STRATEGIC INVESTMENTS

Cash Converters International Limited

At September 30, 2014, we owned 136,848,000 shares, or approximately 32%, of Cash Converters International Limited (“Cash Converters International”), a company headquartered in Perth, Australia, publicly traded on the Australian Stock Exchange. Cash Converters International franchises and operates a worldwide network of over 750 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 with the Australian Securities & Investments Commission for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our fiscal years ended September 30, 2014, 2013 and 2012 represents our percentage interest in the results of Cash Converters International’s operations from July 1, 2013 to June 30, 2014 and July 1, 2012 to June 30, 2013, and July 1, 2011 to June 30, 2012, respectively.

In fiscal 2014, 2013 and 2012 our equity in Cash Converters International’s net income was $7.1 million, $9.6 million and $9.9 million, respectively. Additionally, in fiscal 2014, 2013 and 2012 we recorded dividends from Cash Converters International of $5.1 million, $5.1 million and $4.4 million, respectfully. Cash Converters International’s accumulated undistributed after-tax earnings included in our consolidated retained earnings were $19.3 million at September 30, 2014.

In its functional currency of Australian dollars, Cash Converters International’s total assets increased 20% from June 30, 2013 to June 30, 2014 and its net income attributable to the owners of the parent decreased 26% for the fiscal year ended June 30, 2014. This decrease is primarily due to a decline in short-term personal lending as a result of regulatory changes in Australia. Cash Converters International sees these regulatory changes as an opportunity to capitalize on their strong compliance culture and critical mass in terms of stores and financing capability. The fiscal year ended June 30, 2014 reflects the continuing upward revenue trend that commenced in the prior year and Cash Converters International expects this trend to continue.

The following tables present 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):



	June 30,
	2014			2013
	(in thousands)
Current assets (1)	$	207,415		$	158,373
Non-current assets	178,764			153,279
Total assets	$	386,179		$	311,652

Current liabilities (1)	$	95,242		$	90,524
Non-current liabilities	60,441			451
Shareholders’ equity:
Equity attributable to owners of the parent	$	233,788		$	220,676
Non-controlling interest	(3,292		)	1
Total liabilities and shareholders’ equity	$	386,179		$	311,652

(1) Subsequent to the issuance of Cash Converters International’s annual report dated June 30, 2013 and our annual report dated September 30, 2013 an entry was recorded by Cash Converters International reducing the previously reported current assets and current liability balance at June 30, 2013 by $5.2 million. As Cash Converters International is an equity method investment this adjustment had no effect on the results reported in our annual financial statements.



	Fiscal Year Ended June 30,
	2014			2013		2012
	(in thousands)
Gross revenues	$	304,432		$	280,059	$	241,924
Gross profit	195,325			183,368		162,598
Profit attributable to:
Owners of the company	$	22,206		$	33,754	$	30,366
Non-controlling interest	(2,809		)	—		—
Profit for the year (net income)	$	19,397		$	33,754	$	30,366

At September 30, 2014, the recorded balance of our investment in Cash Converters International, accounted for on the equity method, was $91.1 million. Because Cash Converters International publicly reports its financial results only semi-annually as of June 30 and December 31, the latest Cash Converters International figures available are as of June 30, 2014, at which point our equity in net assets of Cash Converters International was $73.6 million. The difference between the recorded balance and our equity in Cash Converters International’s net assets represents the $19.2 million of equity method goodwill, plus the cumulative difference resulting from Cash Converters International’s earnings, dividend payments and translation gains and losses since the dates of investment.

Albemarle & Bond Holdings, PLC

Prior to its bankruptcy reorganization, Albemarle & Bond was primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. In fiscal year 2014 and 2013 we owned 16,644,640 ordinary shares of Albemarle & Bond, representing almost 30% of its total outstanding shares. We accounted for the investment using the equity method.

Albemarle & Bond’s fiscal year ended three months prior to ours; therefore, we reported the income from this investment on a three-month lag. When it was a publicly traded reporting company on the London Stock Exchange, Albemarle & Bond filed semi-annual financial reports for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our fiscal years ended September 30, 2014, 2013 and 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2013 to June 30, 2014, July 1, 2012 to June 30, 2013 and July 1, 2011 to June 30, 2012, respectively.

In fiscal 2014 our equity in Albemarle & Bond’s net loss was $1.2 million. In fiscal year 2013 and 2012, our equity in Albemarle & Bond’s net income was $2.3 million and $7.5 million, respectively. In fiscal 2014 we received no dividends from Albemarle & Bond. In fiscal year 2013 and 2012, we received dividends from Albemarle & Bond of $3.3 million and $3.3 million, respectively. Albemarle & Bond’s accumulated undistributed after-tax earnings included in our consolidated retained earnings were $25.4 million at September 30, 2014.

In March 2014, Albemarle & Bond entered into bankruptcy reorganization in the U.K., and on April 15, 2014 Albemarle & Bond announced that the majority of its business and assets had been sold. In fiscal year 2014 and 2013 we recognized other than temporary impairments of $7.9 million (5.4 million, net of taxes) and $42.5 million ($28.7 million, net of taxes) which brought our carrying value of this investment to zero and $9.4 million at September 30, 2014 and 2013 respectively.

The table below summarizes the carrying amount and fair value of each of these strategic investments at the dates indicated. These fair values for Cash Converters International at September 30, 2014 and 2013 are considered Level 1 estimates within the fair value hierarchy of FASB ASC 820-10-50, and were calculated as (a) the quoted stock price on the Australian Stock Exchange 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 for owning a large percentage of outstanding shares.

The fair value for Albemarle & Bond at September 30, 2014 is considered a Level 2 estimate within the fair value hierarchy of FASB ASC 820-10-50. We calculated the fair value based on Albemarle & Bond's announcement of limited, if any, value available to the ordinary shares of its stock, which was considered to be an unobservable input insignificant to the overall determination of the Albemarle & Bond fair value. 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 two week period subsequent to the October 2013 announcement 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 measurement date allowed the market to react and adjust to the information released by Albemarle & Bond the first week of October 2013, as previously mentioned, and therefore resulted in a reasonable fair value as of September 30, 2013.



	September 30,
	2014		2013
	(in thousands of U.S. dollars)
Albemarle & Bond:
Carrying amount	$	—	$	9,439
Fair value	—		9,439
Cash Converters International:
Carrying amount	$	91,098	$	87,646
Fair value	128,956		165,663