Strategic Investments and Fair Value of Financial Instruments

9 Months Ended

Jun. 30, 2011

Strategic Investments and Fair Value of Financial Instruments [Abstract]

Strategic Investments and Fair Value of Financial Instruments

Note E: Strategic Investments and Fair Value of Financial Instruments

At June 30, 2011, we owned 16,644,640 ordinary shares of Albemarle & Bond Holdings, PLC, representing almost 30% of its total outstanding shares. Our total cost for those shares was approximately $27.6 million. Albemarle & Bond is primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. We account for the investment using the equity method. Since Albemarle & Bond’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Albemarle & Bond files semi-annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our quarter ended June 30, 2011 represents our percentage interest in the estimated results of Albemarle & Bond’s operations from January 1, 2011 to March 31, 2011.

In its functional currency of British pounds, Albemarle & Bond’s total assets increased 16% from December 31, 2009 to December 31, 2010 and its net income for the six months ended December 31, 2010 decreased 1% including the drag from new stores. Below is summarized financial information for Albemarle & Bond’s most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

	As of December 31,
	2010		2009
	(in thousands)
Current assets	$	121,519	$	104,537
Non-current assets		56,755		53,128
Total assets	$	178,274	$	157,665
Current liabilities	$	25,801	$	21,128
Non-current liabilities		53,497		48,025
Shareholders’ equity		98,976		88,512
Total liabilities and shareholders’ equity	$	178,274	$	157,665

	Six Months Ended December 31
	2010		2009
	(in thousands)
Gross revenues	$	76,424	$	64,572
Gross profit		46,745		43,054
Profit for the year (net income)		12,088		12,752

At June 30, 2011, we owned 124,418,000 shares, or approximately 33% of the total ordinary shares of Cash Converters International Limited, which is a publicly traded company headquartered in Perth, Australia. We acquired the shares between November 2009 and May 2010 for approximately $57.8 million. Cash Converters franchises and operates a worldwide network of approximately 600 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.

We account for our investment in Cash Converters using the equity method. Since Cash Converters’ fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Cash Converters files semi-annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our quarter ended June 30, 2011 represents our percentage interest in the estimated results of Cash Converters’ operations from January 1, 2011 to March 31, 2011.

In its functional currency of Australian dollars, Cash Converters’ total assets increased 17% from December 31, 2009 to December 31, 2010 and its net income improved 42% for the six months ended December 31, 2010. Below is summarized financial information for Cash Converters’ most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

	As of December 31,
	2010		2009
	(in thousands)
Current assets	$	104,408	$	96,680
Non-current assets		109,336		64,212
Total assets	$	213,744	$	160,892
Current liabilities	$	30,844	$	19,251
Non-current liabilities		11,970		11,010
Shareholders’ equity		170,930		130,631
Total liabilities and shareholders’ equity	$	213,744	$	160,892

	Six Months Ended December 31
	2010		2009
	(in thousands)
Gross revenues	$	83,109	$	51,609
Gross profit		62,037		38,315
Profit for the year (net income)		13,528		8,759

The table below summarizes the recorded value and fair value of each of these strategic investments at the dates indicated. These fair values are considered level one estimates within the fair value hierarchy of FASB ASC 820-10-50, and were calculated as (a) the quoted stock price on each company’s principal market multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate at the dates indicated. We included no control premium for owning a large percentage of outstanding shares.

	June 30, 2011		June 30, 2010		September 30, 2010
	(In thousands of U.S. dollars)
Albemarle & Bond:
Recorded value	$	46,457	$	41,613	$	43,127
Fair value		99,180		57,108		75,520
Cash Converters:
Recorded value		68,320		58,160		58,259
Fair value		94,911		58,624		70,005

Included in “Other Assets, net” on our balance sheets are available for sale securities with a fair value of $5.4 million at June 30, 2011, $3.9 million at June 30, 2010 and $4.9 million at September 30, 2010. This is considered to be a level one measurement of fair value as it is based on the ending market price for the securities at that date, as quoted on an active public securities exchange.

In March 2011, we announced plans to increase our ownership of Cash Converters’ outstanding shares from 33% to 53% for a total cost of approximately $70 million. Following the additional investment, we and Cash Converters plan to establish two joint ventures, under which we will roll out a suite of financial services products globally under the Cash Converters brand. The joint ventures are conditional upon the share purchase which, in turn, requires the approval of Cash Converters’ shareholders. We expect to close the transaction in our fiscal quarter ending December 31, 2011, at which point we will begin to consolidate Cash Converters’ results with ours and discontinue use of the equity method for our current investment in Cash Converters.