10-K 1 ezpw_2013930-10k.htm 10-K EZPW_2013.9.30-10K
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2013
or
o
 
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. 000-19424
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)
Registrant’s telephone number, including area code: (512) 314-3400
Securities Registered Pursuant to Section 12(b) of the Act
Title of Each Class
 
Name of Each Exchange on Which Registered
Class A Non-voting Common Stock, $.01 par value per share
 
The NASDAQ Stock Market
 
 
(NASDAQ Global Select Market)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
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 þ No o
Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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 þ
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
 
 
 
(Do not check if a 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 o No þ
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. The aggregate market value of the Class A Non-voting Common Stock held by non-affiliates of the registrant was $1.067 billion, based on the closing price on the NASDAQ Stock Market on March 31, 2013.
As of October 31, 2013, 51,344,738 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.
Documents incorporated by reference: None
 
 
 
 
 



EZCORP, INC.
YEAR ENDED SEPTEMBER 30, 2013
INDEX TO FORM 10-K
Item
Page
No.
No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I
This report contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. Our actual results may differ materially from those currently anticipated and expressed or implied by those forward-looking statements because of a number of risks and uncertainties, including those discussed under “Part I — Item 1A — Risk Factors.” We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results, and the differences can be material. See also “Part II — Item 7 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results.”
Unless otherwise specified, references to the “company,” “we,” "our" and "us" refer to EZCORP, Inc. and its consolidated subsidiaries. References to a “fiscal” year refer to our fiscal year ended September 30 of the specified year. For example, “fiscal 2013” refers to the fiscal year ended September 30, 2013.
ITEM 1. BUSINESS
Our Business
EZCORP, Inc. is a Delaware corporation headquartered in Austin, Texas. We are a worldwide leader in delivering instant cash solutions to our customers through a wide variety of channels, products, services and markets. We offer our customers multiple ways to access instant cash through 1,342 locations and branches across the United States, Mexico, Canada and the United Kingdom. We offer these products through our four primary channels: in-store, online, worksite and mobile platforms.

We fulfill the growing global consumer demand for immediate access to cash, financial services and affordable pre-owned merchandise. We offer a variety of instant cash solutions, including collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans, including single- and multiple-payment unsecured loans and single- and multiple-payment auto title loans. In some U.S. locations (primarily in Texas), we do not offer loan products, but rather offer credit services to help customers obtain loans from independent third-party lenders.
We own a 60% interest in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart"), a leading payroll withholding lender headquartered in Mexico City; and a 51% interest in Renueva Commercial S.A.P.I. de C.V. ("TUYO"), a company headquartered in Mexico City that owns and operates buy/sell stores in Mexico City and the surrounding metropolitan area.
At September 30, 2013, we operated a total of 1,342 locations, consisting of:
495 U.S. pawn stores (operating primarily as EZPAWN or Value Pawn & Jewelry);
7 U.S. buy/sell stores (operating as Cash Converters);
239 pawn stores in Mexico (operating as Empeño Fácil);
489 U.S. financial services stores (operating primarily as EZMONEY);
15 buy/sell and financial services stores in Canada (operating as Cash Converters);
24 financial services stores in Canada (operating as CASHMAX);
19 buy/sell stores in Mexico (operating as TUYO); and
54 financial services branches in Mexico (operating as Crediamigo or Adex).
In addition, we offer consumer loans online in the U.S. and the U.K. operating primarily as EZMONEY.com and CashGenie.com, respectively.
We own approximately 30% of Albemarle & Bond Holdings, PLC, one of the United Kingdom's largest pawnbroking businesses with approximately 230 stores, and approximately 33% of Cash Converters International Limited, which is based in Australia and franchises and operates a worldwide network of approximately 700 locations that provide financial services and buy and sell second-hand goods. We also own the Cash Converters master franchise rights in Canada and are the franchisor of eight stores there.
At our pawn stores, we offer pawn loans, which are non-recourse loans collateralized by tangible personal property, and sell merchandise to customers looking for good value. The merchandise we sell consists of second-hand collateral forfeited from our pawn lending activities or purchased from customers and new or refurbished merchandise from third party vendors. In our Cash Converters stores, we also buy and sell second-hand goods. At our financial services stores and at some of our pawn and buy/sell stores, we offer a variety of consumer loan products, including single-payment, unsecured loans with maturity dates typically ranging from 7 to 30 days; multiple-payment unsecured loans that may be repaid over extended periods of up to seven months; single-payment 30-day loans secured by automobile titles; multiple-payment auto title loans that carry terms of two to

3


five months; and revolving lines of credit, both unsecured and secured by automobile titles. In Texas, our financial services stores and our pawn stores that also offer financial services do not offer loan products themselves, but rather offer credit services to help customers obtain loans from independent third-party lenders.
Our business consists of three reportable segments: The U.S. & Canada segment, which includes all business activities in the United States and Canada; the Latin America segment, which includes our Empeño Fácil pawn operations and Grupo Finmart financial services operations in Mexico; and the Other International segment, which includes the Cash Genie online business in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International.
The following table presents store data by segment:
 
Fiscal Year Ended September 30, 2013
 
Company-owned Stores
 
 
 
U.S. & Canada
 
Latin America
 
Other International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
987

 
275

 

 
1,262

 
10

New openings
84

 
73

 

 
157

 

Acquired
12

 
26

 

 
38

 

Sold, combined or closed
(3
)
 
(5
)
 

 
(8
)
 
(2
)
Discontinued operations
(50
)
 
(57
)
 

 
(107
)
 
 
End of period
1,030

 
312

 

 
1,342

 
8

The following components comprised our total revenues for each of the last three fiscal years:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
Merchandise sales
36
%
 
33
%
 
34
%
Jewelry scrapping sales
13
%
 
21
%
 
24
%
Pawn service charges
25
%
 
24
%
 
23
%
Consumer loan (including credit service) fees
25
%
 
21
%
 
19
%
Other revenues
1
%
 
1
%
 
%
Total revenues
100
%
 
100
%
 
100
%
Pawn and Retail Activities
At our pawn stores, we make secured loans, which are typically small, non-recourse loans collateralized by tangible personal property. At September 30, 2013, we had an aggregate pawn loan principal balance of $156.6 million, and the average pawn loan was approximately $120. We earn pawn service charge revenue on our pawn lending. In fiscal 2013, pawn service charges accounted for approximately 25% of our total revenues and 39% of our net revenues.
While allowable service charges vary by state and loan size, many of our U.S. pawn loans earn 20% per month. Our average U.S. pawn loan amount typically ranges between $130 and $135, but varies depending on the valuation of each item pawned. The total U.S. loan term ranges between 60 and 120 days, consisting of the primary term and grace period. In Mexico, pawn service charges range from 14% to 21% per month, including applicable taxes, with the majority of loans earning 21%. The total Mexico pawn loan term is 40 days, consisting of the primary term and grace period. Individual loans are made in Mexican pesos and vary depending on the valuation of each item pawned, but typically average U.S. $65. In fiscal 2013, 2012 and 2011, and on a consolidated basis, approximately 82%, 82% and 81%, respectively, of our pawn loans were redeemed in full or were renewed or extended.
Collateral for our pawn loans consists of tangible personal property, generally jewelry, consumer electronics, tools, sporting goods and musical instruments. Approximately 55% of our pawn loan collateral is jewelry, and the vast majority of that is gold jewelry. We do not evaluate the creditworthiness of a pawn customer but rely on the estimated resale value of the collateral and the perceived probability of the loan’s redemption. We generally lend from 25% to 65% of the collateral’s estimated resale value depending on an evaluation of these factors, and up to 80% based on scrap value.

4


Through our lending guidelines, we targeted an annual redemption rate (the percentage of loans made that are repaid, renewed or extended) between 78% and 84% over the last three fiscal years. If a customer does not repay, renew or extend a loan, the collateral is forfeited to us and becomes inventory available for sale. We do not record loan losses or charge-offs of pawn loans because the principal amount of an unpaid loan becomes the inventory carrying cost of the forfeited collateral.
The table below shows the dollar amount of our pawn loan activity for fiscal 2013, 2012 and 2011:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
 
(in millions)
Loans made
$
595.4

 
$
572.0

 
$
505.2

Loans repaid
(339.3
)
 
(318.9
)
 
(273.5
)
Loans forfeited
(261.8
)
 
(245.6
)
 
(215.3
)
Loans acquired in business acquisitions
5.7

 
6.8

 
8.6

Other
(0.3
)
 

 

Change due to foreign currency exchange fluctuations
(0.7
)
 
(2.0
)
 
(0.9
)
Net (decrease) increase in pawn loans outstanding at the end of the year
$
(1.0
)
 
$
12.3

 
$
24.1

Loans renewed
$
247.3

 
$
221.6

 
$
173.4

Loans extended
$
1,407.4

 
$
1,234.2

 
$
979.6

The redemption rate of pawn loans and the gross profit realized on the sale of forfeited collateral are dependent on the loan value of customer merchandise. Jewelry can be appraised based on weight, gold content, style and value of gemstones. Other items pawned typically consist of consumer electronics, tools, sporting goods and musical instruments. These are evaluated based on recent sales experience and the selling price of similar new merchandise, adjusted for age, wear and obsolescence.
At the time a pawn loan is made, the customer is given a pawn ticket, which shows the name and address of the pawn store and the customer, the customer’s identification information, the date of the loan, a detailed description of the pledged goods, the amount financed, the pawn service charge, the maturity date of the loan, the total amount that must be paid to redeem the loan and the annual percentage rate.
In our pawn stores and buy/sell stores, we acquire inventory for retail sales through pawn loan forfeitures and through purchases of customers’ merchandise and purchases of new or refurbished merchandise from third party vendors. We believe our ability to offer quality second-hand goods and refurbished goods at prices significantly lower than original retail prices attracts value-conscious customers. The gross profit on sales of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased. Improper value assessment in the lending or purchasing process can result in lower margins or reduced marketability of the merchandise. During fiscal 2013, 2012 and 2011, we realized gross margins on retail sales of 41%, 43% and 43%, respectively.
During the three most recent fiscal years, sources of inventory additions were:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
Forfeited pawn loan collateral
72
%
 
72
%
 
68
%
Purchases
27
%
 
26
%
 
30
%
Acquired in business acquisitions
1
%
 
2
%
 
2
%
Total
100
%
 
100
%
 
100
%
For fiscal 2013, 2012 and 2011, retail activities and jewelry scrapping (sales of precious metals and gemstones to refiners and gemstone wholesalers) accounted for approximately 49%, 55% and 58%, respectively, of our total revenues, or 29%, 35% and 37%, respectively, of net revenues. As a significant portion of our inventory and sales involve gold jewelry, our results can be heavily influenced by the market price of gold.
Customers may purchase a product protection plan that allows them to return or exchange certain general merchandise (non-jewelry) sold through our retail pawn operations within three to six months of purchase. We recognize the fees for this service as revenue ratably over the three to six month period of the plan.

5


We also offer a jewelry VIP package, which guarantees customers a minimum future pawn loan amount on the item sold, allows them full credit if they trade in the item to purchase a more expensive piece of jewelry, and provides minor repair service on the item sold. These fees are recognized on sale.
Customers may also purchase an item on layaway by paying a minimum layaway deposit of typically 10% to 20% of the item’s sale price. We hold the item for a 60 to 180-day period, during which the customer is required to pay the balance of the sales price. The initial deposit and subsequent payments are recorded as customer layaway deposits. Layaways are recorded as sales when paid in full. As of September 30, 2013, we held $8.6 million in customer layaway deposits. We record product protection, jewelry VIP and layaway fees as sales revenue, as they are incidental to sales of merchandise.
Our inventory is stated at the lower of cost or market. We record a valuation allowance for obsolete or slow-moving inventory based on the type and age of merchandise. We generally establish a higher allowance percentage on general merchandise, as it is more susceptible to obsolescence, and establish a lower allowance percentage on jewelry, as it retains much greater commodity value. The total allowance was 2.8% of gross inventory at September 30, 2013 compared to 4.9% at September 30, 2012. The lower valuation allowance is reflective of periodic analyses conducted to value the inventory based on aging, profitability, sell-through rates and shrink in each classification, including jewelry and general merchandise. In addition, the closing of certain pawn stores in Mexico during fiscal 2013 favorably impacted this allowance at September 30, 2013. See “Item 1 — Business — Discontinued Operations” below.
Financial Services
We also offer a variety of financial services to customers who have limited access to other sources of credit. Many customers find our financial services a more attractive alternative than borrowing from friends or family or incurring insufficient funds fees, overdraft protection fees, utility reconnect fees and other charges imposed when they have insufficient cash to meet their needs. By utilizing our financial services, customers can exercise greater control of their personal finances without damaging the relationships they have with their merchants, service providers and family members.
In Texas, we do not offer consumer loans, but offer fee-based credit services to customers seeking loans. In these locations, we act as a credit services organization (or “CSO”) on behalf of customers in accordance with applicable state and local laws, and offer advice and assistance to customers in obtaining loans from unaffiliated lenders. Our services include arranging consumer loans with independent third-party lenders, assisting in the preparation of loan applications and loan documents and accepting loan payments for the lenders. We do not make, fund or participate in the consumer loans made by the lenders, but we assist customers in obtaining credit and enhance their creditworthiness by issuing letters of credit to guarantee customers’ payment obligations to the independent third-party lenders.
The specific financial services offered varies by location, but generally include some or all of the following:
Unsecured consumer loans — We offer a variety of unsecured consumer loans, including single-payment loans, multiple-payment loans, lines of credit and payroll withholding loans:
Single-payment loans — Single-payment loans are short-term loans (generally less than 30 days and averaging about 18 days) with due dates corresponding to the customer’s next payday. Principal amounts of single-payment unsecured loans can be up to $1,500, but average approximately $500. In the U.S. we typically charge a fee of 15% to 22% of the loan amount for a 7 to 23-day period. Online in the United Kingdom, we charge a fixed fee of 30% of the loan amount for up to 28 days.
Multiple-payment loans — Multiple-payment loans typically carry a term of four to seven months, with a series of equal installment payments due monthly, semi-monthly or on the customer’s paydays. Total interest and fees on these loans vary in accordance with state law and loan terms, but over the entire loan term, total approximately 45% to 130% of the original principal amount of the loan. Principal amounts range from $100 to $3,000, but average approximately $550.
Lines of credit — Revolving lines of credit operate similarly to a typical credit card. Customers may borrow as needed, may fully repay borrowed amounts at any point and are billed at regular intervals with certain minimum principal and fee payment requirements due in each billing cycle. Billing cycle due dates range from two weeks to a month and generally correspond with the customer’s paydays. Customers may borrow up to their approved credit line, and may re-borrow any repaid amounts. We provide lines of credit ranging from $100 to $700 and typically charge an annual fee of $30 per account and a monthly fee approximating 43% of the amount borrowed.
Payroll withholding loans — In Mexico, Grupo Finmart has approximately 70 active payroll withholding agreements with Mexican employers, primarily federal, state and local governments and agencies, and provides

6


unsecured multiple-payment consumer loans to the employees of the various employers. Interest and principal payments are collected through payroll deductions. The average loan is approximately U.S. $1,200, with a term of 31 months and annual yields of approximately 56%.
Secured consumer loans — We offer three principal types of secured consumer loans:
Single-payment auto title loans — Single-payment auto title loans are 30-day loans secured by the titles to customers’ automobiles. Loan principal amounts range from $100 to $10,000, but average about $1,000. Loan amounts are established based on customers’ income levels, an inspection of the automobile and title and reference to market values of used automobiles. We earn a fee of 10% to 30% of auto title loan amounts.
Multi-payment auto title loans — In Texas, we assist customers in obtaining multiple-payment auto title loans from unaffiliated lenders. Multiple-payment auto title loans primarily carry a term of five months with principal amounts ranging from $150 to $10,000, but average about $1,100. We earn a fee of 50% to 140% of the initial loan amount.
Auto title lines of credit —The terms and fee structure of auto title lines of credit are similar to those of unsecured lines of credit described above, except that they are secured by the titles to customers’ automobiles. We provide lines of credit ranging from $100 to $8,000 and typically charge an initial lien fee per account and a monthly fee approximating 25% of the amount borrowed.
As of September 30, 2013, our U.S. online lending business operated in six states. In Louisiana, Missouri, South Dakota and Hawaii, we offer single-payment loans. The average single-payment loan principal is approximately $400 and the term is generally less than 30 days. Total interest and fees on these loans vary in accordance with state law and loan terms, but over the entire loan term, total approximately 15% to 45% of the original principal amount of the loan. In both Texas and Ohio, we offer credit services to customers seeking short-term consumer loans from unaffiliated lenders. We do not originate any of these loans made to customers, but instead earn a fee for assisting customers in obtaining credit from the unaffiliated lenders and for enhancing customers' creditworthiness by providing a guarantee to the unaffiliated lenders. In Texas and Ohio, customers may obtain single-payment unsecured consumer loans, with principal amounts up to $1,500 and average about $460. We also offer single- and multiple-payment loans online in the U.K.
Single-payment consumer loans are considered defaulted if they are not repaid or renewed by the maturity date. Outstanding amounts on unsecured lines of credit are considered defaulted if customers do not timely make one required scheduled payment. Multiple-payment loans are considered defaulted if the customer has failed to make two consecutive installment payments. Although defaulted loans may be collected later, we charge the loan principal to bad debt upon default, leaving only active loans in the reported balance. Subsequent collections of principal are recorded as a reduction of bad debt at the time of collection. Accrued service charges related to defaulted loans are deducted from service charge revenue upon loan default, and increase service charge revenue upon subsequent collection. We provide for a valuation allowance on both the principal and service charges receivable based on recent default and collection experience. Our consumer loan balance represents the principal amount of all active (non-defaulted) loans, net of this valuation allowance.
If a credit service customer defaults on a loan, we pay the lender the principal and accrued interest due under the loan and an insufficient funds fee and charge those amounts to bad debt expense. We then attempt to collect those amounts from the customer. Subsequent recoveries are recorded as a reduction of bad debt at the time of collection. We also record as bad debt expense an accrual of expected losses for principal, interest and insufficient fund fees we expect to pay the lenders on default of the lenders’ current loans. This estimate is based on recent default and collection experience and the amount of loans the lenders have outstanding.

7


The table below shows the dollar amount of our consumer loan activity for the three most recent fiscal years. For purposes of this table, consumer loan balances include the principal portion of loans (net of valuation allowance) recorded on our balance sheet and the principal portion of active brokered loans outstanding from unaffiliated lenders, which is not included on our balance sheet.
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
 
(in millions)
Combined consumer loans:
 
 
 
 
 
Loans made
$
446.9

 
$
366.4

 
$
277.2

Loans repaid
(346.7
)
 
(313.8
)
 
(241.2
)
Loans forfeited, net of collections on bad debt
(57.1
)
 
(42.4
)
 
(38.1
)
Loans acquired in business acquisition
3.9

 
68.7

 

Change due to foreign currency exchange fluctuations
(4.2
)

1.1

 

Net increase (decrease) in consumer loans outstanding at the end of the year
$
42.8

 
$
80.0

 
$
(2.1
)
 
 
 
 
 
 
Consumer loans made by unaffiliated lenders (credit services only):
 
 
 
 
 
Loans made
$
119.2

 
135.6

 
130.0

Loans repaid
(88.4
)
 
(112.5
)
 
(109.8
)
Loans forfeited, net of collections on bad debt
(26.4
)
 
(24.6
)
 
(23.0
)
Net increase (decrease) in consumer loans outstanding at the end of the year
$
4.4

 
$
(1.5
)
 
$
(2.8
)
 
 
 
 
 
 
Consumer loans made by us:
 
 
 
 
 
Loans made
$
327.7

 
230.8

 
147.2

Loans repaid
(258.3
)
 
(201.3
)
 
(131.4
)
Loans forfeited, net of collections on bad debt
(30.7
)
 
(17.8
)
 
(15.1
)
Loans acquired in business acquisition
3.9

 
68.7

 

Change due to foreign currency exchange fluctuations
(4.2
)
 
1.1

 

Net increase in consumer loans outstanding at the end of the year
$
38.4

 
$
81.5

 
$
0.7

The profitability of unsecured consumer loans is highly dependent on our ability to manage the default rate and collect defaulted loan principal, interest and insufficient fund fees. In determining whether to lend or provide credit services, we perform a review of customer information, such as making a credit reporting agency inquiry, evaluating and verifying income sources and levels, verifying employment and verifying a telephone number where the customers may be contacted.
Auto title loans are secured by the titles to customers’ automobiles. Lending decisions and loan amounts are determined on the basis of customers’ income levels, an inspection of the automobile and title and reference to market values of used automobiles. Through charges to bad debt expense, we provide a bad debt allowance on the current and delinquent balances of auto title loans and auto title lines of credit, and increase the allowance as the loans age or in response to other potential indicators of loss. Auction proceeds from repossessed automobiles are recorded as an offset to bad debt.
At the time a consumer loan is made, a loan agreement and credit services agreement, when applicable, are given to the customer. It presents the name and address of the lender, the customer and the credit services company when applicable, the customer’s identification information, the date of the loan, the amount financed, the interest or service charges due on maturity, the maturity date of the loan, the total amount that must be paid and the annual percentage rate. At the time a line of credit is granted, customers receive a similar agreement specifying the terms of the credit line, fees and annual percentage rate and repayment terms.
Seasonality
Historically, pawn service charges are highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season. Merchandise sales are highest in the first and second fiscal quarters (October through March) due to the holiday season, jewelry sales surrounding Valentine’s Day and the impact of tax refunds in the United States. Jewelry scrapping sales are heavily influenced by the timing of decisions to scrap excess jewelry inventory.

8


Jewelry scrapping sales generally are greatest during our fourth fiscal quarter (July through September). This results from relatively low jewelry merchandise sales in that quarter and the higher loan balance, leading to a higher dollar amount of loan forfeitures in the summer lending season providing more inventory available for sale.
Consumer loan fees are generally highest in our fourth and first fiscal quarters (July through December) due to a higher need for cash during the holiday season. Consumer loan bad debt, both in dollar terms and as a percentage of related fees, is highest in the fourth fiscal quarter and lowest in the second fiscal quarter due primarily to the impact of tax refunds in the U.S.
The payroll withholding lending business is less impacted by seasonality, with the exception of the summer months when new loan originations tend to moderate.
The net effect of these factors is that net revenues and net income typically are strongest in the fourth fiscal quarter and weakest in the third fiscal quarter.
Operations
A typical company pawn store employs approximately six full-time team members, consisting of a store manager, an assistant manager and four pawnbrokers. Each store manager is responsible for ensuring that the store is run in accordance with our policies, procedures and operating guidelines, and reports to an area manager. Area managers are responsible for the performance of all stores within their area and report to one of our regional directors. Managers and regional directors receive incentive compensation based on their performance in comparison to an operating budget. Our U.S. pawnbrokers are also eligible to receive incentive compensation based on the store’s performance and their individual productivity performance. The incentive compensation for our pawn employees typically ranges between 5% to 30% of their total compensation.
Financial services stores typically employ two to three team members per location, consisting of a store manager and one or two customer service representatives. Each store manager is responsible for ensuring that the store is run in accordance with our policies, procedures and operating guidelines, and reports to an area manager, who is responsible for the stores within a specific operating area and reports to a regional director. Managers and regional directors receive incentive compensation based on their performance in comparison to an operating budget.
In the majority of our financial services stores, store employees attempt to collect defaulted consumer loans in the first 30 days after default. After the initial 30 days, our centralized collection center assumes collection responsibility for these loans. The centralized collection center also collects defaulted consumer loans for all other locations from the date of default. After attempting to collect for approximately 90 days, we generally sell the remaining defaulted consumer loans to a third party or refer them to an outside collection agency for a contingency fee.
Our payroll withholding lending business in Mexico operates using a network of low-cost branch offices dedicated to making loans to employees of government agencies and other employers with whom Grupo Finmart has processing and withholding agreements in place. A centralized corporate office provides the lending approval function, processing of loans and repayments, collections, sales support and other administrative functions. Each branch location is headed by a sales manager and, depending upon size of the region, may have between eight and fifteen sales professionals reporting through the branch. Sales professionals are commission-based, with earnings tied to loans originated. All loan requests are approved or declined through the centralized credit process. Grupo Finmart also utilizes a network of brokers to augment the sales force.
We have an internally developed store level point of sale system that automates the recording of pawn, merchandise purchase and sale transactions. We also have a separate loan management computer system specifically designed to handle consumer loan transactions. We have redundant backup systems in the event of a system failure or natural disaster. Financial data from stores owned by our wholly owned subsidiaries is processed at the corporate office each day and the preceding day’s data are available for management review via our internal network. For stores and operations owned by majority-owned subsidiaries, weekly financial data is provided to the corporate office. Our communications network provides information access between the stores and the corporate office.
Our internal audit staff monitors the perpetual inventory system, lending practices, regulatory compliance and compliance with our policies and procedures. Each location is typically audited multiple times annually, adjusted based on estimated risk.
As of September 30, 2013, we employed approximately 7,500 team members. We believe that our success is dependent upon our team members’ ability to provide prompt and courteous customer service and to execute our operating procedures and standards. We seek to hire people who will become long-term, career team members. To achieve our long-range personnel goals, we offer a structured career development program for all of our field team members. This program includes computer-based training, formal structured classroom training and supervised on-the-job training. All store team members, including

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managers, must meet certain competency criteria prior to hire or promotion and participate in on-going training classes and formal instructional programs. Our career development program develops and advances our employees and provides training for the efficient integration of experienced managers and team members from outside the company.
Trademarks and Trade Names
We operate our U.S. pawn stores principally under the names “EZPAWN” or “Value Pawn” and the Mexico pawn stores under the name “EMPEÑO FÁCIL.” Our U.S. financial services stores operate under a variety of names, including “EZMONEY Payday Loans,” “EZ Loan Services,” “EZ Payday Advance” and “EZPAWN Payday Loans,” and our CSO stores operate under the name “EZMONEY Loan Services.” Our financial services and buy/sell stores in Canada operate under the names “CASHMAX” or “Cash Converters.” In Mexico, we offer payroll withholding loans under the names “Crediamigo” and “Adex." In the U.K. we offer consumer loans online under the name "Cash Genie." We have registered with the United States Patent and Trademark Office the names EZPAWN, EZMONEY and EZCORP, among others. We hold a trademark in Mexico for the name “EMPEÑO FÁCIL” and are the master franchisee in Canada for the “Cash Converters” brand.
Growth and Expansion
We plan to expand the number of locations we operate through opening de novo locations and through acquisitions. We believe that the largest growth opportunities are with de novo stores in Mexico and the U.S., pawn store acquisitions in the U.S. and online lending, both in the U.S. and internationally. We continually evaluate and test new products and formats, which may result in expansion opportunities or strategic investments.
The cost of opening de novo stores varies based on the size, type and location of stores opened. During fiscal 2013, we opened 15 de novo U.S./Canada locations, each requiring an average property and equipment investment of approximately $360,000. We also opened 69 U.S. Financial Services stores, each requiring an average property and equipment investment of approximately $90,000. In Mexico, we opened 66 de novo pawn stores, each requiring an average property and equipment investment of approximately $190,000.
Our ability to add new stores is dependent on several variables, such as the availability of acceptable sites or acquisition candidates, the regulatory environment, local zoning ordinances, access to capital and the availability of qualified personnel.
Discontinued Operations
During fiscal 2013, we implemented a plan to close 107 legacy stores in a variety of locations. These stores were generally older, smaller stores that did not fit our future growth profile. We will continue to execute our growth plan by opening stores that are in-line with our growth strategy, 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 products and services they want.
The store closings included:
57 stores in Mexico, 52 of which were small, jewelry-only asset group formats. We will continue to operate our full-service “store-within-a-store,” or SWS, locations under the Empeño Fácil brand.
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 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 due to onerous regulatory requirements. In addition, one jewelry-only concept store was closed, which was our only jewelry-only store in the United States.
In connection with these store closings, we incurred charges for lease termination costs, asset and inventory write-down charges to net realizable liquidation value, uncollectible receivables, and employee severance costs. We recognized $22.2 million of pre-tax charges related to these store closings during fiscal 2013. These exit costs have been recorded as part of the loss from discontinued operations, net of tax, in our consolidated statements of operations.
Competition
We encounter significant competition in connection with all of our activities. These competitive conditions may adversely affect our revenues, profitability and ability to expand. In our lending businesses, we compete with other pawn stores, payday lenders, credit service organizations, banks, credit unions and other financial institutions, such as consumer finance companies.

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Other lenders may lend money on an unsecured basis, at interest rates that may be lower than our service charges, and on other terms that may be more favorable than ours or through other market channels, such as online, which some customers may prefer. We believe that the primary elements of competition are the quality of customer service and relationship management, convenience, store location, a customer friendly environment and the ability to loan competitive amounts at competitive rates. In addition, we believe the ability to compete effectively will be based increasingly on strong general management, regional focus, automated management information systems, access to capital, superior customer service and the ability to offer certain services online.
Our competitors for merchandise sales include numerous retail and wholesale stores, such as jewelry stores, discount retail stores, consumer electronics stores, other pawn stores, other resale stores, electronic commerce retailers and auction sites. Competitive factors in our retail operations include the ability to provide the customer with a variety of merchandise at an exceptional value and convenience.
The pawn industry in the United States is large and highly fragmented. The industry consists of approximately 13,000 pawn stores owned primarily by independent operators who own one to three locations, and we consider the industry relatively mature. We are the second largest operator of pawn stores in the United States, with 495 locations at September 30, 2013. The three largest pawn store operators account for approximately 10% of the total estimated pawn stores in the United States.
The pawn industry in Mexico is also fragmented, but less so than in the United States. The industry consists of approximately 5,000 pawn stores owned by independent operators and chains, including some not-for-profit organizations. The pawn industry, particularly full-line stores offering general merchandise and jewelry loans and resale, remains in more of an expansion stage in Mexico than in the United States. The market for gold-only pawn stores is mature. We exited the gold-only pawn store format in Mexico during fiscal 2013.
The unsecured payroll lending industry in Mexico is less developed than other Latin American countries. Payroll lending in Mexico is generally marketed to public sector employees, who on average earn more and rotate less frequently than their private sector peers. Additionally, government entities tend to be more stable and on average have more employees than private companies. It is estimated that less than 15% of the market potential is being serviced. Grupo Finmart is the third largest vertically integrated payroll lender in Mexico with 54 branch offices located in 23 of the 32 states in the country.
The specialty financial services industry in the United States is mature and is larger and more concentrated than the pawn industry. The industry consists of a number of online lenders and approximately 20,000 locations that are either mono-line stores offering only short-term consumer loans or businesses offering short-term consumer loans in addition to other products and services, such as check cashing stores, automobile title loan stores, pawn stores and stores offering reloadable debit cards. The ten largest short-term consumer loan companies, including us, operate approximately 45% of the total number of physical locations. Recently, several national and regional banks have begun offering cash advance products with similar characteristics and rate structures to our short-term consumer loans.
The specialty financial services industry in Canada consists of approximately 1,500 locations that are either single-line stores offering only short-term consumer loans or businesses offering short-term consumer loans in addition to other products and services, such as check cashing stores, pawn stores and stores offering reloadable debit cards or bank accounts. The Canadian short-term consumer loan industry is highly concentrated, with the three largest companies operating approximately 75% of the total number of locations.

Strategic Investments
Albemarle & Bond — At September 30, 2013, we held almost 30% of the outstanding shares of Albemarle & Bond Holdings PLC, a publicly traded company headquartered in Reading, United Kingdom. At December 31, 2012, the latest date at which Albemarle & Bond has publicly reported results, Albemarle & Bond operated 233 locations in the United Kingdom that offer pawn loans, payday loans, installment loans, check cashing and retail jewelry.
Albemarle & Bond has not yet released its financial statements as of June 30, 2013; therefore, income reported for our fiscal year ended September 30, 2013 is based on management's best estimate of Albemarle & Bond's fiscal 2013 results. For its six months ended December 31, 2012 (their most recently published interim financial results), Albemarle & Bond's gross revenues decreased 6% to £58.9 million ($93.8 million), its net income decreased 31% to approximately £6.1 million ($9.8 million), and its diluted earnings per share decreased 31% to £0.1109 ($0.1791). Albemarle & Bond's stock is traded on the Alternative Investment Market of the London Stock Exchange. We are its largest single shareholder and currently hold two of the nine seats on Albemarle & Bond’s board of directors. We account for our investment in Albemarle & Bond under the equity method. In

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fiscal 2013, we estimated our full-year interest in Albemarle & Bond's income to be $2.3 million and we received dividends of $3.3 million.
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. In early October 2013, Albemarle & Bond announced that discussions to underwrite an equity funding had failed and they were in ongoing discussions with their banks to negotiate covenants. The market price of Albemarle & Bond’s stock declined as a result of this information. Due to these events, we evaluated the economic and strategic benefits of continuing to hold this investment. Based on the review as of October 18, 2013, we determined that the fair value of this investment was less than its carrying value as of September 30, 2013 and that this impairment was other than temporary. As a result, we recognized an other than temporary impairment of $42.5 million ($28.7 million, net of taxes). This amount is included in impairment of investments in our consolidated statements of operations. As of September 30, 2013, we estimated the fair value of our investment in Albemarle & Bond to be approximately $9.4 million, which equaled our post impairment book value.
Cash Converters International — At September 30, 2013, we owned approximately 33% of the total ordinary shares of Cash Converters International Limited, a publicly traded company headquartered in Perth, Australia. We acquired the shares between November 2009 and November 2012 for approximately $68.8 million. Pursuant to a shareholders agreement, we hold two of the five seats on Cash Converters’ board of directors. Cash Converters franchises and operates a worldwide network of approximately 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. Cash Converters has significant store concentrations in Australia and the United Kingdom. In the short-term, we expect Cash Converters will continue buying back franchised locations and converting them into company operated stores as well as increasing its portfolio of short-term consumer loans in Australia and the U.K.
The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was passed by the Australian Parliament in August 2012. This new law, which went into effect on July 1, 2013, imposes certain limitations and restrictions on short-term consumer loans in Australia, including interest limitations and restrictions on extensions and refinancings. These limitations and restrictions, however, are more favorable to the industry than previous proposals, and the passage of these rules should stabilize the Australian regulatory environment related to short-term consumer loans for the foreseeable future.
For its fiscal year ended June 30, 2013, Cash Converters’ gross revenue improved 16% to AUS $272.7 million (U.S. $280.1 million), net income improved 12% to AUS $32.9 million (U.S. $33.8 million) and diluted earnings per share increased 4% to AUS $0.0792 (U.S. $0.0813). For the year, Cash Converters declared dividends of AUS $0.04 (U.S. $0.0411) per share. We account for our investment in Cash Converters under the equity method. In fiscal 2013, our interest in Cash Converters’ income was $9.6 million and we received dividends of $5.1 million. Based on the closing price and exchange rates on September 30, 2013, the market value of our investment in Cash Converters was approximately $165.7 million compared to its book value of $87.6 million.
Regulation
Our operations are subject to extensive regulation under various federal, state and local laws and regulations, and we believe that we conduct our business in material compliance with all of these rules. The following is a general description of significant regulations affecting our business. For a geographic breakdown of our operating locations, see “Part I — Item 2 — Properties.”
Pawn and Retail Regulations
Our pawn stores are regulated by the states in which they are located and, in some cases, by individual municipalities or other local authorities. The applicable statutes, ordinances and regulations vary from location to location and typically impose licensing requirements for pawn stores or individual pawn store employees. Licensing requirements typically relate to financial responsibility and character, and may establish restrictions on where pawn stores can operate. Additional rules regulate various aspects of the day-to-day pawn operations, including the pawn service charges that a pawn store may charge, the maximum amount of a pawn loan, the minimum or maximum term of a pawn loan, the content and format of the pawn ticket and the length of time after a loan default that a pawn store must hold a pawned item before it can be offered for sale. Failure to observe applicable regulations could result in a revocation or suspension of pawn licenses, the imposition of fines or requirements to refund service charges and fees, and other civil or criminal penalties. We must also comply with various federal requirements regarding the disclosure of the annual percentage rate, finance charge, amount financed, total of payments and payment schedule related to each pawn loan transaction. Additional federal regulations applicable to our pawn lending business are described in “Other Federal Regulations” below.

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Most of our pawn stores, voluntarily or pursuant to applicable laws, provide periodic (generally daily) reports to local law enforcement agencies. These reports provide local law enforcement with information about the items received from customers (whether through pawn or purchase), including a detailed description of the goods involved and the name and address of the customer. If we accept as collateral or purchase merchandise from a customer and it is determined that our customer was not the rightful owner, the merchandise is subject to recovery by the rightful owner. Historically, we have not experienced a material number of claims of this nature.
Some of our pawn stores in the U.S. handle firearms and each of those stores maintains a federal firearms license as required by federal law. The federal Gun Control Act of 1968 and regulations issued by the Bureau of Alcohol, Tobacco, and Firearms also require each pawn store dealing in firearms to maintain a permanent written record of all receipts and dispositions of firearms. In addition, we must comply with the Brady Handgun Violence Prevention Act, which requires us to conduct a background check before releasing, selling or otherwise disposing of firearms.
Mexico regulates various aspects of the pawn industry at the federal, state and local level. Regulations issued by the federal consumer protection agency, Procuraduría Federal del Consumidor (PROFECO), govern the form of pawn loan contracts and consumer disclosures, but the regulations do not impose interest rate or service charge limitations on pawn loans. Pawn stores, like other businesses in Mexico, are also subject to a variety of regulations in such areas as tax compliance, customs, consumer protection and employment.
In Canada, and in Virginia and Pennsylvania in the U.S., we operate stores that buy and sell secondhand merchandise, as opposed to offering pawn loans. These stores are regulated by local municipalities or other local authorities. The applicable ordinances vary from location to location and include licensing for secondhand dealing or precious metal purchasing, law enforcement reporting requirements, and the imposition of holding periods before a purchased item can be offered for resale. Failure to observe these regulations could result in a revocation or suspension of licenses, the imposition of fines, and other civil or criminal penalties. Our Canadian buy/sell stores also offer short-term consumer loans.
Short-Term Consumer Loan Regulations
Each state in which we offer short-term consumer loan products has specific laws and regulations dealing with the conduct of this business. These laws and regulations vary in scope, but generally require licensing of locations, establish loan terms, provide for consumer protections and disclosures and permit periodic regulatory examinations. In the case of single-payment loans, most applicable laws and regulations limit the amount of fees that may be charged, establish maximum loan amounts and duration, and restrict the customer’s ability to renew or extend the loan. Some states require reporting of customers’ loan activities to a state-wide database, and prohibit the making of loans to customers who have loans outstanding with other lenders. Some municipalities in which we operate also impose various rules and regulations, primarily related to zoning and licensing requirements, but in some cases, related to loan terms (such as maximum loan amounts, maximum number of renewals or extensions and mandatory principal paydowns). Failure to observe applicable legal requirements could result in a loss of license, the imposition of fines or customer refunds, and other civil or criminal penalties.
We must also comply with various federal requirements (including the Truth in Lending Act and Regulation Z) regarding the disclosure of annual percentage rate, finance charge, amount financed, total of payments and payment schedule related to each loan transaction. With respect to our debt collection activities, we are required to comply with the provisions governing “creditors” under the federal Fair Debt Collection Practices Act and similar state laws regulating debt collection practices. Additional federal regulations applicable to our short-term consumer loan business are described in “Other Federal Regulations” below.
In Texas, we do not make loans to customers, but rather offer fee-based credit services, including assistance in arranging loans with independent third-party lenders. As required by state law, we are registered as a Credit Services Organization (“CSO”) in order to provide such services and, pursuant to state laws effective January 1, 2012, are licensed as a Credit Access Business (“CAB”). The applicable CSO law requires us to provide each customer with an upfront disclosure statement describing, among other things, the services to be provided and the fees to be charged and, upon entering into a transaction, with a written contract fully describing the services provided. The law prohibits us from receiving compensation solely for referring a customer to a lender and also provides for other disclosure requirements, cancellation rights for customers and prohibitions on fraudulent or deceptive conduct. The law governing CABs requires us to provide conspicuous notices regarding fees and certain other disclosures and requires us to report certain information regarding customer transactions to the Texas Office of the Consumer Credit Commissioner. Violations of these laws could subject us to criminal and civil liability. The independent lenders are not required to be licensed and are not regulated by any state agency so long as the interest rate charged on the loan does not exceed 10% per annum. The lenders are also permitted to charge late fees and insufficient funds fees. The lenders are subject to the federal regulations described below with regard to their lending activities. Certain cities in Texas, specifically,

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Austin, Dallas and San Antonio, have enacted municipal regulation of CAB products and the payday loans and auto title loans to which they provide access. The City of Houston recently announced that it will consider adopting similar regulations.
Legislators and regulators frequently scrutinize the legislative and regulatory environment for short-term lending, often proposing additional legislative and regulatory restrictions ranging from additional disclosure requirements to limits on rates and fees. In some cases, rate and fee limits would effectively prohibit certain short-term lending products, such as payday loans, because it would no longer be economically feasible for most lenders to offer such products.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, established the Consumer Financial Protection Bureau (the “CFPB”), which exercises supervisory and examination powers over companies that offer payday loans. The CFPB also may exercise regulatory authority over other products and services that we offer. The CFPB recently issued "Payday Loans and Deposit Advance Products — A White Paper of Initial Data Findings" and concluded in part with respect to payday loans:
The CFPB recognizes its responsibility to implement Federal consumer financial laws to ensure that "markets for consumer financial products and services are fair, transparent and competitive." The potential consumer harm and the data gathered to date are persuasive that further attention is warranted to protect consumers. Based upon the facts uncovered through our ongoing work in this area, the CFPB expects to use its authorities to provide such protections.
At this time it is not possible to accurately predict what affect the CFPB will have on our business.
There can be no assurance that legislative or regulatory efforts to eliminate or restrict the availability of certain short-term loan products, including payday loans and auto title loans, will not be successful, despite significant customer demand. To the extent such efforts are successful, our short-term consumer loan business could be adversely affected. See “Part I — Item 1A — Risk Factors.”
Other Federal Regulations
All of our lending activities, both pawn loans and short-term consumer loans, are subject to other state and federal statutes and regulations, including the following:
We are subject to the federal Gramm-Leach-Bliley Act and its underlying regulations, as well as various state laws and regulations relating to privacy and data security. Under these regulations, we are required to disclose to our customers our policies and practices relating to the protection and sharing of customers’ nonpublic personal information. These regulations also require us to ensure that our systems are designed to protect the confidentiality of customers’ nonpublic personal information, and many of these regulations dictate certain actions that we must take to notify customers if their personal information is disclosed in an unauthorized manner. We are subject to the Fair Credit Reporting Act, which was enacted, in part, to address privacy concerns associated with the sharing of consumers’ financial information and credit history contained in consumer credit reports and limits our ability to share certain consumer report information. We are subject to the Federal Fair and Accurate Credit Transactions Act, which amended the Fair Credit Reporting Act, and requires us to adopt written guidance and procedures for detecting, preventing and mitigating identity theft, and to adopt various policies and procedures (including employee training) that address and aid in detecting and responding to suspicious activity or identify theft “red flags.”
The federal Equal Credit Opportunity Act prohibits discrimination against any credit applicant on the basis of any protected category such as race, color, religion, national origin, sex, marital status or age (provided the applicant has the capacity to enter into a binding contract), because all or part of the applicant's income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Protection Act. Under the Equal Credit Opportunity Act and the Fair Credit Reporting Act, if we deny an application for credit, we are required to provide the applicant with a Notice of Adverse Action, informing the applicant of (a) the action taken regarding the credit application, (b) a statement of the prohibition on discrimination, (c) the name and address of both the creditor and the federal agency that monitors compliance, (d) the applicant’s right to learn the specific reasons for the denial, (e) whether the credit decision was based on in whole or in part on information obtained from the credit report, (f) a consumer's right to a free copy of the credit report from the reporting agency, (g) the consumer's right to dispute inaccurate information with the reporting agency and (h) whether our credit decision was based in whole or in part on information obtained from an affiliate or from an outside source other than a customer reporting agency and the right to know the nature of such information.

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Under the USA PATRIOT Act, we must maintain an anti-money laundering compliance program that includes the development of internal policies, procedures and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test the program.
We are also subject to the Bank Secrecy Act and its underlying regulations, which require us to report and maintain records of certain high-dollar transactions. In addition, federal laws and regulations prohibit us from doing business with terrorists and require us to report certain suspicious transactions to the Financial Crimes Enforcement Network of the Treasury Department (“FinCen”). Generally, a transaction is considered to be suspicious if we know, suspect or have reason to suspect that the transaction (a) involves funds derived from illegal activity or is intended to hide or disguise such funds, (b) is designed to evade the requirements of the Bank Secrecy Act or (c) appears to serve no legitimate business or lawful purpose. Certain of our subsidiaries are registered with FinCen as money services businesses by virtue of the check cashing or money transmission services they provide.
Federal law limits the annual percentage rate that may be charged on loans made to active duty military personnel and their immediate families at 36%. This 36% annual percentage rate cap applies to a variety of loan products, including consumer loans, though it does not apply to pawn loans. We do not make consumer loans to active duty military personnel or their immediate families because it is not economically feasible for us to do so at these rates.
We are subject to the Electronic Funds Transfer Act and its underlying regulations, which govern our ability to credit our customers' bank accounts electronically with loan proceeds and to accept electronic payments from our customers by debiting our customers' bank accounts through various electronic card payment networks, such as VISA® and MasterCard®, and other clearing house associations, such as NACHA, the Electronic Payments Association.
Available Information
We maintain an Internet website at www.ezcorp.com. All of our reports filed with the Securities and Exchange Commission (the “SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and Section 16 filings, are accessible, free of charge, through the Investor Relations section of our website as soon as reasonably practicable after electronic filing. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. Information on our website is not incorporated by reference into this report.
ITEM 1A. RISK FACTORS
There are many risks and uncertainties that may affect the operations, performance, development and results of our business. Many of these risks are beyond our control. The following is a description of the important risk factors that may affect our business. If any one or more of these risks actually occur, our business, financial condition or results of operations would likely suffer. Additional risks and uncertainties not currently known to us or that we currently consider to be immaterial may also materially adversely affect our business, financial condition or results of operations.
Changes in laws and regulations affecting our financial services and products could have a material adverse effect on our operations and financial performance.
Our financial products and services are subject to extensive regulation under various federal, state, local and international laws and regulations. There have been, and continue to be, legislative and regulatory efforts to regulate, prohibit or severely restrict some of the types of short-term financial services and products we offer, particularly payday loans and auto title loans.
Adverse legislation could be enacted in any country, state or municipality in which we operate. If such legislation is enacted in any particular jurisdiction, we generally evaluate our business in the context of the new legislation and determine whether we can continue to operate in that jurisdiction with new or modified products or whether it is feasible to enhance our business with additional product offerings. In any case, if we are unable to continue to operate profitably under the new law, we may decide to close or consolidate stores, resulting in decreased revenues, earnings and assets.
For example, in 2011 and 2012, the Cities of Austin, Dallas and San Antonio, Texas adopted municipal ordinances imposing restrictions on certain financial services products we can offer as a credit services organization or credit access business in those cities. Specifically, the ordinances require municipal registrations, limit the amount borrowers can borrow and require principal paydowns on refinancing or with each installment payment. These limitations and restrictions make the products less attractive to our customers, thus lessening demand, and severely impair the financial viability of our financial services business in those cities. We recently closed 20 financial services stores in Dallas, primarily due to the onerous regulatory requirements

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of the municipal ordinance. See “Item 1 — Business — Discontinued Operations.” The City of Houston recently announced that it will consider adopting a similar ordinance.
In addition, any financial services business that we undertake directly in international jurisdictions, as well as the financial services businesses conducted by our strategic affiliates, are subject to a variety of regulation by international governmental authorities. Adverse legislation or regulations could be enacted in any of such international jurisdictions, with the result that the financial services business in that jurisdiction becomes less profitable or unprofitable. For example, the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was passed by the Australian Parliament in August 2012. This new law, which went into effect on July 1, 2013, imposes certain limitations and restrictions on short-term consumer loans in Australia, including interest limitations and restrictions on extensions and refinancings. See ‘‘Part I—Business—Strategic Investments.’’ Further, the Financial Conduct Authority, which on April 1, 2014, will assume primary regulatory authority over short-term consumer lending in the U.K., recently released guidance that focuses on the affordability of the credit extended (i.e., the customer’s ability to repay), the use of continuous payment authority to collect repayments and sustained use short-term credit products. This guidance, when it becomes effective regulation, along with other regulations that may be issued in the future, could have an adverse impact on our online lending business in the U.K.
Many of the legislative and regulatory efforts that are adverse to the short-term consumer loan industry are the result of the negative characterization of the industry by some consumer advocacy groups and some media reports that ignore the credit risk and high transaction costs of serving our customers. We can give no assurance that there will not be further negative characterizations of our industry or that legislative or regulatory efforts to eliminate or restrict the availability of certain short-term loan products, including payday loans and auto title loans, will not be successful despite significant customer demand for such products. Such efforts, if successful, could have a material adverse effect on our operations or financial performance.
A significant or sudden decrease in gold values or the volume of gold transactions may have a material impact on our earnings and financial position.
Gold jewelry comprises a significant portion of the collateral security for our pawn loans and our inventory, and gold scrapping accounts for a significant portion of our revenues and gross profit. Pawn service charges, sales proceeds and our ability to liquidate excess jewelry inventory at an acceptable margin are dependent upon gold values and the volume of gold transactions. A decline in the availability of gold or our customers’ willingness or ability to sell us gold or use gold as collateral for pawn loans could significantly impact our business. During fiscal 2012 and fiscal 2013, we experienced a significant softening of gold prices and volumes, which had a significant negative impact on our profitability. The impact on our financial position and results of operations of a continued decrease in gold values or volumes or a change in customer behavior cannot be reasonably estimated because the market and customer response to changes in gold values is not known; however, a significant decline in gold values or gold volumes could result in decreases in sales, sales margins and pawn service charge revenues.
The Consumer Financial Protection Bureau has begun exercising its supervisory role over short-term, small-dollar lenders, which could result in a material adverse effect on our operations and financial performance.
As noted under ‘‘Item 1 — Business — Regulation — Short-Term Consumer Loan Regulations,’’ the Dodd-Frank Wall Street Reform and Consumer Protection Act established the Consumer Financial Protection Bureau (the ‘‘CFPB’’), which has the power to, among other things, regulate companies that offer or supply payday loans and other products and services that we offer. The CFPB now exercises its supervisory and regulatory authority over non-depository companies providing consumer financial services products and services.
Under its supervisory and examination powers, the CFPB has authority to inspect short-term lenders’ books and records and lending practices, including marketing, underwriting, loan application and processing and collections. The CFPB has published its Short-Term, Small-Dollar Lending Examination Procedures, outlining the guidelines that CFPB examiners will use in examining short-term lenders. The CFPB has begun to conduct examinations of payday loan companies to assess companies’ compliance with federal consumer financial services laws, obtain information on the activities and procedures of short-term lenders and detect risks to consumers. Should the CFPB determine that a financial service provider is in violation of federal law, it has broad authority to initiate administrative actions or litigation, in which it may seek cease and desist orders for the provider’s activities, rescission of loan contracts and administrative fines and penalties.
The CFPB also has rule-making authority over short-term lenders. While it does not have authority to regulate fees, it conceivably could adopt rules that could impair the viability or financial performance of products and services. On April 24, 2013, the CFPB issued a report following an in-depth review of short-term small dollar loans, including payday loans. While the CFPB acknowledges the clear demand for small dollar credit products, it does express concern regarding the risk of sustained use of these products by some consumers. The CFPB reiterated its authority to adopt rules identifying unfair, deceptive or abusive practices in connection with the offering of consumer financial products and services and stated that it expects to use its authority to provide such protections. It is not possible to accurately predict what affect the CFPB will have

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on our business. The CFPB, through its supervisory or enforcement role or through its rule-making authority, could take actions that would have a material adverse effect on our operations and financial performance.
A significant portion of our business is concentrated in Texas.
As of September 30, 2013, over half of our financial services stores and almost half of our domestic pawn stores were located in Texas, and those stores account for a significant portion of our revenues and profitability. With the exception of activity at the municipal level that has negatively impacted (or may negatively impact) our financial services business, the legislative, regulatory and general business environment in Texas has been relatively favorable for our business activities. We have been successful in growing and expanding our businesses in areas outside Texas for the past several years, and we expect that our business in other areas will continue to grow faster than our business in Texas.
A negative legislative or regulatory change in Texas could have a material adverse effect on our overall operations and financial performance. We offer short-term consumer loans in Texas through our credit services organization program in both storefronts and online. If new adverse legislation is enacted in Texas, it could require us to alter or discontinue some or all of our consumer loan business in Texas. During the most recent regular legislative session (which ended in May 2013), the Texas Senate passed a bill that, had it been enacted into law, would have adversely affected our consumer loan business in Texas. The bill included caps on fees, limitations on the amounts that can be loaned, limitations on the number of refinancings, cooling off periods and other restrictions. That bill failed to gain sufficient support in the Texas House of Representatives and was not enacted into law. There can be no assurance that similar legislation will not be considered, or possibly enacted, during future legislative sessions. Even if no legislation is enacted at the state level, various municipalities may still consider and enact ordinances that restrict short-term consumer loans (as Dallas, Austin, San Antonio and several smaller cities have already done, and Houston is proposing to do).
A significant change in foreign currency exchange rates could have a material adverse impact on our earnings and financial position.
We have foreign operations in Mexico, Canada and the United Kingdom and equity investments in the United Kingdom and Australia. Our assets and investments in, and earnings and dividends from, each of these must be translated to U.S. dollars from their respective functional currencies. A significant weakening of any of these foreign currencies could result in lower assets and earnings in U.S. dollars, resulting in a material adverse impact on our financial position, results of operations and cash flows.
Prolonged periods of economic recession and unemployment could adversely affect our lending and retail businesses.
All of our businesses, like other businesses, are subject to fluctuations based on varying economic conditions. Economic conditions and general consumer confidence affect the demand for our retail products and the ability and willingness of our customers to utilize our loan products and services. Our consumer loan products and services require the customer to have a verifiable recurring source of income. Consequently, we may experience reduced demand for our consumer loan products during prolonged periods of high unemployment. Weakened economic conditions may also result in an increase in loan defaults and loan losses. Even in the current economic environment, we have been able to efficiently manage our bad debt through our underwriting and collection efforts. There can be no assurance that we will be able to sustain our current bad debt rates or that we will not experience increasing difficulty in collecting defaulted loans.
A significant portion of our short-term consumer loan revenues and profitability is dependent upon the ability and willingness of unaffiliated lenders to make loans to our customers.
In Texas, where over half of our financial services stores are located, we do not make consumer loans to customers, but assist customers in arranging loans with unaffiliated lenders. We also have a similar arrangement for our online lending business in Ohio. Our credit services organization or credit access business could be adversely affected if (a) we were to lose our current relationships with unaffiliated lenders and were unable to establish a relationship with another unaffiliated lender who was willing and able to make short-term loans to our Texas customers or (b) the unaffiliated lenders are unable to obtain capital or other sources of funding at appropriate rates.
Achievement of our growth objectives is dependent upon our ability to open and acquire new stores.
Our expansion strategy includes opening de novo store locations and acquiring existing stores. The success of our de novo store strategy is contingent upon numerous factors that cannot be predicted or controlled, such as the availability of acceptable locations with a desirable customer base, the negotiation of acceptable lease terms, the ability to obtain required government permits and licenses and the existence of a suitable competitive environment. In addition, our acquisition strategy is dependent upon the availability of attractive acquisition candidates. The achievement of our growth objectives is also subject to our ability

17


to attract, train and retain qualified team members. Failure to achieve our expansion goals would adversely affect our prospects and future results of operations.
Changes in the business, regulatory or political climate in Mexico could adversely affect our operations in those countries, which could adversely affect our growth plans.
Our growth plans include significant expansion in Mexico. Changes in the business, regulatory or political climate in Mexico, or significant fluctuations in currency exchange rates, could affect our ability to expand or continue our operations there, which could have a material adverse impact on our prospects, results of operations and cash flows.
Fluctuations in our sales, pawn loan balances, sales margins, pawn redemption rates and loan default and collection rates could have a material adverse impact on our operating results.
We regularly experience fluctuations in a variety of operating metrics. Changes in any of these metrics, as might be caused by changes in the economic environment, competitive pressures, changes in customers’ tastes and preferences or a significant decrease in gold prices could materially and adversely affect our profitability and ability to achieve our planned results of operations.
Changes in our liquidity and capital requirements or in banks’ abilities or willingness to lend to us could limit our ability to achieve our plans.
We require continued access to capital. A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect our ability to achieve our planned growth and operating results. We currently have a $200 million revolving credit facility with a syndicate of banks. If one of those banks is unable to provide funding in accordance with its commitment, our available credit could be reduced. Our current credit facility is scheduled to terminate in May 2015. Our ability to obtain a new credit facility or alternative financing will depend upon market conditions and our financial condition at the time. If we are unable to obtain a new credit facility or other alternative financing on terms that are acceptable to us, our ability to achieve our growth objectives, and our financial condition and results of operations, may be adversely affected.
Changes in competition from various sources could have a material adverse impact on our ability to achieve our plans.
We encounter significant competition from other pawn stores, cash advance companies, credit service organizations, credit access businesses, online lenders, consumer finance companies and other forms of financial institutions and other retailers, many of which have significantly greater financial resources than we do. Significant increases in the number or size of competitors or other changes in competitive influences could adversely affect our operations through a decrease in the number or quality of loan products and services we are able to provide or our ability to liquidate forfeited collateral at acceptable margins.
One person beneficially owns all of our voting stock and controls the outcome of all matters requiring a vote of stockholders, which may influence the value of our publicly traded non-voting stock.
Phillip E. Cohen is the beneficial owner of all of our Class B Voting Common Stock. As a result of his equity ownership stake, Mr. Cohen controls the outcome of all issues requiring a vote of stockholders and has the ability to control our policies and operations. All of our publicly traded stock is non-voting stock. Consequently, stockholders other than Mr. Cohen have no vote with respect to the election of directors or any other matter requiring a vote of stockholders except as required by law. This lack of voting rights may adversely affect the market value of our publicly traded Class A Non-Voting Common Stock.
In addition, we have regularly entered into, and may continue to enter into, advisory services agreements with Madison Park, LLC, a financial advisory firm wholly owned by Mr. Cohen. See “Part III — Item 13 — Certain Relationships and Related Transactions, and Director Independence — Related Party Transactions — Agreement with Madison Park.”
Infrastructure failures and breaches in data security could harm our business.
We depend on our information technology infrastructure to achieve our business objectives. If a problem, such as a computer virus, intentional disruption by a third party, natural disaster, telecommunications system failure or lost connectivity impairs our infrastructure, we may be unable to process transactions or otherwise carry on our business. An infrastructure disruption could damage our reputation and cause us to lose customers and revenue, result in the unintentional disclosure of company or customer information and require us to incur significant expense to eliminate these problems and address related data security concerns.

18


Our online short-term consumer lending business is subject to additional risks.
In addition to being subject to the various federal, state and local regulations that are applicable to short-term consumer lending generally, our online short-term consumer loan business (both in the U.S. and the U.K.) is subject to other regulations and risks. For example, we will be dependent on third parties, referred to as lead providers, to provide us with prospective new customers. Generally, lead providers operate separate websites to attract prospective customers and then sell those ‘‘leads’’ to online lenders. As a result, the success of our online consumer lending business depends substantially on the willingness and ability of lead providers to send us customer leads at prices acceptable to us. The loss or a reduction in leads from lead providers, or the failure of our lead providers to maintain quality and consistency in their programs or services, could reduce our customer prospects and could have a material adverse effect on the success of this line of business. Furthermore, the lead providers’ failure to comply with applicable laws or regulations, or any changes in laws or regulations applicable to lead providers, could have an adverse effect on our online consumer lending business. Federal legislation was introduced in the U.S. in July 2012 that, if enacted in its current form, would prohibit the use of lead providers or generators to secure consumer business. If such legislation were to be enacted, it would significantly impact the manner in which the online lending business is conducted, and could significantly negatively affect the success and profitability of our online lending business.
We may be subject to litigation proceedings that could harm our business.
Currently and from time to time, we are defendants in various legal and regulatory actions. While we cannot determine the ultimate outcome of any current actions, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity. However, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages or an injunction prohibiting us from conducting our business as we currently do. If we were to receive an unfavorable ruling in a matter, our business and results of operations could be materially harmed.
We invest in companies for strategic reasons and may not realize a return on our investments.
We currently have significant investments in Albemarle & Bond Holdings PLC and Cash Converters International Limited, both of which are publicly traded companies based outside the United States. We have made these investments, and may in the future make additional investments in these or other companies, to further our strategic objectives. The success of these strategic investments is dependent on a variety of factors, including the business performance of the companies in which we invest and the market’s assessment of that performance. If the business performance of any of these companies suffers, then the value of our investment may decline. If we determine that an other-than-temporary decline in the fair value exists for one of our equity investments, we will be required to write down that investment to its fair value and recognize the related write-down as an investment loss. Based on our review of Albemarle & Bond and its business as of September 30, 2013, we wrote down our investment and recognized an investment loss for the fourth quarter of fiscal 2013. See “Item 1 — Business — Strategic Investments — Albemarle & Bond.” Furthermore, there can be no assurance that we will be able to dispose of some or all of the investment on favorable terms, should we decide to do so in the future. Any realized investment loss would adversely affect our results of operations.
We may incur property, casualty or other losses not covered by insurance.
We maintain a program of insurance coverage for various types of property, casualty and other risks. The types and amounts of insurance that we obtain vary from time to time, depending on availability, cost and our decisions with respect to risk retention. The policies are subject to deductibles and exclusions that result in our retention of a level of risk on a self-insurance basis. Losses not covered by insurance could be substantial and may increase our expenses, which could harm our results of operations and financial condition.
Our acquisitions, investments and other transactions could disrupt our ongoing business and harm our results of operations.
In pursuing our business strategy, we routinely conduct discussions, evaluate opportunities and enter into agreements regarding possible acquisitions, investments and other transactions. These transactions may involve significant challenges and risks, including risks that we may not realize the expected return on an acquisition or investment, that we may not be able to retain key personnel of an acquired business, or that we may experience difficulty in integrating acquired businesses into our business systems and processes. If we do enter into agreements with respect to acquisitions, investments or other transactions, we may fail to complete them due to inability to obtain required regulatory or other approvals or other factors. Furthermore, acquisitions, investments and other transactions require substantial management resources and have the potential to divert our attention from our existing business. These factors could harm our business and results of operations.

19


We could be subject to changes in tax rates, the adoption of new tax laws in the U.S. or other countries, or exposure to additional tax liabilities.
We are subject to taxes in the U.S. and several foreign jurisdictions. Current economic and political conditions make tax rates in any of these jurisdictions subject to significant change. Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities or changes in tax laws or their interpretation.
Events beyond our control could result in business interruption or other adverse effects on our operations and growth.
Our business or operations could be subject to interruption or damage due to inclement weather, natural disaster, power loss, acts of violence, terrorist attacks, war or similar events. Such events could impair our customers' access to our business, impact our ability to expand or continue our operations or otherwise have an adverse effect on our financial condition.
A decrease in demand for our products and specialty financial services and our failure to adapt to such decrease could result in a loss of revenue and could have a material adverse effect on us.
Although our products and services are a staple of our customer base, the demand for a particular product or service may decrease due to a variety of factors, such as regulatory restrictions that reduce customer access to particular products, the availability of competing products or changes in customers' financial conditions. Should we fail to adapt to a significant change in our customers' demand for, or access to, our products, our revenues could decrease significantly. Even if we make adaptations or introduce new products to fulfill customer demand, customers may resist or may reject products whose adaptations make them less attractive or less available. In any event, the effect of any product change on the results of our business may not be fully ascertainable until the change has been in effect for some time. In particular, we have changed, and will continue to change, some of our consumer loan operations and the products we offer. Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospectus, results of operations and financial condition.
Our Mexican payroll withholding business is highly dependent on the relationships that we build and sustain with state and local governments and labor unions.
Grupo Finmart and its brokers promote our payroll loan products through public-sector employers in governmental agencies across Mexico. If we are not able to maintain relationships with these entities or increase our distribution network through new relationships with other federal, state and local governments or labor unions, our ability to originate new payroll loans could be diminished, which would reduce the size of our payroll withholding lending loan portfolio. In addition, despite contractual arrangements which provide that the payroll counterparty will continue to deduct payments even if our relationship with that entity is terminated, the credit risk of our existing payroll loan portfolio could increase because payroll deduction payments on existing payroll loans could be disrupted, whether due to our severing a relationship with a broker or otherwise.
Goodwill comprises a significant portion of our total assets. We assess goodwill for impairment at least annually, which could result in a material, non-cash write-down and could have a material adverse effect on our results of operations and financial conditions.
The carrying value of our goodwill was $429 million, or approximately 32% of our total assets, as of September 30, 2013, over $79 million of which is attributable to our two online lending businesses. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC 350-20-35, Goodwill - Subsequent Measurement, we test goodwill and intangible assets with an indefinite useful life for potential impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit, or future economic factors such as unfavorable changes in the estimated future discounted cash flows of our reporting units. Our annual goodwill impairment test is performed in the fourth quarter utilizing the income approach. This approach uses future cash flows and estimated terminal values for each of our reporting units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if there is an impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. We completed our annual assessment of goodwill and indefinite lived intangible assets as of September 30, 2013 and determined that no material impairment existed at that date.

20


If our estimates of allowance for loan losses are not adequate to absorb losses, our results of operations and financial condition may be negatively affected.
We maintain an allowance for loan losses for estimated probable losses on company-funded loans and loans in default. See "Part II — Item 7 — Management's Discussion and Analysis of Financial Conditions and Results of Operations — Critical Accounting Policies and Estimates" for factors considered by management in estimating the allowance for loan losses. We also maintain a reserve for loan losses for estimated probable losses on loans funded by our credit services organization ("CSO") partners, but for which we are responsible. As September 30, 2013, our aggregate reserve and allowance for losses on loans not in default (including loans funded by our CSO partners) was $8.3 million. This reserve, however, is an estimate, and if actual losses are greater than our reserve and allowance, our results of operations and financial condition could be adversely affected. The amount of reserves and allowances is based based on our current assessment of and expectations concerning various factors affecting the quality of our loan portfolio. These factors include, among other things, our borrowers’ financial condition, repayment abilities and repayment intentions.
Judicial decisions, CFPB rule-making or amendments to the Federal Arbitration Act could render the arbitration agreements we use illegal or unenforceable.
We include arbitration provisions in our consumer loan agreements. These provisions are designed to allow us to resolve any customer disputes through individual arbitration rather than in court and explicitly provide that all arbitrations will be conducted on an individual and not on a class basis. Thus, our arbitration agreements, if enforced, have the effect of shielding us from class action liability. Our arbitration agreements do not generally have any impact on regulatory enforcement proceedings.
We take the position that the arbitration provisions in our consumer loan agreements, including class action waivers, are valid and enforceable. However, the enforceability of arbitration provisions is often challenged in court. If those challenges are successful, our arbitration and class action waiver provisions could be unenforceable, which could subject us to additional litigation, including class action litigation.
In addition, the U.S. Congress has considered legislation that would generally limit or prohibit mandatory arbitration agreements in consumer contracts and has enacted legislation with such a prohibition with respect to certain mortgage loan agreements and certain consumer loan agreements to members of the military on active duty and their dependents. Further, the Dodd-Frank Act directs the CFPB to study consumer arbitration and report to the U.S. Congress, and it authorized the CFPB to adopt rules limiting or prohibiting consumer arbitration, consistent with the results of its study. Any such rule would apply to arbitration agreements entered into more than six months after the final rule becomes effective (and not to prior arbitration agreements).
Any judicial decision, legislation or other rules or regulations that impair our ability to enter into and enforce consumer arbitration agreements and class action waivers could significantly increase our exposure to class action litigation as well as litigation in plaintiff-friendly jurisdictions. Such litigation would be costly and could have a material adverse effect on our business, results of operations and financial condition.
We may be exposed to liabilities under applicable anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.
We are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments and their officials for the purpose of obtaining or retaining business. We have business in countries and regions that are less developed and are generally recognized as potentially more corrupt business environments. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of various anti-corruption laws, including the Foreign Corrupt Practices Act (the "FCPA"). We have implemented safeguards and policies to discourage these practices by our employees and agents. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees or agents may engage in conduct for which we might be held responsible. If employees violate our policies or we fail to maintain adequate record-keeping and internal accounting practices to accurately record our transactions, we may be subject to regulatory sanctions. Violations of the FCPA or other anti-corruption laws may result in severe criminal or civil sanctions and penalties, and we may be subject to other liabilities that could have a material adverse effect on our business, results of operations and financial condition.
We face other risks discussed under "Item 7A — Quantitative and Qualitative Disclosures about Market Risk."
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

21


ITEM 2. PROPERTIES
Our typical pawn store is a freestanding building or part of a retail strip center with contiguous parking. Store interiors are designed to resemble small retail operations and attractively display merchandise by category. Distinctive exterior design and attractive in-store signage provide an appealing atmosphere to customers. The typical pawn store has approximately 1,800 square feet of retail space and approximately 3,200 square feet dedicated to collateral storage. Financial services stores are designed to resemble a bank interior. The typical financial services store is approximately 1,000 to 1,500 square feet and is located in a retail strip center. Some of our financial services stores adjoin a pawn location and occupy approximately 300 to 500 square feet, with a different entrance, signage, décor and staffing. From the customers’ perspective, these are viewed as a separate business, but they are covered by the same lease agreement. We maintain property and general liability insurance for each of our stores. Our stores are open six or seven days a week.
We lease substantially all of our locations, and generally lease facilities for a term of three to ten years with one or more renewal options. Our existing leases expire on dates ranging between October 2013 and April 2028, with a small number of leases on month-to-month terms. All leases provide for specified periodic rental payments at market rates. Most leases require us to maintain the property and pay the cost of insurance and taxes. We believe the termination of any one of our leases would not have a material adverse effect on our operations. Our strategy generally is to lease rather than own space for our stores unless we find what we believe is a superior location at an attractive price.
Below is a summary of changes in the number of store locations during fiscal 2013, 2012 and 2011:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
Store count at beginning of fiscal year
1,262

 
1,111

 
1,006

New stores opened
157

 
71

 
82

Acquired stores
38

 
96

 
40

Stores closed or consolidated
(8
)
 
(16
)
 
(17
)
Discontinued operations
(107
)
 

 

Store count at end of fiscal year*
1,342

 
1,262

 
1,111

* Fiscal 2012 and 2011 include 102 and 94 stores that were closed as part of discontinued operations during fiscal 2013.
In 2013, we opened 14 pawn and 69 financial services stores in the U.S and one buy/sell and financial services store in Canada. We also acquired 12 U.S. pawn locations during fiscal 2013. In Latin America, we opened 66 Empeño Fácil pawn stores and seven Grupo Finmart financial services locations in Mexico. During fiscal 2013, we gained 20 buy/sell locations in Mexico in connection with our acquisition of TUYO. Grupo Finmart gained six locations from an acquisition.
On an ongoing basis, we may close or consolidate under-performing store locations. In fiscal 2013, we closed or consolidated two financial services stores in the U.S., one financial services store in Canada, four Grupo Finmart / Crediamigo locations and one TUYO location in Mexico. These closings are in addition to our third quarter discontinued operations plan.
During the third quarter of fiscal 2013, we implemented a plan to close 107 legacy stores in a variety of locations. These stores were generally older, smaller stores that did not fit our future growth profile. We will continue to execute our growth plan by opening stores that are in-line with our growth strategy, 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 store closings related to discontinued operations included:
57 stores in Mexico, 52 of which were small, jewelry-only asset group formats. We continue to operate 239 full-service ‘‘store-within-a-store,’’ or SWS, locations under the Empeño Fácil brand.
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 were 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 and CASHMAX brands in Canada and the United States.

22


20 financial services stores in Dallas, Texas and the State of Florida, where we exited both locations primarily due to onerous regulatory requirements. We will continue to operate 489 financial services stores in the United States. In addition, one jewelry-only concept store was closed, which was our only jewelry-only store in the United States.
Of our 489 U.S. financial services stores, 207 adjoin a pawn store and are covered by the same lease agreement. The lease agreements at approximately 95% of the remaining 282 free-standing U.S. financial services stores contain provisions that limit our exposure for additional rent at these stores to only a few months if laws are enacted that have a significant negative effect on our operations at these stores. If such laws were passed, the space currently utilized by stores adjoining pawn stores could be re-incorporated into the pawn operations.
The following table presents the number of store locations by state or province as of September 30, 2013:
 
Pawn/Retail
Locations
 
Financial Services
Locations
 
Total
Locations
United States:
 
 
 
 
 
Texas
200

 
290

 
490

Florida
102

 

 
102

Colorado
38

 
26

 
64

Wisconsin
3

 
37

 
40

Oklahoma
21

 
10

 
31

Nevada
16

 
13

 
29

Illinois
24

 

 
24

Utah
9

 
14

 
23

Iowa
11

 
10

 
21

Idaho

 
20

 
20

Georgia
10

 
7

 
17

Indiana
17

 

 
17

Alabama
7

 
9

 
16

Hawaii

 
14

 
14

Missouri

 
13

 
13

Arizona
12

 

 
12

Kansas

 
12

 
12

Tennessee
7

 
4

 
11

South Dakota

 
10

 
10

Minnesota
9

 

 
9

Virginia (1)
5

 

 
5

Louisiana
3

 

 
3

Mississippi
3

 

 
3

New York
2

 

 
2

Pennsylvania (1)
2

 

 
2

Arkansas
1

 

 
1

Total United States Locations
502

 
489

 
991

 
 
 
 
 
 
Mexico:
 
 
 
 
 
Estado de Mexico
52

 
5

 
57

Distrito Federal
48

 
6

 
54

Veracruz
31

 
1

 
32

Jalisco
15

 
1

 
16

Guanajuato
15

 

 
15

Nuevo León
12

 
1

 
13

Puebla
11

 

 
11

Guerrero
9

 
1

 
10

Chiapas
7

 
2

 
9

Tabasco
7

 
2

 
9

Tamaulipas
6

 
3

 
9

Coahuila
4

 
4

 
8

Campeche
4

 
3

 
7

Michoacan
7

 

 
7

Hidalgo
6

 

 
6

Queretaro
6

 

 
6

Quintana Roo
4

 
2

 
6

Baja California

 
5

 
5

Aguascalientes
4

 

 
4

Oaxaca
3

 
1

 
4

Sinaloa

 
4

 
4

Michoacán

 
3

 
3

Morelia
3

 

 
3


23


Sonora

 
3

 
3

Tlaxcala
2

 
1

 
3

Chihuahua

 
2

 
2

Durango

 
1

 
1

Morelos

 
1

 
1

Nayarit

 
1

 
1

San Luis Potosí
1

 

 
1

Yucatán
1

 

 
1

Zacatecas

 
1

 
1

Total Mexico Locations
258

 
54

 
312

Canada:
 
 
 
 
 
Ontario (2)

 
39

 
39

Total Canada Locations

 
39

 
39

Total Company
760

 
582

 
1,342


(1) Buy/sell locations
(2) The Canada locations exclude 8 stores that are franchised by the company to third parties.
In addition to our store locations, we lease corporate office space in Austin, Texas (78,800 square feet), Miami, Florida (14,200 square feet), Dallas, Texas (5,900 square feet), Querétaro, Mexico (10,635 square feet), Mexico City (11,324 square feet), Ontario, Canada (4,200 square feet) and Ipswich, United Kingdom (4,700 square feet). Grupo Finmart leases corporate office space in Mexico City (10,800 square feet).
The following table presents store data by segment as of September 30, 2013:
 
Company-owned Stores
 
 
 
U.S. &
 
Latin
 
Other
 
 
 
 
 
Canada
 
America
 
International
 
Consolidated
 
Franchises
Pawn/retail stores
502

 
258

 

 
760

 

Financial services stores adjoining U.S. pawn stores
207

 

 

 
207

 

Financial services stores — free standing
321

 
54

 

 
375

 
8

Total stores in operation
1,030

 
312

 

 
1,342

 
8

ITEM 3. LEGAL PROCEEDINGS
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. However, we cannot give any assurance as to their ultimate outcome.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

24


PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Class A Non-voting Common Stock (“Class A Common Stock”) is traded on the NASDAQ Stock Market under the symbol “EZPW.” As of October 31, 2013, there were 89 stockholders of record of our Class A Common Stock. There is no trading market for our Class B Voting Common Stock (“Class B Common Stock”), which was held by one stockholder as of October 31, 2013.
The high and low per share sales price for our Class A Common Stock for the past two fiscal years, as reported by the NASDAQ Stock Market, were as follows:
 
High
 
Low
Fiscal 2013
 
 
 
Fourth quarter ended September 30, 2013
$
19.44

 
$
15.57

Third quarter ended June 30, 2013
21.35

 
16.65

Second quarter ended March 31, 2013
24.06

 
20.01

First quarter ended December 31, 2012
23.45

 
16.57

Fiscal 2012
 
 
 
Fourth quarter ended September 30, 2012
$
25.43

 
$
21.39

Third quarter ended June 30, 2012
33.38

 
21.91

Second quarter ended March 31, 2012
33.00

 
25.33

First quarter ended December 31, 2011
31.04

 
25.30

On September 30, 2013, the closing sales price of our Class A Common Stock, as reported by the NASDAQ Stock Market, was $16.87 per share.
We have not declared or paid any dividends during the past two fiscal years, and currently do not anticipate paying any cash dividends in the immediate future. Under the terms of our credit agreement, which expires May 10, 2015, payment of dividends is restricted. Should we pay dividends in the future, our certificate of incorporation provides that cash dividends on common stock, when declared, must be declared and paid at the same per share amounts on both classes of stock. Any future determination to pay cash dividends will be at the discretion of our Board of Directors.

25


Stock Performance Graph
The following table compares cumulative total stockholder returns for our Class A Common Stock for the last five fiscal years, with the cumulative total return on the NASDAQ Composite Index (ticker symbol: IXIC) and the NASDAQ Other Financial Index (ticker symbol: IXFN) over the same period. The graph shows the value, at the end of each of the last five fiscal years, of $100 invested in our Class A Common Stock or the indices on September 30, 2008. The graph depicts the change in the value of our Class A Common Stock relative to the indices at the end of each fiscal year and not for any interim period. Historical stock price performance is not necessarily indicative of future stock price performance.
            

26


ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information should be read in conjunction with, and is qualified in its entirety by, the accompanying consolidated financial statements and related notes.
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
 
2010
 
2009
 
(in thousands, except per share and store figures)
Operating Data:
 
 
 
 
 
 
 
 
 
Total revenues
$
1,010,307

 
$
975,123

 
$
852,798

 
$
725,168

 
$
592,928

Net revenues
640,684

 
614,401

 
526,303

 
443,255

 
356,632

Income from continuing operations, net of tax
61,735

 
155,110

 
123,717

 
98,643

 
67,101

Net (loss) income from discontinued operations, net of tax
(23,310
)
 
(4,533
)
 
(1,558
)
 
(1,349
)
 
1,371

Net income
38,425

 
150,577

 
122,159

 
97,294

 
68,472

Net income from continuing operations attributable to redeemable noncontrolling interest
4,348

 
6,869

 

 

 

Net income attributable to EZCORP, Inc.
$
34,077

 
$
143,708

 
$
122,159

 
$
97,294

 
$
68,472

 
 
 
 
 
 
 
 
 
 
Diluted earnings (loss) per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
 
 
Continuing operations
$
1.06

 
$
2.90

 
$
2.46

 
$
1.99

 
$
1.39

Discontinued operations
(0.43
)
 
(0.09
)
 
(0.03
)
 
(0.03
)
 
0.03

Diluted earnings per share
$
0.63

 
$
2.81

 
$
2.43

 
$
1.96

 
$
1.42

 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Diluted
53,737

 
51,133

 
50,369

 
49,576

 
48,076

 
 
 
 
 
 
 
 
 
 
Stores at end of period*
1,342

 
1,262

 
1,111

 
1,006

 
910

* Fiscal 2012, 2011, 2010 and 2009 include 102, 94, 72, and 19 include 102 and 94 stores that were closed as part of discontinued operations during fiscal 2013.
 
September 30,
 
2013
 
2012
 
2011
 
2010
 
2009
 
(in thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Pawn loans
$
156,637

 
$
157,648

 
$
145,318

 
$
121,201

 
$
101,684

Consumer loans, net
64,515

 
34,152

 
14,611

 
13,920

 
10,020

Inventory, net
145,200

 
109,214

 
90,373

 
71,502

 
64,001

Working capital
395,177

 
373,557

 
291,968

 
232,713

 
228,796

Total assets
1,345,290

 
1,218,007

 
756,450

 
606,412

 
492,517

Non-current consumer loans, net
69,991

 
61,997

 

 

 

Long-term debt
215,939

 
198,836

 
17,500

 
25,000

 
35,000

Redeemable noncontrolling interest
55,393

 
53,681

 

 

 

Stockholders’ equity
914,526

 
834,828

 
664,248

 
519,428

 
415,685


27


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in this section contains forward-looking statements that are based on our current expectations. Actual results could differ materially from those expressed or implied by the forward-looking statements due to a number of risks, uncertainties and other factors, including those identified in “Part I — Item 1A — Risk Factors.” See also “Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results” below.
The following table presents summary consolidated financial data for our fiscal 2013, 2012 and 2011.
Summary Financial Data
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
 
(in thousands)
Revenues:
 
 
 
 
 
Merchandise sales
$
368,766

 
$
333,064

 
$
281,716

Jewelry scrapping sales
131,702

 
202,481

 
204,858

Pawn service charges
251,354

 
233,538

 
199,746

Consumer loan fees and interest
248,304

 
200,681

 
164,895

Other revenues
10,181

 
5,359

 
1,583

Total revenues
1,010,307

 
975,123

 
852,798

Merchandise cost of goods sold
218,617

 
190,637

 
161,834

Jewelry scrapping cost of goods sold
96,133

 
130,715

 
127,870

Consumer loan bad debt
54,873

 
39,370

 
36,791

Net revenues
$
640,684

 
$
614,401

 
$
526,303

Income from continuing operations, net of tax
61,735

 
155,110

 
123,717

Loss from discontinued operations, net of tax
(23,310
)
 
(4,533
)
 
(1,558
)
Net income
$
38,425

 
$
150,577

 
$
122,159

Net income from continuing operations attributable to redeemable noncontrolling interest
4,348

 
6,869

 

Net income attributable to EZCORP, Inc.
$
34,077

 
$
143,708

 
$
122,159

Overview
We are a worldwide leader in delivering instant cash solutions to our customers through a wide variety of channels, products, services and markets. We offer our customers multiple ways to access instant cash through approximately 1,350 locations and branches across the United States, Mexico, Canada and the United Kingdom. We offer these products through our four primary channels: in-store, online, worksite and mobile platforms.

We fulfill the growing global consumer demand for immediate access to cash, financial services and affordable pre-owned merchandise. We offer a variety of instant cash solutions, including collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans, including single- and multiple-payment unsecured loans and single- and multiple-payment auto title loans. In some U.S. locations (primarily in Texas), we do not offer loan products, but rather offer credit services to help customers obtain loans from independent third-party lenders.
During the second quarter of fiscal 2012, we entered into the unsecured lending market in Mexico with the acquisition of a 60% interest in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart"), a leading payroll withholding lender headquartered in Mexico City. As of September 30, 2013, Grupo Finmart had approximately 70 payroll withholding master agreements with Mexican employers, primarily federal, state and local governments and agencies, and provided consumer loans to the agencies' employees. We also own a 51% interest in Renueva Commercial S.A.P.I. de C.V. ("TUYO"), a company headquartered in Mexico City that owns and operates buy/sell stores in Mexico City and the surrounding metropolitan area. In addition, during the third quarter of fiscal 2012, we acquired 72% of Ariste Holding Limited and its affiliates ("Cash Genie"), which offers short-term consumer loans online in the United Kingdom. During fiscal 2013, we acquired the remaining

28


outstanding interests in Cash Genie, and at September 30, 2013, own 100% of Cash Genie's ordinary shares. During fiscal 2013, we also acquired a U.S. online lending business from Go Cash, LLC and certain of its affiliates.
At September 30, 2013, we operated a total of 1,342 locations, consisting of 495 U.S. pawn stores (operating primarily as EZPAWN or Value Pawn & Jewelry), seven U.S. buy/sell stores (operating as Cash Converters), 239 pawn stores in Mexico (operating as Empeño Fácil), 489 U.S. financial services stores (operating primarily as EZMONEY), 39 buy/sell and financial services stores in Canada (operating as Cash Converters or CASHMAX), 19 buy/sell stores in Mexico (operating as TUYO) and 54 financial services branches in Mexico (operating as Crediamigo or Adex). We own approximately 30% of Albemarle & Bond Holdings, PLC, one of the United Kingdom's largest pawnbroking businesses with approximately 230 stores, and approximately 33% of Cash Converters International Limited, which is based in Australia and franchises and operates a worldwide network of over 700 locations that provide financial services and buy and sell second-hand goods. We also own the Cash Converters master franchise rights in Canada and are the franchisor of eight stores there.
Our business consists of three reportable segments: The U.S. & Canada segment, which includes all business activities in the United States and Canada; the Latin America segment, which includes our Empeño Fácil pawn operations and Grupo Finmart financial services operations in Mexico; and the Other International segment, which includes the Cash Genie online business in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International.
The following tables present stores by segment:
 
Fiscal Year Ended September 30, 2013
 
Company-owned Stores
 
 
 
U.S. & Canada
 
Latin America
 
Other International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
987
 
275
 

 
1,262
 
10

De novo
84
 
73
 

 
157
 

Acquired
12
 
26
 

 
38
 

Sold, combined, or closed
(3)
 
(5)
 

 
(8)
 
(2)

Discontinued operations
(50)
 
(57)
 

 
(107)
 

End of period
1,030
 
312
 

 
1,342
 
8

 
Fiscal Year Ended September 30, 2012
 
Company-owned Stores
 
 
 
U.S. & Canada
 
Latin America
 
Other International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
933
 
178
 

 
1,111
 
13

De novo
17
 
54
 

 
71
 

Acquired
51
 
45
 

 
96
 

Sold, combined, or closed
(14)
 
(2)
 

 
(16)
 
(3)

End of period
987
 
275
 

 
1,262
 
10

Discontinued operations
45
 
57
 

 
102
 

Stores in continuing operations
942
 
218
 

 
1,160
 
10


29


 
Fiscal Year Ended September 30, 2011
 
Company-owned Stores
 
 
 
U.S. & Canada
 
Latin America
 
Other International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
891
 
115

 

 
1,006
 

De novo
25
 
57

 

 
82
 
1

Acquired
34
 
6

 

 
40
 
13

Sold, combined, or closed
(17)
 

 

 
(17)
 
(1)

End of period
933
 
178

 

 
1,111
 
13

Discontinued operations
41
 
53

 

 
94
 

Stores in continuing operations:
892
 
125

 

 
1,017
 
13

During the third quarter of fiscal 2013, we implemented a plan to close 107 legacy stores (102 and 94 of which were in operation at September 30, 2012 and 2011, respectively) in a variety of locations. These stores are generally older, smaller stores that do not fit our future growth profile.
Store closures as discontinued operations include:
57 stores in Mexico, 52 of which are small, jewelry-only asset group formats. We will continue to operate our full-service SWS stores under the Empeño Fácil brand, and expect to continue our storefront growth in Mexico.
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 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 due to onerous regulatory requirements. In addition, one jewelry-only concept store will be closed, which was our only jewelry-only store in the United States.
Due to discontinued operations, 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 $22.2 million of pre-tax charges related to discontinued operations during fiscal 2013. The following table summarizes these costs, which have been recorded as part of loss from discontinued operations, net of tax in our fiscal 2013 consolidated statement of operations:
 
Fiscal Year Ended September 30, 2013
 
(in thousands)
Lease termination costs
$
8,608

Employee severance
896

Inventory write-down to liquidation value
7,081

Fixed asset write-down to liquidation value
5,605

Total termination costs related to the reorganization
$
22,190


30



The table below summarizes the operating income (losses) from discontinued operations by operating segment:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
2011
 
(in thousands)
U.S. & Canada
 
 
 
 
 
Net revenues
$
4,308

 
$
6,183

 
$
5,495

Operations expense
10,090

 
10,031

 
5,891

Operating loss from discontinued operations before taxes
(5,782
)
 
(3,848
)
 
(396
)
Total termination costs related to the reorganization
13,049

 

 

Loss from discontinued operations before taxes
(18,831
)
 
(3,848
)
 
(396
)
Income (benefit) tax provision
(1,392
)
 
77

 
404

Loss from discontinued operations, net of tax
$
(17,439
)
 
$
(3,925
)
 
$
(800
)
 
 
 
 
 
 
Latin America
 
 
 
 
 
Net revenues
$
5,215

 
$
3,645

 
$
3,138

Operations expense
4,461

 
4,560

 
4,220

Operating income (loss) from discontinued operations before taxes
754

 
(915
)
 
(1,082
)
Total termination costs related to the reorganization
9,141

 

 

Loss from discontinued operations before taxes
(8,387
)
 
(915
)
 
(1,082
)
Income tax benefit
(2,516
)
 
(307
)
 
(324
)
Loss from discontinued operations, net of tax
$
(5,871
)
 
$
(608
)
 
$
(758
)
 
 
 
 
 
 
Consolidated
 
 
 
 
 
Net revenues
$
9,523

 
$
9,828

 
$
8,633

Operations expense
14,551

 
14,591

 
10,111

Operating loss from discontinued operations before taxes
(5,028
)
 
(4,763
)
 
(1,478
)
Total termination costs related to the reorganization
22,190

 

 

Loss from discontinued operations before taxes
(27,218
)
 
(4,763
)
 
(1,478
)
Income (benefit) tax provision
(3,908
)
 
(230
)
 
80

Loss from discontinued operations, net of tax
$
(23,310
)
 
$
(4,533
)
 
$
(1,558
)
Pawn and Retail Activities
We earn pawn service charge revenues on our pawn lending. While allowable service charges vary by state and loan size, a majority of our U.S. pawn loans earn 20% per month. Our average U.S. pawn loan amount typically ranges between $130 and $135, but varies depending on the valuation of each item pawned. The total U.S. loan term ranges between 60 and 120 days, consisting of the primary term and grace period. In Mexico, pawn service charges range from 14% to 21% per month, including applicable taxes, with the majority of loans earning 21%. The total Mexico pawn loan term is 40 days, consisting of the primary term and grace period. Individual loans are made in Mexican pesos and vary depending on the valuation of each item pawned, but typically average U.S. $65.
In our pawn stores, buy/sell stores in Pennsylvania and Virginia and certain financial services stores in Canada, we acquire inventory for retail sales through pawn loan forfeitures, purchases of customers’ second hand merchandise or purchases of new or refurbished merchandise from third party vendors. The gross profit on sales of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased. Margins achieved on sale of inventory are a function of the assessment of value at the time the pawn loan was originated or, in the case of purchased merchandise, the purchase price.
We record a valuation allowance for obsolete or slow-moving inventory based on the type and age of merchandise. We generally establish a higher allowance percentage on general merchandise, as it is more susceptible to obsolescence, and

31


establish a lower allowance percentage on jewelry, as it generally has greater inherent commodity value. At September 30, 2013, our total allowance was 2.8% of gross inventory, compared to 4.9% at September 30, 2012. Changes in the valuation allowance are charged to merchandise cost of goods sold.
Consumer Loan Activities
At September 30, 2013, 288 of our U.S. financial services stores and two of our U.S. pawn stores in Texas offered credit services to customers seeking consumer loans from unaffiliated lenders. We do not participate in any of the loans made by the lenders, but earn a fee for helping customers obtain credit and for enhancing customers’ creditworthiness by providing letters of credit to the unaffiliated lenders. Customers may obtain different types of consumer loans from the unaffiliated lenders. For credit services in connection with arranging a single-payment loan (average loan amount of about $500), our fee is approximately 15% - 22% of the loan amount. For credit services in connection with arranging an unsecured multiple-payment loan (average loan amount of about $2,300), our fee is 10% of the initial loan amount with each semi-monthly or bi-weekly installment payment. Low dollar installment loan principal amounts range from $100 to $1,500, but average about $600. With each semi-monthly or bi-weekly installment payment, we earn a fee of 13% to 14% of the initial loan amount. For credit services in connection with arranging single-payment auto title loans (average loan amount of about $1,000), the fee is up to 30% of the loan amount. In fiscal 2012, we began assisting customers in obtaining longer-term multiple-payment auto title loans from unaffiliated lenders. Multiple-payment auto title loans typically carry terms of two to five months with up to ten equal installments. Multiple-payment auto title loan principal amounts range from $150 to $10,000, but average about $1,100; and we earn a fee of 50% to 140% of the initial loan amount. At September 30, 2013, single-payment loans comprised 80% of the balance of consumer loans brokered through our credit services, and multiple-payment loans comprised the remaining 20%.
Outside of Texas, we earn loan fee revenue on our consumer loans. In two U.S. pawn stores, 106 U.S. financial services stores and 39 Canadian financial services stores, we offer single-payment unsecured consumer loans. The average single-payment loan amount is approximately $500 and the term is generally less than 30 days, averaging about 18 days. We typically charge a fee of 15% to 22% of the loan amount. In 122 of our U.S. financial services stores, we offer multiple-payment unsecured consumer loans. These loans carry a term of four to seven months, with a series of equal installment payments, including principal amortization, due monthly, semi-monthly or on the customer’s paydays. Total interest and fees on these loans vary in accordance with state law and loan terms, but over the entire loan term, total approximately 45% to 130% of the original principal amount of the loan. Multiple-payment loan principal amounts range from $100 to $3,000, but average approximately $550.
At September 30, 2013, 426 of our U.S. financial services stores and two of our U.S. pawn stores offered auto title loans or, in Texas, credit services to assist customers in obtaining auto title loans from unaffiliated lenders. Auto title loans are 30-day loans secured by the titles to customers’ automobiles. Loan principal amounts range from $100 to $10,000, but average about $1,000. We earn a fee of 10% to 30% of auto title loan amounts. In Texas, we assist customers in obtaining multiple-payment auto title loans from unaffiliated lenders. These loans typically carry terms of five months with up to ten equal installments. Principal amounts range from $150 to $10,000, but average about $1,100; and we earn a fee of 50% to 140% of the initial loan amount.
At September 30, 2013, our U.S. online lending business operated in six states. In Louisiana, Missouri, South Dakota and Hawaii, we offer single-payment loans with an average principal amount of $400 and terms generally less than 30 days. Total interest and fees vary in accordance with state law and loan terms, but over the entire loan term, total approximately 15% to 45% of the original principal amount of the loan. Our online lending business in Texas and Ohio operates under a CSO model similar to that described above. The average principal amount for online loans in Texas and Ohio is about $460. We also offer single- and multiple-payment loans online in the U.K.
In Mexico, Grupo Finmart offers multiple-payment consumer loans with typical annual yields of approximately 58% and collects interest and principal through payroll deductions. The average loan is approximately $1,170 with a term of 31 months.
Acquisitions
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. 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. Also, 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 September 30, 2013, TUYO owned and operated 19 buy/sell stores in Mexico City and the surrounding metropolitan area. In addition, 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. Futhermore, on June 30, 2013, Grupo Finmart, purchased a consumer loan portfolio for total consideration of approximately $1.3 million.

32


The total purchase price is performance-based and will be determined over the life of the loan portfolio. Finally, the fiscal year ended September 30, 2013, includes the December 2012 acquisition of 12 pawn locations in Arizona, which was a new state of operation for us. The results of all acquired stores and businesses have been consolidated with our results since their acquisition.
In fiscal 2012, we acquired 28 pawn stores in the San Antonio metropolitan area, Florida, Minnesota and Georgia; 8 buy/sell stores in Virginia, Pennsylvania and Canada; and 15 financial services stores in Hawaii and Texas. The aggregate consideration for these stores was approximately $76.9 million, net of cash acquired. During fiscal 2012, we also acquired a 60% interest in Grupo Finmart, a specialty consumer finance company headquartered in Mexico City, for total consideration of $60.1 million, net of cash acquired; and a 72% interest in Ariste Holding Limited and its affiliates, which provides online loans in the U.K under the name "Cash Genie," for total consideration of $32.4 million, comprised of 0.2 million shares of EZCORP stock valued at $6.4 million and $26.0 million of cash, net of cash acquired. During fiscal 2013, we acquired the remaining 28% of Cash Genie for total consideration of $11.0 million.
Other
The results for the fiscal year ended September 30, 2013 include pre-tax impairment charges of $42.5 million related to Albermarle & Bond and $2.1 million related to available for sale securities. The current year income tax expense reflects a $12.3 million tax benefit related to these charges.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, loan loss allowances, long-lived and intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience, observable trends and various other assumptions that we believe to be reasonable under the circumstances. We use this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from the estimates under different assumptions or conditions. We believe the following critical accounting policies and estimates could have a significant impact on our results of operations. You should refer to Note 1 to our consolidated financial statements included in “Part II — Item 8 — Financial Statements and Supplemental Data” for a more complete review of other accounting policies and estimates used in the preparation of our consolidated financial statements.
Consolidation
The consolidated financial statements include the accounts of EZCORP, Inc. and our controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We own 60% of the outstanding equity interests in Prestaciones Finmart, S.A. de C.V., SOFOM, E.N.R. ("Grupo Finmart") and 51% 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.
Pawn Loan and Sales Revenue Recognition
We record pawn service charges using the interest method for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several factors, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following two months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. If a pawn loan is not repaid, we value the forfeited collateral (inventory) at the lower of cost (pawn loan principal) or market value of the property. We record sales revenue and the related cost when this inventory is sold, or when we receive the final payment on a layaway sale. Sales tax collected on the sale of inventory is excluded from the amount recognized as sales and instead recorded as a liability in “Accounts payable and other accrued expenses” on our balance sheets until remitted to the appropriate governmental authorities.
Consumer Loans
We provide a variety of short-term consumer loans including single-payment and multiple-payment unsecured loans and single-payment and multiple-payment auto title loans. In Texas, we provide fee-based credit services to customers seeking loans. In Mexico, Grupo Finmart enters into agreements with employers that permit it to market consumer loans to employees. Payments

33


are withheld by the employers through payroll deductions and remitted to Grupo Finmart. For each of our loan products we estimate the fees we expect to be uncollectible.
Revenue Recognition
Unsecured Consumer Loan Credit Service Fees — We earn credit service fees when we assist customers in obtaining unsecured loans from unaffiliated lenders. We initially defer recognition of the fees we expect to collect, net of direct expenses, and recognize that deferred net amount over the life of the related loans. We reserve the percentage of credit service fees we expect not to collect. Accrued fees related to defaulted loans reduce credit service fee revenue upon loan default and increase credit service fee revenue upon collection. Unsecured loan credit service fee revenue is included in “Consumer loan fees and interest” on our consolidated statements of operations.
Unsecured Consumer Loan Revenue — We accrue fees and interest in accordance with state and provincial laws on the percentage of unsecured loans (single-payment and multiple-payment) we have made that we believe to be collectible. Accrued fees related to defaulted loans reduce fee revenue upon loan default and increase fee revenue upon collection. Unsecured loan revenue is included in “Consumer loan fees and interest” on our consolidated statements of operations.
Long-term Unsecured Consumer Loan Revenue — Grupo Finmart customers obtain installment loans with a series of payments due over as long as a four-year period. We recognize consumer loan interest related to loans we originate based on the percentage of consumer loans made that we believe to be collectible. We recognize interest revenue ratably over the life of the related loans. We reserve the percentage of interest we expect not to collect. Accrued interest related to defaulted loans reduce consumer loan revenue upon loan default and increase consumer loan fee revenue upon collection. Long-term unsecured consumer loan revenue is included in “Consumer loan fees and interest” on our consolidated statements of operations.
Auto Title Loan Credit Service Fee Revenue — We earn auto title credit service fees when we assist customers in obtaining auto title loans from unaffiliated lenders. We recognize the fee revenue ratably over the life of the loan, and reserve the percentage of fees we expect not to collect. Auto title loan credit service fee revenue is included in “Consumer loan fees and interest” on our consolidated statements of operations.
Auto Title Loan Revenue — We accrue fees in accordance with state laws on the percentage of auto title loans we have made that we believe to be collectible. We recognize the fee revenue ratably over the life of the loan. Auto title loan revenue is included in “Consumer loan fees and interest” on our consolidated statements of operations.
Bad Debt and Allowance For Losses
Unsecured Consumer Loan Credit Service Bad Debt — We issue letters of credit to enhance the creditworthiness of our customers seeking unsecured loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed to the lenders by the borrowers plus any insufficient funds fees. Although amounts paid under letters of credit may be collected later, we charge those amounts to consumer loan bad debt upon default. We record recoveries under the letters of credit as a reduction of bad debt at the time of collection. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery. We record the proceeds from such sales as a reduction of bad debt at the time of the sale. Unsecured consumer loan credit service bad debt is included in "Consumer loan bad debt" on our consolidated statements of operations.
The majority of our credit service customers obtain short-term unsecured loans with a single maturity date. These short-term loans, with terms averaging about 16 days, are considered defaulted if they have not been repaid or renewed by the maturity date. Other credit service customers obtain multiple-payment loans with a series of payments due over as much as a seven-month period. If one payment of multiple-payment loan is delinquent, that one payment is considered defaulted. If more than one payment is delinquent at any time, the entire loan is considered defaulted.
Allowance for Losses on Unsecured Consumer Loan Credit Services — We provide an allowance for losses we expect to incur under letters of credit for brokered unsecured loans that have not yet matured. The allowance is based on recent loan default experience adjusted for seasonal variations. It includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including loan principal, accrued interest, insufficient funds fees, net of the amounts we expect to collect from borrowers (collectively, “Expected LOC Losses”). Changes in the allowance are charged to consumer loan bad debt on our consolidated statements of operations. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our consolidated balance sheets. Based on the expected loss and collection percentages, we also provide an allowance for the unsecured loan credit service fees we expect not to collect, and charge changes in this

34


allowance to consumer loan fee revenue, which is included in "Consumer loan fees and interest" on our consolidated statements of operations.
Unsecured Consumer Loan Bad Debt — In general, we consider a single-payment loan defaulted if it has not been repaid or renewed by the maturity date. If one payment of a multiple-payment loan is delinquent, that one payment is considered defaulted. If more than one payment is delinquent at any time, the entire loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to consumer loan bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of consumer loan bad debt when collected. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery and record the proceeds from such sales as a reduction of bad debt at the time of sale. Unsecured consumer loan bad debt is included in "Consumer loan bad debt" on our consolidated statements of operations.
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 related 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.
Unsecured Consumer Loan Allowance for Losses — We provide an allowance for losses on unsecured loans that have not yet matured and related fees receivable, based on recent loan default experience adjusted for seasonal variations. We charge any changes in the principal valuation allowance to "Consumer loan bad debt" on our consolidated statements of operations. We record changes in the fee receivable valuation allowance to "Consumer loan fees and interest" on our consolidated statements of operations.
Long-Term Unsecured Consumer Loan Bad Debt — Consumer loans made by Grupo Finmart are considered in current status as long as the customer is employed and Grupo Finmart receives payments via payroll withholdings. Loans made to customers no longer employed are considered current if payments are made by the due date. If one payment of a loan is delinquent, that one payment is considered defaulted. If two or more payments are delinquent at any time, the entire loan is considered defaulted. Although defaulted loans may be collected later, Grupo Finmart charges the loan principal to consumer loan bad debt upon default, leaving only active loans in the reported balance. Collections of principal are recorded as a reduction of consumer loan bad debt when collected. Long-term unsecured consumer loan bad debt is included in "Consumer loan bad debt" on our consolidated statements of operations.
Long-Term Unsecured Consumer Loan Allowance for Losses — Grupo Finmart provides an allowance for losses on consumer loans that have not yet matured and related fees receivable based on recent loan default experience. Changes in the principal valuation allowance are charged to "Consumer loan bad debt" and changes in the interest receivable valuation allowance are charged to "Consumer loan fees and interest" on our consolidated statements of operations.
Auto Title Loan Credit Services Bad Debt and Allowance for Losses — We issue letters of credit to enhance the creditworthiness of our customers seeking auto title loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, all amounts owed to the lenders by the borrowers, including loan principal, accrued interest, insufficient funds fees. Through a charge to auto title loan bad debt, we provide an allowance for losses we expect to incur under letters of credit for brokered auto title loans, and record actual charge-offs against this allowance. The allowance includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including principal, accrued interest, net of the amounts we expect to collect from borrowers or through the sale of repossessed vehicles. We include the allowance for expected losses in “Accounts payable and other accrued expenses” on our consolidated balance sheets.
Auto Title Loan Bad Debt and Allowance for Losses — Based on historical collection experience, the age of past-due loans and amounts we expect to receive through the sale of repossessed vehicles, we provide an allowance for losses on auto title loans and related fees receivable. We charge any increases in the principal valuation allowance to consumer loan bad debt and charge uncollectable loans against this allowance. We record changes in the fee receivable valuation allowance to "Consumer loan fees and interest" on our consolidated statements of operations.
Inventory and Cost of Goods Sold
If a pawn loan is not redeemed, we record the forfeited collateral at cost (the principal amount of the pawn loan) in "Inventory, net" on our consolidated balance sheets. We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized.
In order to state inventory at the lower of cost (specific identification) or market value, we record an allowance for excess, obsolete or slow moving inventory based on the type and age of merchandise. We include in "Merchandise cost of goods sold"

35


in our consolidated statements of operations the historical cost of inventory sold, inventory shrinkage and any change in the allowance for inventory shrinkage and valuation. We also include the cost of operating our central jewelry processing unit, as it relates directly to sales of precious metals to refiners.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets having indefinite lives are not subject to amortization. In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC 350-20-35, Goodwill - Subsequent Measurement, we test goodwill and intangible assets with an indefinite useful life for potential impairment annually, or more frequently when there are events or circumstances that indicate a potential impairment.
We perform our impairment analysis utilizing the income approach. This approach uses future cash flows and estimated terminal values for each of our reporting units (discounted using a market participant perspective) to determine the fair value of each reporting unit, which is then compared to the carrying value of the reporting unit to determine if there is an impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. We completed our annual assessment of goodwill and indefinite lived intangible assets as of September 30, 2013 and determined that no material impairment existed at that date.
Valuation of Tangible Long-Lived Assets
We assess the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows, significant changes in the manner of use of the assets or the strategy for the overall business, significant negative industry trends or legislative changes prohibiting us from offering our loan products. An impairment loss is recognized if the future undiscounted cash flows associated with the asset and the estimated fair value of the asset are less than the asset's carrying value.
Acquisitions
We adopted FASB ASC 805-10-65 (Business Combinations — Revised) on October 1, 2009, and have applied it prospectively to all business acquisitions completed since that date. In accordance with FASB ASC 805-10-65, we allocate the total acquisition price to the fair value of assets and liabilities acquired and immediately expense transaction costs that would have been included in the purchase price allocation under previous accounting standards.
Foreign Currency Translation
Our equity investments in Albemarle & Bond and Cash Converters International are translated from British pounds and Australian dollars, respectively, into U.S. dollars at the exchange rates as of the investees’ balance sheet date of June 30. The related interest in the investees’ net income is translated at the average exchange rates for each six-month period reported by the investees. The functional currency of Empeño Fácil, our wholly owned subsidiary, Grupo Finmart, our 60% owned subsidiary, and TUYO, our 51% owned subsidiary, is the Mexican peso. The functional currency of our wholly owned foreign subsidiary in Canada is the Canadian dollar, and the functional currency of Cash Genie, our wholly owned subsidiary in the U.K., is the British Pound. Our foreign subsidiaries' balance sheet accounts are translated from their respective functional currencies into U.S. dollars at the exchange rate at the end of each quarter, and their earnings are translated into U.S. dollars at the average exchange rate each quarter. We present resulting translation adjustments as a separate component of stockholders’ equity. Foreign currency transaction gains and losses have not been significant, and are reported as “Other” (income) or expense in our statements of operations.
Income Taxes
We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying value of assets and liabilities and their tax basis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted.
Management believes that it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with future reversals of existing taxable temporary differences, will be sufficient to fully recover the deferred tax assets. In the event that we determine all or part of the net deferred tax assets are not realizable in

36


the future, we will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made.
Stock Compensation
We account for stock compensation in accordance with the fair value recognition provisions of FASB ASC 718-10-25 (Compensation — Stock Compensation). The fair value of restricted shares is measured as the closing market price of our stock on the date of grant, which is amortized over the vesting period for each grant. When we grant options, our policy is to estimate the grant-date fair value of the options using the Black-Scholes-Merton option-pricing model and amortize that fair value to compensation expense on a ratable basis over the options’ vesting periods.
Recently Issued Accounting Pronouncements
See Note 1 to our consolidated financial statements included in “Part II — Item 8 — Financial Statements and Supplementary Data” for a discussion of recent accounting pronouncements.

Results of Operations
Fiscal 2013 Compared to Fiscal 2012
The following discussion compares our results of operations for the year ended September 30, 2013 to the year ended September 30, 2012. It should be read with the accompanying consolidated financial statements and related notes.
In fiscal 2013, consolidated total revenues increased 4%, or $35.2 million, to $1.0 billion, compared to the prior year. Same store total revenues decreased $70.6 million, or 7%, and new and acquired stores contributed $105.8 million. Income from continuing operations before taxes decreased 60% to $91.3 million from $226.4 million in the prior year. Loss from discontinued operations, net of tax increased $18.8 million to $23.3 million due to termination costs. Excluding termination costs, pre-tax loss from discontinued operations increased $0.3 million to $5.0 million. Net income attributable to noncontrolling interest decreased $2.5 million, or 37%. Net income attributable to EZCORP decreased $109.6 million, or 76%, to $34.1 million.

37


U.S. & Canada
The following table presents selected financial data from continuing operations for the U.S. & Canada segment:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
(dollars in thousands)
Revenues:
 
 
 
Merchandise sales
$
310,521

 
$
291,497

Jewelry scrapping sales
123,162

 
191,905

Pawn service charges
221,775

 
210,601

Consumer loan fees and interest
174,726

 
163,896

Other revenues
5,113

 
3,759

Total revenues
835,297

 
861,658

Merchandise cost of goods sold
183,147

 
168,133

Jewelry scrapping cost of goods sold
88,637

 
122,604

Consumer loan bad debt
43,095

 
35,398

Net revenues
520,418

 
535,523

Segment expenses (income):
 
 
 
Operations
336,421

 
292,371

Depreciation
15,919

 
13,058

Amortization
2,043

 
521

Loss (gain) on sale or disposal of assets
284

 
(261
)
Interest expense (income), net
16

 
(3
)
Other income
(3
)
 
(647
)
Segment contribution
$
165,738

 
$
230,484

Other data:
 
 
 
Gross margin on merchandise sales
41.0
%
 
42.3
%
Gross margin on jewelry scrapping sales
28.0
%
 
36.1
%
Gross margin on total sales
37.3
%
 
39.9
%
Average pawn loan balance per pawn store at period end
$
285

 
$
295

Average yield on pawn loan portfolio (a)
161
%
 
160
%
Pawn loan redemption rate
83
%
 
82
%
Consumer loan bad debt as a percentage of consumer loan fees
25
%
 
22
%
(a)
Average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period.
The U.S. & Canada segment total revenues decreased $26.4 million, or 3%, from the prior year to $835.3 million. Same store total revenues decreased $79.7 million, or 9%, and new and acquired stores net of closed stores contributed $53.3 million. The overall decrease in total revenues was mostly due to a $68.7 million decrease in jewelry scrapping sales. Excluding jewelry scrapping sales, total revenues increased $42.4 million, or 6%. The increase consisted of a $19.0 million increase in merchandise sales, an $11.2 million increase in pawn service charges and a $12.2 million increase in loan fees and other revenues. In fiscal 2013, we acquired 12 pawn stores in the U.S. for $23.1 and Go Cash, a U.S. online lender, for $50.8 million. As part of these acquisitions, we began operations in the state of Arizona and online operations in six states, bringing the total number of states in which we operate to 27 at September 30, 2013. In fiscal 2013, we opened 84 de novo locations bringing our total number of stores in the U.S. & Canada segment to 1,030.
Fiscal 2013 pawn service charge revenue increased 5%, or $11.2 million, from the prior year to $221.8 million. Same store pawn service charges increased $3.8 million, or 2%, with new and acquired stores net of closed stores contributing $7.4 million. The same store improvement was due to a slight increase in the average yield. The yield improved primarily due

38


to a higher loan redemption rate as we continued to focus on loan values and better qualifying customers to determine those that prefer to sell their merchandise rather than use it as collateral for a loan.
Fiscal 2013 merchandise sales gross profit increased $4.0 million, or 3%, from the prior year to $127.4 million. This was due to a $3.3 million increase in same store sales and a $15.7 million increase in sales from new and acquired stores net of closed stores, partially offset by a slight decrease in gross margins. The decrease in gross margins was due to a shift in sales mix from jewelry to general merchandise.
Gross profit on jewelry scrapping sales decreased $34.8 million, or 50%, from the prior year to $34.5 million. Jewelry scrapping revenues decreased $68.7 million, or 36%, due to a 4% decrease in proceeds realized per gram of gold jewelry scrapped, coupled with a 35% decrease in gold volume. Same store jewelry scrapping sales decreased $80.3 million, or 42%, and new and acquired stores contributed $11.6 million. Jewelry scrapping sales include the sale of approximately $11.3 million of loose diamonds removed from scrap jewelry in fiscal 2013 and $10.8 million in the prior year. As a result of the decrease in volume, scrap cost of goods decreased $34.0 million.
Total segment expenses increased to $354.7 million (42% of revenues) in fiscal 2013 from $305.0 million (35% of revenues) in the prior year. Operations expense increased 15%, or $44.1 million, due to higher operating costs at new and acquired stores, increased labor, benefits and additional investments made in infrastructure to support our growth. Depreciation and amortization increased 32%, or $4.4 million, from the prior year to $18.0 million, mainly due to assets placed in service at new and acquired stores.
In fiscal 2013, U.S. & Canada delivered segment contribution of $165.7 million, a $64.7 million, or 28% decrease compared to prior year. For fiscal 2013, the U.S. & Canada segment's contribution represents 106% of consolidated segment contribution compared to 82% in the prior year. The U.S & Canada segment has experienced significant challenges related to jewelry merchandise sales and gold scrap sales; however, other elements of the business have continued to show strength, offsetting to a large extent the challenges in the gold and jewelry market.

39


Latin America
The following table presents selected financial data from continuing operations for the Latin America segment after translation to U.S. dollars from its functional currency of the Mexican peso:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
(dollars in thousands)
Revenues:
 
 
 
Merchandise sales
$
58,245

 
$
41,567

Jewelry scrapping sales
8,540

 
10,576

Pawn service charges
29,579

 
22,937

Consumer loan fees and interest
50,461

 
26,901

Other revenues
3,197

 
1,292

Total revenues
150,022

 
103,273

Merchandise cost of goods sold
35,470

 
22,504

Jewelry scrapping cost of goods sold
7,496

 
8,111

Consumer loan bad debt (benefit) expense
(113
)
 
309

Net revenues
107,169

 
72,349

Segment expenses (income):
 
 
 
Operations
62,496

 
37,259

Depreciation
5,222

 
3,319

Amortization
1,711

 
1,370

Loss on sale or disposal of assets
17

 
12

Interest expense (income), net
11,279

 
(4,507
)
Other income
(218
)
 
(5
)
Segment contribution
$
26,662

 
$
34,901

Other data:
 
 
 
Gross margin on merchandise sales
39.1
 %
 
45.9
%
Gross margin on jewelry scrapping sales
12.2
 %
 
23.3
%
Gross margin on total sales
35.7
 %
 
41.3
%
Average pawn loan balance per pawn store at period end
$
57

 
$
81

Average yield on pawn loan portfolio (a)
191
 %
 
198
%
Pawn loan redemption rate
75
 %
 
76
%
Consumer loan bad debt expense as a percentage of consumer loan fees and interest
 %
 
1
%
(a)
Average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period.
The average exchange rate used to translate Latin America's results from Mexican pesos to U.S. dollars was 12.7 to 1, 5% lower than the prior year's rate of 13.3 to 1. In fiscal 2013, we opened 73 de novo stores, and 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 19 buy/sell stores in Mexico City and the surrounding metropolitan area. At September 30, 2013, the Latin America segment consisted of 312 stores operating under the brands Crediamigo, Adex, Empeño Fácil, and TUYO.
The Latin America segment's total revenues increased $46.7 million, or 45%, in fiscal 2013 to $150.0 million. Same store total revenues increased $11.0 million, or 11%, and new and acquired stores contributed $35.7 million. The overall increase in total revenues was due to the $23.6 million increase in Grupo Finmart consumer loan fees, $16.7 million increase in merchandise sales, a $6.6 million increase in pawn service charges and a $1.9 million increase in other revenues, partially offset by a $2.0 million decrease in jewelry scrapping sales.

40



The Latin America segment's pawn service charge revenues increased $6.6 million, or 29%, in fiscal 2013 to $29.6 million. Same store pawn service charges increased $2.3 million, or 10%, and new and acquired stores contributed $4.3 million. The total increase was due to a 12% increase in the average pawn loan balance during the period, partially offset by a 7.0 percentage point decrease in the pawn yield. The yield decrease was primarily due to a slight decrease in the loan redemption rate and a shift in the loan balance to general merchandise.
Merchandise sales gross profit increased $3.7 million, or 19%, from the prior year to $22.8 million. The increase was due to a $4.0 million, or 10%, same store sales increase and a $12.6 million increase in sales from new and acquired stores, partially offset by a 6.8 percentage point decrease in gross margins to 39.1%. The decrease in margins was due to a decrease in jewelry sales.
Gross profit on jewelry scrapping sales decreased $1.4 million, or 58%, from the prior year to $1.0 million. Jewelry scrapping revenues decreased $2.0 million, or 19%, in fiscal 2013, to $8.5 million. The decrease was due to an 11% decrease in proceeds realized per gram of gold jewelry scrapped coupled with a 13% decrease in gold volume processed. Same store jewelry scrapping sales decreased $3.7 million, or 35%, and new and acquired stores contributed $1.7 million. Scrap cost of goods decreased $0.6 million, or 8%, due to the decrease in volume.
Consumer loan fees and interest increased $23.6 million, or 88%, to $50.5 million. The increase is due to a full year inclusion of Grupo Finmart as opposed to eight months in fiscal 2012, coupled with a 46% increase in the average loan balance during the period. The increase in the loan balance is due higher penetration on existing contracts with government entities, coupled with the addition of new contracts in fiscal 2013.
Total segment expenses increased to $80.5 million (54% of revenues) in fiscal 2013 from $37.4 million (36% of revenues) in the prior year. The increase was due to a 68%, or $25.2 million, increase in operations expenses due to higher operating costs resulting from the addition of 66 Empeño Fácil stores since the prior period, the acquisition of TUYO and the full year inclusion of Grupo Finmart's administrative expenses. Depreciation and amortization increased $2.2 million from the prior year to $6.9 million, mainly due to depreciation of assets placed in service at new stores and amortization of acquisition related intangible assets. The $15.8 million increase in interest expense was due to a prior year $4.5 million reduction to interest expense due to the accelerated amortization of debt premium associated with Grupo Finmart's refinanced debt. The weighted average rate on Grupo Finmart's third party debt remained flat at 11% on outstanding debt of $105.5 million at September 30, 2013.
In fiscal 2012, purchase accounting pre-tax income impact during the year totaled $9.3 million, of which $5.6 million was attributable to EZCORP, Inc. with the majority of the adjustment coming from the accelerated amortization of debt premium associated with the refinanced debt at Grupo Finmart.

In fiscal 2013, the $34.8 million greater net revenues were offset by the $43.1 million in segment expenses, resulting in an $8.2 million decrease in contribution for the Latin America segment. Excluding the $9.3 million of purchase accounting pre-tax income in fiscal 2012, segment contribution increased $1.1 million, or 4%. For fiscal 2013, Latin America's segment contribution represents 17% of consolidated segment contribution compared to 12% in the prior fiscal year.

41


Other International
The following table presents selected financial data from continuing operations for the Other International segment:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
(dollars in thousands)
Revenues:
 
 
 
Consumer loan fees and interest
$
23,117

 
$
9,884

Other revenues
1,871

 
308

Total revenues
24,988

 
10,192

Consumer loan bad debt
11,891

 
3,663

Net revenues
13,097

 
6,529

Segment expenses (income):
 
 
 
Operations
15,308

 
6,718

Depreciation
364

 
177

Amortization
98

 
46

Loss on sale or disposal of assets

 
223

Interest income, net
(2
)
 
(1
)
Equity in net income of unconsolidated affiliates
(11,878
)
 
(17,400
)
Impairment expense
44,598

 

Other income
153

 
(559
)
Segment contribution
$
(35,544
)
 
$
17,325

Other data:
 
 
 
Consumer loan bad debt as a percentage of consumer loan fees
51
%
 
37
%
In fiscal 2013, we acquired the remaining 28% of Cash Genie, our online lending business in the U.K. At September 30, 2013, we owned 100% of the ordinary shares of Cash Genie.
In fiscal 2013, Cash Genie's consumer loan fees were $23.1 million, with bad debt as a percentage of fees of 51%. The segment's $1.9 million in other revenues represent fees from a consulting agreement with Albemarle & Bond. Under the terms of the agreement we were engaged to assess, identify and implement improvements in their gold and diamond supply chains and labor optimization.
Operations expense increased $8.6 million to $15.3 million. The increase was due to higher payroll expenses and professional fees associated with a full year ownership of Cash Genie in fiscal 2013.
Our equity in the net income of unconsolidated affiliates decreased $5.5 million, or 32%, from the prior year to $11.9 million. The decrease is due to a prior period adjustment of Cash Converter's earnings, and a significant decrease in Albemarle & Bond's results.
In fiscal 2013, we recorded a $44.6 million impairment of investments. This amount comprised our $42.5 million impairment of Albermarle & Bond and a $2.1 million impairment of our investment in available for sale securities.
In fiscal 2013, the $6.6 million increase in net revenues was offset by the $59.4 million increase in segment expenses, resulting in a $52.9 million decrease in contribution for the Other International segment. Excluding impairment expenses, contribution from the Other International segment decreased $8.3 million to $9.1 million.


42


Other Items
The following table reconciles our consolidated segment contribution discussed above to net income attributable to EZCORP, Inc., including items that affect our consolidated financial results but are not allocated among segments:
 
Fiscal Year Ended September 30,
 
2013
 
2012
 
(dollars in thousands)
Segment contribution
$
156,856

 
$
282,710

Corporate items:
 
 
 
Administrative
52,474

 
47,912

Depreciation
6,822

 
5,457

Amortization
1,381

 
19

Gain on sale or disposal of assets
1,133

 
(1
)
Interest expense, net
3,873

 
2,961

Other income
(137
)
 

Income from continuing operations before income taxes
91,310

 
226,362

Income tax expense
29,575

 
71,252

Income from continuing operations, net of tax
61,735

 
155,110

Loss from discontinued operations, net of tax
(23,310
)
 
(4,533
)
Net income
38,425

 
150,577

Net income from continuing operations attributable to redeemable noncontrolling interest
4,348

 
6,869

Net income attributable to EZCORP, Inc.
$
34,077

 
$
143,708

Total corporate items increased $9.2 million to $65.5 million. The increase was due to a $4.6 million increase in administrative expenses, a $2.7 million increase in depreciation and amortization and a $0.9 million increase in interest expense. The increase in administrative expenses, depreciation and amortization was primarily associated with supporting accelerated growth of the de novo and international operations. In fiscal 2013, interest expense increased 31% due to greater utilization of our revolver and depreciation expense increased 25% due to assets placed in service as we continue to invest in the infrastructure to support our growth.
Consolidated income from continuing operations before income taxes decreased $135.1 million, or 60%, to $91.3 million due to the $64.7 million, $8.2 million and $52.9 million decreases in contribution from the U.S. & Canada, Latin America and Other International segments, respectively, and a $9.2 million increase in corporate expenses.
In fiscal 2013, income tax expense decreased $41.7 million, or 58%, to $29.6 million. The fiscal 2013 effective tax rate is 32%, compared to 32% in the prior year.
After an $18.8 million increase in loss from discontinued operations and a $2.5 million decrease in net income attributable to the noncontrolling interests, net income attributable to EZCORP, Inc. decreased $109.6 million, or 76%, to $34.1 million in fiscal 2013.
Fiscal 2012 Compared to Fiscal 2011
The following discussion compares our results of operations for the year ended September 30, 2012 to the year ended September 30, 2011. It should be read with the accompanying consolidated financial statements and related notes.
In fiscal 2012, consolidated total revenues increased 14%, or $122.3 million, to $975.1 million, compared to the prior year. Same store total revenues decreased $15.7 million, or 2%, and new and acquired stores contributed $138.0 million. Excluding the one-time $10.9 million charge related to the retirement of our former Chief Executive Officer, income from continuing operations before taxes increased 13% to $226.4 million from $201.2 million in the prior year. Loss from discontinued operations increased $3.0 million to $4.5 million. Including the charge related to the retirement of our former Chief Executive Officer and after the increase in income tax expense and the $6.9 million of net income attributable to noncontrolling interest, net income attributable to EZCORP, Inc. increased $21.5 million, or 18%.

43


U.S. & Canada
The following table presents selected financial data from continuing operations for the U.S. & Canada segment:
 
Fiscal Year Ended September 30,
 
2012
 
2011
 
(dollars in thousands)
Revenues:
 
 
 
Merchandise sales
$
291,497

 
$