2
<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 March 31, 1998
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)
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__
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 one
record holder who is an affiliate of the registrant. There
is no trading market for the Class B Voting Common Stock.
As of March 31, 1998, 10,811,541 shares of the
registrant's Class A Non-Voting Common Stock, par value $.01
per share and 1,190,057 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 -
March 31, 1998 and September 30, 1997 1
Condensed Consolidated Statements of Operations -
Three and Six Months Ended March 31, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended March 31, 1998 and 1997 3
Notes to Interim Condensed Consolidated Financial
Statements 4
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION 13
SIGNATURE 14
<PAGE>
PART I
Item 1. Financial Statements (Unaudited)
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE> March 31, September 30,
<CAPTION> 1998 1997
--------- -------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 974 $ 829
Pawn loans receivable 34,475 42,837
Service charge receivable 10,161 13,130
Inventories (net) 36,638 39,258
Deferred tax asset 1,364 1,889
Other 2,946 1,965
--------- --------
Total current assets 86,558 99,908
Investment in unconsolidated affiliate 10,362 -
Property and equipment, net 34,333 32,586
Other assets:
Deferred tax asset 1,730 1,730
Other assets, net 18,341 16,827
-------- --------
Total assets $ 151,324 $ 151,051
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 9 $ 9
Accounts payable and accrued expenses 5,939 7,715
Other 2,259 2,733
-------- --------
Total current liabilities 8,207 10,457
Long-term debt less current maturities 17,128 19,133
Other long-term liabilities 172 -
-------- --------
Total long-term liabilities 17,300 19,133
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 108 105
Authorized 40,000,000 shares; 10,820,574
shares issued and 10,811,541 shares
outstanding at March 31, 1998 (10,524,563
issued and 10,515,530 outstanding at
September 30, 1997)
Class B Voting Common Stock, par value $.01
a share 12 15
Authorized 1,198,990 shares; 1,190,057
shares issued and outstanding at March 31,
1998 (1,480,301 shares issued and
outstanding at September 30, 1997)
Additional paid-in capital 114,398 114,338
Retained earnings 12,063 7,767
Other (764) (764)
-------- --------
Total stockholders' equity 125,817 121,461
-------- --------
Total liabilities and stockholders'
equity $ 151,324 $ 151,051
======== ========
</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 Six Months Ended
<CAPTION> March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 30,674 $ 28,108 $ 61,630 $ 55,209
Pawn service charges 19,006 18,188 39,994 36,929
------- ------- ------- -------
Total revenues 49,680 46,296 101,624 92,138
Cost of goods sold 25,369 23,018 51,449 45,531
------- ------- ------- -------
Net revenues 24,311 23,278 50,175 46,607
Operating expenses:
Operations 15,818 15,433 32,507 30,446
Administrative 3,143 2,990 6,497 6,184
Depreciation and amortization 1,824 1,828 3,622 3,716
------- ------- ------- -------
Total operating expenses 20,785 20,251 42,626 40,346
------- ------- ------- -------
Operating income 3,526 3,027 7,549 6,261
Interest expense 241 232 621 522
------- ------- ------- -------
Income before income taxes 3,285 2,795 6,928 5,739
Income tax expense 1,248 1,026 2,632 2,067
------- ------- -------- -------
Net income $ 2,037 $ 1,769 $ 4,296 $ 3,672
======= ======= ======== =======
Basic and diluted earnings per
share $ 0.17 $ 0.15 $ 0.36 $ 0.31
======= ======= ======== =======
Weighted average shares outstanding
Basic 11,997,817 11,995,831 11,996,813 11,994,262
========== ========== ========== ==========
Diluted 12,011,217 12,000,340 12,011,446 11,998,452
========== ========== ========== ==========
</TABLE>See Notes to Interim Condensed Consolidated Financial
Statements (unaudited).
<PAGE>
EZCORP, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
<TABLE> Six Months Ended
<CAPTION> March 31,
1998 1997
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,296 $ 3,672
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,622 3,716
Deferred income taxes 525 (103)
Gain on sale of assets (106) -
Changes in operating assets and liabilities:
Decrease in service charge receivable 3,092 323
Decrease in inventories 2,787 5,074
(Increase)/decrease in prepaid expenses
and other assets (1,025) 525
Decrease in accounts payable and accrued
expenses (1,719) (1,360)
Increase in customer layaway deposits 336 27
Increase in other long-term liabilities 172 -
Decrease in income taxes payable (819) (180)
------ ------
Net cash provided by operating
activities 11,161 11,694
INVESTING ACTIVITIES:
Pawn loans forfeited and transferred
to inventories 30,395 24,475
Pawn loans made (80,400) (78,801)
Pawn loans repaid 58,787 55,474
------ ------
Net decrease in loans 8,782 1,148
Additions to property, plant,
and equipment (5,082) (2,669)
Acquisitions, net of cash acquired (2,552) -
Investment in unconsolidated affiliate (10,362) -
Sale of assets 203 -
------ ------
Net cash used in investing activities (9,011) (1,521)
FINANCING ACTIVITIES:
Proceeds from bank borrowings 17,000 3,000
Payments on borrowings (19,005) (11,271)
------ ------
Net cash used by financing activities (2,005) (8,271)
------ ------
Increase in cash and cash equivalents 145 1,902
Cash and cash equivalents at beginning of period 829 1,419
------ ------
Cash and cash equivalents at end of period $ 974 $ 3,321
====== ======
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock to 401(k) Plan $ 60 $ 37
</TABLE> ====== ======
See Notes to Interim Condensed Consolidated Financial Statements
(unaudited).
<PAGE>
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
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, 1997.
The Company's business is subject to seasonal variations,
and operating results for the three- and six-month periods ended
March 31, 1998 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.
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, 1998,
inventory reserves were $7.0 million.
Property and equipment is shown net of accumulated
depreciation of $25,986,000 and $22,767,000 at March 31, 1998 and
September 30, 1997, respectively.
Note C - Statement of Cash Flows
The amounts for March 31, 1997 in the investing section for
pawn loans made, pawn loans repaid and pawn loans forfeited and
transferred to inventories have been reclassified. The net
increase/(decrease) in loans and the net cash provided by/(used
in) investing activities are unchanged.
Note D - Earnings Per Share
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per
Share. Statement 128 replaces the previously reported primary
and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to the
Statement 128 requirements.
<PAGE>
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------- ------- ------- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic and
diluted earnings per share -
net income $ 2,037 $ 1,769 $ 4,296 $ 3,672
====== ====== ====== ======
Denominator
Denominator for basic earnings
per share - weighted average
shares 11,998 11,996 11,997 11,994
Effect of dilutive securities:
Employee stock options 2 - 3 -
Warrants 11 4 11 4
------ ------ ------ ------
Dilutive potential common
shares 13 4 14 4
------ ------ ------ ------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 12,011 12,000 12,011 11,998
====== ====== ====== ======
Basic earnings per share $ 0.17 $ 0.15 $ 0.36 $ 0.31
====== ====== ====== ======
Diluted earnings per share $ 0.17 $ 0.15 $ 0.36 $ 0.31
</TABLE> ====== ====== ====== ======
For the three months ended March 31, 1998, options to
purchase 629,519 weighted average shares of common stock at an
average price of $13.35 per share were outstanding. For the six
months ended March 31, 1998, options to purchase 592,088 weighted
average shares of common stock at an average price of $13.46 per
share were outstanding. These options were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the
common shares and, therefore, the effect would be anti-dilutive.
For the three months ended March 31, 1997, options to
purchase 639,519 weighted average shares of common stock at an
average price of $13.16 per share were outstanding. For the six
months ended March 31, 1997, options to purchase 636,393 weighted
average shares of common stock at an average price of $13.19 per
share were outstanding. These options were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than the average market price of
common shares and, therefore, the effect would be anti-dilutive.
Note E - Changes in Capital Structure
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 129, Disclosure of
Information about Capital Structure. Statement 129 requires,
among other things, an entity to disclose changes in its capital
structure since the date of the most recent annual balance sheet.
As of February 4, 1998, 285,417 of the remaining shares of
Class B Voting Common Stock held by the former President and
Chief Executive Officer, Courtland L. Logue, Jr., were converted
to publicly traded Class A Non-Voting Common Stock as a result of
an out of court settlement reached between the Company and Mr.
Logue. The majority holder of the Class B Voting Common Stock
previously had approved and implemented the conversion of Mr.
Logue's other 682,325 shares from Class B to Class A during the
Company's Fiscal Year ended September 30, 1996 and the first half
of Fiscal year ended September 30, 1997. The Company received
10,000 shares from Mr. Logue.
<PAGE>
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
The Company accounted for the receipt of these shares as a
capital transaction and has excluded this from the calculation of
net income. Please refer to Note H for additional information.
On March 2, 1998, the Company issued 5,767 shares of Class A
Non-Voting Common Stock as a matching contribution to its 401(k)
Plan.
On March 20, 1998, the sole shareholder of Class B Voting
Common Stock approved and implemented the conversion of 4,827
shares from Class B into the same number of shares of Class A Non-
voting Common Stock.
Note F - 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.
The Company is the nominal defendant in a lawsuit filed July
18, 1997 by a holder of thirty-nine (39) shares of Company stock
styled for the benefit of the Company against certain directors
of the Company in the Castle County Court of Chancery in the
State of Delaware. The suit alleges the defendants breached
their fiduciary duties to the Company in approving certain
management incentive compensation arrangements and an affiliate's
financial advisory services contract with the Company. The suit
seeks recision of the subject agreements, unspecified damages and
expenses, including plaintiff's legal fees. The defendants
have filed a motion to dismiss which is pending before the court.
Note G - Investment in Unconsolidated Affiliate
On March 24, 1998, the Company announced that it acquired,
in a private transaction, just under 30% of the outstanding
shares of Albemarle & Bond Holdings plc ("A&B"), a publicly
traded company headquartered in Bristol, England. The Company's
investment totaled approximately $10.3 million for 11,380,000
shares. A&B currently operates 25 pawnshops in the United
Kingdom. The acquisition is accounted for using the equity
method of accounting for investments in common stock.
Note H - Other Events
Pursuant to a settlement agreement dated February 4, 1998,
the Company and its founder and former President and Chief
Executive Officer, Courtland L. Logue, Jr., reached an out of
court settlement to the lawsuit styled EZCORP, Inc. v. Courtland
L. Logue, Jr., in the 201st District Court of Travis County,
Texas. Under the terms of the settlement, which closed February
18, 1998, both the Company and Mr. Logue released their claims
against each other, including all claims under Mr. Logue's
employment agreement, and neither party admitted any liability
nor paid any cash consideration to the other.
The Company agreed to accelerate the release of contractual
restrictions on the transfer of Mr. Logue's 967,742 shares of
common stock, which converted, as of February 18, 1998, to
publicly traded Class A Non-Voting Common Stock. In exchange,
Mr. Logue agreed to assign 10,000 shares of his stock to the
Company.
<PAGE>
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 1998
The settlement released 191,548 shares immediately, and a
like amount will be released on October 29, 1998. An additional
95,774 shares will be released from restrictions on each of
October 29, 1999 and October 29, 2000, with the remaining 40% of
the shares to be released in July, 2001, as originally scheduled.
The Company and Mr. Logue also clarified the scope of Mr. Logue's
continuing non-competition agreement, negotiated a five year
limitation on Mr. Logue's financial investments in competing
pawnshop businesses and negotiated renewal options with respect
to certain existing real estate leases for store locations.
<PAGE>
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations
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.
Second Quarter Ended March 31, 1998 vs. Second Quarter Ended
March 31, 1997
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the three months ended March 31, 1998 and 1997.
<TABLE> Three Months Ended % or
<CAPTION> March 31,(a) Point
1998 1997 Change(b)
-------- ------- --------
<S> <C> <C> <C>
Net Revenues:
Sales $30,674 $28,108 9.1%
Pawn service charges 19,006 18,188 4.5%
------ ------
Total revenues 49,680 46,296 7.3%
Cost goods sold 25,369 23,018 10.2%
------ ------
Net revenues $24,311 $23,278 4.4%
====== ======
Other Data:
Gross profit as a percent of sales 17.3% 18.1% (0.8) pt.
Average annual inventory turnover 2.6x 2.8x (0.2)x
Average inventory balance per location
as of the end of the quarter $140 $125 12.0%
Average loan balance per location
as of the end of the quarter $132 $136 (2.9)%
Average yield on loan portfolio 211% 212% (1.0) pt.
Redemption rate 79% 80% (1.0) pt.
Expenses as a Percent of Total Revenues:
Operating 31.8% 33.3% (1.5) pts.
Administrative 6.3% 6.5% (0.2) pt.
Depreciation and amortization 3.7% 3.9% (0.2) pt.
Interest, net 0.5% 0.5% 0.0 pts.
Locations in Operation:
Beginning of period 250 248
Acquired 1 -
Established 11 1
Sold, combined or closed - (2)
----- -----
End of period 262 247
Average locations in operation during the ===== =====
period(c) 256.0 247.5
</TABLE> ===== =====
- ------------------------------------------
a In thousands, except percentages, inventory turnover
and store count.
b 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.
c Average locations in operation during the period is
calculated based on the average of the stores operating
at the beginning and end of such period.
<PAGE>
Six Months Ended March 31, 1998 vs. Six Months Ended March
31, 1997
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the six months ended March 31, 1998 and 1997.
<TABLE> Six Months Ended % or
<CAPTION> March 31,(a) Point
1998 1997 Change(b)
--------- --------- ---------
<S> <C> <C> <C>
Net Revenues:
Sales $ 61,630 $ 55,209 11.6%
Pawn service charges 39,994 36,929 8.3%
------- -------
Total revenues 101,624 92,138 10.3%
Cost of goods sold 51,449 45,531 13.0%
------- -------
Net revenues $ 50,175 $ 46,607 7.7%
======= =======
Other Data:
Gross profit as a percent of sales 16.5% 17.5% (1.0) pt.
Average annual inventory turnover 2.6x 2.6x 0.0x
Average inventory balance per location
as of the end of the quarter $140 $125 12.0%
Average loan balance per location
as of the end of the quarter $132 $136 (2.9)%
Average yield on loan portfolio 208% 214% (6.0) pts.
Redemption rate 77% 79% (2.0) pts.
Expenses as a Percent of Total Revenues:
Operating 32.0% 33.0% (1.0) pt.
Administrative 6.4% 6.7% (0.3) pt.
Depreciation and amortization 3.6% 4.0% (0.4) pt.
Interest, net 0.6% 0.6% 0.0 pts.
Locations in Operation:
Beginning of period 249 246
Acquired 2 -
Established 12 3
Sold, combined or closed (1) (2)
----- -----
End of period 262 247
Average locations in operation during the ===== =====
period(c) 255.5 246.5
</TABLE> ===== =====
- -----------------------------------------
a In thousands, except percentages, inventory turnover
and store count.
b 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.
c Average locations in operation during the period is
calculated based on the average of the stores operating
at the beginning and end of such period.
<PAGE>
Results of Operations
The following discussion compares results for the three- and
six-month periods ended March 31, 1998 ("Fiscal 1998 Periods")
to the three- and six-month periods ended March 31, 1997 ("Fiscal
1997 Periods"). The discussion should be read in conjunction with
the accompanying financial statements and related notes.
During the three-month Fiscal 1998 Period, the Company
opened eleven (11) newly established stores and acquired one (1)
store. During the twelve (12) months ended March 31, 1998, the
Company opened fourteen (14) newly established stores, acquired
two (2) stores and closed one (1) store. At March 31, 1998, the
Company operated 262 stores in thirteen (13) 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 Fiscal 1998 Period, pawn service charge revenue
increased $0.8 million from the three-month Fiscal 1997 Period to
$19.0 million. This resulted from an increase in same store pawn
service charge revenue ($0.4 million) and the pawn service charge
revenue from new stores not open the full three-month period
($0.4 million). The annualized yield on the average pawn loan
balance decreased one percentage point from the Fiscal 1997
Period to 211%. Average same store loan balances were two
percent above the three month Fiscal 1997 Period.
For the six-month Fiscal 1998 Period, pawn service charge
revenue increased $3.1 million from the six-month Fiscal 1997
Period to $40.0 million. This resulted from an increase in same
store pawn service charge revenue ($2.4 million) and the pawn
service charge revenue from new stores not open the full six-
month period ($0.7 million). At March 31, 1998, average same
store pawn loan balances were nine percent above March 31, 1997.
The annualized yield on the average pawn loan balance decreased
six percentage points from the Fiscal 1997 Period to 208%. This
decrease was primarily due to a shift in pawn loan balances to
states with lower pawn service charge rates since the six-month
Fiscal 1997 Period.
A secondary, but related, activity of the Company is the
sale of merchandise, primarily collateral forfeited from its
lending activity. For the three-month Fiscal 1998 Period, sales
increased approximately $2.6 million from the three-month Fiscal
1997 Period to approximately $30.7 million. This resulted from
an increase in same store merchandise sales ($2.5 million), new
store sales ($0.7 million), offset by lower scrapping activity
($0.5 million), and by closed store sales ($0.1 million). Same
store sales for the three-month Fiscal 1998 Period increased nine
percent from the three-month Fiscal 1997 Period.
For the six-month Fiscal 1998 Period, sales increased
approximately $6.4 million from the six-month Fiscal 1997 Period
to approximately $61.6 million. This resulted from an increase
in same store merchandise sales ($5.8 million), new store sales
($1.2 million), offset by lower scrapping activity ($0.4
million), and by closed store sales ($0.2 million). Same store
sales for the six-month Fiscal 1998 Period increased eleven
percent from the six-month Fiscal 1997 Period. Inventory levels
per store were twelve percent higher than the prior period due to
higher average loan balances during the preceding months in the
six-month Fiscal 1998 Period (approximately $140,000 in the six-
month Fiscal 1998 Period as compared to $125,000 in the six-month
Fiscal 1997 Period). Inventory turnover, at 2.6 times, was
unchanged in the six-month Fiscal 1998 Period compared to the six-
month Fiscal 1997 Period.
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
March 31, 1998 and 1997, respectively, the Company's inventories
consisted of approximately 66 and 65 percent jewelry (e.g.,
ladies' and men's rings, chains, bracelets, etc.) and 34 and 35
percent general merchandise (e.g., televisions, VCRs, tools,
sporting goods, musical instruments, firearms, etc.). At March
31, 1998 and 1997, respectively, 87% and 80% 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 95% and 90% of the general
merchandise inventory for each period.
For the three-month Fiscal 1998 Period, gross profits as a
percentage of merchandise sales decreased 0.8 percentage point
from the three-month Fiscal 1997 Period to 17.3 percent. This
decrease results from lower
<PAGE>
gross margins on merchandise sales (1.6 percentage points) offset
by a reduction in inventory shrinkage when measured as a
percentage of merchandise sales (down 0.2 percentage point to
approximately 1.2 percentage points) and higher gross profit on
wholesale and scrap jewelry sales (0.6 percentage point).
For the six-month Fiscal 1998 Period, gross profits as a
percentage of merchandise sales decreased 1.0 percentage point
from the six-month Fiscal 1997 Period to 16.5 percent. This
decrease results from lower margins on merchandise sales (1.0
percentage point) and lower gross profit on wholesale and scrap
jewelry sales (0.2 percentage point) and offset by a reduction in
inventory shrinkage when measured as a percentage of merchandise
sales (down 0.2 percentage point to approximately 1.2 percentage
points).
In the three-month Fiscal 1998 Period, operating expenses as
a percentage of total revenues decreased 1.5 percentage points
from the three-month Fiscal 1997 Period to 31.8%. Administrative
expenses decreased 0.2 percentage point in the three-month Fiscal
1998 Period to 6.3%. These decreases result from the higher
level of revenues relative to these expenses in the three-month
Fiscal 1998 Period.
In the six-month Fiscal 1998 Period, operating expenses as a
percentage of total revenues decreased 1.0 percentage point from
the six-month Fiscal 1997 Period to 32%. Administrative expenses
decreased 0.3 percentage point in the six-month Fiscal 1998
Period to 6.4%. These decreases result largely from the higher
level of revenues in the six-month Fiscal 1998 Period.
Liquidity and Capital Resources
Net cash provided by operating activities for the six-month
Fiscal 1998 Period was $11.2 million as compared to $11.7 million
provided in the six-month Fiscal 1997 Period. Improved operating
results and lower pawn service charge revenue offset by increases
in inventory and prepaid expenses were the main factors for the
reduced cash provided by operating activities. Net cash used in
investing activities was $9.0 million for the six-month Fiscal
1998 Period compared to $1.5 million used in the six-month Fiscal
1997 period. The change is due to decreases in pawn loan
balances offset by the investment in the unconsolidated
affiliate, Albemarle & Bond Holdings plc, and by higher levels of
capital expenditures and acquisitions for the six-month Fiscal
1998 Period.
In the Fiscal 1998 Period, the Company invested
approximately $7.6 million to open twelve (12) newly established
stores, to acquire two (2) stores, to upgrade or replace existing
equipment and computer systems, and for improvements at existing
stores. The Company funded these expenditures largely from cash
flow provided by operating activities. The Company plans to open
approximately 50 stores during fiscal 1998, including the
thirteen net stores already opened. 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. There can be no assurance, however, that the Company's
cash flow and line of credit will provide adequate funds for
these capital expenditures.
The Company's current revolving line of credit agreement was
amended on May 9, 1997 and matures January 30, 2000. That
agreement requires, among other things, that the Company meet
certain financial covenants. Borrowings under the line are
unsecured and bear interest at the bank's Eurodollar rate plus
1.0%. 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 March 31, 1998, the Company had
approximately $17 million outstanding on the credit facility and
additional borrowing capacity of approximately $24 million.
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 and second fiscal quarters (October
through March) due to the holiday season and tax refunds.
<PAGE>
Year 2000
The Company, like many companies, faces the Year 2000 Issue.
This is a result of computer programs being written using two
digits rather than four (for example, "98" for 1998) to define
the applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. In some cases, the new date
will cause computers to stop operating, while in other cases,
incorrect output may result. Since the Company is currently in
the process of replacing and upgrading its computer hardware and
software systems, the Company believes that there is little
business risk attributable to the Year 2000 issue.
Forward-Looking Information
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than
statement of historical information provided herein are forward-
looking and may contain information about financial results,
economic conditions, trends and known uncertainties. The Company
cautions the reader that actual results could differ materially
from those expected by the Company depending on the outcome of
certain factors, including without limitation (i) fluctuations in
the Company's inventory and loan balances, inventory turnover,
average yield on loan portfolio, redemption rates, labor and
employment matters, competition, operating risk, acquisition and
expansion risk, liquidity and capital requirements and the effect
of government and environmental regulations and (ii) adverse
changes in the market for the Company's services. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company
undertakes no obligations to release publicly the results of any
revisions to these forward-looking statements which may be made
to reflect events or circumstances after the date hereon,
including without limitation, changes in the Company's business
strategy or planned capital expenditures, or to reflect the
occurrence of unanticipated events.
<PAGE>
PART II
Item 1. Legal Proceedings
The Company is the nominal defendant in a lawsuit filed July
18, 1997 by a holder of thirty-nine (39) shares of Company stock
styled for the benefit of the Company against certain directors
of the Company in the Castle County Court of Chancery in the
State of Delaware. The suit alleges the defendants breached
their fiduciary duties to the Company in approving certain
management incentive compensation arrangements and an affiliate's
financial advisory services contract with the Company. The suit
seeks recision of the subject agreements, unspecified damages and
expenses, including plaintiff's legal fees. The defendants
have filed a motion to dismiss which is pending before the court.
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 12, 1998, the sole 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 Mark C. Pickup
Vincent A. Lambiase Richard D. Sage
Dan N. Tonissen John E. Cay, III
J. Jefferson Dean
The Company's Class B Voting Common Stock was the only class
entitled to vote on these matters. The sole shareholder of the
Company holds all 1,190,057 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 3.6 Certificate of Amendment to
Certificate of Incorporation
of EZCORP, Inc. Filed herewith
Exhibit 27 Financial Data Schedule 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, 1998.
<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: May 14, 1998 By: /s/ DAN N. TONISSEN
--------------------------
(Signature)
Dan N. Tonissen
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 974
<SECURITIES> 0
<RECEIVABLES> 44,636
<ALLOWANCES> 0
<INVENTORY> 36,638
<CURRENT-ASSETS> 86,558
<PP&E> 60,319
<DEPRECIATION> 25,986
<TOTAL-ASSETS> 151,324
<CURRENT-LIABILITIES> 8,207
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 125,697
<TOTAL-LIABILITY-AND-EQUITY> 151,324
<SALES> 61,630
<TOTAL-REVENUES> 101,624
<CGS> 51,449
<TOTAL-COSTS> 94,075
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 621
<INCOME-PRETAX> 6,928
<INCOME-TAX> 2,632
<INCOME-CONTINUING> 4,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,296
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
1
Exhibit 3.6
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
EZCORP, INC.
It is hereby certified that:
I. The name of the corporation (the "Corporation") is
EZCORP, Inc.
II. The Certificate of Incorporation of the Corporation is
hereby amended by striking out the first paragraph of Article
FOURTH and by substituting in lieu thereof the following:
"FOURTH: The total number of shares of stock
which the Corporation shall have authority to issue is
forty-six million one hundred ninety-eight thousand
nine hundred ninety (46,198,990) shares of capital
stock, classified as (i) five million (5,000,000)
shares of preferred stock, par value $.01 per share
("Preferred Stock"), (ii) forty million (40,000,000)
shares of Class A Non-Voting Common Stock, par value
$.01 per share ("Class A Non-Voting Common Stock"), and
(iii) one million one hundred ninety eight thousand
nine hundred ninety (1,198,990) shares of Class B
Voting Common Stock, par value $.01 per share ("Class B
Voting Common Stock")."
III. The amendment to the Certificate of Incorporation
herein certified has been duly approved by the Corporation's
Board of Directors and was duly adopted by written consent of the
stockholders in accordance with the provisions of Sections 228
and 242 of the General Corporation Law of the State of Delaware.
EXECUTED this 13th day of March, 1998.
EZCORP, INC.
By: /s/ VINCENT A. LAMBIASE
-----------------------------
Vincent A. Lambiase, President
and Chief Executive Officer
