassification.
c Average locations in operation during the period is
calculated based on the average of the pawnshops
operating at the beginning and end of such period.
Results of Operations
The following discussion compares
results for the three- and six-month periods ended March 31,
1996 ("Fiscal 1996 Periods") to the three- and six-month
periods ended March 31, 1995 ("Fiscal 1995 Periods"). The
discussion should be read in conjunction with the
accompanying financial statements and related notes.
During the three-month Fiscal 1996 Period, the Company
opened two (2) newly established stores. During the twelve
(12) months ended March 31, 1996, the Company opened twenty-
one (21) newly established stores and closed thirty-one (31)
stores. The store closings were the result of the Company's
decision, made during the fourth Fiscal 1995 quarter, to
consolidate and close thirty-two (32) stores. At March 31,
1996, the Company operated 240 stores in eleven (11) states.
The Company's primary activity is the making of small,
non-recourse loans secured by tangible personal property.
The income earned on this activity is pawn service charge
revenue. For the three month period ended March 31, 1996,
pawn service charge revenue decreased 3.3% to $16.8 million.
The decrease was primarily due to same store loan balance
declines of 12% largely offset by an increase of nine (9)
percentage points in annualized yield earned on the loan
balance to 212%. The yield improvement results primarily
from management's actions to reduce the number of high-
dollar, low-yielding loans. Of the 12% same store loan
balance decrease, approximately 11% was due to a decrease in
average loan amount and approximately 1% was due to a
smaller number of loans in the portfolio.
For the six-month period, pawn service charge revenue
increased 1.2% to $36.1 million. The increase was primarily
due to an increase in annualized yield earned on the loan
balance from 201% to 209%. This was partially offset by
average loan balance declines resulting primarily from a
lower average loan amount.
For the three- and six-month periods, the pawn service
charge revenue of twenty-one (21) stores that opened during
the preceding twelve (12) months ($0.5 million and $1.4
million) was offset by the thirty-one (31) stores closed
($1.1 million and $2.0 million).
A secondary, but related, activity of the Company is
the sale of forfeited collateral from its lending activity.
The Company's goal is to sell forfeited collateral quickly
at a reasonable margin. For the three- and six-month Fiscal
1996 Periods, sales increased 11% and 6% compared with the
Fiscal 1995 Periods. This increase resulted primarily from
same store sales increases of approximately 11% and 3%.
For the three- and six-months periods, sales of thirty-
one (31) stores closed during the preceding twelve (12)
months ($2.2 million and $4.3 million) was offset largely by
twenty-one (21) stores opened ($1.6 million and $3.9
million).
For the Fiscal 1996 Periods, gross profits as a
percentage of sales decreased 2.7 and 3.5 percentage points,
to 13.5% and 13.2%, from the Fiscal 1995 Periods. This
decrease resulted largely from a decline in merchandise
sales margins (6.4 and 8.3 percentage point decrease). This
decrease was partially offset by the combined favorable
effect of a significant reduction in inventory shrinkage
when measured as a percentage of merchandise sales (reduced
by 2.9 and 3.3 percentage points) and by the sale of jewelry
as scrap (0.8 and 1.5 percentage points). The lower sales
margins result primarily from management's strategy of
pricing merchandise to sell and from the discounting of aged
merchandise. Inventory shrink (e.g., theft, robbery, or
broken merchandise) as a percentage of merchandise sales was
approximately 2.5% in both of the Fiscal 1996 Periods
compared to approximately 5.4% and 5.8% for the Fiscal 1995
Periods. The Company can neither predict the magnitude nor
the direction of the effect of other factors that influence
gross profit levels (e.g., sales mix shift, competitive
pressure, consumer demand for previously owned merchandise,
etc.).
Operating expenses as a percentage of total revenues
decreased approximately 2.9 and 2.4 percentage points to
33.4% and 32.8% for the Fiscal 1996 Periods from 36.3% and
35.2% in the Fiscal 1995 Periods. Administrative expenses as
a percentage of total revenues decreased to 6% in both the
Fiscal 1996 Periods from 8% and 7% in the Fiscal 1995
Periods. Both store operating and administrative expenses
have declined relative to total revenues as a result of the
Company's program to reduce costs.
Depreciation and amortization expense increased in the
Fiscal 1996 Periods primarily as a result of the higher
level of depreciation on the twenty-one (21) newly
established stores added since March 31, 1995. Interest
expense (net) was down 31% and 14% in the Fiscal 1996
Periods over the prior year largely as a result of decreased
borrowings under the Company's bank line of credit.
Liquidity and Capital Resources
Net cash provided by operating activities for the six-
month Fiscal 1996 Period was $16.4 million, an increase of
$14.0 million from the six-month Fiscal 1995 Period.
Approximately one-half of this increase is due to lower
service charge receivable and inventories resulting from
management's actions to eliminate high-dollar, low-yielding
loans, to improve lending practices and to price inventory
to sell on a timely basis. The larger decrease in inventory
for the six-month Fiscal 1996 Period occurred despite a
higher amount of pawn loans forfeited and transferred to
inventory. The balance of the increase is due to income tax
refunds resulting from carry-back of the Company's Fiscal
1995 net operating loss.
For the six-month Fiscal 1996 Period, the Company
invested approximately $2.2 million in leasehold
improvements and equipment for existing stores and four (4)
newly established stores. The Company funded these
expenditures from cash flow provided by operating activities
and the seasonal reduction in its investment in pawn loans.
The Company projects that it will open 10 to 15 new stores
in fiscal 1996 (including four (4) that have already opened)
and will relocate or remodel 5 to 10 of its existing stores.
The Company anticipates that cash flow from operations and
funds available under its existing bank line of credit
should be adequate to fund these capital expenditures and
seasonal pawn loan growth expected during its third and
fourth fiscal quarters.
On August 3, 1995, the Company amended its November 29,
1994 revolving line of credit. Terms of the amended
agreement require, among other things, that the Company meet
certain financial covenants and give the bank group a first
lien security interest in certain assets of the Company.
Borrowings under the line bear interest at the bank's
Eurodollar rate plus 1% to 2%. The amount which the Company
can borrow is based on a percentage of its inventory levels
and outstanding pawn loan balance, up to $50 million. At
March 31, 1996, the Company had $21 million outstanding on
the credit facility and additional borrowing capacity of
approximately $14 million. The credit line matures January
31, 1997. The Company is working with its bank group to
extend the maturity date on the credit facility to January
1998.
Seasonality
Historically, pawn service charge revenues are highest
in the fourth fiscal quarter (July, August and September)
due to higher loan demand during the summer months and
merchandise sales are highest in the first fiscal quarter
(October, November and December) due to the holiday season.
PART II
Item 1.Legal Proceedings
On July 28, 1995, the Company terminated the
Employment Agreement of Courtland L. Logue, Jr., the
Company's former Chairman and Chief Executive Officer, and
an owner of approximately 19% of the Company's outstanding
voting securities (Class B Voting Common Stock). Since Mr.
Logue's termination, the Company has had ongoing discussions
with him concerning certain equipment leases between Mr.
Logue and the Company, as well as the application of
provisions to Mr. Logue's Employment Agreement and Stock
Purchase Agreement with the Company. The Company believes
these agreements require, among other things, a $2.7 million
payment by Mr. Logue to the Company. On March 8, 1996, the
Company filed a lawsuit styled EZCORP, Inc. v. Courtland L.
Logue, Jr. in the 201st District Court of Travis County,
Texas in an effort to bring resolution to this dispute. Mr.
Logue has filed counter-claims relating to the Employment
Agreement and certain equipment leases and notes entered
into between Mr. Logue and the Company.
Item 2.Changes in Securities
Not Applicable
Item 3.Defaults Upon Senior Securities
Not Applicable
Item 4.Submission of Matters to a Vote of Security Holders
On March 6, 1996, the majority shareholder of the
Class B Voting Common Stock approved Ernst & Young LLP to
serve as the Company's auditors for the ensuing year and
elected the following persons as directors of the Company:
Sterling B. Brinkley Dan N. Tonissen
Vincent A. Lambiase Mark C. Pickup
J. Jefferson Dean Richard D. Sage
The Company's Class B Voting Common Stock was the
only class entitled to vote on these matters. The majority
shareholder of the Company holds 4,051,434 shares of the
5,019,176 shares of outstanding Class B Voting Common Stock.
Item 5.Other Information
Not Applicable
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits Incorporated by
Number Description Reference to
Exhibit 11.1 Statement Regarding Computation
of Per Share Earnings Filed herewith
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K
for the quarter ended March 31, 1996.
Exhibit 11.1
Statement Regarding Computation of Per Share Earnings
(Dollars and shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
--------- -------- --------- --------
(Unaudited) (Unaudited)
Primary and fully diluted
Weighted average number
of common shares
outstanding during
the period 11,991 11,978 11,986 11,977
Net effect of dilutive
stock options -
based on the treasury
stock method using
overall market price 0 1 0 2
------ ------ ------ ------
Total shares 11,991 11,979 11,986 11,979
====== ====== ====== ======
Net income (loss) $ 218 $ (19) $ 1,042 $ 822
====== ====== ====== ======
Earnings (loss) per sharea $ 0.02 $(0.00) $ 0.09 $ 0.07
====== ====== ====== ======
a Earnings per share calculations assume exercise of all
outstanding stock options and warrants using the
treasury stock method of calculation. The per share
calculation excludes these common equivalent shares as
their effect is anti-dilutive.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
EZCORP, INC.
(Registrant)
Date: May 14, 1996 By: /s/ DAN N. TONISSEN
(Signature)
Dan N. Tonissen
Senior Vice President and
Chief Financial Officer