10-Q 1 ezpw-03312013x10q.htm 10-Q EZPW-03/31/2013-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
 
 
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
Commission File No. 0-19424
 
 
 
 
EZCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
74-2540145
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
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  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
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, all of which is owned by an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.
As of March 31, 2013, 51,208,328 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.



EZCORP, INC.
INDEX TO FORM 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (UNAUDITED)

EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
2013
 
March 31,
2012
 
September 30,
2012
 
(in thousands)
 
 
 
 
 
 
Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
41,443

 
$
46,674

 
$
48,477

Restricted cash
1,204

 
930

 
1,145

Pawn loans
138,380

 
122,305

 
157,648

Consumer loans, net
36,596

 
24,275

 
34,152

Pawn service charges receivable, net
25,388

 
22,296

 
29,401

Consumer loan fees receivable, net
33,507

 
24,551

 
30,416

Inventory, net
116,517

 
87,834

 
109,214

Deferred tax asset
15,716

 
18,228

 
14,984

Income tax receivable
3,079

 
2,351

 
10,511

Prepaid expenses and other assets
42,421

 
34,474

 
45,451

Total current assets
454,251

 
383,918

 
481,399

Investments in unconsolidated affiliates
147,232

 
120,056

 
126,066

Property and equipment, net
118,979

 
95,044

 
108,131

Restricted cash, non-current
2,197

 

 
4,337

Goodwill
432,124

 
324,281

 
374,663

Intangible assets, net
61,487

 
38,804

 
45,185

Non-current consumer loans, net
77,414

 
56,632

 
61,997

Other assets, net
20,723

 
8,792

 
16,229

Total assets (1)
$
1,314,407

 
$
1,027,527

 
$
1,218,007

Liabilities and stockholders’ equity:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current maturities of long-term debt
$
34,912

 
$
22,849

 
$
21,085

Current capital lease obligations
533

 

 
594

Accounts payable and other accrued expenses
63,298

 
58,110

 
64,104

Other current liabilities
36,096

 
16,723

 
14,821

Customer layaway deposits
8,191

 
7,193

 
7,238

Total current liabilities
143,030

 
104,875

 
107,842

Long-term debt, less current maturities
137,376

 
108,084

 
198,836

Long-term capital lease obligations
648

 

 
995

Deferred tax liability
10,104

 
8,455

 
7,922

Deferred gains and other long-term liabilities
15,080

 
13,487

 
13,903

Total liabilities (2)
306,238

 
234,901

 
329,498

Commitments and contingencies


 


 


Temporary equity:
 
 
 
 
 
Redeemable noncontrolling interest
52,982

 
36,908

 
53,681

Stockholders’ equity:
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share; authorized 54 million shares; issued and outstanding: 51,208,328 at March 31, 2013, 48,002,116 at March 31, 2012; and 48,255,536 at September 30, 2012
508

 
480

 
482

Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; issued and outstanding: 2,970,171
30

 
30

 
30

Additional paid-in capital
315,092

 
258,343

 
268,626

Retained earnings
630,501

 
498,708

 
565,803

Accumulated other comprehensive income (loss)
9,056

 
(1,843
)
 
(113
)
EZCORP, Inc. stockholders’ equity
955,187

 
755,718

 
834,828

Total liabilities and stockholders’ equity
$
1,314,407

 
$
1,027,527

 
$
1,218,007

Assets and Liabilities of Grupo Finmart Securitization Trust
(1) Our consolidated assets as of March 31, 2013 and September 30, 2012, include the following assets of Grupo Finmart's securitization trust that can only be used to settle its liabilities: Restricted cash, $2.2 million and $4.3 million; Consumer loans, net, $36.1 million and $33.6 million; Consumer loan fees receivable, net, $8.1 million and $7.7 million; Intangible assets, net $3.0 million and $2.6 million and total assets, $49.4 million and $48.2 million respectively.
(2) Our consolidated liabilities as of March 31, 2013 and September 30, 2012, include $34.0 million and $32.7 million of long-term debt for which the creditors of Grupo Finmart's securitization trust do not have recourse to EZCORP, Inc.
See accompanying notes to interim condensed consolidated financial statements.

1


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
100,906

 
$
94,997

 
$
196,488

 
$
181,891

Jewelry scrapping sales
43,568

 
53,175

 
89,493

 
109,578

Pawn service charges
62,594

 
56,444

 
128,618

 
116,236

Consumer loan fees
62,310

 
50,319

 
127,075

 
95,407

Other revenues
2,696

 
1,343

 
7,526

 
2,039

Total revenues
272,074

 
256,278

 
549,200

 
505,151

Merchandise cost of goods sold
59,177

 
55,880

 
114,678

 
104,276

Jewelry scrapping cost of goods sold
30,092

 
32,310

 
62,291

 
67,734

Consumer loan bad debt
8,880

 
6,466

 
22,954

 
17,491

Net revenues
173,925

 
161,622

 
349,277

 
315,650

Operating expenses:
 
 
 
 
 
 
 
Operations
105,547

 
86,624

 
212,809

 
169,182

Administrative
8,603

 
11,998

 
22,274

 
23,652

Depreciation and amortization
8,763

 
7,259

 
16,415

 
12,514

(Gain) loss on sale or disposal of assets
13

 
27

 
42

 
(174
)
Total operating expenses
122,926

 
105,908

 
251,540

 
205,174

Operating income
50,999

 
55,714

 
97,737

 
110,476

Interest income
(138
)
 
(314
)
 
(316
)
 
(353
)
Interest expense
3,891

 
2,560

 
7,706

 
3,150

Equity in net income of unconsolidated affiliates
(4,125
)
 
(4,577
)
 
(9,163
)
 
(8,738
)
Other (income) expense
405

 
802

 
(96
)
 
(317
)
Income before income taxes
50,966

 
57,243

 
99,606

 
116,734

Income tax expense
16,086

 
19,870

 
32,571

 
40,009

Net income
34,880

 
37,373

 
67,035

 
76,725

Net income attributable to redeemable noncontrolling interest
899

 
112

 
2,337

 
112

Net income attributable to EZCORP, Inc.
$
33,981

 
$
37,261

 
$
64,698

 
$
76,613

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Diluted
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
54,172

 
50,794

 
53,099

 
50,573

Diluted
54,252

 
51,069

 
53,172

 
50,887

See accompanying notes to interim condensed consolidated financial statements.

2


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Net income
$
34,880

 
$
37,373

 
$
67,035

 
$
76,725

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
11,111

 
6,394

 
14,579

 
(2,374
)
Unrealized holding loss arising during period
(221
)
 
(179
)
 
(264
)
 
(738
)
Income tax benefit (provision)
(1,057
)
 
(75
)
 
(3,037
)
 
2,511

Other comprehensive income (loss), net of tax
9,833

 
6,140

 
11,278

 
(601
)
Comprehensive income
$
44,713

 
$
43,513

 
$
78,313

 
$
76,124

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
Net income
899

 
112

 
2,337

 
112

Foreign currency translation gain
2,760

 
496

 
2,109

 
496

Comprehensive income attributable to redeemable noncontrolling interest
3,659

 
608

 
4,446

 
608

Comprehensive income attributable to EZCORP, Inc.
$
41,054

 
$
42,905

 
$
73,867

 
$
75,516

See accompanying notes to interim condensed consolidated financial statements.


3


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Operating Activities:
 
 
 
Net income
$
67,035

 
$
76,725

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
16,415

 
12,514

Consumer loan loss provision
12,900

 
6,761

Deferred income taxes
1,400

 
465

(Gain) loss on sale or disposal of assets
42

 
(174
)
Stock compensation
3,054

 
3,238

Income from investments in unconsolidated affiliates
(9,163
)
 
(8,738
)
Changes in operating assets and liabilities, net of business acquisitions:
 
 
 
Service charges and fees receivable, net
2,366

 
6,551

Inventory, net
(3,034
)
 
1,446

Prepaid expenses, other current assets, and other assets, net
(7,072
)
 
2,644

Accounts payable and accrued expenses
(2,743
)
 
(18,718
)
Customer layaway deposits
812

 
206

Deferred gains and other long-term liabilities
350

 
10,856

Excess tax benefit from stock compensation
(342
)
 
(1,521
)
Income taxes receivable/payable
7,320

 
(1,949
)
Dividends from unconsolidated affiliates
4,828

 
4,788

Net cash provided by operating activities
94,168

 
95,094

Investing Activities:
 
 
 
Loans made
(440,917
)
 
(360,354
)
Loans repaid
307,930

 
260,289

Recovery of pawn loan principal through sale of forfeited collateral
129,965

 
129,518

Additions to property and equipment
(23,506
)
 
(20,842
)
Acquisitions, net of cash acquired
(12,279
)
 
(83,057
)
Investments in unconsolidated affiliates
(11,018
)
 

Net cash used in investing activities
(49,825
)
 
(74,446
)
Financing Activities:
 
 
 
Proceeds from exercise of stock options
6

 
634

Excess tax benefit from stock compensation
342

 
1,521

Debt issuance cost
(259
)
 

Taxes paid related to net share settlement of equity awards
(3,596
)
 
(1,071
)
Change in restricted cash
2,303

 
(935
)
Proceeds from revolving line of credit
148,265

 
321,617

Payments on revolving line of credit
(194,805
)
 
(318,227
)
Proceeds from bank borrowings
1,172

 

Payments on bank borrowings and capital lease obligations
(5,170
)
 
(1,056
)
Net cash provided by (used in) financing activities
(51,742
)
 
2,483

Effect of exchange rate changes on cash and cash equivalents
365

 
(426
)
Net increase (decrease) in cash and cash equivalents
(7,034
)
 
22,705

Cash and cash equivalents at beginning of quarter
48,477

 
23,969

Cash and cash equivalents at end of quarter
$
41,443

 
$
46,674

Non-cash Investing and Financing Activities:
 
 
 
Pawn loans forfeited and transferred to inventory
$
130,675

 
$
123,587

Issuance of common stock due to acquisitions
$
38,705

 
$
11,615

Deferred consideration
$
24,000

 
$
5,785

Contingent consideration
$

 
$
23,000

Accrued additions to property and equipment
$

 
$
1,404

See accompanying notes to interim condensed consolidated financial statements.

4


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
EZCORP, Inc.
Stockholders’
Equity
 
Shares
 
Par Value
 
 
(in thousands)
Balances at September 30, 2011
50,199

 
$
501

 
$
242,398

 
$
422,095

 
$
(746
)
 
$
664,248

Stock compensation

 

 
3,238

 

 

 
3,238

Stock options exercised
196

 
2

 
632

 

 

 
634

Issuance of common stock due to acquisitions
427

 
5

 
11,625

 

 

 
11,630

Release of restricted stock
150

 
2

 

 

 

 
2

Excess tax benefit from stock compensation

 

 
1,521

 

 

 
1,521

Taxes paid related to net share settlement of equity awards

 

 
(1,071
)
 

 

 
(1,071
)
Unrealized loss on available-for-sale securities

 

 

 

 
(480
)
 
(480
)
Foreign currency translation adjustment

 

 

 

 
(617
)
 
(617
)
Net income attributable to EZCORP, Inc.

 

 

 
76,613

 

 
76,613

Balances at March 31, 2012
50,972

 
$
510

 
$
258,343

 
$
498,708

 
$
(1,843
)
 
$
755,718

 
 
 
 
 
 
 
 
 
 
 
 
Balances at September 30, 2012
51,226

 
$
512

 
$
268,626

 
$
565,803

 
$
(113
)
 
$
834,828

Stock compensation

 

 
3,054

 

 

 
3,054

Stock options exercised
3

 

 
6

 

 

 
6

Issuance of common stock due to acquisitions
1,965

 
20

 
38,685

 

 

 
38,705

Issuance of common stock due to purchase of subsidiary shares from noncontrolling interest
592

 
6

 
10,398

 

 

 
10,404

Purchase of subsidiary shares from noncontrolling interest

 

 
(2,423
)
 

 
85

 
(2,338
)
Release of restricted stock
392

 

 

 

 

 

Excess tax benefit from stock compensation

 

 
342

 

 

 
342

Taxes paid related to net share settlement of equity awards

 

 
(3,596
)
 

 

 
(3,596
)
Unrealized loss on available-for-sale securities

 

 

 

 
(172
)
 
(172
)
Foreign currency translation adjustment

 

 

 

 
9,256

 
9,256

Net income attributable to EZCORP, Inc.

 

 

 
64,698

 

 
64,698

Balances at March 31, 2013
54,178

 
$
538

 
$
315,092

 
$
630,501

 
$
9,056

 
$
955,187

See accompanying notes to interim condensed consolidated financial statements.


5


EZCORP, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 2013

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim 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 the information and footnotes required by generally accepted accounting principles for complete financial statements. Our management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to acquired businesses (described in Note 2). The accompanying financial statements should be read with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2012. The balance sheet at September 30, 2012 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. Our business is subject to seasonal variations, and operating results for the three and six months ended March 31, 2013 (the “current quarter” and "current six-month period") are not necessarily indicative of the results of operations for the full fiscal year. Certain prior period balances have been reclassified to conform to the current presentation and to reflect adjustments to purchase price allocations that were updated as additional information became available.
The consolidated financial statements include the accounts of EZCORP, Inc. ("EZCORP") and its consolidated subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. As of March 31, 2013, we own 60% of the outstanding equity interests in Prestaciones Finmart, S.A. de C.V., SOFOM, E.N.R. (“Grupo Finmart"), doing business under the brands "Crediamigo” and "Adex," 95% of Ariste Holding Limited and its affiliates ("Cash Genie"), and 51% of Renueva Comercial S.A. de C.V. ("TUYO"), and therefore, include their results in our consolidated financial statements. We account for our investments in Albemarle & Bond Holdings, PLC and Cash Converters International Limited using the equity method.
With the exception of the policies described below, there have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2012.
On November 20, 2012, we entered into a definitive agreement with Go Cash, LLC and certain of its affiliates ("Go Cash") to acquire substantially all the assets of Go Cash's online lending business. This acquisition was completed on December 20, 2012 and accounted for as an asset purchase. Since the acquisition, Go Cash (now EZCORP Online) has modified the following consumer loan policies:
Unsecured Consumer Loan Revenue and Bad DebtConsumer loans made by EZCORP Online are considered delinquent if they are not repaid or renewed by the maturity date.   We do not accrue additional revenues on delinquent loans. All outstanding principal balances and fee receivables greater than 60 days past due are considered defaulted. Upon default, we charge consumer loan principal to consumer loan bad debt and reverse accrued unsecured consumer loan fee revenue.
Recently Adopted Accounting Pronouncements
In December 2011, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-11, Disclosures about Offsetting Assets and Liabilities. This update, which amends FASB ASC 210 (Balance Sheet), requires entities to disclose information about offsetting and related arrangements and the effect of those arrangements on its financial position. The amendments in ASU 2011-11 enhance disclosures required by FASB ASC 210 by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with FASB ASC 210-20-45 or 815-10-45 or are subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013. Disclosures are required retrospectively for all comparative periods presented. Currently, we do not enter into any right of offset arrangements and the adoption of ASU 2011-11 did not have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This update addresses implementation issues about the scope of ASU 2011-11. The amendments in this ASU clarify that the scope of the disclosures under U.S. GAAP is limited to derivatives, including bifurcated embedded derivatives, repurchase agreements, reverse purchase agreements, securities borrowing and securities lending transactions that are offset in accordance with FASB ASC 210-20-45 Balance Sheet—Offsetting—Other Presentation

6


Matters, or FASB ASC 815-10-45 Derivatives and Hedging — Overall — Other Presentation Matters, or subject to a master netting arrangement or similar agreement. Entities with other types of financial assets and financial liabilities subject to a master netting arrangement or similar agreement are no longer subject to the disclosure requirements in ASU 2011-11. This update requires entities to apply the amendments for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods and to provide the required disclosures retrospectively for all comparative periods presented. Currently, we do not enter into any right of offset arrangements and the adoption of ASU 2013-01 did not have a material effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In October 2012, the FASB issued ASU 2012-04, Technical Corrections and Improvements. This update clarifies the Codification or corrects unintended application of guidance and includes amendments identifying when the use of fair value should be linked to the definition of fair value in Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance for both public and nonpublic entities. For public entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. We do not anticipate that the adoption of ASU 2012-04 will have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-02, Comprehensive income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update, requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This update requires entities to apply the amendments for periods beginning after December 15, 2012 and interim periods within those annual periods and to provide the required disclosures for all reporting periods presented. We do not anticipate the adoption of ASU 2013-03 to have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405)—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This update provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date (except for obligations addressed within existing guidance in U.S. GAAP). Examples of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations and settled litigation and judicial rulings. ASU 2013-04 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate that the adoption of ASU 2013-04 will have a material effect on our financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) — Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This update applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate that the adoption of ASU 2013-05 will have a material effect on our financial position, results of operations or cash flows.
NOTE 2: ACQUISITIONS
Go Cash
On November 20, 2012, we entered into a definitive agreement with Go Cash, LLC and certain of its affiliates ("Go Cash") to acquire substantially all the assets of Go Cash's online lending business. This acquisition was completed on December 20, 2012 and accounted for as an asset purchase. No liabilities were assumed other than trade payables and accounts payable incurred prior to closing in the ordinary course of business, which were less than $0.2 million.
The assets acquired include a proprietary software platform, including a loan management system and a lending decision science engine, that will enable geographic expansion both within the U.S. and internationally; an internal customer service and collections call center; a portion of the existing Go Cash multi-state loan portfolio; and related assets, including customer lists, customer data and customer transaction information. We hired substantially all of Go Cash's employees, including the management team, an internal underwriting and customer experience analytics team, and an experienced customer service and collections call center team.

7


The total purchase price is performance-based and will be determined over a period of four years following the closing. A minimum of $50.8 million will be paid, of which $27.8 million was paid at closing, $11.0 million will be paid on November 10, 2013, $6.0 million will be paid on November 10, 2014, and $6.0 million will be paid on November 10, 2015. The performance consideration element will be based on the net income generated by the "Post-Closing Business Unit" (which will include all of EZCORP's online consumer lending business). Within a specified period after the end of each of the first four years following the closing, EZCORP will make a contingent supplemental payment equal to the difference between (a) the adjusted net income for such year, multiplied by 6.0, and (b) all consideration payments previously paid. Each payment may be made, in EZCORP's sole discretion, in cash or in the form of shares of EZCORP Class A Non-Voting Common Stock. The initial payment was made in the form of 1,400,198 shares of EZCORP Class A Non-Voting Common Stock.
The contingent consideration element of the purchase price, which is the amount in excess of the guaranteed $50.8 million, has not yet been valued as of March 31, 2013 and therefore has not been included in the purchase price allocation or the financial statements of EZCORP as of March 31, 2013. The three and six month periods ended March 31, 2013 include $1.4 million and $1.5 million in total revenues and $2.8 million and $3.1 million in losses related to EZCORP online.
TUYO
On November 1, 2012, we acquired a 51% interest in Renueva Comercial S.A. de C.V., a company headquartered in Mexico City and doing business under the name “TUYO.” TUYO owns and operates 20 stores in Mexico City and the surrounding metropolitan area. In these stores, TUYO buys quality used merchandise from customers and then resells that merchandise to other customers. TUYO also sells refurbished or other merchandise acquired in bulk from wholesalers. As this acquisition was individually immaterial, we present its related information, other than information related to the redeemable noncontrolling interest, on a combined basis.
Pursuant to the acquisition agreement, the sellers have a put option with respect to their remaining shares of TUYO. The sellers have the right to sell their TUYO shares to EZCORP during a specified exercise period, with specified limitations on the number of shares that may be sold within a consecutive 12-month period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to TUYO in temporary equity.

The fair value of the TUYO redeemable noncontrolling interest was estimated by applying an income and market approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include discount rates of 10% and 18% representing discounts for lack of control and lack of marketability respectively that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of TUYO was determined using a multiple of future earnings. We expect the recorded values related to the noncontrolling interest at March 31, 2013 to approximate fair value.
Other
The six-month period ended March 31, 2013, includes the December 2012 acquisition of 12 pawn locations in Arizona. Arizona is a new state of operation for EZCORP. As this acquisition was individually immaterial, we present its related information on a consolidated basis.
The following tables provide information related to the acquisitions of domestic and foreign retail and financial services locations during the six months ended March 31, 2013:

 
Six Months Ended March 31, 2013
 
Go Cash
 
Other Acquisitions
Number of asset purchase acquisitions
1

 

Number of stock purchase acquisitions

 
2

 
 
 
 
U.S. stores acquired

 
12

Foreign stores acquired

 
20

Total stores acquired

 
32




8


 
Six Months Ended March 31, 2013
 
Go Cash
 
Other Acquisitions
 
(in thousands)
Consideration:
 
 
 
Cash
$

 
$
15,318

Equity instruments
27,776

 
10,929

Deferred consideration
23,000

 
1,000

Fair value of total consideration transferred
50,776

 
27,247

Cash acquired

 
(3,040
)
Total purchase price
$
50,776

 
$
24,207

 
Six Months Ended March 31, 2013
 
Go Cash

Other Acquisitions
 
(in thousands)
Current assets:
 
 
 
Pawn loans
$

 
$
5,714

Service charges and fees receivable, net
23

 
400

Inventory, net

 
2,441

Prepaid expenses and other assets
120

 
508

Total current assets
143

 
9,063

Property and equipment, net
268

 
1,064

Goodwill
38,128

 
17,126

Intangible assets
12,315

 
96

Other assets
124

 
314

Total assets
$
50,978

 
$
27,663

Current liabilities:
 
 
 
Accounts payable and other accrued expenses
$
202

 
$
517

Customer layaway deposits

 
103

Total current liabilities
202

 
620

Total liabilities
202

 
620

Redeemable noncontrolling interest

 
2,836

Net assets acquired
$
50,776

 
$
24,207

 
 
 
 
Goodwill deductible for tax purposes
$
38,128

 
$

 
 
 
 
Indefinite-lived intangible assets acquired:
 
 
 
Domain name
$
215

 
$

Definite-lived intangible assets acquired (1):
 
 
 
Non-compete agreements
$

 
$
30

Internally developed software
$
12,100

 
$
66

(1) The weighted average useful life of definite-lived intangible assets acquired is five years.
All acquisitions were made as part of our continuing strategy to enhance and diversify our earnings over the long-term. The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include our initial entry into several markets and a greater presence in others, as well as the ability to further leverage our expense structure through increased scale. The purchase price allocation of assets acquired in the most recent twelve month period is preliminary as we continue to receive information regarding the acquired assets. Transaction related expenses for the six-month periods ended March 31, 2013 and 2012 of approximately $0.5 million and $1.7 million, respectively, were expensed as incurred and recorded as administrative expenses. These amounts exclude costs related to transactions that did not close and future acquisitions. The results of all acquisitions have been consolidated with our results since their respective closing. Pro forma results of operations have not been presented because it is impracticable to do so, as historical audited financial statements in U.S. GAAP are not readily available.

9


Grupo Finmart
On January 30, 2012, we acquired a 60% interest in Grupo Finmart, now doing business under the brands of Crediamigo and Adex, a specialty consumer finance company headquartered in Mexico City, with 45 loan servicing locations throughout the country, for total consideration of $60.1 million, net of cash acquired. This amount includes contingent consideration related to two earn out payments. If certain financial performance targets are achieved, during calendar years 2012 and 2013, we will make a payment to the sellers of $12.0 million, each year, for a total amount of $24.0 million. The Grupo Finmart purchase price allocation presented below includes a fair value amount of $23.0 million attributable to the contingent consideration payments. The first contingent consideration payment of $12.0 million was paid in April 2013.
Pursuant to the Master Transaction Agreement, the sellers have a put option with respect to their remaining shares of Grupo Finmart. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to Grupo Finmart in temporary equity. The fair value of the Grupo Finmart redeemable noncontrolling interest was estimated by applying an income and market approach. This fair value measurement at acquisition was based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. We expect the recorded values related to the noncontrolling interest at March 31, 2013 to approximate fair value.
Cash Genie
On April 14, 2012, we acquired a 72% interest in Ariste Holding Limited and its affiliates, which provides online loans in the U.K. under the name "Cash Genie." As this acquisition was individually immaterial, we present its related information, other than information related to the redeemable noncontrolling interest, on a combined basis.
Pursuant to the acquisition agreement, the sellers have a put option with respect to their remaining shares of Cash Genie. The seller has the right to sell their Cash Genie shares to EZCORP during the exercise period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to Cash Genie in temporary equity.
On November 14, 2012, a seller exercised his option with respect to his remaining shares. This transaction increased our ownership percentage to 95%, and was treated as an equity transaction and not an adjustment to the purchase price of the Company's initial controlling interest acquisition of Cash Genie. The details of the transaction are described further in Note 8. We expect the remaining recorded values related to the noncontrolling interest at March 31, 2013 to approximate fair value.
Other
In fiscal 2012, we acquired 50 locations in the U.S. and one in Canada. As these acquisitions, were individually immaterial, we present their related information on a consolidated basis.


10


The following table provides information related to the acquisitions of domestic and foreign retail and financial services locations in fiscal 2012:
 
Fiscal Year Ended September 30, 2012
 
Grupo Finmart

Other Acquisitions
 
(in thousands)
Current assets:
 
 
 
Pawn loans
$

 
$
6,781

Consumer loans, net
8,935

 
3,641

Service charges and fees receivable, net
18,844

 
1,940

Inventory, net

 
5,911

Deferred tax asset

 
238

Prepaid expenses and other assets
3,543

 
204

Total current assets
31,322

 
18,715

Property and equipment, net
2,326

 
4,061

Goodwill
99,486

 
99,747

Non-current consumer loans, net
56,120

 

Intangible assets
16,400

 
3,980

Other assets
7,497

 
294

Total assets
$
213,151

 
$
126,797

Current liabilities:
 
 
 
Accounts payable and other accrued expenses
$
6,853

 
$
5,496

Customer layaway deposits

 
808

Current maturities of long-term debt
22,810

 

Other current liabilities

 
257

Total current liabilities
29,663

 
6,561

Long-term debt, less current maturities
86,872

 

Deferred tax liability
171

 
113

Total liabilities
116,706

 
6,674

Redeemable noncontrolling interest
36,300

 
9,557

Net assets acquired
$
60,145

 
$
110,566


As per FASB ASC 805-10-25 adjustments to provisional purchase price allocation amounts made during the measurement period, shall be recorded as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements. The amounts above and our consolidated balance sheet as of March 31, 2012 reflect all measurement period adjustments recorded since the acquisition date. These adjustments resulted in a $0.1 million decrease in the purchase price and include a $0.3 million increase in current assets, a $5.5 million decrease in other assets, a $1.4 million decrease in current liabilities $3.0 million decrease in long-term liabilities and a $2.8 million increase in the redeemable noncontrolling interest, for a net change in goodwill of $3.6 million.
NOTE 3: EARNINGS PER SHARE
We compute basic earnings per share on the basis of the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards.

Potential common shares are required to be excluded from the computation of diluted earnings per share if the assumed proceeds upon exercise or vest, as defined by FASB ASC 718-10-25, are greater than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive.

11


Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows: 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Net income attributable to EZCORP (A)
$
33,981

 
$
37,261

 
$
64,698

 
$
76,613

Weighted average outstanding shares of common stock (B)
54,172

 
50,794

 
53,099

 
50,573

Dilutive effect of stock options and restricted stock
80

 
275

 
73

 
314

Weighted average common stock and common stock equivalents (C)
54,252

 
51,069

 
53,172

 
50,887

Basic earnings per share (A/B)
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Diluted earnings per share (A/C)
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Potential common shares excluded from the calculation of diluted earnings per share

 

 
7

 

NOTE 4: STRATEGIC INVESTMENTS
At March 31, 2013, we owned 16,644,640 ordinary shares of Albemarle & Bond Holdings, PLC ("Albermarle & Bond"), representing almost 30% of its total outstanding shares. Our total cost for those shares was approximately $27.6 million. Albemarle & Bond is primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. We account for the investment using the equity method. Since Albemarle & Bond’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Albemarle & Bond files semi-annual financial reports for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our six-month period ended March 31, 2013 and 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2012 to December 31, 2012 and July 1, 2011 to December 31, 2011, respectively.
Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.
In its functional currency of British pounds, Albemarle & Bond’s total assets increased 13% from December 31, 2011 to December 31, 2012 and its net income decreased 31% for the six months ended December 31, 2012. The following table presents summary financial information for Albemarle & Bond’s most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Current assets
$
162,078

 
$
134,387

Non-current assets
74,711

 
65,354

Total assets
$
236,789

 
$
199,741

Current liabilities
$
22,267

 
$
21,021

Non-current liabilities
83,332

 
62,169

Shareholders’ equity
131,190

 
116,551

Total liabilities and shareholders’ equity
$
236,789

 
$
199,741


 
Six Months Ended December 31,
 
2012
 
2011
 
(in thousands)
Gross revenues
$
93,793

 
$
99,804

Gross profit
53,612

 
58,165

Profit for the year (net income)
9,796

 
14,208



12


At March 31, 2013, we owned 136,848,000 shares, or approximately 33% of Cash Converters International Limited ("Cash Converters International"), a publicly traded company headquartered in Perth, Australia. Cash Converters International franchises and operates a worldwide network of over 700 specialty financial services and retail stores that provide pawn loans, short-term unsecured loans and other consumer finance products, and buy and sell second-hand goods, with significant store concentrations in Australia and the United Kingdom. Those shares include 12,430,000 shares that we acquired in November 2012 for approximately $11.0 million in cash as part of a share placement. Our total investment in Cash Converters International was acquired between November 2009 and November 2012 for approximately $68.8 million.
We account for our investment in Cash Converters International using the equity method. Since Cash Converters International’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Cash Converters International files semi-annual financial reports for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our six-month period ended March 31, 2013 and 2012 represents our percentage interest in the results of Cash Converters International’s operations from July 1, 2012 to December 31, 2012 and July 1, 2011 to December 31, 2011, respectively.
Conversion of Cash Converters International’s financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.
In its functional currency of Australian dollars, Cash Converters International’s total assets increased 22% from December 31, 2011 to December 31, 2012 and its net income improved 39% for the six months ended December 31, 2012. The following table presents summary financial information for Cash Converters International’s most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
 
As of December 31,
 
2012
 
2011
 
(in thousands)
Current assets
$
169,739

 
$
128,289

Non-current assets
141,258

 
121,835

Total assets
$
310,997

 
$
250,124

Current liabilities
$
38,735

 
$
33,290

Non-current liabilities
31,591

 
37,797

Shareholders’ equity
240,671

 
179,037

Total liabilities and shareholders’ equity
$
310,997

 
$
250,124

 
 
Six Months Ended December 31,
 
2012
 
2011
 
(in thousands)
Gross revenues
$
140,123

 
$
115,256

Gross profit
95,149

 
76,405

Profit for the year (net income)
19,143

 
13,668



13


The table below summarizes the recorded value and fair value of each of these strategic investments at the dates indicated. These fair values are considered Level 1 estimates within the fair value hierarchy of FASB ASC 820-10-50, and were calculated as (a) the quoted stock price on each company’s principal market multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate at the dates indicated.
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands of U.S. dollars)
Albemarle & Bond:
 
 
 
 
 
Recorded value
$
53,053

 
$
49,175

 
$
51,812

Fair value
54,103

 
92,868

 
65,109

Cash Converters International:
 
 
 
 
 
Recorded value
$
94,179

 
$
70,881

 
$
74,254

Fair value
208,110

 
85,277

 
100,705

NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Pawn licenses
$
8,836

 
$
8,836

 
$
8,836

Trade name
9,772

 
7,097

 
9,845

Domain name
215

 

 

Goodwill
432,124

 
324,281

 
374,663

Total
$
450,947

 
$
340,214

 
$
393,344


The following tables present the changes in the carrying value of goodwill, by segment, over the periods presented:
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Balances at September 30, 2012
$
224,306

 
$
110,401

 
$
39,956

 
$
374,663

Acquisitions
53,033

 
2,221

 

 
55,254

Effect of foreign currency translation changes
(1
)
 
4,578

 
(2,370
)
 
2,207

Balances at March 31, 2013
$
277,338

 
$
117,200

 
$
37,586

 
$
432,124


 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Balances at September 30, 2011
$
163,897

 
$
9,309

 
$

 
$
173,206

Acquisitions
50,001

 
99,486

 

 
149,487

Effect of foreign currency translation changes
(1
)
 
1,589

 

 
1,588

Balances at March 31, 2012
$
213,897

 
$
110,384

 
$

 
$
324,281



14


The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
(in thousands)
Real estate finders’ fees
$
1,741

 
$
(662
)
 
$
1,079

 
$
1,327

 
$
(533
)
 
$
794

 
$
1,457

 
$
(590
)
 
$
867

Non-compete agreements
4,600

 
(3,666
)
 
934

 
4,301

 
(2,877
)
 
1,424

 
4,504

 
(3,290
)
 
1,214

Favorable lease
1,159

 
(491
)
 
668

 
985

 
(381
)
 
604

 
1,159

 
(436
)
 
723

Franchise rights
1,571

 
(132
)
 
1,439

 
1,602

 
(67
)
 
1,535

 
1,625

 
(102
)
 
1,523

Deferred financing costs
11,182

 
(5,207
)
 
5,975

 
7,607

 
(2,493
)
 
5,114

 
10,584

 
(3,459
)
 
7,125

Contractual relationship
15,082

 
(1,920
)
 
13,162

 
14,504

 
(1,407
)
 
13,097

 
14,517

 
(1,075
)
 
13,442

Internally developed software
20,028

 
(895
)
 
19,133

 

 

 

 
1,344

 
(19
)
 
1,325

Other
325

 
(51
)
 
274

 
323

 
(20
)
 
303

 
321

 
(36
)
 
285

Total
$
55,688

 
$
(13,024
)
 
$
42,664

 
$
30,649

 
$
(7,778
)
 
$
22,871

 
$
35,511

 
$
(9,007
)
 
$
26,504


The amortization of most definite-lived intangible assets is recorded as amortization expense. The favorable lease asset and other intangibles are amortized to operations expense (rent expense) over the related lease terms. The deferred financing costs are amortized to interest expense over the life of the related debt instruments. The following table presents the amount and classification of amortization recognized as expense in each of the periods presented:
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
 
 
 
Amortization expense
$
1,322

 
$
1,697

 
$
2,045

 
$
1,924

Operations expense
32

 
23

 
67

 
49

Interest expense
760

 
444

 
1,524

 
595

Total expense from the amortization of definite-lived intangible assets
$
2,114

 
$
2,164

 
$
3,636

 
$
2,568

The following table presents our estimate of future amortization expense for definite-lived intangible assets:
 
Fiscal Years Ended September 30,
 
Amortization expense
 
Operations expense
 
Interest expense
 
 
(in thousands)
2013
 
$
2,676

 
$
67

 
$
1,636

2014
 
5,740

 
126

 
2,164

2015
 
5,452

 
113

 
1,108

2016
 
5,392

 
111

 
580

2017
 
5,304

 
111

 
487

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


15


NOTE 6: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The following table presents our long-term debt instruments and balances under capital lease obligations outstanding at March 31, 2013 and 2012 and September 30, 2012:
 
 
March 31, 2013
 
March 31, 2012
 
September 30, 2012
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
(in thousands)
 
 
Recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
Domestic line of credit up to $175,000 due 2015
$
74,000

 
$

 
$
30,000

 
$

 
$
130,000

 
$

Capital lease obligations
1,181

 

 

 

 
1,589

 

Non-recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
Secured foreign currency line of credit up to $4,000 due 2014
2,009

 
156

 
3,327

 
264

 
2,629

 
199

Secured foreign currency line of credit up to $20,000 due 2015
12,142

 

 
21,799

 
5,243

 
16,073

 

Secured foreign currency line of credit up to $23,000 due 2017
22,352

 

 
10,495

 
3,285

 
11,263

 

Consumer loans facility due 2017
33,995

 

 

 

 
32,679

 

10% unsecured notes due 2013
664

 

 
1,820

 

 
1,766

 

15% unsecured notes due 2013
14,273

 
825

 

 

 
14,262

 
1,334

16% unsecured notes due 2013

 

 
5,404

 
315

 
5,248

 
108

20% unsecured notes due 2013

 

 
12,730

 
2,057

 

 

10% unsecured notes due 2014
2,373

 

 

 

 
963

 

11% unsecured notes due 2014
5,347

 

 

 

 

 

17% secured notes due 2014

 

 
32,850

 
4,297

 

 

10% unsecured notes due 2015
444

 

 

 

 
427

 

15% secured notes due 2015
4,561

 
513

 

 

 
4,488

 
597

18% secured notes due 2015

 

 
4,592

 
736

 

 

25% secured notes due 2015

 

 
6,402

 
1,362

 

 

10% unsecured notes due 2016
128
 

 
1,514

 

 
123

 

Total long-term obligations
173,469
 
1,494

 
130,933

 
17,559

 
221,510

 
2,238

Less current portion
35,445
 
1,141

 
22,849

 
5,625

 
21,679

 
1,497

Total long-term and capital lease obligations
$
138,024

 
$
353

 
$
108,084

 
$
11,934

 
$
199,831

 
$
741


On May 10, 2011, we entered into a new senior secured credit agreement with a syndicate of five banks, replacing our previous credit agreement. Among other things, the new credit agreement provides for a four-year $175 million revolving credit facility that we may, under the terms of the agreement, request to be increased to a total of $225 million. Upon entering the new credit agreement, we repaid and retired our $17.5 million outstanding debt. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally.
Pursuant to the credit agreement, we may choose to pay interest to the lenders for outstanding borrowings at LIBOR plus 200 to 275 basis points or the bank's base rate plus 100 to 175 basis points, depending on our leverage ratio computed at the end of each calendar quarter. On the unused amount of the credit facility, we pay a commitment fee of 37.5 to 50 basis points depending on our leverage ratio calculated at the end of each quarter. Terms of the credit agreement require, among other things, that we meet certain financial covenants, restrict dividend payments and limit other and non-recourse debt. At March 31, 2013, we were in compliance with all covenants. We expect the recorded value of our debt to approximate its fair value, as it is all variable rate debt and carries no pre-payment penalty, and would be considered a Level 2 estimate within the fair value hierarchy.


16


At March 31, 2013, $74.0 million was outstanding under our revolving credit agreement. We also issued a $1.7 million letter of credit, leaving $99.3 million available on our revolving credit facility. The outstanding bank letter of credit was required under our workers' compensation insurance program.
Deferred financing costs related to our credit agreement are included in intangible assets, net on the balance sheet and are being amortized to interest expense over the term of the agreement.
On January 30, 2012, we acquired a 60% ownership interest in Grupo Finmart, a specialty consumer finance company headquartered in Mexico City. Non-recourse debt amounts in the table above represent Grupo Finmart’s third party debt. All lines of credit are guaranteed by Grupo Finmart's loan portfolio. Interest on lines of credit due 2014 and 2015 is charged at the Mexican Interbank Equilibrium ("TIIE") plus a margin varying from 6% to 9%. The line of credit due 2014 requires monthly payments of $0.1 million with remaining principal due at maturity. The line of credit due 2015 requires monthly payments of $0.9 million with the remaining principal due at maturity. The 15% secured notes require monthly payments of $0.1 million with remaining principal due at maturity.
At acquisition, we performed a valuation to determine the fair value of Grupo Finmart's debt. As a result, we recorded a debt premium on Grupo Finmart’s debt. This debt premium is being amortized as a reduction of interest expense over the life of the debt. The fair value was determined by using an income approach, specifically the discounted cash flows method based on the contractual terms of the debt and risk adjusted discount rates. The significant inputs used for the valuation are not observable in the market and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy. We expect the recorded value of our debt to approximate its fair value and would be considered Level 3 estimates within the fair value hierarchy.
On July 10, 2012, Grupo Finmart entered into a securitization transaction to transfer the collection rights of certain eligible consumer loans to a bankruptcy remote trust in exchange for cash on a non-recourse basis. The trust received financing as a result of the issuance of debt securities and delivered the proceeds of the financing to Grupo Finmart. The securitization agreement calls for a two-year revolving period in which the trust will use principal collections of the consumer loan portfolio to acquire additional collection rights up to $121.4 million in eligible loans from Grupo Finmart. Upon the termination of the revolving period, the collection received by the trust will be used to repay the debt. Grupo Finmart will continue to service the underlying loans in the trust.
Grupo Finmart is the primary beneficiary of the securitization trust because Grupo Finmart has the power to direct the most significant activities of the trust through its role as servicer of all the receivables held by the trust and through its obligation to absorb losses or receive benefits that could potentially be significant to the trust. Consequently, we consolidate the trust.
As of March 31, 2013, borrowings under the securitization borrowing facility amounted to $34.0 million. Interest is charged at TIIE plus a 2.5% margin, or a total of 7.3% as of March 31, 2013. The debt issued by the trust will be paid solely from the collections of the consumer loans transferred to the trust, and therefore there is no recourse to Grupo Finmart or EZCORP.
NOTE 7: COMMON STOCK, OPTIONS AND STOCK COMPENSATION
Our net income includes the following compensation costs related to our stock compensation arrangements:
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Gross compensation costs
$
2,129

 
$
1,725

 
$
3,054

 
$
3,238

Income tax benefits
(720
)
 
(570
)
 
(1,019
)
 
(1,016
)
Net compensation expense
$
1,409

 
$
1,155

 
$
2,035

 
$
2,222

In the current three and six month periods ended March 31, 2013, stock option exercises resulted in the issuance of 3,000 shares for nominal proceeds. In the prior year three and six-month periods ended March 31, 2012, stock option exercises resulted in the issuance of 195,898 shares for total proceeds of $0.6 million. All options and restricted stock related to our Class A Non-voting Common Stock.

17


NOTE 8: REDEEMABLE NONCONTROLLING INTEREST
The following table provides a summary of the activities in our redeemable noncontrolling interests as of March 31, 2013 and 2012:
 
Redeemable Noncontrolling Interests
 
(in thousands)
Balance as of September 30, 2011
$

Acquisition of redeemable noncontrolling interest
36,300

Net income attributable to redeemable noncontrolling interests
112

Foreign currency translation adjustment attributable to noncontrolling interests
496

Balance as of March 31, 2012
$
36,908

 
 
Balance as of September 30, 2012
$
53,681

Acquisition of redeemable noncontrolling interest
2,836

Sale of additional shares to parent
(7,981
)
Net income attributable to redeemable noncontrolling interests
2,337

Foreign currency translation adjustment attributable to noncontrolling interests
2,109

Balance as of March 31, 2013
$
52,982


On November 1, 2012, we acquired a 51% interest in TUYO (See Note 2 for details).

On November 14, 2012, we acquired an additional 23% of the ordinary shares outstanding of Cash Genie, our U.K. online lending business, for $10.4 million, increasing our ownership percentage from 72% to 95%, with the remaining 5% held by local management. The consideration paid to the selling shareholder was paid in the form of 592,461 shares of EZCORP Class A Non-Voting Common Stock. This transaction was treated as an equity transaction and not an adjustment to the purchase price of the our initial controlling interest acquisition of Cash Genie.
NOTE 9: INCOME TAXES
Income tax expense is provided at the U.S. tax rate on financial statement earnings, adjusted for the difference between the U.S. tax rate and the rate of tax in effect for non-U.S. earnings deemed to be permanently reinvested in our non-U.S. operations.  Deferred income taxes have not been provided for the potential remittance of non-U.S. undistributed earnings to the extent those earnings are deemed to be permanently reinvested, or to the extent such recognition would result in a deferred tax asset.
The current quarter’s effective tax rate is 31.6% of pretax income compared to 34.7% for the prior year quarter. For the current six-month period, the effective tax rate is 32.7% compared to 34.3% in the prior year six-month period. The effective tax rate for the three month period ended March 31, 2013 was lowered by a one-time recognition of a tax benefit from foreign net operating losses. The effective tax rate for the six-month period ended March 31, 2013 was lowered by a one-time recognition of a tax benefit from state and foreign net operating losses. 
NOTE 10: CONTINGENCIES
Currently and from time to time, we are defendants in various legal and regulatory actions. While we cannot determine the ultimate outcome of these actions, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity.
NOTE 11: OPERATING SEGMENT INFORMATION
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Our business consists of three reportable segments:
U.S. & Canada – Includes all business activities in the United States and Canada
Latin America – Includes all business activities in Mexico and other parts of Latin America

18


Other International – Includes all business activities in the rest of the world (currently consisting of consumer loans online in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International)
In connection with our decentralization strategy, we have changed the accountability for, and reporting of, certain items in administrative expenses, depreciation and amortization. When directly related to a segment, these items have been included in segment contribution.When shared by multiple segments, these items are being allocated to the segment and included in their segment contribution. Prior year figures have been reclassified to conform to this presentation.
There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information for the three and six-month periods ending March 31, 2013 and 2012:
 
Three Months Ended March 31, 2013
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
87,048

 
$
13,858

 
$

 
$
100,906

Jewelry scrapping sales
40,671

 
2,897

 

 
43,568

Pawn service charges
54,512

 
8,082

 

 
62,594

Consumer loan fees
43,825

 
11,842

 
6,643

 
62,310

Other revenues
1,620

 
217

 
859

 
2,696

Total revenues
227,676

 
36,896

 
7,502

 
272,074

Merchandise cost of goods sold
51,167

 
8,010

 

 
59,177

Jewelry scrapping cost of goods sold
27,663

 
2,429

 

 
30,092

Consumer loan bad debt
6,864

 
(661
)
 
2,677

 
8,880

Net revenues
141,982

 
27,118

 
4,825

 
173,925

Segment expenses:
 
 
 
 
 
 
 
Operations
85,477

 
16,401

 
3,669

 
105,547

Depreciation and amortization
4,909

 
1,771

 
143

 
6,823

(Gain) loss on sale or disposal of assets
(1
)
 
14

 

 
13

Interest (income) expense, net
15

 
2,802

 
(1
)
 
2,816

Equity in net income of unconsolidated affiliates

 

 
(4,125
)
 
(4,125
)
Other income
(1
)
 
(315
)
 

 
(316
)
Segment contribution
$
51,583

 
$
6,445

 
$
5,139

 
$
63,167

Corporate expenses: