10-Q 1 a2014-q110q12312013.htm 10-Q 2014 - Q1 10Q 12/31/2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
 
 
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2013
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
Commission File No. 0-19424
 
 
 
 
EZCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
74-2540145
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
1901 Capital Parkway
Austin, Texas
78746
(Address of principal executive offices)
(Zip Code)
(512) 314-3400
Registrant’s telephone number, including area code:
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
APPLICABLE ONLY TO CORPORATE ISSUERS:
The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.
As of December 31, 2013, 51,389,307 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.



EZCORP, Inc.
INDEX TO FORM 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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

EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
December 31,
2013
 
December 31,
2012
 
September 30,
2013
 
(in thousands)
 
 
 
 
 
 
Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
38,486

 
$
46,668

 
$
36,317

Restricted cash
4,019

 
1,133

 
3,312

Pawn loans
153,421

 
162,150

 
156,637

Consumer loans, net
82,807

 
40,470

 
64,515

Pawn service charges receivable, net
30,842

 
31,077

 
30,362

Consumer loan fees and interest receivable, net
40,181

 
34,073

 
36,588

Inventory, net
142,711

 
120,271

 
145,200

Deferred tax asset
13,825

 
15,716

 
13,825

Income tax receivable
7,268

 

 
16,105

Prepaid expenses and other assets
42,895

 
50,394

 
34,217

Total current assets
556,455

 
501,952

 
537,078

Investments in unconsolidated affiliates
97,424

 
144,232

 
97,085

Property and equipment, net
114,539

 
114,082

 
116,281

Restricted cash, non-current
2,742

 
1,994

 
2,156

Goodwill
434,835

 
434,671

 
433,300

Intangible assets, net
65,178

 
59,562

 
61,872

Non-current consumer loans, net
60,750

 
66,615

 
69,991

Deferred tax asset
7,521

 

 
8,214

Other assets, net
29,685

 
19,198

 
24,105

Total assets (1)
$
1,369,129

 
$
1,342,306

 
$
1,350,082

 
 
 
 
 
 
Liabilities and stockholders’ equity:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current maturities of long-term debt
$
16,737

 
$
27,562

 
$
30,436

Current capital lease obligations
533

 
533

 
533

Accounts payable and other accrued expenses
77,619

 
70,829

 
79,967

Other current liabilities
11,106

 
24,396

 
22,337

Customer layaway deposits
5,782

 
6,254

 
8,628

Income taxes payable

 
659

 

Total current liabilities
111,777

 
130,233

 
141,901

Long-term debt, less current maturities
235,289

 
207,978

 
215,939

Long-term capital lease obligations
253

 
771

 
391

Deferred tax liability

 
10,815

 

Deferred gains and other long-term liabilities
22,938

 
31,019

 
21,932

Total liabilities (2)
370,257

 
380,816

 
380,163

Commitments and contingencies


 


 


Temporary equity:
 
 
 
 
 
Redeemable noncontrolling interest
57,578

 
49,323

 
55,393

Stockholders’ equity:
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share; 56 million shares authorized; issued and outstanding: 51,389,307 and 51,196,870 at December 31, 2013 and 2012; and 51,269,434 at September 30, 2013
513

 
508

 
513

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

 
30

 
30

Additional paid-in capital
321,623

 
313,126

 
320,777

Retained earnings
622,449

 
596,520

 
599,880

Accumulated other comprehensive (loss) income
(3,321
)
 
1,983

 
(6,674
)
EZCORP, Inc. stockholders’ equity
941,294

 
912,167

 
914,526

Total liabilities and stockholders’ equity
$
1,369,129

 
$
1,342,306

 
$
1,350,082

Assets and Liabilities of Grupo Finmart Securitization Trust
(1) Our consolidated assets as of December 31, 2013, December 31, 2012 and September 30, 2013 include the following assets of Grupo Finmart's securitization trust that can only be used to settle its liabilities: Restricted cash, non-current, $2.7 million and $2.0 million as of December 31, 2013 and December 31, 2012, respectively, and $2.2 million as of September 30, 2013; Consumer loans, net, $34.1 million and $35.1 million as of December 31, 2013 and December 31, 2012, respectively, and $33.9 million as of September 30, 2013; Consumer loan fees and interest receivable, net, $7.1 million and $8.5 million as of December 31, 2013 and December 31, 2012, respectively, and $7.3 million as of September 30, 2013; Intangible assets, net, $2.0 million and $3.1 million as of December 31, 2013 and December 31, 2012, respectively, and $2.1 million as of September 30, 2013; and total assets, $45.9 million and $48.7 million as of December 31, 2013 and December 31, 2012, respectively, and $45.5 million as of September 30, 2013.
(2) Our consolidated liabilities as of December 31, 2013, December 31, 2012 and September 30, 2013 include $32.1 million, $32.3 million, and $32.0 million, respectively, of long-term debt for which the creditors of Grupo Finmart's securitization trust do not have recourse to EZCORP, Inc.
See accompanying notes to interim condensed consolidated financial statements.

1


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
December 31,
 
2013
 
2012
 
(in thousands, except per share amounts)
Revenues:
 
 
 
Merchandise sales
$
105,587

 
$
94,604

Jewelry scrapping sales
27,703

 
44,709

Pawn service charges
64,133

 
65,400

Consumer loan fees and interest
66,329

 
63,134

Other revenues
5,605

 
4,814

Total revenues
269,357

 
272,661

Merchandise cost of goods sold
63,588

 
54,945

Jewelry scrapping cost of goods sold
20,020

 
31,305

Consumer loan bad debt
18,432

 
13,521

Net revenues
167,317

 
172,890

Operating expenses:
 
 
 
Operations
112,769

 
103,285

Administrative
15,745

 
13,671

Depreciation
7,466

 
6,560

Amortization
1,940

 
714

(Gain) loss on sale or disposal of assets
(6,290
)
 
29

Total operating expenses
131,630

 
124,259

Operating income
35,687

 
48,631

Interest expense, net
4,332

 
3,637

Equity in net income of unconsolidated affiliates
(1,271
)
 
(5,038
)
Other income
(168
)
 
(501
)
Income from continuing operations before income taxes
32,794

 
50,533

Income tax expense
9,881

 
16,672

Income from continuing operations, net of tax
22,913

 
33,861

Income (loss) from discontinued operations, net of tax
1,482

 
(1,706
)
Net income
24,395

 
32,155

Net income from continuing operations attributable to redeemable noncontrolling interest
1,826

 
1,438

Net income attributable to EZCORP, Inc.
$
22,569

 
$
30,717

 
 
 
 
Basic earnings (loss) per share attributable to EZCORP, Inc.:
 
 
 
Continuing operations
$
0.39

 
$
0.62

Discontinued operations
0.03

 
(0.03
)
Basic earnings per share
$
0.42

 
$
0.59

 
 
 
 
Diluted earnings (loss) per share attributable to EZCORP, Inc.:
 
 
 
Continuing operations
$
0.39

 
$
0.62

Discontinued operations
0.03

 
(0.03
)
Diluted earnings per share
$
0.42

 
$
0.59

 
 
 
 
Weighted average shares outstanding:
 
 
 
Basic
54,332

 
52,049

Diluted
54,362

 
52,112

 
 
 
 
Net income from continuing operations attributable to EZCORP, Inc.
$
21,087

 
$
32,423

Income (loss) from discontinued operations attributable to EZCORP, Inc.
1,482

 
(1,706
)
Net income attributable to EZCORP, Inc.
$
22,569

 
$
30,717

See accompanying notes to interim condensed consolidated financial statements.

2


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Net income
$
24,395

 
$
32,155

Other comprehensive income (loss):
 
 
 
Foreign currency translation gain
4,716

 
3,468

Gain (loss) on effective portion of cash flow hedge:
 
 
 
Other comprehensive loss before reclassifications
(346
)
 

Amounts reclassified from accumulated other comprehensive income
245

 

Unrealized holding loss arising during period
(9
)
 
(43
)
Income tax expense
(894
)
 
(1,980
)
Other comprehensive income, net of tax
3,712

 
1,445

Comprehensive income
$
28,107

 
$
33,600

Attributable to redeemable noncontrolling interest:
 
 
 
Net income
1,826

 
1,438

Foreign currency translation gain (loss)
359

 
(651
)
Comprehensive income attributable to redeemable noncontrolling interest
2,185

 
787

Comprehensive income attributable to EZCORP, Inc.
$
25,922

 
$
32,813

See accompanying notes to interim condensed consolidated financial statements.


3


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Operating Activities:
 
 
 
Net income
$
24,395

 
$
32,155

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
9,363

 
7,652

Consumer loan loss provision
11,350

 
7,990

Deferred income taxes
693

 
2,214

Other adjustments
344

 

(Gain) loss on sale or disposal of assets
(6,422
)
 
29

Gain on sale of loan portfolio
(4,543
)
 

Stock compensation
1,236

 
925

Income from investments in unconsolidated affiliates
(1,271
)
 
(5,038
)
Changes in operating assets and liabilities, net of business acquisitions:
 
 
 
Service charges and fees receivable, net
(2,292
)
 
(5,192
)
Inventory, net
(385
)
 
(11,908
)
Prepaid expenses, other current assets, and other assets, net
(15,933
)
 
(17,727
)
Accounts payable and accrued expenses
(8,022
)
 
9,323

Customer layaway deposits
(2,853
)
 
(1,077
)
Deferred gains and other long-term liabilities
335

 
83

Tax provision (benefit) from stock compensation
390

 
(346
)
Income taxes receivable/payable
8,472

 
9,830

Dividends from unconsolidated affiliates
2,597

 
1,595

Net cash provided by operating activities
17,454

 
30,508

Investing Activities:
 
 
 
Loans made
(232,294
)
 
(231,067
)
Loans repaid
150,206

 
142,250

Recovery of pawn loan principal through sale of forfeited collateral
64,776

 
73,264

Additions to property and equipment
(5,615
)
 
(8,906
)
Acquisitions, net of cash acquired
(10,395
)
 
(12,278
)
Investments in unconsolidated affiliates

 
(11,018
)
Proceeds from sale of assets
28,980

 

Net cash used in investing activities
(4,342
)
 
(47,755
)
Financing Activities:
 
 
 
Tax provision (benefit) from stock compensation
(389
)
 
346

Taxes paid related to net share settlement of equity awards

 
(3,431
)
Debt issuance costs
(3,080
)
 

Payout of deferred and contingent consideration
(11,500
)
 

Change in restricted cash
(1,263
)
 
2,298

Proceeds from revolving line of credit
80,887

 
80,125

Payments on revolving line of credit
(74,908
)
 
(61,852
)
Proceeds from bank borrowings
16,703

 
1,159

Payments on bank borrowings and capital lease obligations
(17,496
)
 
(3,023
)
Net cash (used in) provided by financing activities
(11,046
)
 
15,622

Effect of exchange rate changes on cash and cash equivalents
103

 
(184
)
Net increase (decrease) in cash and cash equivalents
2,169

 
(1,809
)
Cash and cash equivalents at beginning of period
36,317

 
48,477

Cash and cash equivalents at end of period
$
38,486

 
$
46,668

 
 
 
 
Non-cash Investing and Financing Activities:
 
 
 
Pawn loans forfeited and transferred to inventory
$
63,256

 
$
69,370

Issuance of common stock due to acquisitions
$

 
$
38,647

Deferred consideration
$
5,350

 
$
24,000

Contingent consideration
$
4,792

 
$
4,792

Stock issued for additional investment in subsidiary
$

 
$
7,981

Accrued additions to property and equipment
$
122

 
$
2,100

Note receivable from sale of assets
$
1,000

 
$

See accompanying notes to interim condensed consolidated financial statements.

4


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
EZCORP, Inc.
Stockholders’
Equity
 
Shares
 
Par Value
 
 
(in thousands)
Balances at September 30, 2012
51,226

 
$
512

 
$
268,626

 
$
565,803

 
$
(113
)
 
$
834,828

Stock compensation

 

 
925

 

 

 
925

Issuance of common stock due to acquisitions
1,965

 
20

 
38,685

 

 

 
38,705

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

 
6

 
10,398

 

 

 
10,404

Purchase of subsidiary shares from noncontrolling interest

 

 
(2,423
)
 

 
85

 
(2,338
)
Release of restricted stock
384

 

 

 

 

 

Excess tax benefit from stock compensation

 

 
346

 

 

 
346

Taxes paid related to net share settlement of equity awards

 

 
(3,431
)
 

 

 
(3,431
)
Unrealized loss on available-for-sale securities

 

 

 

 
(28
)
 
(28
)
Foreign currency translation adjustment

 

 

 

 
2,039

 
2,039

Net income attributable to EZCORP, Inc.

 

 

 
30,717

 

 
30,717

Balances at December 31, 2012
54,167

 
$
538

 
$
313,126

 
$
596,520

 
$
1,983

 
$
912,167

 
 
 
 
 
 
 
 
 
 
 
 
Balances at September 30, 2013
54,240

 
$
543

 
$
320,777

 
$
599,880

 
$
(6,674
)
 
$
914,526

Stock compensation

 

 
1,236

 

 

 
1,236

Release of restricted stock
120

 

 

 

 

 

Tax deficiency of stock compensation

 

 
(390
)
 

 

 
(390
)
Effective portion of cash flow hedge

 

 

 

 
(101
)
 
(101
)
Unrealized loss on available-for-sale securities

 

 

 

 
(6
)
 
(6
)
Foreign currency translation adjustment

 

 

 

 
3,460

 
3,460

Net income attributable to EZCORP, Inc.

 

 

 
22,569

 

 
22,569

Balances at December 31, 2013
54,360

 
$
543

 
$
321,623

 
$
622,449

 
$
(3,321
)
 
$
941,294

See accompanying notes to interim condensed consolidated financial statements.


5


EZCORP, Inc.
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
December 31, 2013

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Our management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to discontinued operations (described in Note 2) and acquired businesses (described in Note 3).
The accompanying financial statements should be read with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2013. The balance sheet at September 30, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Our business is subject to seasonal variations, and operating results for the three months ended December 31, 2013 (the "current quarter") are not necessarily indicative of the results of operations for the full fiscal year.
The consolidated financial statements include the accounts of EZCORP, Inc. ("EZCORP") and its consolidated subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. As of December 31, 2013, we own 60% of the outstanding equity interests in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart"), doing business under the brands "Crediamigo" and "Adex," and 51% of Renueva Comercial S.A.P.I. de C.V. ("TUYO"), and therefore, include their results in our consolidated financial statements. We account for our investments in Albemarle & Bond Holdings, PLC ("Albemarle & Bond") and Cash Converters International Limited ("Cash Converters International") using the equity method. Certain prior period balances have been reclassified to conform to the current presentation and to reflect adjustments to purchase price allocations that were updated as additional information became available.
There have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2013.
Recently Adopted Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-11, Income Taxes (Topic 740)—Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward or Tax Credit Carryforward Exists. This update provides that an entity's unrecognized tax benefit, or a portion of its unrecognized tax benefit, should be presented in its financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with one exception. That exception states that, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This update applies prospectively to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. Retrospective application is also permitted. This update is effective for annual periods, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-03 did not have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update, requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This update requires entities to apply the amendments for periods beginning after December 15, 2012 and interim periods within those annual periods and to provide the required disclosures for all reporting periods presented. The adoption of ASU 2013-02 did not have a material effect on our financial position, results of operations or cash flows.

6


In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405)—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This update provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date (except for obligations addressed within existing guidance in U.S. GAAP). Examples of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations and settled litigation and judicial rulings. ASU 2013-04 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-04 did not have a material effect on our financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) — Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This update applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-05 did not have a material effect on our financial position, results of operations or cash flows.
NOTE 2: DISCONTINUED OPERATIONS
During the third quarter of fiscal 2013, we implemented a plan to close 107 legacy stores (all of which were in operation at December 31, 2012) in a variety of locations. These stores were generally older, smaller stores that did not fit our future growth profile.
Store closures as discontinued operations 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 ("SWS") locations under the Empeño Fácil brand, and expect to continue our storefront growth in Mexico.
29 stores in Canada, where we were in the process of transitioning to an integrated buy/sell and financial services model under the Cash Converters brand. The affected asset group consisted of stores that were 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 exited both locations primarily due to onerous regulatory requirements.
One jewelry-only concept store, which was our only jewelry-only store in the United States.
Due to discontinued operations, we incurred charges in the fiscal year ended September 30, 2013 for lease termination costs, asset and inventory write-downs to net realizable liquidation value, uncollectible receivables, and employee severance costs. During the first quarter ended December 31, 2013, we recorded $2.6 million of pre-tax gains related to these termination costs, primarily lease terminations of $1.8 million, as negotiated amounts were lower than the initial lease buyout estimates recorded in the prior year, and inventory write-downs of $0.6 million. These gains have been recorded as part of income from discontinued operations in our first quarter ended December 31, 2013 condensed consolidated statement of operations.
As of December 31, 2013 accrued severance and lease termination costs related to discontinued operations were $3.8 million. This amount is included in accounts payable and accrued liabilities in our condensed consolidated balance sheets. During the first quarter ended December 31, 2013, $1.7 million in cash payments were made with regard to the recorded termination costs.

Discontinued operations in the three-month periods ended December 31, 2013 and 2012 include $2.6 million and $4.5 million of total revenues, respectively.


7


The table below summarizes the operating losses from discontinued operations by operating segment:
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
U.S. & Canada
 
 
 
Net revenues
$
185

 
$
1,514

Operating expenses
287

 
3,133

Operating loss from discontinued operations before taxes
(102
)
 
(1,619
)
Total termination gain related to the reorganization
(640
)
 

Income (loss) from discontinued operations before taxes
538

 
(1,619
)
Income tax benefit
111

 
105

Income (loss) from discontinued operations, net of tax
$
649

 
$
(1,514
)
 
 
 
 
Latin America
 
 
 
Net revenues
$
(335
)
 
$
948

Operating expenses
390

 
1,222

Operating loss from discontinued operations before taxes
(725
)
 
(274
)
Total termination gain related to the reorganization
(1,917
)
 

Income (loss) from discontinued operations before taxes
1,192

 
(274
)
Income tax (provision) benefit
(359
)
 
82

Income (loss) from discontinued operations, net of tax
$
833

 
$
(192
)
 
 
 
 
Consolidated
 
 
 
Net revenues
$
(150
)
 
$
2,462

Operating expenses
677

 
4,355

Operating loss from discontinued operations before taxes
(827
)
 
(1,893
)
Total termination gain related to the reorganization
(2,557
)
 

Income (loss) from discontinued operations before taxes
1,730

 
(1,893
)
Income tax (provision) benefit
(248
)
 
187

Income (loss) from discontinued operations, net of tax
$
1,482

 
$
(1,706
)

All revenue, expense and income reported in these condensed consolidated financial statements have been adjusted to reflect reclassification of all discontinued operations.


8


NOTE 3: ACQUISITIONS
On November 29, 2013, Grupo Finmart acquired an unsecured long-term consumer loan portfolio for approximately $15.7 million. This transaction was accounted for as an asset purchase. Refer to Note 13 for further detail.
During the first quarter ended December 31, 2013, we had no acquisitions accounted for as a business combination.
Go Cash
On November 20, 2012, we entered into a definitive agreement with Go Cash, LLC and certain of its affiliates ("Go Cash" or "EZCORP Online") to acquire substantially all the assets of Go Cash's online lending business. This acquisition of assets was completed on December 20, 2012 and accounted for as a business combination. No liabilities were assumed other than trade payables and accounts payable incurred prior to closing in the ordinary course of business, which were approximately $0.2 million.
The assets acquired include a proprietary software platform, including a loan management system and a lending decision science engine, that will enable geographic expansion both within the U.S. and internationally; an internal customer service and collections call center; a portion of the existing Go Cash multi-state loan portfolio; and related assets, including customer lists, customer data and customer transaction information. We hired substantially all of Go Cash's employees, including the management team, an internal underwriting and customer experience analytics team, and an experienced customer service and collections call center team.
The total purchase price is performance-based and will be determined over a period of four years following the closing. The total consideration of $55.6 million includes the performance consideration element, which is based on the net income generated by the "Post-Closing Business Unit" (which includes all of our online consumer lending business). Within a specified period after the end of each of the first four years following the closing, we will make a contingent supplemental payment equal to the difference between (a) the adjusted net income for such year, multiplied by 6.0, and (b) all consideration payments previously paid. Each payment may be made, in our sole discretion, in cash or in the form of shares of EZCORP Class A Non-Voting Common Stock. A minimum of $50.8 million will be paid, of which $27.8 million was paid at closing, $6.0 million was paid on November 12, 2013, $5.0 million was paid on December 19, 2013 and the remaining $12.0 million will be paid in installments over the next two years. The initial payment was made in the form of 1,400,198 shares of EZCORP Class A Non-Voting Common Stock, and the November and December 2013 payments were made in cash.
Based on the final purchase price allocation, the contingent consideration was valued at $4.8 million in the current quarter. This amount was calculated using a Monte Carlo simulation, whereby future net income is simulated over the earn-out period. For each simulation path, the earn-out payments were calculated and then discounted to the valuation date. The fair value of the earn-out was then estimated to be the arithmetic average of all paths. The model utilized forecasted net income, and the valuation was performed in a risk-neutral framework. The significant inputs used for the valuation are not observable in the market, and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy. This contingent consideration element was valued and recorded during first quarter ended December 31, 2013.
EZCORP Online recorded $3.0 million of total revenues and $2.8 million of operating losses during the three month period ended December 31, 2013; and $0.1 million of total revenues and $0.4 million of operating losses during the three month period ended December 31, 2012.
TUYO
On November 1, 2012, we acquired a 51% interest in Renueva Comercial S.A.P.I. de C.V., a company headquartered in Mexico City and doing business under the name "TUYO", for approximately $1.1 million. As of December 31, 2013, TUYO owned and operated 19 stores in Mexico City and the surrounding metropolitan area. In these stores, TUYO buys quality used merchandise from customers and then resells that merchandise to other customers. TUYO also sells refurbished or other merchandise acquired in bulk from wholesalers. As this acquisition was individually immaterial, we present its related information, other than information related to the redeemable noncontrolling interest, combined with other immaterial acquisitions.
Pursuant to the acquisition agreement, the sellers have a put option with respect to their remaining shares of TUYO. The sellers have the right to sell their TUYO shares to EZCORP during a specified exercise period, with specified limitations on the number of shares that may be sold within a consecutive 12-month period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to TUYO in temporary equity.


9


The acquisition date fair value of the TUYO redeemable noncontrolling interest was estimated by applying an income and market approach. This fair value measurement was based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include discount rates of 10% and 18% representing discounts for lack of control and lack of marketability respectively that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of TUYO was determined using a multiple of future earnings. See Note 14 for additional details relating to the fair value disclosures.

Other - 2013

On April 26, 2013, Grupo Finmart, our 60% owned subsidiary, purchased 100% of the outstanding shares of Fondo ACH, S.A. de C.V., a specialty consumer finance company. The total purchase price is performance-based and will be determined over a period of four years. A minimum of $3.5 million will be paid, of which $2.7 million was paid at closing with the remaining due on January 2, 2017. The performance consideration element will be based on interest income generated by the acquired portfolios and new loans made through Fondo ACH's contractual relationships. The contingent consideration element of the purchase price, which is the amount in excess of the guaranteed $3.5 million, has been preliminarily valued at zero as of December 31, 2013. As this acquisition was individually immaterial, we present its related information combined with other immaterial acquisitions.
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 EZCORP. As this acquisition was individually immaterial, we present its related information combined with other immaterial acquisitions.
All acquisitions were made as part of our continuing strategy to enhance and diversify our earnings over the long-term. The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include our initial entry into several markets and a greater presence in others, as well as the ability to further leverage our expense structure through increased scale. The purchase price allocation of assets acquired in the most recent twelve months is preliminary as we continue to receive information regarding the acquired assets. There were no transaction related expenses for the three-month period ended December 31, 2013 and approximately $0.5 million for the three-month period ended December 31, 2012, which were expensed as incurred and recorded as operations expense. These amounts exclude costs related to transactions that did not close and future acquisitions. The results of all acquisitions have been consolidated with our results since their respective closing. Pro forma results of operations have not been presented because it is impracticable to do so, as historical audited financial statements in U.S. GAAP are not readily available.
The following table provides information related to the acquisition of domestic and foreign retail and financial services locations during fiscal 2013:

10


 
Fiscal Year Ended September 30, 2013
 
Go Cash
 
Other Acquisitions
Current assets:
(in thousands)
Pawn loans
$

 
$
5,714

Consumer loans, net

 
902

Service charges and fees receivable, net
23

 
714

Inventory, net

 
2,441

Prepaid expenses and other assets
120

 
508

Total current assets
143

 
10,279

Property and equipment, net
268

 
1,078

Goodwill
44,020

 
17,187

Intangible assets
11,215

 
619

Non-current consumer loans, net

 
3,011

Other assets
124

 
314

Total assets
55,770

 
32,488

Current liabilities:
 
 
 
Accounts payable and other accrued expenses
202

 
560

Customer layaway deposits

 
103

Total current liabilities
202

 
663

Total liabilities
202

 
663

Redeemable noncontrolling interest

 
2,836

Net assets acquired
$
55,568

 
$
28,989

 
 
 
 
Goodwill deductible for tax purposes
$
44,020

 
$

 
 
 
 
Indefinite-lived intangible assets acquired:
 
 
 
Domain name
$
215

 
$

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

 
$
30

Internally developed software
$
11,000

 
$
66

Contractual relationship
$

 
$
523

(1) The weighted average useful life of definite-lived intangible assets acquired is five years.

Per FASB ASC 805-10-25, adjustments to provisional purchase price allocation amounts made during the measurement period shall be recorded as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements. The amounts above and our condensed consolidated balance sheet as of December 31, 2012 reflect all measurement period adjustments recorded since the acquisition date. As of December 31, 2012 these adjustments include $0.6 million decrease in property and equipment, net; $1.1 million decrease in the value of intangibles assets; $4.8 million increase to deferred gains and other long-term liability; and $0.2 million increase relating to other assets and liabilities for a net increase in goodwill of $6.7 million. As of September 30, 2013 these adjustments include a $4.8 million increase to deferred gains and other long-term liability with an offset to goodwill.
NOTE 4: EARNINGS PER SHARE
We compute basic earnings per share on the basis of the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards.

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

11


Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows: 
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands, except per share amounts)
Net income from continuing operations attributable to EZCORP, Inc. (A)
$
21,087

 
$
32,423

Loss from discontinued operations, net of tax (B)
1,482

 
(1,706
)
Net (loss) income attributable to EZCORP (C)
$
22,569

 
$
30,717

 
 
 
 
Weighted average outstanding shares of common stock (D)
54,332

 
52,049

Dilutive effect of stock options and restricted stock
30

 
63

Weighted average common stock and common stock equivalents (E)
54,362

 
52,112

 
 
 
 
Basic (loss) earnings per share attributable to EZCORP, Inc.:
 
 
 
Continuing operations attributable to EZCORP, Inc. (A / D)
$
0.39

 
$
0.62

Discontinued operations (B / D)
0.03

 
(0.03
)
Basic (loss) earnings per share (C / D)
$
0.42

 
$
0.59

 
 
 
 
Diluted earnings per share attributable to EZCORP, Inc.:
 
 
 
Continuing operations attributable to EZCORP, Inc. (A / E)
$
0.39

 
$
0.62

Discontinued operations (B / E)
0.03

 
(0.03
)
Diluted (loss) earnings per share (C / E)
$
0.42

 
$
0.59

 
 
 
 
Potential common shares excluded from the calculation of diluted earnings per share
257

 
39

NOTE 5: STRATEGIC INVESTMENTS
Cash Converters International Limited
At December 31, 2013, we owned 136,848,000 shares, or approximately 33%, of Cash Converters International, a publicly traded company headquartered in Perth, Australia. Cash Converters International franchises and operates a worldwide network of over 700 specialty financial services and retail stores that provide pawn loans, short-term unsecured loans and other consumer finance products, and buy and sell second-hand goods, with significant store concentrations in Australia and the United Kingdom. Those shares include 12,430,000 shares that we acquired in November 2012 for approximately $11.0 million in cash as part of a share placement. Our total investment in Cash Converters International was acquired between November 2009 and November 2012 for approximately $68.8 million.
We account for our investment in Cash Converters International using the equity method. Since Cash Converters International’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Cash Converters International files semi-annual financial reports for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our three-month periods ended December 31, 2013 and 2012 represents our percentage interest in the results of Cash Converters International’s operations from July 1, 2013 to September 30, 2013 and July 1, 2012 to September 30, 2012, respectively.
Conversion of Cash Converters International’s financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.
In its functional currency of Australian dollars, Cash Converters International’s total assets increased 32% from June 30, 2012 to June 30, 2013 and its net income improved 12% for the year ended June 30, 2013. The following table presents summary financial information for Cash Converters International’s most recently reported results after translation to U.S. dollars (using the exchange rate as of June 30 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

12


 
As of June 30,
 
2013
 
2012
 
(in thousands)
Current assets
$
163,606

 
$
137,646

Non-current assets
153,279

 
129,274

Total assets
$
316,885

 
$
266,920

Current liabilities
$
95,757

 
$
45,392

Non-current liabilities
451

 
31,928

Shareholders’ equity
220,677

 
189,600

Total liabilities and shareholders’ equity
$
316,885

 
$
266,920

 
 
Year ended June 30,
 
2013
 
2012
 
(in thousands)
Gross revenues
$
280,059

 
$
241,924

Gross profit
183,368

 
162,598

Profit for the year (net income)
33,754

 
30,366


Albemarle & Bond Holdings, PLC
At December 31, 2013, we owned 16,644,640 ordinary shares of Albemarle & Bond, representing almost 30% of its total outstanding shares. Our total cost for those shares was approximately $27.6 million. Albemarle & Bond is primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. We account for the investment using the equity method.
Albemarle & Bond’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Albemarle & Bond files semi-annual financial reports for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our three-month periods ended December 31, 2013 and 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2013 to September 30, 2013 and July 1, 2012 to September 30, 2012, respectively.
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).
On December 5, 2013, Albemarle & Bond announced the commencement of a formal sales process and subsequently participated in preliminary discussions with various interested parties.
At December 31, 2013, the fair value of our investment in Albemarle & Bond Holdings was less than our recorded value.

On January 27, 2014, Albemarle & Bond announced the termination of their formal sales process, and stated that there may be limited value attributable to the ordinary shares. We continue to assess the impact of this announcement on the value of our investment. Refer to Note 17 for further detail.
Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.
The table below summarizes the recorded value and fair value of each of these strategic investments at the dates indicated. The fair values of Albemarle & Bond as of December 31, 2013 and 2012 and Cash Converters International as of December 31, 2013 and 2012 as well as September 30, 2013 are considered Level 1 estimates within the fair value hierarchy of FASB ASC

13


820-10-50, and were calculated as (a) the quoted stock price on each company’s principal market multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate at the dates indicated. We included no control premium by owning a large percentage of outstanding shares.
The fair value for Albemarle & Bond at September 30, 2013 is considered a Level 2 estimate within the fair value hierarchy of FASB ASC 820-10-50. We calculated the fair value based on (a) the quoted average stock price of Albemarle & Bond over the 18 days after September 30, 2013 multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate as of the dates indicated during the post September 30, 2013 measurement date. We believe this 18 day measurement date allowed the market to react and adjust to the information released by the company the first week of October 2013, as previously mentioned, and therefore resulted in a reasonable fair value as of September 30, 2013.
 
December 31,
 
September 30,
 
2013
 
2012
 
2013
 
(in thousands of U.S. dollars)
Albemarle & Bond:
 
 
 
 
 
Recorded value
$
7,902

 
$
54,559

 
$
9,439

Fair value
4,871

 
57,402

 
9,439

Cash Converters International:
 
 
 
 
 
Recorded value
$
89,522

 
$
89,673

 
$
87,645

Fair value
117,778

 
164,633

 
165,663


NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the balance of goodwill and each major class of intangible assets at the specified dates:
 
 
December 31,
 
September 30,
 
2013
 
2012
 
2013
 
(in thousands)
Goodwill
$
434,835

 
$
434,671

 
$
433,300

 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
Pawn licenses
$
8,836

 
$
8,836

 
$
8,836

Trade name
9,865

 
9,822

 
9,791

Domain name
215

 
215

 
215

Total indefinite-lived intangible assets
$
18,916

 
$
18,873

 
$
18,842

 
 
 
 
 
 
Definite-lived intangible assets:
 
 
 
 
 
Real estate finders’ fees
$
893

 
$
943

 
$
902

Non-compete agreements
563

 
1,060

 
673

Favorable lease
590

 
695

 
614

Franchise rights
1,322

 
1,485

 
1,388

Deferred financing costs
7,087

 
6,402

 
5,033

Contractual relationship
11,796

 
12,919

 
12,106

Internally developed software
23,787

 
16,906

 
22,088

Other
224

 
279

 
226

Total definite-lived intangible assets
$
46,262

 
$
40,689

 
$
43,030

 
 
 
 
 
 
Intangible assets, net
$
65,178

 
$
59,562

 
$
61,872



14


The following tables present the changes in the carrying value of goodwill over the periods presented:
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Balances at September 30, 2013
$
283,199

 
$
110,209

 
$
39,892

 
$
433,300

Effect of foreign currency translation changes

 
673

 
862

 
1,535

Balances at December 31, 2013
$
283,199

 
$
110,882

 
$
40,754

 
$
434,835


 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Balances at September 30, 2012
$
224,306

 
$
110,401

 
$
39,956

 
$
374,663

Acquisitions
58,924

 
2,222

 

 
61,146

Effect of foreign currency translation changes

 
(1,138
)
 

 
(1,138
)
Balances at December 31, 2012
$
283,230

 
$
111,485

 
$
39,956

 
$
434,671


The amortization of most definite-lived intangible assets is recorded as amortization expense. The favorable lease asset and other intangibles are amortized to operations expense (rent expense) over the related lease terms. The deferred financing costs are amortized to interest expense over the life of the related debt instruments. The following table presents the amount and classification of amortization recognized as expense (income) in each of the periods presented:
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Amortization expense in continuing operations
$
1,940

 
$
714

Operations expense
30

 
35

Interest expense
890

 
764

Total expense from the amortization of definite-lived intangible assets
$
2,860

 
$
1,513

The following table presents our estimate of future amortization expense for definite-lived intangible assets:
 
Fiscal Years Ended September 30,
 
Amortization expense
 
Operations expense
 
Interest expense
 
 
(in thousands)
2014
 
$
6,546

 
$
90

 
$
2,834

2015
 
7,427

 
109

 
2,158

2016
 
6,979

 
106

 
1,020

2017
 
6,757

 
106

 
334

2018
 
4,330

 
106

 
7

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

15


NOTE 7: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The following table presents our long-term debt instruments and balances under capital lease obligations outstanding at December 31, 2013 and 2012 and September 30, 2013. The recourse line of credit is due in May 2015, the non-recourse debt matures at various months in the years so indicated in the table below:
 
 
December 31, 2013
 
December 31, 2012
 
September 30, 2013
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
(in thousands)
Recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
Domestic line of credit up to $200 million due 2015
$
146,500

 
$

 
$
142,600

 
$

 
$
140,900

 
$

Capital lease obligations
786

 

 
1,304

 

 
924

 

Non-recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
Unsecured, variable interest foreign currency line of credit

 

 
38

 

 

 

Secured foreign currency line of credit up to $4 million due 2014
871

 
76

 
2,256

 
173

 
1,207

 
99

Secured foreign currency line of credit up to $19 million due 2015
4,138

 

 
14,146

 

 
6,281

 

Secured foreign currency line of credit up to $5 million due 2016
4,867

 

 

 

 

 

Secured foreign currency line of credit up to $23 million due 2017
22,962

 

 
17,212

 

 
22,822

 

Consumer loans facility due 2017
32,147

 

 
32,338

 

 
31,951

 

10% unsecured notes due 2013

 

 
937

 

 
503

 

15% unsecured notes due 2013

 

 
13,844

 
1,052

 
12,884

 
244

10% unsecured notes due 2014
7,703

 

 
2,257

 

 
8,925

 

11% unsecured notes due 2014
110

 

 
5,086

 

 
110

 

9% unsecured notes due 2015
16,546

 

 

 

 
16,068

 

10% unsecured notes due 2015
420

 

 
314

 

 
418

 

15% secured notes due 2015

 

 
4,390

 
539

 
4,185

 
381

10% unsecured notes due 2016
121

 

 
122

 

 
121

 

12% secured notes due 2017
4,160

 
333

 

 

 

 

12% unsecured notes due 2019
11,481

 

 

 

 

 

Total long-term obligations
252,812

 
409

 
236,844

 
1,764

 
247,299

 
724

Less current portion
17,270

 
280

 
28,095

 
1,353

 
30,969

 
543

Total long-term and capital lease obligations
$
235,542

 
$
129

 
$
208,749

 
$
411

 
$
216,330

 
$
181


On May 10, 2011, we entered into a new senior secured credit agreement with a syndicate of five banks, replacing our previous credit agreement. Among other things, the new credit agreement provides for a four-year $175 million revolving credit facility that we may, under the terms of the agreement, request to be increased to a total of $225 million. Upon entering the new credit agreement, we repaid and retired our $17.5 million outstanding debt. On May 31, 2013, we amended the senior secured credit agreement to increase our revolving credit facility from $175 million to $200 million. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally. No other terms of our senior secured credit agreement were modified.
Pursuant to the credit agreement, we may choose to pay interest to the lenders for outstanding borrowings at LIBOR plus 200 to 275 basis points or the banks' base rate plus 100 to 175 basis points, depending on our leverage ratio computed at the end of each calendar quarter. On the unused amount of the credit facility, we pay a commitment fee of 37.5 to 50.0 basis points depending on our leverage ratio calculated at the end of each quarter. Terms of the credit agreement require, among other things, that we meet certain financial covenants, restrict dividend payments and limit other and non-recourse debt. At December 31, 2013, we were in compliance with all covenants.
At December 31, 2013, $146.5 million was outstanding under our revolving credit agreement. This facility is collateralized with EZCORP’s domestic assets. We have also issued $3.1 million in letters of credit, leaving $50.4 million available on our revolving credit facility. The outstanding bank letters of credit were required under our workers' compensation insurance program and for our international office in Miami, Florida.

16


Deferred financing costs related to our credit agreement are included in intangible assets, net on the condensed consolidated balance sheet and are being amortized to interest expense over the term of the agreement.
On January 30, 2012, we acquired a 60% ownership interest in Grupo Finmart. Non-recourse debt amounts in the table above represent Grupo Finmart’s third-party debt. All unsecured notes are collateralized with Grupo Finmart’s assets. All lines of credit are guaranteed by Grupo Finmart's loan portfolio. Interest on lines of credit due 2014, 2015 and 2016 is charged at the Mexican Interbank Equilibrium ("TIIE") plus a margin varying from 5% to 10%. The line of credit due 2014 requires monthly payments of $0.1 million with remaining principal due at maturity. The line of credit due 2015 requires monthly payments of $0.4 million with the remaining principal due at maturity. The line of credit due 2016 requires monthly payments of $0.5 million with the remaining principal due at maturity. The 15% secured notes require monthly payments of $0.1 million with remaining principal due at maturity.
At acquisition, we performed a valuation to determine the fair value of Grupo Finmart's debt. As a result, we recorded a debt premium on Grupo Finmart’s debt. This debt premium is being amortized as a reduction of interest expense over the life of the debt. The fair value was determined by using an income approach, specifically the discounted cash flows method based on the contractual terms of the debt and risk adjusted discount rates.
On July 10, 2012, Grupo Finmart entered into a securitization transaction to transfer the collection rights of certain eligible consumer loans to a bankruptcy remote trust in exchange for cash on a non-recourse basis. The trust received financing as a result of the issuance of debt securities and delivered the proceeds of the financing to Grupo Finmart. The securitization agreement calls for a two-year revolving period in which the trust will use principal collections of the consumer loan portfolio to acquire additional collection rights up to $114.8 million in eligible loans from Grupo Finmart. Upon the termination of the revolving period, the collection received by the trust will be used to repay the debt. Grupo Finmart will continue to service the underlying loans in the trust.
Grupo Finmart is the primary beneficiary of the securitization trust because Grupo Finmart has the power to direct the most significant activities of the trust through its role as servicer of all the receivables held by the trust and through its obligation to absorb losses or receive benefits that could potentially be significant to the trust. Consequently, we consolidate the trust.
As of December 31, 2013, borrowings under the securitization borrowing facility amounted to $32.1 million. Interest is charged at TIIE plus a 2.5% margin, or a total of 6.3% as of December 31, 2013. The debt issued by the trust will be paid solely from the collections of the consumer loans transferred to the trust, and therefore there is no recourse to Grupo Finmart or EZCORP.
On May 15, 2013, Grupo Finmart issued and sold $30.0 million of 9% Global Registered Notes due November 16, 2015. Notes with an aggregate principal amount of $14.0 million were purchased by EZCORP and therefore eliminated in consolidation. Grupo Finmart used a portion of the net proceeds of the offering to repay existing indebtedness, and used the remaining portion for general operating purposes.
NOTE 8: COMMON STOCK, OPTIONS AND STOCK COMPENSATION
Our net income includes the following compensation costs related to our stock compensation arrangements:
 
 
Three Months Ended December 31,
 
2013
 
2012
 
(in thousands)
Gross compensation costs
$
1,236

 
$
925

Income tax benefits
(425
)
 
(299
)
Net compensation expense
$
811

 
$
626

In the current three-month period ended December 31, 2013 and the prior year three-month period ended December 31, 2012, no stock options were exercised.

17


NOTE 9: REDEEMABLE NONCONTROLLING INTEREST
The following table provides a summary of the activities in our redeemable noncontrolling interests as of December 31, 2013 and 2012:
 
Redeemable Noncontrolling Interests
 
(in thousands)
Balance as of September 30, 2012
$
53,681

Acquisition of redeemable noncontrolling interest
2,836

Sale of additional shares to parent
(7,981
)
Net income attributable to redeemable noncontrolling interests
1,438

Foreign currency translation adjustment attributable to noncontrolling interests
(651
)
Balance as of December 31, 2012
$
49,323

 
 
Balance as of September 30, 2013
$
55,393

Net income attributable to redeemable noncontrolling interests
1,826

Foreign currency translation adjustment attributable to noncontrolling interests
359

Balance as of December 31, 2013
$
57,578

On November 1, 2012, we acquired a 51% interest in TUYO (see Note 3 for details).
On November 14, 2012, we acquired an additional 23% of the ordinary shares outstanding of Cash Genie, our U.K. online lending business, for $10.4 million, increasing our ownership percentage from 72% to 95%, with the remaining 5% held by local management. The consideration paid to the selling shareholder was paid in the form of 592,461 shares of EZCORP Class A Non-voting Common Stock. This transaction was treated as an equity transaction and not an adjustment to the purchase price of the initial controlling interest acquisition of Cash Genie. On August 1, 2013, we acquired the remaining ordinary shares that were held by local management for $0.6 million. As of August 1, 2013, we own 100% of Cash Genie's ordinary shares.
NOTE 10: INCOME TAXES
Income tax expense is provided at the U.S. tax rate on financial statement earnings, adjusted for the difference between the U.S. tax rate and the rate of tax in effect for non-U.S. earnings deemed to be permanently reinvested in our non-U.S. operations.  Deferred income taxes have not been provided for the potential remittance of non-U.S. undistributed earnings to the extent those earnings are deemed to be permanently reinvested, or to the extent such recognition would result in a deferred tax asset.
The current quarter’s effective tax rate from continuing operations is 30.1% of pretax income compared to 33.0% for the prior year quarter. The effective tax rate for the three-month period ended December 31, 2013 was lower primarily due to the continued diversification of our operations worldwide.
The current quarter's effective tax rate for the tax expense from discontinued operations is 14.3% compared to the tax benefit of 9.9% for the prior year quarter. The effective tax rate for discontinued operations is lower than the effective tax rate from continuing operations due to the inclusion of discontinued operations in Canada for which a valuation allowance has previously been recognized, resulting in no current benefit.
NOTE 11: CONTINGENCIES
Currently and from time to time, we are defendants in various legal and regulatory actions. While we cannot determine the ultimate outcome of these actions, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity.
NOTE 12: OPERATING SEGMENT INFORMATION
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes.
We currently report our segments as follows:

18


U.S. & Canada — All business activities in the United States and Canada
Latin America — All business activities in Mexico and other parts of Latin America
Other International — All business activities in the rest of the world (currently consisting of Cash Genie online lending business in the United Kingdom and our equity interests in the results of operations of Albemarle & Bond and Cash Converters International)
There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information for the three months ending December 31, 2013 and 2012, including reclassifications discussed in Note 1 "Organization and Summary of Significant Accounting Policies."
 
Three Months Ended December 31, 2013
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
88,890

 
$
16,697

 
$

 
$
105,587

Jewelry scrapping sales
25,925

 
1,778

 

 
27,703

Pawn service charges
57,069

 
7,064

 

 
64,133

Consumer loan fees and interest
48,702

 
14,293

 
3,334

 
66,329

Other revenues
485

 
5,122

 
(2
)
 
5,605

Total revenues
221,071

 
44,954

 
3,332

 
269,357

Merchandise cost of goods sold
53,047

 
10,541

 

 
63,588

Jewelry scrapping cost of goods sold
18,570

 
1,450

 

 
20,020

Consumer loan bad debt
15,556

 
1,391

 
1,485

 
18,432

Net revenues
133,898

 
31,572

 
1,847

 
167,317

Segment expenses (income):
 
 
 
 
 
 
 
Operations
90,682

 
18,382

 
3,705

 
112,769

Depreciation
4,267

 
1,459

 
103

 
5,829

Amortization
652

 
617

 
26

 
1,295

(Gain) loss on sale or disposal of assets
(6,318
)
 
6

 

 
(6,312
)
Interest expense (income), net
5

 
3,148

 
(2
)
 
3,151

Equity in net income of unconsolidated affiliates

 

 
(1,271
)
 
(1,271
)
Other income

 
(30
)
 
(29
)
 
(59
)
Segment contribution (loss)
$
44,610

 
$
7,990

 
$
(685
)
 
$
51,915

Corporate expenses (income):
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
15,745

Depreciation
 
 
 
 
 
 
1,637

Amortization
 
 
 
 
 
 
645

Loss on sale or disposal of assets
 
 
 
 
 
 
22

Interest expense, net
 
 
 
 
 
 
1,181

Other income
 
 
 
 
 
 
(109
)
Income from continuing operations before income taxes
 
 
 
 
 
 
32,794

Income tax expense
 
 
 
 
 
 
9,881

Income from continuing operations, net of tax
 
 
 
 
 
 
22,913

Income from discontinued operations, net of tax
 
 
 
 
 
 
1,482

Net income
 
 
 
 
 
 
24,395

Net income from continuing operations attributable to redeemable noncontrolling interest
 
 
 
1,826

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
22,569


19


 
Three Months Ended December 31, 2012
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
79,704

 
$
14,900

 
$

 
$
94,604

Jewelry scrapping sales
41,988

 
2,721

 

 
44,709

Pawn service charges
58,197

 
7,203

 

 
65,400

Consumer loan fees and interest
44,328

 
11,877

 
6,929

 
63,134

Other revenues
2,791

 
1,641

 
382

 
4,814

Total revenues
227,008

 
38,342

 
7,311

 
272,661

Merchandise cost of goods sold
46,322

 
8,623

 

 
54,945

Jewelry scrapping cost of goods sold
29,074

 
2,231

 

 
31,305

Consumer loan bad debt expense (benefit)
10,928

 
(1,048
)
 
3,641

 
13,521

Net revenues
140,684

 
28,536

 
3,670

 
172,890

Segment expenses (income):
 
 
 
 
 
 
 
Operations
84,572

 
14,635

 
4,078

 
103,285

Depreciation
3,691

 
1,105

 
71

 
4,867

Amortization
147

 
435

 
26

 
608

Loss on sale or disposal of assets
29

 

 

 
29

Interest expense, net
17

 
2,613

 

 
2,630

Equity in net income of unconsolidated affiliates

 

 
(5,038
)
 
(5,038
)
Other (income) expense
(4
)
 
20

 
(69
)
 
(53
)
Segment contribution
$
52,232

 
$
9,728

 
$
4,602

 
$
66,562

Corporate expenses:
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
13,671

Depreciation
 
 
 
 
 
 
1,693

Amortization
 
 
 
 
 
 
106

Interest expense, net
 
 
 
 
 
 
1,007

Other income
 
 
 
 
 
 
(448
)
Income from continuing operations before income taxes
 
 
 
 
 
 
50,533

Income tax expense
 
 
 
 
 
 
16,672

Income from continuing operations, net of tax
 
 
 
 
 
 
33,861

Loss from discontinued operations, net of tax
 
 
 
 
 
 
(1,706
)
Net income
 
 
 
 
 
 
32,155

Net income from continuing operations attributable to redeemable noncontrolling interest
 
 
 
1,438

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
30,717


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


20



The following tables provide geographic information required by ASC 280-10-50-41:
 
Three Months Ended December 31,