EZCORP INC - 10-Q Quarterly Report

Back to GetFilings.com

================================================================================

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, 2004
-----------------

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 000-19424
---------

--------------------

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
--- ---

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). 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 one record holder who is an affiliate of the registrant. There is no
trading market for the Class B Voting Common Stock.

As of December 31, 2004, 11,175,168 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.

================================================================================

EZCORP, INC.
INDEX TO FORM 10-Q

PART I

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

See Notes to Condensed Consolidated Financial Statements (unaudited).

1

Condensed Consolidated Statements of Operations (Unaudited)

See Notes to Condensed Consolidated Financial Statements (unaudited).

2

Condensed Consolidated Statements of Cash Flows (Unaudited)

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

3

EZCORP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 2004

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, 2004 ("Fiscal 2004"). The
balance sheet at September 30, 2004 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

The Company's business is subject to seasonal variations, and operating results
for the three-month period ended December 31, 2004 are not necessarily
indicative of the results of operations for the full fiscal year.

NOTE B: SIGNIFICANT ACCOUNTING POLICIES

PAWN LOAN REVENUE RECOGNITION: Pawn service charges are recorded using the
interest method for all pawn loans the Company deems to be collectible. The
Company bases its estimate of collectible loans on several factors, including
recent redemption rates, historical trends in redemption rates, and the amount
of loans due in the following three months. Unexpected variations in any of
these factors could increase or decrease the Company's estimate of collectible
loans, affecting the Company's earnings and financial condition.

PAYDAY LOAN REVENUE RECOGNITION: Payday loans and related service charges
reported in the Company's consolidated financial statements reflect only the
Company's participation interest in these loans. The Company accrues service
charges on the percentage of loans the Company deems to be collectible using the
interest method. Accrued service charges related to defaulted loans are deducted
from service charge revenue upon loan default, and increase service charge
revenue upon subsequent collection.

BAD DEBT AND OTHER PAYDAY LOAN DIRECT EXPENSES: The Company considers a loan
defaulted if the loan has not been repaid or renewed by the maturity date.
Although defaulted loans may be collected later, the Company charges defaulted
loan principal to bad debt upon default, leaving only active loans in the
reported balance. Subsequent collections of principal are recorded as a
reduction of bad debt at the time of collection. The Company's payday loan net
defaults, included in bad debt and other payday loan direct expenses, were $1.2
million and $1.6 million for the three-month periods ended December 31, 2004 and
2003, representing 2.9% and 5.6%, respectively, of loans made in each period.
Excluding the benefit of a $0.9 million sale of older bad debt, net defaults for
the three-month period ended December 31, 2004 were $2.1 million, or 4.9% of
loans made in the period.

ALLOWANCE FOR LOSSES ON PAYDAY LOANS: The Company also provides an allowance for
losses on active payday loans and related service charges receivable, based on
recent loan default experience and expected seasonal variations. Changes in the
principal valuation allowance are charged to bad debt expense in the Company's
statement of operations. Changes in the service charge receivable valuation
allowance are charged to payday loan service charge revenue.

INVENTORY: If a pawn loan is not repaid, the forfeited collateral (inventory) is
recorded at cost (pawn loan principal). The Company does not record loan loss
allowances or charge-offs on the principal portion of pawn loans. In order to
state inventory at the lower of cost (specific identification) or market (net
realizable value), the Company provides an allowance for shrinkage and excess,
obsolete, or slow-moving inventory. The allowance is based on the type and age
of merchandise as well as recent sales trends and margins. At December 31, 2004,
December 31, 2003, and September 30, 2004, the valuation allowance deducted from
the carrying value of inventory was $2.0 million,

4

$1.2 million, and $1.5 million (5.8%, 3.6%, and 4.8% of gross inventory),
respectively. Changes in the inventory valuation allowance are recorded as cost
of goods sold.

VALUATION OF TANGIBLE LONG-LIVED ASSETS: The Company assesses the impairment of
tangible long-lived assets whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. Factors that could trigger an
impairment review include the following: significant underperformance relative
to historical or projected future cash flows; significant changes in the manner
of use of the assets or the strategy for the overall business; and significant
negative industry trends. When management determines that the carrying value of
tangible long-lived assets may not be recoverable, impairment is measured based
on the excess of the assets' carrying value over the estimated fair value. No
impairment of tangible long-lived assets has been recognized in the quarters
ended December 31, 2004 and 2003.

INCOME TAXES: 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. As
part of the process of preparing the consolidated financial statements, the
Company is required to estimate income taxes in each jurisdiction in which it
operates. This process involves estimating the actual current tax liability
together with assessing temporary differences in recognition of income for tax
and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in the Company's consolidated balance sheet.
Management must then assess the likelihood that the deferred tax assets will be
recovered from future taxable income. In the event the Company were to determine
that it would not be able to realize all or part of its net deferred tax assets
in the future, a valuation allowance would be charged to the income tax
provision in the period such determination were made. Likewise, should the
Company determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, a decrease to a valuation
allowance would increase income in the period such determination was made. The
Company evaluates the realizability of its deferred tax assets quarterly by
assessing the need for a valuation allowance, if any. No adjustments were made
to the Company's valuation allowance in the quarters ended December 31, 2004 and
2003. As of December 31, 2004, December 31, 2003 and September 30, 2004, the
Company did not have a valuation allowance on its deferred tax assets.

STOCK-BASED COMPENSATION: The Company accounts for its stock-based compensation
plans in accordance with the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations ("APB 25"). Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS
No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure,"
encourages expensing the fair value of employee stock options, but allows an
entity to continue to account for stock based compensation to employees under
APB 25 with disclosures of the pro forma effect on net income had the fair value
accounting provisions of SFAS No. 123 been adopted. The Company has calculated
the fair value of options granted in these periods using the Black-Scholes
option-pricing model and has determined the pro forma impact on net income. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.

5

The following table presents the effect on net income (loss) if the Company had
applied the fair value recognition provisions of SFAS No. 123, as amended by
SFAS No. 148, to stock-based compensation:

See Note I, "Common Stock, Warrants, and Options" and Note J, "Recent
Pronouncements: Share-Based Payment - SFAS No. 123 (revised 2004)."

PROPERTY AND EQUIPMENT: Property and equipment is shown net of accumulated
depreciation of $61.1 million, $67.6 million and $59.3 million at December 31,
2004, December 31, 2003, and September 30, 2004, respectively.

Certain prior year balances have been reclassified to conform to the Fiscal 2004
presentation.

NOTE C: EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):

6

The following table presents the weighted average shares subject to options
outstanding during the periods indicated. Anti-dilutive options, warrants, and
restricted stock grants have been excluded from 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.

NOTE D: INVESTMENT IN UNCONSOLIDATED AFFILIATE

The Company owns 13,276,666 common shares of Albemarle & Bond Holdings, plc
("A&B"), or approximately 29% of the total outstanding shares. The investment is
accounted for using the equity method. Since A&B's fiscal year ends three months
prior to the Company's fiscal year, the income reported by the Company for its
investment in A&B is on a three-month lag. In accordance with United Kingdom
securities regulations, A&B files only semi-annual financial reports, for its
fiscal periods ending December 31 and June 30. The Company estimates A&B's
results of operations for the September 30 quarter for its financial statements.
The income reported for the Company's quarter ended December 31, 2004 represents
its percentage interest in the results of A&B's operations from July 1, 2004 to
September 30, 2004, as estimated.

Below is summarized financial information for A&B's most recently reported
results (using average exchange rates for the periods indicated):

NOTE E: CONTINGENCIES

From time to time, the Company is involved in litigation and regulatory matters
arising from its normal business operations. Currently, the Company is a
defendant in several actions, some of which involve claims for substantial
amounts. While the ultimate outcome of these actions cannot be determined, after
consultation with counsel, the Company believes the resolution of these actions
will not have a material adverse effect on the Company's financial condition,
results of operations, or liquidity. However, there can be no assurance as to
the ultimate outcome of these actions or that other matters will not be
asserted.

On May 14, 2004, the Company received a subpoena from the Securities and
Exchange Commission ("SEC"). The subpoena relates to an on-going investigation
by the SEC of certain jewelry companies, including Friedman's, Inc.
("Friedman's"). The subpoena requested production of all of the Company's
documents concerning Morgan Schiff, an affiliate of the Company and Friedman's,
and any compensation paid or any other benefits provided to any individual or
entity employed by or otherwise affiliated with Morgan Schiff, since January 1,
1994. The Company has responded to the subpoena and to date, has received no
further communication from the Securities and Exchange Commission regarding this
matter.

7

NOTE F: COMPREHENSIVE INCOME

Comprehensive income includes net income and other revenues, expenses, gains and
losses that are excluded from net income but are included as a component of
total stockholders' equity. Comprehensive income for the quarters ended December
31, 2004 and 2003 were $4.9 million and $3.1 million, respectively. The
difference between comprehensive income and net income results primarily from
the effect of foreign currency translation adjustments determined in accordance
with SFAS No. 52, "Foreign Currency Translation." The accumulated balance of
foreign currency activity excluded from net income is presented as "Accumulated
other comprehensive income" in the Condensed Consolidated Balance Sheets, and
amounted to $0.8 million ($1.2 million, net of tax of $0.4 million) at December
31, 2004.

NOTE G: LONG-TERM DEBT

At December 31, 2004, the Company's credit agreement provided for a $40.0
million revolving credit facility with an effective rate of 4.3% and a maturity
date of April 1, 2007. Advances are secured by the Company's assets. The Company
may choose either a Eurodollar rate or the agent bank's base rate. Interest
accrues at the Eurodollar rate plus 150 to 275 basis points or the agent bank's
base rate plus 0 to 125 basis points, depending on the leverage ratio computed
at the end of each quarter. The Company also pays a commitment fee of 37.5 basis
points on the unused amount of the revolving facility. Terms of the agreement
require, among other things, that the Company meet certain financial covenants.
Payment of dividends and additional debt are allowed but restricted.

NOTE H: GOODWILL AND OTHER INTANGIBLE ASSETS

The Company accounts for goodwill and other intangible assets in accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets." Under the provisions of
SFAS No. 142, goodwill and other intangible assets having indefinite lives are
not subject to amortization but are tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the assets might
be impaired.

At each balance sheet date presented above, the balance of pawn licenses - the
only major class of indefinite lived intangible assets at each of these dates -
was $1.5 million.

The following table presents the gross carrying amount and accumulated
amortization for each major class of definite-lived intangible assets at the
specified dates:

Total amortization expense from definite-lived intangible assets for the
three-month periods ended December 31, 2004 and 2003 was approximately $17,000
and $20,000, respectively. The following table presents the Company's estimate
of amortization expense for definite lived intangible assets for each of the
five succeeding fiscal years as of October 1, 2004 (in thousands):

As acquisitions and dispositions occur in the future, amortization expense may
vary from these estimates.

8

NOTE I: COMMON STOCK, WARRANTS, AND OPTIONS

The Company accounts for its stock-based compensation plans as described in Note
B, "Significant Accounting Policies."

On September 17, 2003, the Compensation Committee of the Board of Directors
approved an award of 125,000 shares of restricted stock to the Chairman of the
Board. The Company also agreed to reimburse the Chairman for the income tax
consequences resulting from the award. The market value of the restricted stock
on the award date was $0.8 million, which is being amortized over the two-year
restriction period expiring September 17, 2005. During the quarters ended
December 31, 2004 and 2003, $0.1 million and $0.1 million, respectively, of this
cost was amortized to expense. In the quarter ended December 31, 2003, the
Company also reimbursed $0.8 million for the Chairman's one-time taxes related
to the award. The reimbursement was charged to administrative expense.

On January 15, 2004, the Compensation Committee of the Board of Directors
approved an award of 60,000 shares of restricted stock to the Company's Chief
Executive Officer. The shares will vest on January 1, 2009, provided he remains
continuously employed by the Company through the vesting date. The shares are
subject to earlier vesting based on the occurrence of certain objectives. The
Company also agreed to reimburse him for the income tax consequences resulting
from the award. The market value of the restricted stock on the award date was
$0.6 million, which is being amortized over a three-year period based on the
Company's expectation that earlier vesting objectives will be met. During the
quarter ended December 31, 2004, $0.05 million of this cost was amortized to
expense. The Company expects to amortize an additional $0.15 million of stock
compensation cost related to this award during the remaining nine months of the
fiscal year ending September 30, 2005. In the quarter ended March 31, 2004, the
Company also reimbursed $0.3 million for the Chief Executive Officer's one-time
taxes related to the award. The reimbursement was charged to administrative
expense.

Stock option exercises resulted in the issuance of 2,800 shares of Class A
Common Stock for total proceeds of $6,000 during the quarter ending December 31,
2004. There were no stock option exercises during quarter ending December 31,
2003.

See Note J, "Recent Pronouncements: Share-Based Payment - SFAS No. 123 (revised
2004)."

NOTE J: RECENT PRONOUNCEMENTS: SHARE-BASED PAYMENT - SFAS NO. 123 (REVISED 2004)

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(revised 2004), "Share Based Payment" ("SFAS No. 123R"). The statement revises
SFAS No. 123 and supercedes APB 25, under which the Company currently accounts
for its share-based payments to its employees. SFAS No. 123R will be effective
for the Company beginning July 1, 2005, and will require the Company to
recognize as expense the grant-date fair value of share-based payments made to
employees. Pro forma disclosure is no longer an alternative. SFAS No. 123R also
requires the benefits of tax deductions in excess of recognized compensation
cost to be reported as a financing cash flow, rather than as an operating cash
flow as required under current literature. This requirement will reduce net
operating cash flows and increase net financing cash flows in periods after
adoption.

SFAS No. 123R permits public companies to adopt its requirements using one of
two methods:

1. A "modified prospective" method in which compensation cost is
recognized beginning with the effective date (a) based on the
requirements of SFAS No. 123R for all share-based payments
granted after the effective date and (b) based on the
requirements of Statement 123 for all awards granted to
employees prior to the effective date of SFAS No. 123R that
remain unvested on the effective date.

2. A "modified retrospective" method which includes the
requirements of the modified prospective method described
above, but also permits entities to restate based on the
amounts previously recognized under Statement 123 for purposes
of pro forma disclosures either (a) all prior periods
presented or (b) prior interim periods of the year of
adoption.

Management has not yet determined the transition method it intends to use or the
impact that adoption of this pronouncement will have on its financial position
or results of operations.

9

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.

First Quarter Ended December 31, 2004 vs. First Quarter Ended December 31, 2003

The following table sets forth selected, unaudited, consolidated financial data
with respect to the Company for the three-month periods ended December 31, 2004
and 2003 ("Fiscal 2005 Quarter" and "Fiscal 2004 Quarter," respectively):

(a) In thousands, except percentages, inventory turnover and store count.

(b) In comparing the period differences between dollar amounts or per store
counts, a percentage change is used. In comparing the period differences
between two percentages, a percentage point (pt.) change is used.

10

OVERVIEW

The Company meets the short-term cash needs of the cash and credit constrained
consumer by offering convenient, non-recourse loans secured by tangible personal
property, commonly known as pawn loans, and short-term non-collateralized loans,
often referred to as payday loans. The Company makes pawn loans in its 280
EZPAWN locations and makes payday loans in 129 of its EZPAWN locations, 165
EZMONEY Mono-line payday loans locations ("Mono-line stores"), and through its
Austin, Texas based call center.

The Company earns pawn service charge revenue on its pawn loans. While allowable
service charges vary by state and by amount of the loan, a majority of the
Company's pawn loans are in amounts that permit pawn service charges of 20% per
month or 240% annually. The Company's average pawn loan amount has historically
averaged between $70 and $75, but varies depending on the valuation of each item
pawned. The allowable term of pawn loans also differs by state, but is typically
30 days with a 60-day grace period.

The Company earns payday loan service charge revenue on its payday loans. The
Company markets and services payday loans made by County Bank of Rehoboth Beach
("County Bank"), a federally insured Delaware bank, in 235 locations and its
call center. After origination of the loans, the Company may purchase a 90%
participation in the loans made by County Bank and marketed by the Company. In
59 of its locations, the Company makes payday loans in compliance with state
law. The average payday loan amount is approximately $370 and the terms are
generally less than 30 days, averaging about 17 days. The service charge per
$100 loaned is typically $18 for a 7 to 23-day period, but varies in certain
locations.

In its 280 EZPAWNs, the Company sells merchandise acquired primarily through
pawn loan forfeitures and, to a lesser extent, through purchases of customer
merchandise. The realization of gross profit on sales of inventory depends
primarily on the Company's assessment of the property's resale value. Improper
assessment of the resale value of the collateral in the lending or purchasing
process can result in the realization of a lower margin or reduced marketability
of the property.

In the Fiscal 2005 Quarter, the Company saw significant growth in its payday
loan contribution resulting from higher payday loan balances, improved
underwriting and collection activity and the sale of old payday loan bad debt.
The Company also realized improvements in its pawn loan yields primarily due to
an increase in rates charged in its Colorado market and an increase in pawn loan
redemptions. The Company's net income improved to $4.9 million in the Fiscal
2005 Quarter from $3.0 million in the Fiscal 2004 Quarter.

RESULTS OF OPERATIONS

The following discussion compares the results of operations for the Fiscal 2005
Quarter to the Fiscal 2004 Quarter. The discussion should be read in conjunction
with the accompanying financial statements and related notes.

The Company's Fiscal 2005 Quarter pawn service charge revenue increased 7.2%, or
$1.1 million from the Fiscal 2004 Quarter to $16.7 million. This increase was
due to a ten percentage point improvement in loan yields to 142%, offset
slightly by lower average loan balances during the Fiscal 2005 Quarter. The
increase in loan yields was due to the Company's efforts to improve loan
redemption rates and an increase in allowed rates in its twenty-four Colorado
stores. The Company's average balance of pawn loans outstanding during the
Fiscal 2005 Quarter was 0.5% lower and ending pawn loans outstanding were 3.6%
lower than in the Fiscal 2004 Quarter.

In the Fiscal 2005 Quarter, 95.3% ($15.9 million) of recorded pawn service
charge revenue was collected in cash, and 4.7% ($0.8 million) resulted from an
increase in accrued pawn service charges receivable. In the Fiscal 2004 Quarter,
96.1% ($14.9 million) of recorded pawn service charge revenue was collected in
cash, and 3.9% ($0.7 million) resulted from an increase in accrued pawn service
charges receivable. The accrual of pawn service charges is dependent on the
Company's estimate of collectible loans in its portfolio at the end of each
quarter. Consistent with prior year treatment, the Company increased its
estimate of collectible loans at December 31, 2004 in anticipation of higher
loan redemptions during the income tax refund season occurring in the Company's
second fiscal quarter.

Sales increased $2.8 million in the Fiscal 2005 Quarter compared to the Fiscal
2004 Quarter, to $36.3 million. The increase was due to a $1.0 million (3.1%)
increase in same store merchandise sales and a $1.8 million increase in

11

jewelry scrapping sales. The table below summarizes the sales volume, gross
profit, and gross margins on the Company's sales during the quarters presented:

The Fiscal 2005 Quarter overall gross margin on sales decreased 2.9 percentage
points from the Fiscal 2004 Quarter to 39.7%. Margins on merchandise sales
decreased 2.1 percentage points due to less effective liquidation of aged
general merchandise in the Fiscal 2005 Quarter. During the Fiscal 2005 Quarter,
the inventory valuation allowance was increased $0.4 million primarily as a
result of anticipated higher levels of inventory shrinkage in the Company's
second fiscal quarter.

Over a two-day period in the Fiscal 2005 Quarter, the Company experienced
performance issues with its store computer system. There is a risk that some
transactions during this period were not recorded, which could result in the
detection of additional inventory shrinkage in future periods. Based on analysis
of transaction activity before, during and after the system issue, the Company
increased its inventory shrinkage valuation allowance by $0.3 million in
anticipation of higher shrinkage levels in its second fiscal quarter. The cause
of the system issue has been identified and repaired and system performance has
returned to expected levels.

In the comparable Fiscal 2004 Quarter, the inventory valuation allowance was
reduced $0.6 million as a result of improved liquidation of aged merchandise in
that quarter. Changes in the inventory valuation allowance are recorded in cost
of goods sold, directly impacting the Company's gross margins. Inventory
shrinkage, excluding the increase in the shrinkage valuation allowance, was
unchanged from the Fiscal 2004 Quarter at 1.7% of merchandise sales.

12

Payday loan data are as follows:

The Contribution to operating income presented above includes the effect of
incremental operating expenses at Mono-line stores. Shared costs at adjoined
Mono-line stores, such as rent and manager labor, have been excluded from these
figures, as they did not increase with the build-out of adjoined stores.

Payday loan service charge revenue increased from the Fiscal 2004 Quarter
primarily due to higher average loan balances at existing stores and the
addition of new Mono-line stores. In the Fiscal 2005 Quarter, 96.6% ($8.0
million) of recorded payday loan service charge revenue was collected in cash,
and 3.4% ($0.3 million) resulted from an increase in accrued payday loan service
charges receivable. In the comparable Fiscal 2004 Quarter, 91.7% ($4.5 million)
of recorded payday loan service charge revenue was collected in cash, and 8.3%
($0.4 million) was due to an increase in accrued payday loan service charges
receivable.

Payday loan bad debt decreased $0.4 million in the Fiscal 2005 Quarter compared
to the Fiscal 2004 Quarter, resulting in net defaults of 2.9% of loans made.
During the Fiscal 2005 Quarter, the Company sold its older payday loan bad debt
to an outside agency for net proceeds of approximately $0.9 million, which is
reflected in the net bad debt for the quarter. Excluding this sale of older bad
debt, the Company's payday loan net defaults improved to 4.9% for the Fiscal
2005 Quarter, compared to 5.6% in the Fiscal 2004 Quarter.

The Company provides a valuation allowance on payday loan principal and fees
receivable. Due to the short-term nature of these loans, the Company uses recent
net default rates and anticipated seasonal changes in the default rate as the
basis for its valuation allowance. At December 31, 2004, the valuation allowance
was $0.5 million, or 4.2% of the payday loan principal and fees receivable,
compared to $0.4 million, or 5.2% of payday loan principal and fees receivable
at December 31, 2003.

Operations expense increased to $22.7 million in the Fiscal 2005 Quarter from
$20.8 million in the Fiscal 2004 Quarter, representing a 2.1 percentage point
decrease when measured as a percentage of net revenue. Of the total $1.9 million
increase, $2.1 million related to Mono-line stores. Offsetting this was a $0.2
million decrease in same store operating expenses.

13

Administrative expenses in the Fiscal 2005 Quarter were unchanged at $5.9
million, but decreased 1.9 percentage points when measured as a percent of net
revenue. Additional administrative labor ($0.3 million), payday loan collection
and call center costs ($0.2 million), and professional fees ($0.1 million)
during the Fiscal 2005 Quarter were offset by a $0.7 million reduction in
expense related to a restricted stock grant in the Fiscal 2004 Quarter.

Depreciation and amortization expense was unchanged at $1.9 million, as
depreciation on new assets placed in service offset the reduction from assets
that became fully depreciated.

In the Fiscal 2005 Quarter, interest expense decreased to $0.3 million from $0.4
million in the Fiscal 2004 Quarter. The improvement resulted from lower average
debt balances and lower effective interest rates. At December 31, 2004, the
Company's total debt was $22.0 million compared to $32.5 million at December 31,
2003. Decreases in the debt balance were funded by cash flow from operations
after funding all investment activity.

The Fiscal 2005 Quarter income tax expense was $2.8 million (36.0% of pretax
income) compared to $1.6 million (34.5% of pretax income) for the Fiscal 2004
Quarter. The increase in effective tax rate between these periods is due to an
increase in state taxes and an increase in the Company's federal tax rate due to
the higher level of taxable income expected in the year ending September 30,
2005.

Operating income for the Fiscal 2005 Quarter increased $3.0 million from the
Fiscal 2004 Quarter to $7.6 million, primarily due to the $1.2 million greater
contribution from payday loans, the $1.1 million increase in pawn service charge
revenue, and smaller decreases in operations expenses. After a $1.2 million
increase in income taxes related to the increased earnings, net income improved
to $4.9 million in the Fiscal 2005 Quarter from $3.0 million in the Fiscal 2004
Quarter.

LIQUIDITY AND CAPITAL RESOURCES

In the Fiscal 2005 Quarter, the Company's $5.4 million cash flow from operations
consisted of (i) net income plus several non-cash items, aggregating to $7.8
million, offset by (ii) $2.4 million of changes in operating assets and
liabilities, primarily prepaid expenses, other current and non-current assets,
accounts payable, accrued expenses, and federal income taxes. In the Fiscal 2004
Quarter, the Company's $3.5 million cash flow from operations consisted of (i)
net income plus several non-cash items, aggregating to $6.2 million, offset by
(ii) $2.7 million of changes in operating assets and liabilities, primarily
prepaid expenses, other current and non-current assets, accounts payable,
accrued expenses, and federal income taxes.

The Company used $1.7 million of cash for investing activities during the Fiscal
2005 Quarter, consisting primarily of $2.6 million invested in payday loans net
of repayments and $2.1 million invested in property and equipment. Pawn loan
repayments and principal recovery through the sale of forfeited collateral
exceeded pawn loans made by $3.0 million, partially offsetting the investing
cash outflows. Cash flow from operations funded the investing activities, as
well as a $3.0 million reduction of bank borrowings and a $0.6 million increase
in cash on hand.

Below is a summary of the Company's cash needs to meet its future aggregate
contractual obligations in the full fiscal years ending September 30:

14

In the remaining nine months of the fiscal year ending September 30, 2005, the
Company also plans to open an additional 80 to 100 Mono-line payday loan stores
for an expected aggregate capital expenditure of approximately $2.7 million,
plus the funding of working capital and start-up losses at these stores. While
the Company anticipates that these new stores will increase future earnings, it
expects they will have a negative effect on earnings and cash flow in their
first year of operation.

The Company's $40.0 million credit agreement matures April 1, 2007. Under the
terms of the amended agreement, the Company had the ability to borrow an
additional $18.0 million at December 31, 2004. Advances are secured by the
Company's assets. Terms of the agreement require, among other things, that the
Company meet certain financial covenants. Payment of dividends and additional
debt are allowed but restricted. The amount of long-term debt obligations
included in the table above is the balance outstanding on the Company's
revolving credit agreement at December 31, 2004. The outstanding balance
fluctuates based on cash needs and the interest rate varies in response to the
Company's leverage ratio. For purposes of this table, the Company assumed the
current outstanding balance and interest rate will be applicable through the
maturity date of the credit agreement on April 1, 2007.

The Company anticipates that cash flow from operations and availability under
its revolving credit agreement will be adequate to fund its contractual
obligations, planned store growth, capital expenditures, and working capital
requirements during the coming year.

SEASONALITY

Historically, service charge revenues are highest in the Company's first fiscal
quarter (October through December) due to improving loan redemption rates
coupled with a higher average loan balance following the summer lending season.
Sales generally are highest in the Company's first and second fiscal quarters
(October through March) due to the holiday season and the impact of tax refunds.
Sales volume can be heavily influenced by the timing of decisions to scrap
excess jewelry inventory, which generally occurs during low jewelry sales
periods (May through October). The net effect of these factors is that net
revenues and net income typically are highest in the first and second fiscal
quarters. The Company's cash flow is greatest in its second fiscal quarter
primarily due to a high level of loan redemptions and sales in the income tax
refund season.

USE OF ESTIMATES AND ASSUMPTIONS

Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon the Company's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, management evaluates its estimates and
judgments, including those related to revenue recognition, inventory, allowance
for losses on payday loans, long-lived and intangible assets, income taxes,
contingencies and litigation. Management bases its estimates on historical
experience, observable trends, and various other assumptions that are believed
to be reasonable under the circumstances. Management uses this information to
make judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ materially from
the estimates under different assumptions or conditions.

DISCLOSURE AND INTERNAL CONTROLS

Based on an assessment of the effectiveness of the Company's disclosure controls
and procedures, accounting policies, and the underlying judgments and
uncertainties affecting the application of those policies and procedures,
management believes that the Company's condensed consolidated financial
statements provide a meaningful and fair perspective of the Company in all
material respects. There have been no significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation. Management identified no significant
deficiencies or material weaknesses in internal controls. Other risk factors,
such as those discussed elsewhere in this interim report and the Company's
Annual Report as well as changes in business strategies, could adversely impact
the consolidated financial position, results of operations, and cash flows in
future periods.

15

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates, foreign currency exchange rates, and
gold prices. The Company also is exposed to regulatory risk in relation to its
payday loans. The Company does not use derivative financial instruments.

The Company's earnings and financial position may be affected by changes in gold
prices and the resulting impact on pawn lending and jewelry sales. The proceeds
of scrap sales and the Company's ability to liquidate excess jewelry inventory
at an acceptable margin are dependent upon gold prices. The impact on the
Company's financial position and results of operations of a hypothetical change
in gold prices cannot be reasonably estimated.

The Company's earnings are affected by changes in interest rates due to the
impact those changes have on its debt, all of which is variable-rate debt. If
interest rates average 50 basis points more during the remaining nine months of
the fiscal year ending September 30, 2005 than they did in the comparable period
of 2004, the Company's interest expense during those nine months would increase
by approximately $83,000. This amount is determined by considering the impact of
the hypothetical interest rates on the Company's variable-rate debt at December
31, 2004.

The Company's earnings and financial position are affected by foreign exchange
rate fluctuations related to the equity investment in A&B. A&B's functional
currency is the U.K. pound. The U.K. pound exchange rate can directly and
indirectly impact the Company's results of operations and financial position in
several ways. For example, a devalued pound could result in an economic
recession in the U.K., which in turn could impact A&B's and the Company's
results of operations and financial position. The impact on the Company's
results of operations and financial position of a hypothetical change in the
exchange rate between the U.S. dollar and the U.K. pound cannot be reasonably
estimated due to the interrelationship of operating results and exchange rates.
The translation adjustment representing the weakening in the U.K. pound during
the quarter ended September 30, 2004 (included in the Company's December 31,
2004 results on a three-month lag as described above) was approximately a
$34,000 decrease to stockholders' equity. On December 31, 2004, the U.K. pound
closed at 1.00 to 1.9266 U.S. dollars, a strengthening from 1.7994 at September
30, 2004. No assurance can be given as to the future valuation of the U.K. pound
and how further movements in the pound could affect future earnings or the
financial position of the Company.

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 statements 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 yields on loan portfolios, pawn redemption rates, payday loan default
and collection rates, labor and employment matters, competition, operating risk,
acquisition and expansion risk, changes in the number of expected store
openings, changes in expected returns from new stores, 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.

16

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

Within the 90 days prior to the date of this report and under the supervision
and with the participation of the Company's Chief Executive Officer and Chief
Financial Officer, management of the Company has evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934) as of December 31, 2004 ("Evaluation Date"). Based upon that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that, as of
the Evaluation Date, the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.

(b) Changes in Internal Controls

There were no significant changes in the Company's internal controls or other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

(c) Limitations on Controls

The Company's management, including its Chief Executive Officer and Chief
Financial Officer, does not expect that the Company's disclosure controls and
procedures or internal controls will prevent all possible error and fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected.

17

PART II

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation and regulatory matters
arising from its normal business operations. Currently, the Company is a
defendant in several actions, some of which involve claims for substantial
amounts. While the ultimate outcome of these actions cannot be determined, after
consultation with counsel, the Company believes the resolution of these actions
will not have a material adverse effect on the Company's financial condition,
results of operations, or liquidity. However, there can be no assurance as to
the ultimate outcome of these actions or that other matters will not be
asserted.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(b) Reports on Form 8-K

18

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 9, 2005 By: /s/ DAN N. TONISSEN
-------------------
(Signature)

Dan N. Tonissen
Senior Vice President,
Chief Financial Officer &
Director

19

EXHIBIT INDEX