Discontinued Operations

9 Months Ended

Jun. 30, 2014

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS

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 June 30, 2013) 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 three and nine-month periods ended June 30, 2013, we recorded $23.8 million of pre-tax charges, primarily lease terminations of $9.1 million, inventory write-downs of $7.8 million, and fixed asset write-downs of $5.8 million. During the third quarter ended June 30, 2014, we recorded $0.8 million of pre-tax gains related to these termination costs, primarily related to lease terminations, as negotiated amounts were lower than the initial lease buyout estimates recorded in the prior year. During the nine-month period ended June 30, 2014, we recorded $3.9 million of pre-tax gains related to these termination costs, primarily related to lease terminations of $3.0 million, as negotiated amounts were lower than the initial lease buyout estimates recorded in the prior year, and release of inventory write-down reserves of $0.6 million. These charges and gains have been recorded as part of income (loss) from discontinued operations in our three and nine-month periods ended June 30, 2014 and 2013 condensed consolidated statements of operations, respectively.

As of June 30, 2014 and 2013, accrued severance and lease termination costs related to discontinued operations were $0.9 million and $23.8 million, respectively. This amount is included in accounts payable and other accrued expenses in our condensed consolidated balance sheets. During the three and nine-month periods ended June 30, 2014, cash payments of $0.5 million and $3.4 million, respectively, were made with regard to the recorded termination costs. As of June 30, 2013, no cash payments had been made with regard to the recorded termination costs.

Discontinued operations in the three-month periods ended June 30, 2014 and 2013 include $0.1 million and $3.2 million of total revenues, respectively. The nine-month periods ended June 30, 2014 and 2013 include $2.9 million and $11.6 million of total revenues, respectively.

The table below summarizes the operating income and losses from discontinued operations by operating segment:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
U.S. & Canada
Net revenues	$	(26	)	$	1,495		$	189		$	4,519
Operating expenses	102			2,942			505			8,980
Operating loss from discontinued operations before taxes	(128		)	(1,447		)	(316		)	(4,461		)
Total termination (gain) loss related to the reorganization	(793		)	13,427			(1,744		)	13,427
Income (loss) from discontinued operations before taxes	665			(14,874		)	1,428			(17,888		)
Income tax (provision) benefit	(166		)	839			(131		)	1,010
Income (loss) from discontinued operations, net of tax	$	499		$	(14,035	)	$	1,297		$	(16,878	)
Latin America
Net revenues	$	(438	)	$	752		$	(1,247	)	$	2,483
Operating expenses	9			1,076			406			3,482
Operating loss from discontinued operations before taxes	(447		)	(324		)	(1,653		)	(999		)
Total termination loss (gain) related to the reorganization	—			10,336			(2,126		)	10,336
(Loss) income from discontinued operations before taxes	(447		)	(10,660		)	473			(11,335		)
Income tax benefit (provision)	134			3,198			(142		)	3,400
(Loss) income from discontinued operations, net of tax	$	(313	)	$	(7,462	)	$	331		$	(7,935	)
Consolidated
Net revenues	$	(464	)	$	2,247		$	(1,058	)	$	7,002
Operating expenses	111			4,018			911			12,462
Operating loss from discontinued operations before taxes	(575		)	(1,771		)	(1,969		)	(5,460		)
Total termination (gain) loss related to the reorganization	(793		)	23,763			(3,870		)	23,763
Income (loss) from discontinued operations before taxes	218			(25,534		)	1,901			(29,223		)
Income tax (provision) benefit	(32		)	4,037			(273		)	4,410
Income (loss) from discontinued operations, net of tax	$	186		$	(21,497	)	$	1,628		$	(24,813	)

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