10-Q 1 ezpw-06302013x10q.htm 10-Q EZPW-06/30/2013-10Q
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 EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 2013, 51,230,843 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data (unaudited)

EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
June 30,
2013
 
June 30,
2012
 
September 30,
2012
 
(in thousands)
 
 
 
 
 
 
Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
45,955

 
$
50,774

 
$
48,477

Restricted cash
3,132

 
1,051

 
1,145

Pawn loans
154,095

 
147,477

 
157,648

Consumer loans, net
42,717

 
28,764

 
34,152

Pawn service charges receivable, net
28,590

 
26,092

 
29,401

Consumer loan fees receivable, net
35,610

 
25,729

 
30,416

Inventory, net
122,503

 
94,421

 
109,214

Deferred tax asset
15,716

 
18,226

 
14,984

Income tax receivable
12,937

 
9,383

 
10,511

Prepaid expenses and other assets
37,377

 
40,268

 
45,451

Total current assets
498,632

 
442,185

 
481,399

Investments in unconsolidated affiliates
146,707

 
125,309

 
126,066

Property and equipment, net
110,312

 
100,242

 
108,131

Restricted cash, non-current
2,182

 

 
4,337

Goodwill
426,148

 
366,286

 
374,663

Intangible assets, net
64,533

 
37,166

 
45,185

Non-current consumer loans, net
82,631

 
54,479

 
61,997

Other assets, net
23,056

 
10,108

 
16,229

Total assets (1)
$
1,354,201

 
$
1,135,775

 
$
1,218,007

Liabilities and stockholders’ equity:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current maturities of long-term debt
$
33,525

 
$
31,126

 
$
21,085

Current capital lease obligations
533

 
395

 
594

Accounts payable and other accrued expenses
68,960

 
54,487

 
64,104

Other current liabilities
22,640

 
14,848

 
14,821

Customer layaway deposits
7,912

 
6,740

 
7,238

Total current liabilities
133,570

 
107,596

 
107,842

Long-term debt, less current maturities
198,374

 
175,740

 
198,836

Long-term capital lease obligations
521

 
764

 
995

Deferred tax liability
8,948

 
7,788

 
7,922

Deferred gains and other long-term liabilities
16,451

 
13,250

 
13,903

Total liabilities (2)
357,864

 
305,138

 
329,498

Commitments and contingencies


 


 


Temporary equity:
 
 
 
 
 
Redeemable noncontrolling interest
56,837

 
44,864

 
53,681

Stockholders’ equity:
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share; authorized 54 million shares; issued and outstanding: 51,230,843 at June 30, 2013, 48,223,698 at June 30, 2012; and 48,255,536 at September 30, 2012
512

 
482

 
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
317,258

 
266,653

 
268,626

Retained earnings
624,620

 
527,231

 
565,803

Accumulated other comprehensive loss
(2,920
)
 
(8,623
)
 
(113
)
EZCORP, Inc. stockholders’ equity
939,500

 
785,773

 
834,828

Total liabilities and stockholders’ equity
$
1,354,201

 
$
1,135,775

 
$
1,218,007

Assets and Liabilities of Grupo Finmart Securitization Trust
(1) Our consolidated assets as of June 30, 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, non-current, $2.2 million as of June 30, 2013 and $4.3 million as of September 30, 2012; Consumer loans, net, $34.3 million as of June 30, 2013 and $33.6 million as of September 30, 2012; Consumer loan fees receivable, net, $7.4 million as of June 30, 2013 and $7.7 million as of September 30, 2012; Intangible assets, net, $2.2 million as of June 30, 2013 and $2.6 million as of September 30, 2012; and total assets, $46.1 million as of June 30, 2013 and $48.2 million as of September 30, 2012.
(2) Our consolidated liabilities as of June 30, 2013 and September 30, 2012 include $32.3 million and $32.7 million, respectively, 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
June 30,
 
Nine Months Ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
86,576

 
$
75,286

 
$
281,262

 
$
256,271

Jewelry scrapping sales
26,288

 
40,530

 
113,579

 
147,066

Pawn service charges
60,397

 
55,656

 
187,812

 
170,880

Consumer loan fees
59,234

 
51,753

 
183,119

 
143,594

Other revenues
2,671

 
1,348

 
10,169

 
3,351

Total revenues
235,166

 
224,573

 
775,941

 
721,162

Merchandise cost of goods sold
51,050

 
43,842

 
164,711

 
147,621

Jewelry scrapping cost of goods sold
20,377

 
27,116

 
80,993

 
92,807

Consumer loan bad debt
12,518

 
10,689

 
34,496

 
27,269

Net revenues
151,221

 
142,926

 
495,741

 
453,465

Operating expenses:
 
 
 
 
 
 
 
Operations
104,230

 
85,200

 
309,346

 
248,014

Administrative
12,644

 
9,857

 
34,918

 
33,509

Depreciation and amortization
8,968

 
7,019

 
24,629

 
18,965

Loss on sale or disposal of assets
178

 
313

 
220

 
108

Total operating expenses
126,020

 
102,389

 
369,113

 
300,596

Operating income
25,201

 
40,537

 
126,628

 
152,869

Interest income
(471
)
 
(133
)
 
(787
)
 
(486
)
Interest expense
4,108

 
1,030

 
11,814

 
4,180

Equity in net income of unconsolidated affiliates
(4,328
)
 
(4,197
)
 
(13,491
)
 
(12,935
)
Other expense (income)
96

 
160

 

 
(157
)
Income from continuing operations before income taxes
25,796

 
43,677

 
129,092

 
162,267

Income tax expense
9,139

 
12,718

 
42,084

 
52,664

Income from continuing operations, net of tax
16,657

 
30,959

 
87,008

 
109,603

Loss from discontinued operations, net of tax
(21,497
)
 
(1,248
)
 
(24,813
)
 
(3,167
)
Net (loss) income
(4,840
)
 
29,711

 
62,195

 
106,436

Net income from continuing operations attributable to redeemable noncontrolling interest
1,041

 
1,188

 
3,378

 
1,300

Net (loss) income attributable to EZCORP, Inc.
$
(5,881
)
 
$
28,523

 
$
58,817

 
$
105,136

 
 
 
 
 
 
 
 
Basic (loss) earnings per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
Continuing operations
$
0.29

 
$
0.58

 
$
1.56

 
$
2.13

Discontinued operations
$
(0.40
)
 
$
(0.02
)
 
$
(0.46
)
 
$
(0.06
)
Basic (loss) earnings per share
$
(0.11
)
 
$
0.56

 
$
1.10

 
$
2.07

 
 
 
 
 
 
 
 
Diluted (loss) earnings per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
Continuing operations
$
0.29

 
$
0.58

 
$
1.56

 
$
2.12

Discontinued operations
$
(0.40
)
 
$
(0.02
)
 
$
(0.46
)
 
$
(0.06
)
Diluted (loss) earnings per share
$
(0.11
)
 
$
0.56

 
$
1.10

 
$
2.06

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
54,196

 
51,162

 
53,465

 
50,769

Diluted
54,255

 
51,340

 
53,540

 
51,042

 
 
 
 
 
 
 
 
Net income from continuing operations attributable to EZCORP, Inc.
$
15,616

 
$
29,771

 
$
83,630

 
$
108,303

Loss from discontinued operations attributable to EZCORP, Inc.
(21,497
)
 
(1,248
)
 
(24,813
)
 
(3,167
)
Net (loss) income attributable to EZCORP, Inc.
$
(5,881
)
 
$
28,523

 
$
58,817

 
$
105,136

See accompanying notes to interim condensed consolidated financial statements.

2


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Net (loss) income
$
(4,840
)
 
$
29,711

 
$
62,195

 
$
106,436

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation loss
(15,529
)
 
(8,513
)
 
(950
)
 
(10,887
)
Effective portion of cash flow hedge
500

 

 
500

 

Unrealized holding loss arising during period
(1,457
)
 
(108
)
 
(1,721
)
 
(846
)
Income tax benefit (provision)
1,189

 
(948
)
 
(1,848
)
 
1,563

Other comprehensive loss, net of tax
(15,297
)
 
(9,569
)
 
(4,019
)
 
(10,170
)
Comprehensive (loss) income
$
(20,137
)
 
$
20,142

 
$
58,176

 
$
96,266

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
Net income
1,041

 
1,188

 
3,378

 
1,300

Foreign currency translation loss
(3,321
)
 
(2,789
)
 
(1,212
)
 
(2,293
)
Comprehensive (loss) income attributable to redeemable noncontrolling interest
(2,280
)
 
(1,601
)
 
2,166

 
(993
)
Comprehensive (loss) income attributable to EZCORP, Inc.
$
(17,857
)
 
$
21,743

 
$
56,010

 
$
97,259

See accompanying notes to interim condensed consolidated financial statements.


3


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended June 30,
 
2013
 
2012
 
(in thousands)
Operating Activities:
 
 
 
Net income
$
62,195

 
$
106,436

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
25,732

 
19,891

Consumer loan loss provision
19,982

 
12,136

Deferred income taxes
245

 
(644
)
Other adjustments
73

 

Loss on sale or disposal of assets
6,060

 
138

Stock compensation
5,202

 
5,191

Income from investments in unconsolidated affiliates
(13,491
)
 
(12,935
)
Changes in operating assets and liabilities, net of business acquisitions:
 
 
 
Service charges and fees receivable, net
(4,203
)
 
1,150

Inventory, net
(51
)
 
(874
)
Prepaid expenses, other current assets, and other assets, net
(13,119
)
 
(4,845
)
Accounts payable and accrued expenses
7,330

 
(12,100
)
Customer layaway deposits
588

 
(182
)
Deferred gains and other long-term liabilities
439

 
722

Excess tax benefit from stock compensation
(321
)
 
(1,582
)
Income taxes receivable/payable
(5,664
)
 
(8,370
)
Dividends from unconsolidated affiliates
8,418

 
5,560

Net cash provided by operating activities
99,415

 
109,692

Investing Activities:
 
 
 
Loans made
(682,184
)
 
(571,683
)
Loans repaid
451,182

 
382,854

Recovery of pawn loan principal through sale of forfeited collateral
181,461

 
179,681

Additions to property and equipment
(33,351
)
 
(33,193
)
Acquisitions, net of cash acquired
(14,940
)
 
(125,249
)
Investments in unconsolidated affiliates
(11,018
)
 

Net cash used in investing activities
(108,850
)
 
(167,590
)
Financing Activities:
 
 
 
Proceeds from exercise of stock options
45

 
647

Excess tax benefit from stock compensation
321

 
1,582

Taxes paid related to net share settlement of equity awards
(3,596
)
 
(1,153
)
Change in restricted cash
96

 
(1,085
)
Proceeds from revolving line of credit
403,131

 
594,809

Payments on revolving line of credit
(385,964
)
 
(502,575
)
Proceeds from bank borrowings
21,637

 
343

Payments on bank borrowings and capital lease obligations
(28,001
)
 
(8,164
)
Net cash provided by used in financing activities
7,669

 
84,404

Effect of exchange rate changes on cash and cash equivalents
(756
)
 
299

Net increase (decrease) in cash and cash equivalents
(2,522
)
 
26,805

Cash and cash equivalents at beginning of period
48,477

 
23,969

Cash and cash equivalents at end of period
$
45,955

 
$
50,774

Non-cash Investing and Financing Activities:
 
 
 
Pawn loans forfeited and transferred to inventory
$
192,150

 
$
177,490

Issuance of common stock due to acquisitions
$
38,705

 
$
17,984

Deferred consideration
$
25,872

 
$
916

Contingent consideration
$
248

 
$
23,000

Accrued additions to property and equipment
$
107

 
$
177

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

 

 
5,191

 

 

 
5,191

Stock options exercised
201

 
2

 
645

 

 

 
647

Issuance of common stock due to acquisitions
635

 
7

 
17,992

 

 

 
17,999

Release of restricted stock
159

 
2

 

 

 

 
2

Excess tax benefit from stock compensation

 

 
1,580

 

 

 
1,580

Taxes paid related to net share settlement of equity awards

 

 
(1,153
)
 

 

 
(1,153
)
Unrealized loss on available-for-sale securities

 

 

 

 
(550
)
 
(550
)
Foreign currency translation adjustment

 

 

 

 
(7,327
)
 
(7,327
)
Net income attributable to EZCORP, Inc.

 

 

 
105,136

 

 
105,136

Balances at June 30, 2012
51,194

 
$
512

 
$
266,653

 
$
527,231

 
$
(8,623
)
 
$
785,773

 
 
 
 
 
 
 
 
 
 
 
 
Balances at September 30, 2012
51,226

 
$
512

 
$
268,626

 
$
565,803

 
$
(113
)
 
$
834,828

Stock compensation

 

 
5,202

 

 

 
5,202

Stock options exercised
18

 

 
45

 

 

 
45

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
400

 
4

 

 

 

 
4

Excess tax benefit from stock compensation

 

 
321

 

 

 
321

Taxes paid related to net share settlement of equity awards

 

 
(3,596
)
 

 

 
(3,596
)
Effective portion of cash flow hedge

 

 

 

 
500

 
500

Unrealized loss on available-for-sale securities

 

 

 

 
(1,120
)
 
(1,120
)
Foreign currency translation adjustment

 

 

 

 
(2,272
)
 
(2,272
)
Net income attributable to EZCORP, Inc.

 

 

 
58,817

 

 
58,817

Balances at June 30, 2013
54,201

 
$
542

 
$
317,258

 
$
624,620

 
$
(2,920
)
 
$
939,500

See accompanying notes to interim condensed consolidated financial statements.


5


EZCORP, INC.
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 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 discontinued operations (described in Note 2) and acquired businesses (described in Note 3). 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 nine months ended June 30, 2013 (the “current quarter” and "current nine-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 June 30, 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.
Significant Accounting Policies
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 Debt Consumer 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.
Derivative Instruments and Hedging Activities — We recognize all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. For derivatives designated in hedging relationships, changes in the fair value are either offset through earnings against the change in fair value of the hedged item attributable to the risk being hedged or recognized in accumulated other comprehensive income, to the extent the derivative is effective at offsetting the changes in cash flows being hedged until the hedged item affects earnings.
We enter into derivative contracts that we intend to designate as a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). For all hedging relationships, we formally document the hedging relationship and its risk‑management objective and strategy for undertaking the hedge, the hedging instrument, the hedged transaction, the nature of the risk being hedged, how the hedging instrument's effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness. We also formally assess, both at the inception of the hedging relationship and on an ongoing basis, whether the derivatives that are used in hedging relationships are highly effective in offsetting changes in cash flows of hedged transactions. For derivative instruments that are designated and qualify as part of a cash flow hedging relationship, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

6


We discontinue hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting cash flows attributable to the hedged risk, the derivative expires or is sold, terminated, or exercised, the cash flow hedge is redesignated because a forecasted transaction is not probable of occurring, or management determines to remove the designation of the cash flow hedge.
In all situations in which hedge accounting is discontinued and the derivative remains outstanding, we continue to carry the derivative at its fair value on the balance sheet and recognize any subsequent changes in its fair value in earnings. When it is probable that a forecasted transaction will not occur, we discontinue hedge accounting and recognize immediately in earnings gains and losses that were accumulated in other comprehensive income related to the hedging relationship.
Recently Adopted Accounting Pronouncements
In December 2011, the 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 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 early 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 July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward or Tax Credit Carryforward Exists. This update provides that an entity's unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with one exception. That exception states that, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This update applies prospectively to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. Retrospective application is also permitted. This update is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. We do not anticipate the adoption of ASU 2013-03 will have a material effect on our financial position, results of operations or cash flows.
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

7


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 will 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: DISCONTINUED OPERATIONS
During the third quarter of fiscal 2013, our Board of Directors approved a plan to close 107 legacy stores in a variety of locations (the “Reorganization”). These stores are generally older, smaller stores that do not fit our future growth profile. We will continue to execute our growth plan by adding approximately 15 new stores during our fourth fiscal quarter, broadening our online selling and lending channels, and adding numerous new products across the portfolio of companies in order to better serve our customers in the formats they desire and with the products and services they want.
The Reorganization includes:
57 stores in Mexico, 52 of which are small, jewelry-only asset group formats. We will continue to operate 235 full-service SWS stores under the Empeño Fácil brand, and expect to continue our rapid storefront growth in Mexico, ending fiscal year 2013 with approximately 245 locations. Neither Empeño Fácil, TUYO, nor Grupo Finmart are gold dependent and together they make up Latin America, our fastest growing segment.
29 stores in Canada, where we are in the process of transitioning to an integrated buy/sell and financial services model under the Cash Converters brand. The affected asset group consists of stores that are not optimal for that model because of location or size. We will continue to operate 46 full-service buy/sell and financial services center stores under the Cash Converters brand in Canada and the United States.
20 financial services stores in Dallas, Texas and the State of Florida, where we are exiting both locations primarily to onerous regulatory requirements. After the Reorganization we will continue to operate 472 financial services stores in the United States. In addition, one jewelry-only concept store will be closed, which was our only jewelry-only store in the United States.
In connection with the Reorganization, we incurred charges for lease termination costs, asset and inventory write-down to net realizable liquidation value, uncollectible receivables, and employee severance costs. We recognized $23.8 million of pre-tax charges related to the Reorganization during the third quarter ended June 30, 2013. These exit costs have been recorded as part of loss from discontinued operations in our condensed consolidated statements of operations.

8


The following table summarizes the termination costs recognized in our third quarter ended June 30, 2013 financial statements related to the Reorganization:

 
Three Months Ended June 30, 2013
 
(in thousands)
Lease termination costs
$
9,099

Employee severance
1,023

Inventory write-down to liquidation value
7,801

Fixed asset write-down to liquidation value
5,840

Total termination costs related to the reorganization
$
23,763


As of June 30, 2013, no cash payments had been made with regard to the recorded termination costs.

The accrued Reorganization charges are included in “Accounts payable and accrued liabilities” in our consolidated balance sheets and in “Loss from discontinued operations, net of tax” in the condensed consolidated statements of operations.

Discontinued operations in the three-month periods ended June 30, 2013 and 2012 include $3.2 million and $4.4 million of revenues and $1.8 million and $1.4 million pre-tax operating losses from stores being closed respectively. The nine-month periods ended June 30, 2013 and 2012 include $11.6 million and $12.9 million of revenues and $5.5 million and $3.2 of pre-tax operating losses from stores being closed.


9


The table below summarizes the pre-tax operating losses by operating segment:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
U.S. & Canada
 
 
 
 
 
 
 
Net revenues
$
1,495

 
$
1,510

 
$
4,519

 
$
4,667

Operating expenses
2,942

 
2,576

 
8,980

 
7,334

Operating loss from discontinued operations before taxes
(1,447
)
 
(1,066
)
 
(4,461
)
 
(2,667
)
Total termination costs related to the reorganization
13,427

 

 
13,427

 

Loss from discontinued operations before taxes
(14,874
)
 
(1,066
)
 
(17,888
)
 
(2,667
)
Income tax benefit (provision)
839

 
33

 
1,010

 
(107
)
Loss from discontinued operations, net of tax
$
(14,035
)
 
$
(1,033
)
 
$
(16,878
)
 
$
(2,774
)
 
 
 
 
 
 
 
 
Latin America
 
 
 
 
 
 
 
Net revenues
$
752

 
$
821

 
$
2,483

 
$
2,775

Operating expenses
1,076

 
1,128

 
3,482

 
3,337

Operating loss from discontinued operations before taxes
(324
)
 
(307
)
 
(999
)
 
(562
)
Total termination costs related to the reorganization
10,336

 

 
10,336

 

Loss from discontinued operations before taxes
(10,660
)
 
(307
)
 
(11,335
)
 
(562
)
Income tax benefit
3,198

 
92

 
3,400

 
169

Loss from discontinued operations, net of tax
$
(7,462
)
 
$
(215
)
 
$
(7,935
)
 
$
(393
)
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 
 
 
 
Net revenues
$
2,247

 
$
2,331

 
$
7,002

 
$
7,442

Operating expenses
4,018

 
3,704

 
12,462

 
10,671

Operating loss from discontinued operations before taxes
(1,771
)
 
(1,373
)
 
(5,460
)
 
(3,229
)
Total termination costs related to the reorganization
23,763

 

 
23,763

 

Loss from discontinued operations before taxes
(25,534
)
 
(1,373
)
 
(29,223
)
 
(3,229
)
Income tax benefit
4,037

 
125

 
4,410

 
62

Loss from discontinued operations, net of tax
$
(21,497
)
 
$
(1,248
)
 
$
(24,813
)
 
$
(3,167
)



NOTE 3: 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 of assets was completed on December 20, 2012 and accounted for as a business combination. No liabilities were assumed other than trade payables and accounts payable incurred prior to closing in the ordinary course of business, which were approximately $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.

10


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 our online consumer lending business). Within a specified period after the end of each of the first four years following the closing, we 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 our 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 been preliminarily valued at zero as of June 30, 2013. The three and nine month periods ended June 30, 2013 include $2.3 million and $3.9 million in total revenues and $2.4 million and $5.6 million in operating 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”, for approximately $1.1 million. As of June 30, 2013, TUYO owned and operated 19 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 consolidated 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 June 30, 2013 to approximate fair value.

11


Other
On April 26, 2013, Grupo Finmart, our 60% owned subsidiary, purchased 100% of the outstanding shares of Fondo ACH, S.A. de C.V., a specialty consumer finance company. The total purchase price is performance-based and will be determined over a period of four years. A minimum of $3.5 million will be paid, of which $2.7 million was paid at closing with the remaining due on January 2, 2017. The performance consideration element will be based on interest income generated by the acquired portfolios and new loans made through Fondo ACH's contractual relationships. The contingent consideration element of the purchase price, which is the amount in excess of the guaranteed $3.5 million, has been preliminarily valued at zero as of June 30, 2013. As this acquisition was individually immaterial, we present its related information on a consolidated basis.
On June 30, 2013, Grupo Finmart, purchased a consumer loan portfolio for total consideration of approximately $1.3 million. The total purchase price is performance-based and will be determined over the life of the loan portfolio. As this acquisition was individually immaterial, we present its related information on a consolidated basis.
The nine-month period ended June 30, 2013, includes the December 2012 acquisition of 12 pawn locations in Arizona, which was 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 nine months ended June 30, 2013:

 
Nine Months Ended June 30, 2013
 
Go Cash
 
Other Acquisitions
Number of asset purchase acquisitions
1

 
1

Number of stock purchase acquisitions

 
3

 
 
 
 
U.S. stores acquired

 
12

Foreign stores acquired

 
26

Total stores acquired

 
38



 
Nine Months Ended June 30, 2013
 
Go Cash
 
Other Acquisitions
 
(in thousands)
Consideration:
 
 
 
Cash
$

 
$
17,980

Equity instruments
27,776

 
10,929

Contingent consideration

 
248

Deferred consideration
23,000

 
2,872

Fair value of total consideration transferred
50,776

 
32,029

Cash acquired

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

 
$
28,989


12


 
Nine Months Ended June 30, 2013
 
Go Cash

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

 
$
5,714

Consumer loans, net

 
902

Service charges and fees receivable, net
23

 
714

Inventory, net

 
2,441

Prepaid expenses and other assets
120

 
508

Total current assets
143

 
10,279

Property and equipment, net
268

 
1,078

Goodwill
38,128

 
17,187

Intangible assets
12,315

 
619

Non-current consumer loans, net

 
3,011

Other assets
124

 
314

Total assets
50,978

 
32,488

Current liabilities:
 
 
 
Accounts payable and other accrued expenses
202

 
560

Customer layaway deposits

 
103

Total current liabilities
202

 
663

Total liabilities
202

 
663

Redeemable noncontrolling interest

 
2,836

Net assets acquired
$
50,776

 
$
28,989

 
 
 
 
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

Contractual relationship
$

 
$
523

(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 nine-month periods ended June 30, 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.
Grupo Finmart
On January 30, 2012, we acquired a 60% interest in Grupo Finmart (formerly known as Crediamigo), 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 approximately $12.0 million was paid in April 2013.


13


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 June 30, 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. Each 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 our initial controlling interest acquisition of Cash Genie. The details of the transaction are described further in Note 9.
On August 1, 2013, a seller exercised his option with respect to his remaining shares. As of August 1, 2013, we own 100% of Cash Genie's ordinary shares. The details of the transaction are described further in Note 18.
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.

14


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


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 June 30, 2012 reflect all measurement period adjustments recorded since the acquisition date. These adjustments include a $0.3 million decrease in current assets, a $47.0 million decrease in other assets, a $1.4 million decrease in current liabilities, and a $1.0 million decrease in long-term liabilities, for a net change in goodwill of $44.9 million.
NOTE 4: 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.

15


Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows: 
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Net income from continuing operations attributable to EZCORP, Inc.
$
15,616

 
$
29,771

 
$
83,630

 
$
108,303

Loss from discontinued operations, net of tax
(21,497
)
 
(1,248
)
 
(24,813
)
 
(3,167
)
Net (loss) income attributable to EZCORP (A)
(5,881
)
 
28,523

 
58,817

 
105,136

 
 
 
 
 
 
 
 
Weighted average outstanding shares of common stock (B)
54,196

 
51,162

 
53,465

 
50,769

Dilutive effect of stock options and restricted stock
59

 
178

 
75

 
273

Weighted average common stock and common stock equivalents (C)
54,255

 
51,340

 
53,540

 
51,042

 
 
 
 
 
 
 
 
Basic (loss) earnings per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
Continuing operations attributable to EZCORP, Inc.
$
0.29

 
$
0.58

 
$
1.56

 
$
2.13

Discontinued operations
(0.40
)
 
(0.02
)
 
(0.46
)
 
(0.06
)
Basic (loss) earnings per share
$
(0.11
)
 
$
0.56

 
$
1.10

 
$
2.07

 
 
 
 
 
 
 
 
Diluted earnings per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
Continuing operations attributable to EZCORP, Inc.
$
0.29

 
$
0.58

 
$
1.56

 
$
2.12

Discontinued operations
(0.40
)
 
(0.02
)
 
(0.46
)
 
(0.06
)
Diluted (loss) earnings per share
$
(0.11
)
 
$
0.56

 
$
1.10

 
$
2.06

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

 
117

 

 
36

NOTE 5: STRATEGIC INVESTMENTS
At June 30, 2013, we owned 16,644,640 ordinary shares of Albemarle & Bond Holdings, PLC ("Albemarle & 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 nine-month periods ended June 30, 2013 and 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2012 to March 31, 2013 and July 1, 2011 to March 31, 2012, 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):

16


 
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


At June 30, 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 nine-month periods ended June 30, 2013 and 2012 represents our percentage interest in the results of Cash Converters International’s operations from July 1, 2012 to March 31, 2013 and July 1, 2011 to March 31, 2012, 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


17


 
 
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


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.

 
June 30,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands of U.S. dollars)
Albemarle & Bond:
 
 
 
 
 
Recorded value
$
52,252

 
$
51,156

 
$
51,812

Fair value
33,920

 
63,677

 
65,109

Cash Converters International:
 
 
 
 
 
Recorded value
$
94,455

 
$
74,153

 
$
74,254

Fair value
133,732

 
80,894

 
100,705


On April 19, 2013, Albemarle & Bond announced that it expected profits for their full fiscal year (ending June 30, 2013) to be materially below market expectations, citing reduction in gold buying profit and pressures on its pawn loan business due to the challenging gold environment and increased competition. In addition Albemarle & Bond's Board of Directors announced that their CEO would step down earlier than planned and their former CEO and non-executive Chairman would assume the CEO role until a permanent replacement is found.

At June 30, 2013, the fair value of our investment in Albemarle & Bond Holdings, PLC was less than our recorded value. We currently believe that the fair value decline is temporary due to the recent global gold environment challenges and the absence of a permanent CEO.
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the balance of each major class of indefinite-lived intangible assets at the specified dates:
 
 
June 30,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Pawn licenses
$
8,836

 
$
8,836

 
$
8,836

Trade name
9,654

 
9,621

 
9,845

Domain name
215

 

 

Goodwill
426,148

 
366,286

 
374,663

Total
$
444,853

 
$
384,743

 
$
393,344



18


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

 
2,282

 

 
55,315

Goodwill impairment
(29
)
 

 

 
(29
)
Effect of foreign currency translation changes
(2
)
 
(1,446
)
 
(2,353
)
 
(3,801
)
Balances at June 30, 2013
$
277,308

 
$
111,237

 
$
37,603

 
$
426,148


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

 
$
9,309

 
$

 
$
173,206

Acquisitions
57,750

 
99,486

 
39,338

 
196,574

Effect of foreign currency translation changes
(1
)
 
(2,752
)
 
(741
)
 
(3,494
)
Balances at June 30, 2012
$
221,646

 
$
106,043

 
$
38,597

 
$
366,286


The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:
 
 
June 30,
 
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
$
1,518

 
$
(578
)
 
$
940

 
$
1,373

 
$
(553
)
 
$
820

 
$
1,457

 
$
(590
)
 
$
867

Non-compete agreements
4,079

 
(3,290
)
 
789

 
4,356

 
(2,993
)
 
1,363

 
4,504

 
(3,290
)
 
1,214

Favorable lease
1,001

 
(361
)
 
640

 
1,159

 
(409
)
 
750

 
1,159

 
(436
)
 
723

Franchise rights
1,519

 
(143
)
 
1,376

 
1,559

 
(82
)
 
1,477

 
1,625

 
(102
)
 
1,523

Deferred financing costs
11,647

 
(5,868
)
 
5,779

 
9,441

 
(4,874
)
 
4,567

 
10,584

 
(3,459
)
 
7,125

Contractual relationship
14,818

 
(2,217
)
 
12,601

 
11,726

 
(2,299
)
 
9,427

 
14,517

 
(1,075
)
 
13,442

Internally developed software
25,399

 
(1,934
)
 
23,465

 

 

 

 
1,344

 
(19
)
 
1,325

Other
280

 
(42
)
 
238

 
333

 
(28
)
 
305

 
321

 
(36
)
 
285

Total
$
60,261

 
$
(14,433
)
 
$
45,828

 
$
29,947

 
$
(11,238
)
 
$
18,709

 
$
35,511

 
$
(9,007
)
 
$
26,504



19


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 June 30,
 
Nine Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
 
 
 
Amortization expense
$
1,598

 
$
1,162

 
$
3,643

 
$
3,086

Operations expense
64

 
49

 
131

 
103

Interest expense
820

 
569

 
2,344

 
1,164

Total expense from the amortization of definite-lived intangible assets
$
2,482

 
$
1,780

 
$
6,118

 
$
4,353

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
 
$
1,754

 
$
31

 
$
867

2014
 
6,887

 
121

 
2,485

2015
 
6,213

 
109

 
1,425

2016
 
6,157

 
106

 
559

2017
 
5,874

 
106

 
443

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

20


NOTE 7: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The following table presents our long-term debt instruments and balances under capital lease obligations outstanding at June 30, 2013 and 2012 and September 30, 2012:
 
 
June 30, 2013
 
June 30, 2012
 
September 30, 2012
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
(in thousands)
 
 
Recourse to EZCORP: