7
<PAGE>
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 December 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 December 31, 1996, 9,959,536 shares of the
registrant's Class A Non-voting Common Stock, par value $.01
per share and 2,036,296 shares of the registrant's Class B
Voting Common Stock, par value $.01 per share were
outstanding.
<PAGE>
EZCORP, INC.
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
December 31, 1996 and September 30, 1996 1
Condensed Consolidated Statements of Operations -
Three Months Ended December 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows -
Three Months Ended December 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 9
SIGNATURE 10
<PAGE>
PART I
Item 1. Financial Statements (Unaudited)
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE> December 31, September 30,
<CAPTION> 1996 1996
------------ -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,793 $ 1,419
Pawn loans receivable 35,775 34,636
Service charge receivable 10,693 10,262
Inventories (net) 34,673 35,834
Deferred tax asset 2,366 2,140
Other 2,378 2,998
------- -------
Total current assets 88,678 87,289
Property and equipment, net 33,850 34,266
Other assets:
Excess purchase price over net
assets acquired 12,981 13,099
Other 5,737 5,712
------- -------
Total assets $141,246 $140,366
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of
long-term debt $ 177 $ 172
Accounts payable and accrued
expenses 7,546 8,183
Federal income taxes payable 1,420 800
Other 1,974 1,976
------- -------
Total current liabilities 11,117 11,131
Long-term debt less current
maturities 15,199 16,244
Stockholders' equity:
Preferred stock, par value $.01
a share - Authorized 5,000,000
shares; none issued and outstanding - -
Class A Non-voting Common stock,
par value $.01 a share -
Authorized 40,000,000 shares;
9,968,569 shares issued and
9,959,536 outstanding at December 31,
1996 (9,728,904 issued and 9,719,871
outstanding September 30, 1996) 100 97
Class B Voting Common stock,
par value $.01 a share -
Authorized 2,274,969 shares;
2,036,296 shares issued and
outstanding at December 31, 1996
(2,270,863 issued and outstanding
September 30, 1996) 20 23
Additional paid-in capital 114,338 114,301
Retained earnings 1,236 (666)
------- -------
115,694 113,755
Other (764) (764)
------- -------
Total stockholders' equity 114,930 112,991
------- -------
Total liabilities and
stockholders' equity $141,246 $140,366
======= =======
</TABLE>
See Notes to Interim Condensed Consolidated Financial
Statements (unaudited).
<PAGE>
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE> Three Months Ended
<CAPTION> December 31,
------------------
1996 1995
------- --------
<S> <C> <C>
Revenues:
Sales $ 27,100 $ 32,118
Pawn service charges 18,742 19,315
------- -------
Total revenues 45,842 51,433
Cost of goods sold 22,512 27,995
------- -------
Net revenues 23,330 23,438
Operating expenses:
Operations 15,013 16,555
Administrative 3,193 2,940
Depreciation and amortization 1,890 1,894
------- -------
Total operating expenses 20,096 21,389
------- -------
Operating income 3,234 2,049
Interest expense 291 762
------- -------
Income before income taxes 2,943 1,287
Income tax expense 1,040 462
------- -------
Net income $ 1,903 $ 825
======= =======
Earnings per share $ 0.16 $ 0.07
======= =======
Weighted average shares outstanding 11,992,718 11,980,912
========== ==========
</TABLE>
See Notes to Interim Condensed Consolidated
Financial Statements (unaudited).
<PAGE>
EZCORP, Inc. and SubsidiariesCondensed Consolidated
Statements of Cash Flows (Unaudited)
(Dollars in thousands)
<TABLE> Three Months Ended
<CAPTION> December 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,903 $ 825
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 1,890 1,894
Deferred income taxes (394) 462
Gain on sale of assets - -
Changes in operating assets and
liabilities:
(Increase)/decrease in service
charge receivable (431) 1,229
(Increase)/decrease in inventories 1,161 (111)
(Increase)/decrease in prepaid
expenses and other assets 587 (432)
Increase/(decrease) in accounts
payable and accrued expenses (600) 1,439
Increase/(decrease) in customer
layaway deposits (2) 36
Decrease in income taxes recoverable - 670
Increase in income taxes payable 620 -
------ ------
Net cash provided by operating
activities 4,734 6,012
INVESTING ACTIVITIES:
Pawn loans forfeited and transferred
to inventories 11,466 16,512
Pawn loans made (32,374)(39,339)
Pawn loans repaid 19,769 28,627
------- -------
Net (increase)/decrease in loans (1,139) 5,800
Additions to property, plant,
and equipment (1,181) (819)
Sale of assets - 736
------- ------
Net cash provided/(used) by
investing activities (2,320) 5,717
FINANCING ACTIVITIES:
Proceeds from bank borrowings 1,000 -
Payments on borrowings (2,040) (5,046)
------- -------
Net cash (used) by financing
activities (1,040) (5,046)
------- -------
Increase in cash and cash equivalents 1,374 6,683
Cash and cash equivalents at
beginning of period 1,419 4,593
------- ------
Cash and cash equivalents
at end of period $ 2,793 $11,276
======= ======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock to
401(k) Plan $ 37 $ 65
======= ======
</TABLE>
See Notes to Interim Condensed Consolidated Financial
Statements (unaudited).
<PAGE>
EZCORP, Inc. and SubsidiariesNotes to Interim Condensed
Consolidated Financial Statements (Unaudited)
December 31, 1996
Note A - Basis of PresentationThe 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, 1996.
The Company's business is subject to seasonal
variations, and operating results for the three-month period
ended December 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.
To conform with the current year's presentation, $3.4
million of proceeds from the disposal of scrap jewelry have
been reclassified from cost of sales to sales for the three-
month period ended December 31, 1995.
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
December 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
tangible and intangible assets. As of December 31, 1996,
all the stores have been closed. The December 31, 1996
accrued liability for store closings is $0.3 million,
principally for estimated rent obligations.
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 has determined it will continue to account for
its stock based compensation plans in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees." The Company will not expense
the fair value of stock based compensation, but will provide
proforma footnote disclosures in the annual report of what
net income would have been had the Company adopted the new
fair value method for recognition purposes.
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.
<PAGE>
EZCORP, Inc. and SubsidiariesNotes to Interim Condensed
Consolidated Financial Statements (Unaudited)
December 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 or
results of operations. However, there can be no assurance
as to the ultimate outcome of these matters.
<PAGE>
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
First Quarter Ended December 31, 1996 vs. First Quarter
Ended December 31, 1995
The discussion in this section of this report contains
forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ
materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not
limited to, those discussed in this section and those
discussed elsewhere in this report.
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the three months ended December 31, 1996 and 1995.
<TABLE> Three Months Ended % or
<CAPTION> December 31, Point
1996 1995 Changea
--------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Net Revenues:
Salesb $ 27,100 $ 32,118 (15.6%)
Pawn service charges 18,742 19,315 (3.0%)
------- -------
Total revenuesb 45,842 51,433 (10.9%)
Cost of goods soldb 22,512 27,995 (19.6%)
------- -------
Net revenues $ 23,330 $ 23,438 (0.5%)
======= =======
Other Data:
Gross profit as a
percent of salesb 16.9% 12.8% 4.1 pts.
Average annual inventory
turnover 2.5x 2.5x 0.0x
Average inventory balance
per location as of the
end of the quarter $140 $175 (20.0%)
Average loan balance per
location as of the end
of the quarter $144 $143 0.7%
Average yield on loan
portfolio 213% 207% 6.0 pts.
Redemption rate 79% 75% 4.0 pts.
Expenses as a Percent of
Total Revenues:b
Operating 32.7% 32.2% 0.5 pt.
Administrative 7.0 5.7 1.3 pts.
Depreciation and amortization 4.1 3.7 0.4 pt.
Interest, net 0.6 1.5 (0.9) pt.
Locations in Operation:
Beginning of period 246 261
Acquired - -
Established 2 2
Sold, combined or closed - (25)
---- ----
End of period 248 238
==== ====
Average locations in operation
during the periodc 247.0 249.5
===== =====
</TABLE>
- --------------------------------
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 locations
operating at the beginning and end of such period.
<PAGE>
Results of Operations
The following discussion compares results for the three-
month period ended December 31, 1996 ("Fiscal 1997 Period")
to the three month period ended December 31, 1995 ("Fiscal
1996 Period"). The discussion should be read in conjunction
with the accompanying financial statements and related
notes.
During the Fiscal 1997 Period, the Company opened two
(2) newly established stores. During the twelve (12) months
ended December 31, 1996, the company opened eleven (11)
newly establish stores and closed one (1). The store
closing was a result of the Company's decision, made during
the fourth Fiscal 1995 quarter, to consolidate and close
thirty-two (32) stores. At December 31, 1996, the Company
operated 248 stores in twelve (12) 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 Fiscal 1997 Period, pawn service charge
revenue decreased $0.6 million from the Fiscal 1996 Period
to $18.7 million. A decline in same store pawn service
charge revenue ($0.5 million) and the loss of pawn service
charge revenue from the thirty-two (32) closed stores ($0.3
million) were partially offset by new stores not open the
full three month period ($0.2 million). The $0.5 million
same store pawn service charge decline is the net result of
lower average loan balances ($1.0 million pawn service
charge revenue impact) offset by annualized yield
improvement on the pawn loan portfolio of six percentage
points to 213% ($0.5 million). At December 31, 1996, same
store pawn loan balances were 4 percent above December 31,
1995.
A secondary, but related, activity of the Company is
the sale of merchandise, primarily collateral forfeited from
its lending activity. For the Fiscal 1997 Period,
merchandise sales decreased approximately $5.0 million from
the Fiscal 1996 Period to approximately $27.1 million. A
decline in same store merchandise sales ($2.8 million),
merchandise sales of the closed stores ($0.5 million), and
the decrease in the amount of sales associated with the
inventory liquidation which commenced in the fourth Fiscal
1995 quarter ($2.6 million) were partially offset by new
store sales ($0.9 million). Same store sales for the Fiscal
1997 Period declined ten percent from the Fiscal 1996 Period
primarily as a result of a twenty percent reduction in
inventory levels per store (approximately $140,000 in the
Fiscal 1997 Period as compared to $175,000 in the Fiscal
1996 Period).
For the Fiscal 1997 Period, gross profits as a
percentage of merchandise sales increased 2.9 percentage
points from the Fiscal 1996 Period to 16.9 percent,
excluding the 1995 inventory liquidation discussed above
(1.2 points). This increase results from an improvement in
margins on merchandise sales (1.1 percentage points), a
reduction in inventory shrinkage when measured as a
percentage of merchandise sales (down 1.2 percentage points
to approximately 1.3 percentage points) and improved gross
profit on the sale of scrap jewelry (0.6 percentage point).
The Company's gross margin level (gross profit as a
percentage of merchandise sales) results from, among other
factors, the composition, quality and age of its inventory.
At December 31, 1996, and 1995, respectively, the Company's
inventories consisted of approximately 65 and 57 percent
jewelry (e.g. ladies' and men's rings, chains, bracelets,
etc.) and 35 and 43 percent general merchandise (e.g.,
televisions, VCRs, tools, sporting goods, musical
instruments, firearms, etc.). At December 31, 1996 and
1995, respectively, 76% and 77% of the jewelry was less than
twelve months old based on the Company's date of acquisition
(date of forfeiture for collateral or date of purchase) as
was approximately 87% of the general merchandise inventory
for both periods.
In the Fiscal 1997 Period, operating and administrative
expenses as a percentage of total revenues increased 0.5
and 1.3 percentage points, respectively, from the Fiscal
1996 Period, primarily as a result of the 11% decline in
total revenues from the Fiscal 1996 Period.
<PAGE>
Depreciation and amortization expense increased 0.4
percentage points in the Fiscal 1997 Period from the Fiscal
1996 Period. The increase is primarily a result of the 11%
decrease in total revenues for the Fiscal 1997 Period from
the Fiscal 1996 Period. Interest expense (net) was down
0.9 percentage points in the Fiscal 1997 Period over the
Fiscal 1996 Period largely as a result of decreased
borrowings under the Company's line of credit.
Liquidity and Capital Resources
Net cash provided by operating activities for the
Fiscal 1997 Period was $4.7 million as compared to $6.0
million provided in the Fiscal 1996 Period. A portion of
the Fiscal 1996 operating cash flow is the result of income
tax refunds from the carryback of the Company's Fiscal 1995
net operating loss and the lower level of taxes payable
resulting from the carryforward of this net operating loss.
Net cash used by investing activities was $2.3 million for
the Fiscal 1997 Period compared to $5.7 million provided in
the Fiscal 1996 period. The change is due to increases in
pawn loan balances and higher levels of capital expenditures
for the Fiscal 1997 Period.
In the Fiscal 1997 Period, the Company invested
approximately $1.2 million, including investments in
leasehold improvements and equipment for existing stores and
two (2) newly established stores. The Company funded these
expenditures largely from cash flow provided by operating
activities. The Company plans to open approximately 10 to
15 stores and remodel 5 to 10 stores in the next twelve
months. 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 expected pawn loan growth during the coming
year.
The company's current revolving line of credit
agreement, which matures January 31, 1998, requires, among
other things, that the Company meet certain financial
covenants and provide 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
one and one-half percent. The amount which the Company can
borrow is based on a percentage of its inventory levels and
outstanding pawn loan balance, up to $50.0 million. At
December 31, 1996, the Company had $14.0 million
outstanding on the credit facility and additional borrowing
capacity of approximately $26.0 million.
Seasonality
Historically, pawn service charge revenues are highest
in the Company's fiscal fourth quarter (July, August and
September) due to higher loan demand during the summer
months and merchandise sales are highest in the Company's
fiscal first quarter (October, November and December) due to
the holiday season.
<PAGE>
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
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 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 December 31, 1996.
<PAGE>
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: February 12, 1997 By: /s/ DAN N. TONISSEN
----------------------------
(Signature)
Dan N. Tonissen
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 2793
<SECURITIES> 0
<RECEIVABLES> 46468
<ALLOWANCES> 0
<INVENTORY> 34673
<CURRENT-ASSETS> 88678
<PP&E> 51704
<DEPRECIATION> 17854
<TOTAL-ASSETS> 141246
<CURRENT-LIABILITIES> 11117
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 114810
<TOTAL-LIABILITY-AND-EQUITY> 141246
<SALES> 27100
<TOTAL-REVENUES> 45842
<CGS> 22512
<TOTAL-COSTS> 42608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> 2943
<INCOME-TAX> 1040
<INCOME-CONTINUING> 1903
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1903
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
<PAGE>
Exhibit 11.1
Statement Regarding Computation of Per Share Earnings
(Dollars and shares in thousands, except per share amounts)
<TABLE> Three Months Ended
<CAPTION> December 31,
------------------
1996 1995
------- --------
(Unaudited)
<S> <C> <C>
Primary and fully diluted
Weighted average number
of common shares outstanding
during the period 11,993 11,981
Net effect of dilutive stock
options - based on the treasury
stock method using overall market
price 0 0
______ ______
Total shares 11,993 11,981
====== ======
Net income $ 1,903 $ 825
====== ======
Earnings per sharea $ 0.16 $ 0.07
====== ======
</TABLE>
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.
