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 June 30, 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 June 30, 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 -
June 30, 1998 and September 30, 1997 1
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended June 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 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)
June 30, September 30,
1998 1997
<TABLE> --------- -------------
<CAPTION>
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,624 $ 829
Pawn loans receivable 43,057 42,837
Service charge receivable 12,523 13,130
Inventories (net) 37,457 39,258
Deferred tax asset 1,364 1,889
Other 2,851 1,965
-------- --------
Total current assets 98,876 99,908
Investment in unconsolidated affiliate 10,583 -
Property and equipment, net 37,752 32,586
Other assets:
Deferred tax asset 1,730 1,730
Other assets, net 18,365 16,827
-------- --------
Total assets $ 167,306 $ 151,051
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current maturities of long-term debt $ 9 $ 9
Accounts payable and accrued expenses 6,055 7,715
Other 1,982 2,733
-------- -------
Total current liabilities 8,046 10,457
Long-term debt less current maturities 31,126 19,133
Other long-term liabilities 165 -
-------- -------
Total long-term liabilities 31,291 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 June 30, 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 June 30,
1998 (1,480,301 shares issued and outstanding
at September 30, 1997)
Additional paid-in capital 114,398 114,338
Retained earnings 14,215 7,767
Other (764) (764)
-------- --------
Total stockholders' equity 127,969 121,461
Total liabilities and stockholders' -------- --------
equity $ 167,306 $ 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)
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
<TABLE> -------- -------- -------- ---------
<CAPTION>
<S> <C> <C> <C> <C>
Revenues:
Sales $ 24,942 $ 22,938 $ 86,572 $ 78,147
Pawn service charges 20,268 19,467 60,263 56,396
-------- ------- ------- -------
Total revenues 45,210 42,405 146,835 134,543
Cost of goods sold 20,231 18,578 71,680 64,109
-------- ------- ------- -------
Net revenues 24,979 23,827 75,155 70,434
Operating expenses:
Operations 16,314 15,178 48,822 45,624
Administrative 2,903 3,391 9,400 9,575
Depreciation and amortization 1,930 1,902 5,553 5,618
-------- ------- ------- -------
Total operating expenses 21,147 20,471 63,775 60,817
-------- ------- ------- -------
Operating income 3,832 3,356 11,380 9,617
Interest expense 358 153 979 675
-------- ------- ------- -------
Income before income taxes 3,474 3,203 10,401 8,942
Income tax expense 1,320 1,153 3,952 3,220
------- ------- ------- ------
Net income $ 2,154 $ 2,050 $ 6,449 $ 5,722
======= ======= ======= ======
Basic and diluted
earnings per share $ 0.18 $ 0.17 $ 0.54 $ 0.48
======= ======= ======= ======
Weighted average shares
outstanding
Basic 12,001,598 11,995,832 11,998,408 11,994,786
========== ========== ========== ==========
Diluted 12,017,688 12,003,459 12,014,366 12,000,272
========== ========== ========== ==========
</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)
Nine Months Ended
June 30,
------------------
1998 1997
<TABLE> --------- --------
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,449 $ 5,722
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for store closings - 493
Depreciation and amortization 5,553 5,618
Deferred income taxes 525 (103)
Gain on sale of assets (106) -
Changes in operating assets and
liabilities:
(Increase)/decrease in service
charge receivable 730 (1,692)
Decrease in inventories 1,967 3,266
(Increase)/decrease in prepaid
expenses and other assets (1,253) 446
Decrease in accounts payable and
accrued expenses (1,604) (413)
Increase/(decrease) in customer
layaway deposits 59 (193)
Increase in other long-term
liabilities 165 -
Decrease in income taxes payable (821) (90)
------- -------
Net cash provided by operating
activities 11,664 13,054
INVESTING ACTIVITIES:
Pawn loans forfeited and transferred
to inventories 42,653 36,720
Pawn loans made (127,722) (123,936)
Pawn loans repaid 85,268 81,159
------- -------
Net (increase)/decrease in loans 199 (6,057)
Additions to property, plant, and
equipment (10,254) (3,904)
Acquisition(s), net of cash acquired (2,427) -
Investment in unconsolidated affiliate (10,583) -
Sale of assets 203 -
------- -------
Net cash used in investing
activities (22,862) (9,961)
FINANCING ACTIVITIES:
Proceeds from bank borrowings 31,000 9,000
Payments on borrowings (19,007) (12,271)
------- -------
Net cash provided by/(used in)
financing activities 11,993 (3,271)
------- -------
Increase/(decrease) in cash and cash
equivalents 795 (178)
Cash and cash equivalents at beginning
of period 829 1,419
Cash and cash equivalents at end ------ ------
of period $ 1,624 $ 1,241
====== ======
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)
June 30, 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 nine-month periods ended
June 30, 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 June 30, 1998,
inventory reserves were $6.6 million.
Property and equipment is shown net of accumulated
depreciation of $27.7 million and $22.8 million at June 30, 1998
and September 30, 1997, respectively.
Note C - 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)
June 30, 1998
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ -----------------
1998 1997 1998 1997
--------- -------- -------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic and
diluted earnings per share
- net income $ 2,154 $ 2,050 $ 6,449 $ 5,722
Denominator ====== ====== ====== ======
Denominator for basic
earnings per share - weighted
average shares 12,002 11,996 11,998 11,995
Effect of dilutive securities:
Employee stock options 4 - 4 -
Warrants 12 7 12 5
------ ------ ------ ------
Dilutive potential common shares 16 7 16 5
------ ------ ------ ------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 12,018 12,003 12,014 12,000
====== ====== ====== ======
Basic earnings per share $ 0.18 $ 0.17 $ 0.54 $ 0.48
====== ====== ====== ======
Diluted earnings per share $ 0.18 $ 0.17 $ 0.54 $ 0.48
</TABLE> ====== ====== ====== ======
For the three months ended June 30, 1998, options to
purchase 626,451 weighted average shares of common stock at an
average price of $13.35 per share were outstanding. For the nine
months ended June 30, 1998, options to purchase 603,542 weighted
average shares of common stock at an average price of $13.42 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 June 30, 1997, options to
purchase 559,417 weighted average shares of common stock at an
average price of $13.62 per share were outstanding. For the nine
months ended June 30, 1997, options to purchase 567,246 weighted
average shares of common stock at an average price of $13.67 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 D - 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 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. As
part of such settlement, the Company received 10,000 shares from
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
<PAGE>
EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1998
half of Fiscal year ended September 30, 1997. Certain of the
shares that have been converted to publicly-traded Class A as
discussed in this paragraph remain subject to contractual
restrictions on their transfer. The schedule for the release of
such restrictions is discussed in Note G. 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 G 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. The conversion of these shares will occur
during the fourth fiscal quarter.
Note E - 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 F - 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 $10.6 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 G - 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)
June 30, 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.
Note H - Subsequent Events
On July 27, 1998, the Board of Directors declared an annual
$0.05 per share cash dividend payable quarterly. The first
quarterly dividend of $0.0125 per share will be paid to
shareholders of record on August 11, 1998 and will be paid by
August 25, 1998.
On July 27, 1998, the Board of Directors approved the
repurchase of up to 2,000,000 shares of the Company's Class A Non-
voting Common Stock in open market transactions over the next 12
months.
<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.
Third Quarter Ended June 30, 1998 vs. Third Quarter Ended
June 30, 1997
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the three months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended % or
June 30,(a) Point
1998 1997 Change(b)
------------------- ---------
<S> <C> <C> <C>
Net Revenues:
Sales $ 24,942 $ 22,938 8.7%
Pawn service charges 20,268 19,467 4.1%
------- -------
Total revenues 45,210 42,405 6.6%
Cost goods sold 20,231 18,578 8.9%
------- -------
Net revenues $ 24,979 $ 23,827 4.8%
======= =======
Other Data:
Gross profit as a percent of sales 18.9% 19.0% (0.1) pt.
Average annual inventory turnover 2.2x 2.4x (0.2)x
Average inventory balance per
location as of the
end of the quarter $136 $131 3.8%
Average loan balance per
location as of the end
of the quarter $157 $164 (4.3%)
Average yield on loan portfolio 211% 212% (1.0) pt.
Redemption rate 81% 80% 1.0 pt.
Expenses as a Percent of Total Revenues:
Operating 36.1% 35.8% 0.3 pt.
Administrative 6.4% 8.0% (1.6) pts.
Depreciation and amortization 4.3% 4.5% (0.2) pt.
Interest, net 0.8% 0.4% 0.4 pt.
Locations in Operation:
Beginning of period 262 247
Acquired - -
Established 13 1
Sold, combined or closed - -
----- -----
End of period 275 248
===== =====
Average locations in operation during
the period(c) 268.5 247.5
</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>
Nine Months Ended June 30, 1998 vs. Nine Months Ended June
30, 1997
The following table sets forth selected, unaudited,
consolidated financial data with respect to the Company for
the nine months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Nine Months Ended % or
June 30,(a) Point
1998 1997 Change(b)
------------------- ---------
<S> <C> <C> <C>
Net Revenues:
Sales $ 86,572 $ 78,147 10.8%
Pawn service charges 60,263 56,396 6.9%
------- -------
Total revenues 146,835 134,543 9.1%
Cost of goods sold 71,680 64,109 11.8%
------- -------
Net revenues $ 75,155 $ 70,434 6.7%
======= =======
Other Data:
Gross profit as a percent of sales 17.2% 18.0% (0.8) pt.
Average annual inventory turnover 2.4x 2.5x (0.1)x
Average inventory balance
per location as of the
end of the quarter $136 $131 3.8%
Average loan balance per
location as of the end
of the quarter $157 $164 (4.3%)
Average yield on loan portfolio 207% 211% (4.0) pts.
Redemption rate 78% 79% (1.0) pt.
Expenses as a Percent of Total Revenues:
Operating 33.2% 33.9% (0.7) pt.
Administrative 6.4% 7.1% (0.7) pt.
Depreciation and amortization 3.8% 4.2% (0.4) pt.
Interest, net 0.7% 0.5% 0.2 pt.
Locations in Operation:
Beginning of period 249 246
Acquired 1 -
Established 26 4
Sold, combined or closed (1) (2)
----- -----
End of period 275 248
Average locations in operation ===== =====
during the period(c) 262.0 247.0
</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
nine-month periods ended June 30, 1998 ("Fiscal 1998 Periods") to
the three- and nine-month periods ended June 30, 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 thirteen (13) newly established stores. During the nine
months ended June 30, 1998, the Company opened twenty-six (26)
newly established stores, acquired one (1) store and closed one
(1) store. At June 30, 1998, the Company operated 275 stores in
fourteen (14) 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
$20.3 million. This resulted from an increase in same store pawn
service charge revenue ($0.2 million) and the pawn service charge
revenue from new stores not open the full three-month period
($0.6 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 one
percent above the three month Fiscal 1997 Period.
For the nine-month Fiscal 1998 Period, pawn service charge
revenue increased $3.9 million from the nine-month Fiscal 1997
Period to $60.3 million. This resulted from an increase in same
store pawn service charge revenue ($2.6 million) and the pawn
service charge revenue from new stores not open the full nine-
month period ($1.3 million). At June 30, 1998, average same
store pawn loan balances were seven percent above June 30, 1997.
The annualized yield on the average pawn loan balance decreased
four percentage points from the Fiscal 1997 Period to 207%. This
decrease was primarily due to a shift in pawn loan balances to
states with lower pawn service charge rates since the nine-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 $2.0 million from the three-month Fiscal
1997 Period to approximately $25.0 million. This resulted from
an increase in same store merchandise sales ($1.4 million) and
new store sales ($1.0 million), offset by lower scrapping
activity ($0.4 million). Same store sales for the three-month
Fiscal 1998 Period increased six percent from the three-month
Fiscal 1997 Period.
For the nine-month Fiscal 1998 Period, sales increased
approximately $8.4 million from the nine-month Fiscal 1997 Period
to approximately $86.6 million. This resulted from an increase
in same store merchandise sales ($7.2 million), new store sales
($2.2 million), offset by lower scrapping activity ($0.8
million), and by closed store sales ($0.2 million). Same store
sales for the nine-month Fiscal 1998 Period increased ten percent
from the nine-month Fiscal 1997 Period. Inventory levels per
store were four percent higher than the prior period due to
higher average loan balances during the preceding months. These
higher inventory levels contributed to the same store sales
growth experienced for the 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
June 30, 1998 and 1997, respectively, the Company's inventories
consisted of approximately 65% and 64% jewelry (e.g., ladies' and
men's rings, chains, bracelets, etc.) and 35% and 36% general
merchandise (e.g., televisions, VCRs, tools, sporting goods,
musical instruments, firearms, etc.). At June 30, 1998 and 1997,
respectively, 87% and 83% 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 92% of the general merchandise inventory
for each period.
For the three-month Fiscal 1998 Period, gross profits as a
percentage of merchandise sales decreased 0.1 percentage point
from the three-month Fiscal 1997 Period to 18.9 percent. This
decrease results from lower
<PAGE>
gross margins on merchandise sales (1.3 percentage points) offset
by a reduction in inventory shrinkage when measured as a
percentage of merchandise sales (down 0.2 percentage point to
approximately 1.3 percentage points) and higher gross profit on
wholesale and scrap jewelry sales (1.0 percentage point).
For the nine-month Fiscal 1998 Period, gross profits as a
percentage of merchandise sales decreased 0.8 percentage point
from the nine-month Fiscal 1997 Period to 17.2 percent. This
decrease results from lower margins on merchandise sales (1.1
percentage point) offset by higher gross profit on wholesale and
scrap jewelry sales (0.1 percentage point) and 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 increased 0.3 percentage point
from the three-month Fiscal 1997 Period to 36.1%. This increase
results largely from the thirteen (13) new store openings which
occurred in the three-month Fiscal 1998 Period. Administrative
expenses decreased 1.6 percentage points in the three-month
Fiscal 1998 Period to 6.4%. This decrease results from the
higher level of revenues relative to expenses in the three-month
Fiscal 1998 Period.
In the nine-month Fiscal 1998 Period, operating expenses as
a percentage of total revenues decreased 0.7 percentage point
from the nine-month Fiscal 1997 Period to 33.2%. Administrative
expenses decreased 0.7 percentage point in the nine-month Fiscal
1998 Period to 6.4%. These decreases result largely from the
higher level of revenues in the nine-month Fiscal 1998 Period.
Liquidity and Capital Resources
Net cash provided by operating activities for the nine-month
Fiscal 1998 Period was $11.7 million as compared to $13.1 million
provided in the nine-month Fiscal 1997 Period. Improved
operating results and lower pawn service charge receivable,
offset by increases in prepaid expenses and decreases in accounts
payable and accrued expenses, were the main factors for the
reduced cash provided by operating activities. Net cash used in
investing activities was $22.9 million for the nine-month Fiscal
1998 Period compared to $9.9 million used in the nine-month
Fiscal 1997 period. The investment in the unconsolidated
affiliate, Albemarle & Bond Holdings plc was partially offset by
a lower level of investment in pawn loans outstanding and higher
levels of capital expenditures and acquisition(s) for the nine-
month Fiscal 1998 Period.
In the nine-month Fiscal 1998 Period, the Company invested
approximately $12.7 million to open twenty-six (26) newly
established stores, to acquire one (1) store, to upgrade or
replace existing equipment and computer systems, and for
improvements at existing stores. The Company funded these
expenditures from cash flow provided by operating activities and
additional bank borrowings. The Company plans to open
approximately 40 stores during fiscal 1998, including the twenty-
six 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.
On July 27, 1998, the Board of Directors declared an annual
$0.05 per share cash dividend payable quarterly. The first
quarterly dividend of $0.0125 per share will be paid to
shareholders of record on August 11, 1998 and will be paid on
August 25, 1998. Also at this meeting, the Board of Directors
approved the repurchase of up to 2,000,000 shares of the
Company's Class A Non-voting Common Stock in open market
transactions over the next 12 months. The Company anticipates
that cash flow from operations and funds available under its
existing bank line of credit should be adequate to fund the
payment of dividends and the stock repurchase during the coming
year.
<PAGE>
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, outstanding pawn loan balance
and service charge receivable, up to $50.0 million. At June 30,
1998, the Company had approximately $31.0 million outstanding on
the credit facility and additional borrowing capacity of
approximately $17.0 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.
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. The Company is currently in the
process of replacing and upgrading its computer hardware and
software systems; however, such conversions may not be completed
before the year 2000 impact. As a result, the Company is
modifying some of its current systems and the Company expects
they will function properly with respect to dates in the year
2000 and thereafter. The project is estimated to be completed by
March 1999, and the costs, which will be expensed as incurred,
are expected to not be material with respect to the financial
results.
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
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits Incorporated by
Number Description Reference to
---------------- ------------------------ ---------------
(a) 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 June 30, 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: August 14, 1998 By: /s/ DAN N. TONISSEN
------------------------------
(Signature)
Dan N. Tonissen
Senior Vice President and
Chief Financial Officer
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<PERIOD-END> JUN-30-1998
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