10-K 1 d84374e10vk.htm FORM 10-K e10vk
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2011
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. þ
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 $1,449 million, based on the closing price on the NASDAQ Stock Market on March 31, 2011.
As of October 31, 2011, 47,387,572 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, 2011
INDEX TO FORM 10-K
         
Item   Page  
No.   No.  
INTRODUCTION        
 
       
       
 
       
    3  
    16  
    20  
    21  
    23  
    23  
 
       
       
 
       
    24  
    26  
    27  
    47  
    48  
    81  
    81  
    83  
 
       
       
 
       
    84  
    89  
    106  
    108  
    111  
 
       
       
 
       
    112  
 
       
    115  
    116  
 EX-21.1
 EX-23.1
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 


Table of Contents

PART I
This report contains forward-looking statements that are based on our current expectations. Actual results in future periods may differ materially from those expressed or implied by those forward-looking statements because of a number of risks and uncertainties. For a discussion of risk factors affecting our business and prospects, see “Part I — Item 1A — Risk Factors.”
Item 1. Business
General
EZCORP, Inc. is a Delaware corporation headquartered in Austin, Texas. We are a leading provider of specialty consumer financial services and a reseller of second-hand goods. We provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of financial services including payday loans, installment loans and auto title loans, or fee-based credit services to customers seeking loans.
At September 30, 2011, we operated a total of 1,111 locations, consisting of 433 U.S. pawn stores (operating as EZPAWN or Value Pawn), 178 pawn stores in Mexico (operating as Empeño Fácil or Empeñe Su Oro), 436 U.S. financial services stores (operating primarily as EZMONEY), 49 financial services stores in Canada (operating as CASHMAX) and 15 financial and retail services stores in Canada (operating as Cash Converters). We own almost 30% of Albemarle & Bond Holdings, PLC, one of the United Kingdom’s largest pawnbroking businesses with over 150 stores, and almost 33% of Cash Converters International Limited, which franchises and operates a worldwide network of over 600 locations that provide financial services and buy and sell second-hand goods. In fiscal 2011, we acquired the Cash Converters master franchise rights in Canada and became the franchisor of 13 franchised stores. We are in the process of rebranding the majority of our Canadian stores as “Cash Converters” stores and introducing into them the buying and selling of second-hand goods.
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. At our financial services stores and at some of our pawn stores, we offer a variety of loan products, including single-payment, non-collateralized payday loans with maturity dates typically ranging from 7 to 30 days; non-collateralized installment loans that may be repaid over extended periods of up to seven months; 30-day loans secured by automobile titles; and revolving lines of credit both unsecured and secured by automobile titles. In our Cash Converters stores, we also buy and sell second-hand goods. Our financial services stores in Texas do not offer loan products themselves, but rather offer credit services to help customers obtain loans from independent third-party lenders. Some of our Texas pawn stores also offer credit services in addition to pawn loans.
In many of our stores and online, customers may obtain our general-purpose, branded reloadable debit cards (called the “Change Card”). Customers may elect to deposit their payroll to the card either through direct deposit or by loading paper checks onto the card, and may elect to receive loan proceeds on the card. Among other services, customers may then use the cards to withdraw cash, make purchases at any vendor accepting branded debit cards, pay bills online, establish a savings account and invest in a mutual fund. The cards are issued by a bank, and we receive a portion of the fees charged for activity on the cards.
Our business consists of three reportable segments. The U.S. Pawn Operations segment operates only in the United States. The Empeño Fácil segment operates only in Mexico. The EZMONEY Operations segment operates 430 stores in the United States and 64 stores in Canada. For revenues, profitability, assets and other information attributable to each of our segments, see Note R, “Operating Segment Information” to our consolidated financial statements contained in Item 8 of this annual report.

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The following table presents store data by segment:
                                         
    Fiscal Year Ended September 30, 2011  
    Company-owned Stores          
          EZMONEY                  
    U.S. Pawn Operations     Empeño Fácil     Operations     Consolidated     Franchises  
Stores in operation:
                                       
Beginning of period
    396       115       495       1,006        
New openings
    10       57       15       82       1  
Acquired
    34       6             40       13  
Sold, combined or closed
    (1 )           (16 )     (17 )     (1 )
 
                             
End of period
    439       178       494       1,111       13  
 
                             
The following components comprised our total revenues:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
Merchandise sales
    33 %     33 %     35 %
Jewelry scrapping sales
    24 %     24 %     20 %
Pawn service charges
    23 %     22 %     22 %
Signature loan (including credit service) fees
    17 %     19 %     22 %
Auto title loan (including credit service) fees
    3 %     2 %     1 %
 
                 
Total revenues
    100 %     100 %     100 %
Pawn and Retail Activities
Our pawn stores make pawn loans, which are typically small, non-recourse loans collateralized by tangible personal property. At September 30, 2011, we had an aggregate pawn loan principal balance of $145.3 million, and the average pawn loan was approximately $120. We earn pawn service charge revenue on our pawn lending. In the year ended September 30, 2011 (“fiscal 2011”), pawn service charges accounted for approximately 23% of our total revenues and 38% of our net revenues.
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 $125 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 15% 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 equate to between $65 and $70 U.S. dollars. In fiscal 2011, 2010 and 2009, approximately 81%, 80% and 79%, 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 62% 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 pledged property’s estimated resale value depending on an evaluation of these factors. The sources of information we use to determine the resale value of collateral include our computerized valuation software, gold values, internet retail and auction sites, catalogues, newspaper advertisements and previous sales of similar merchandise.
The collateral is held through the duration of the loan, which the customer may renew or extend by paying accrued pawn service charges. Through our lending guidelines, we maintain an annual redemption rate (the percentage of loans made that are repaid, renewed or extended) between 79% and 82%. 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. We provide an inventory valuation allowance to ensure that this forfeited collateral is valued at the lower of cost or market.

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The table below shows our dollar amount of pawn loan activity for fiscal 2011, 2010 and 2009:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In millions)  
Loans made
  $ 505.2     $ 416.4     $ 340.3  
Loans repaid
    (273.5 )     (222.2 )     (181.3 )
Loans forfeited
    (215.3 )     (177.8 )     (155.7 )
Loans acquired in business acquisitions
    8.6       2.7       23.3  
Change due to foreign currency exchange fluctuations
    (0.9 )     0.4       (0.9 )
 
                 
Net increase in pawn loans outstanding at the end of the year
  $ 24.1     $ 19.5     $ 25.7  
 
                 
 
                       
Loans renewed
  $ 173.4     $ 124.8     $ 107.1  
Loans extended
  $ 979.6     $ 805.3     $ 592.4  
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, which makes up approximately 62% of the value of collateral, 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 transaction is made, a pawn loan agreement (called a pawn ticket) is given to the customer. The pawn ticket 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 certain financial services 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. 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 2011, 2010 and 2009, we realized gross margins on sales of 43%, 42% and 40%, respectively.
Jewelry sales represent approximately half of our total sales, with the remaining sales consisting primarily of consumer electronics, tools, sporting goods and musical instruments. 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.
During the three most recent fiscal years, sources of inventory additions were:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
Forfeited pawn loan collateral
    68 %     69 %     69 %
Purchases from customers
    30 %     30 %     22 %
Acquired in business acquisitions
    2 %     1 %     9 %
For fiscal 2011, 2010 and 2009, retail activities and jewelry scrapping (sales of precious metals and gemstones to refiners and gemstone wholesalers) accounted for approximately 57%, 56% and 55% of our total revenues, or 37%, 36% and 35% net revenues respectively, after deducting the cost of goods sold. As a significant portion of our inventory and sales involve gold jewelry, our results can be heavily influenced by the market price of gold, which has increased over the past several years.
Customers may purchase an extended return plan (called a “product protection plan”) that allows them to return or exchange certain general (non-jewelry) merchandise 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.

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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 upon 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, 2011, we held $6.2 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 9.5% of gross inventory at September 30, 2011 compared to 7.4% at September 30, 2010. The higher valuation allowance is reflective of a shift in inventory from jewelry to general merchandise, as the change in the aging of inventory remained relatively flat, with 12.2% aged greater than one year at September 30, 2011 compared to 12.0% at September 30, 2010.
Financial Services
We also offer a variety of financial services to customers who do not have 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 fund 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.
The specific financial services offered varies by location, but generally include some or all of the following:
    Signature Loans — Short-term non-collateralized loans are sometimes referred to as signature loans. We offer three principal types of signature loans:
    Payday loans — Payday loans are short-term loans (generally less than 30 days and averaging about 16 days) with due dates corresponding to the customer’s next payday. Principal amounts of payday loans can be up to $1,500, but average approximately $435. We typically charge a fee of 15% to 22% of the loan amount for a 7 to 23-day period.
 
    Installment loans —Installment loans are subject to state law and typically carry a term of four to seven months, with a series of equal installment payments due monthly, semi-monthly or on customers’ 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. Installment loan principal amounts range from $100 to $3,000, but average approximately $530.
 
    Line 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 customers’ 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.
    Auto Title Loans — We offer two principal types of auto title loans:
    Single payment auto title loans —Single payment auto title loans are 30-day loans collateralized by the titles to customers’ automobiles. Loan principal amounts range from $100 to $10,000, but average about $810. Loan amounts are established based on customers’ income levels, an inspection

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      of the automobile and title and reference to market values of used automobiles. We earn a fee of 12.5% to 25% of auto title loan amounts.
 
    Auto title line 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.
Debit Cards — In many of our stores and online, customers may obtain general-purpose, branded reloadable debit cards. Customers may elect to deposit their payroll to the card either through direct deposit or by loading paper checks onto the card, and may elect to receive certain types of loan proceeds on the card. Among other services, customers may then use the cards to withdraw cash, make purchases at any vendor accepting branded debit cards, pay bills online, and invest in a mutual fund. The cards are issued by a more bank, and we receive a portion of the fees charged for activity on the cards.
In our Texas stores, we do not offer loans themselves, 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 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 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. For credit services in connection with arranging a payday loan (average loan amount of about $520), our fee is 21.75% of the loan amount. For credit services in connection with arranging an unsecured installment loan (average loan amount of about $2,015), our fee is 10% of the initial loan amount with each semi-monthly or bi-weekly installment payment. For credit services in connection with arranging an auto title loan (average loan amount of about $840), the fee is 25% of the loan amount.
Single-payment payday 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 and installment 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 signature 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 or late 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 and late 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.
The table below shows the dollar amount of our signature loan activity for the three most recent fiscal years. For purposes of this table, signature loan balances include the principal portion of payday loans and installment loans (net of valuation allowance) recorded on our balance sheet and the principal portion of such active brokered loans outstanding from unaffiliated lenders, which is not included on our balance sheet. In fiscal 2011, new loans were renewed 1.5 times on average, down from 1.8 times in fiscal 2010 and 1.9 times in fiscal 2009.

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    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In millions)  
Combined signature loans:
                       
Loans made
  $ 249.4     $ 233.8     $ 217.3  
Loans repaid
    (216.7 )     (200.7 )     (184.0 )
Loans forfeited, net of collections on bad debt
    (34.1 )     (30.7 )     (32.6 )
 
                 
Net increase in signature loans outstanding at the end of the year
  $ (1.4 )   $ 2.4     $ 0.7  
 
                 
 
                       
Loans renewed
  $ 366.5     $ 425.5     $ 437.6  
 
                       
Loans made by unaffiliated lenders (credit services only):
                       
Loans made
  $ 113.7     $ 114.0     $ 114.0  
Loans repaid
    (94.1 )     (92.5 )     (90.6 )
Loans forfeited, net of collections on bad debt
    (21.6 )     (21.5 )     (23.9 )
 
                 
Net increase in loans outstanding at the end of the year
  $ (2.0 )   $     $ (0.5 )
 
                 
 
                       
Loans renewed
  $ 336.9     $ 364.1     $ 366.7  
 
                       
Loans made by us:
                       
Loans made
  $ 135.7     $ 119.8     $ 103.3  
Loans repaid
    (122.6 )     (108.2 )     (93.4 )
Loans forfeited, net of collections on bad debt
    (12.5 )     (9.2 )     (8.7 )
 
                 
Net increase in loans outstanding at the end of the year
  $ 0.6     $ 2.4     $ 1.2  
 
                 
 
                       
Loans renewed
  $ 29.6     $ 61.4     $ 70.9  
Signature loans are unsecured, and their profitability 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.
We began offering auto title loans in September 2008. The table below shows the dollar amount of our auto title loan activity for the three most recent fiscal years. For purposes of this table, auto title loan balances include the principal portion of auto title loans (net of valuation allowance) recorded on our balance sheet and the principal portion of active brokered auto title loans outstanding from unaffiliated lenders, which is not included on our balance sheet.

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    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In millions)  
Combined auto title loans:
                       
Loans made
  $ 27.8     $ 25.3     $ 5.6  
Loans repaid
    (24.5 )     (14.7 )     (2.5 )
Loans forfeited, net of collections on bad debt
    (4.0 )     (4.5 )     (0.4 )
Loans acquired in business acquisition
                1.1  
 
                 
Net increase in auto title loans outstanding at the end of the year
  $ (0.7 )   $ 6.1     $ 3.8  
 
                 
 
                       
Loans renewed
  $ 70.5     $ 56.8     $ 14.0  
 
                       
Loans made by unaffiliated lenders (credit services only):
                       
Loans made
  $ 16.3     $ 16.0     $ 3.3  
Loans repaid
    (15.7 )     (9.3 )     (1.0 )
Loans forfeited, net of collections on bad debt
    (1.4 )     (2.1 )     (0.2 )
Loans acquired in business acquisition
                 
 
                 
Net increase in loans outstanding at the end of the year
  $ (0.8 )   $ 4.6     $ 2.1  
 
                 
 
                       
Loans renewed
  $ 56.0     $ 40.7     $ 4.9  
 
                       
Loans made by us:
                       
Loans made
  $ 11.5     $ 9.3     $ 2.3  
Loans repaid
    (8.8 )     (5.4 )     (1.5 )
Loans forfeited, net of collections on bad debt
    (2.6 )     (2.4 )     (0.2 )
Loans acquired in business acquisition
                1.1  
 
                 
Net increase in loans outstanding at the end of the year
  $ 0.1     $ 1.5     $ 1.7  
 
                 
 
                       
Loans renewed
  $ 14.5     $ 16.1     $ 9.1  
Auto title loans are secured by the titles to customers’ automobiles. Lending decisions and loan amounts are determined based on 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 signature loan or auto title loan is made, a loan agreement and credit services agreement, when applicable, are given to the borrower. It presents the name and address of the lender, the borrower and the credit services company when applicable, the borrower’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. 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.
Signature loan and auto title loan fees are generally highest in our third and fourth fiscal quarters (April through September) due to a higher average loan balance during the summer lending season. Signature loan and auto title

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loan bad debt, both in dollar terms and as a percentage of related fees, is highest in the third and fourth fiscal quarters and lowest in the second fiscal quarter due primarily to the impact of tax refunds in the U.S.
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. Our cash flow typically is greatest in the second fiscal quarter due to a high level of loan redemptions and sales in the U.S. income tax refund season.
Operations
A typical company pawn store employs approximately six full-time equivalent employees (“FTEs”), 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% and 30% of their total compensation.
Financial services stores typically employ two to three FTEs 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 signature loans in the first 30 days after default. After the initial 30 days, our centralized collection center assumes collection responsibility for these stores’ loans. The centralized collection center also collects defaulted signature loans for all other locations from the date of default. After attempting to collect for approximately 90 days, we generally sell the remaining defaulted signature loans to a third party or refer them to an outside collection agency for a contingency fee.
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 signature loan and auto title loan transactions. We have redundant backup systems in the event of a system failure or natural disaster. Financial data from all stores is processed at the corporate office each day, and the preceding day’s data are available for management review via our internal network. 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 several times annually, adjusted based on estimated risk.
As of September 30, 2011, we employed approximately 5,600 people. We believe that our success is dependent upon our employees’ 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 employees. To achieve our long-range personnel goals, we offer a structured career development program for all of our field associates. This program encompasses computer-based training, formal structured classroom training and supervised on-the-job training. All store associates, including 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 associates 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 names “EMPEñO FáCIL” and “EMPEñE SU ORO AL INSTANTE.” Our U.S. financial services

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stores operate under a variety of names, including “EZMONEY Payday Loans,” “EZ Loan Services,” “EZ Payday Advance,” “AAA Payday Loans” and “EZPAWN Payday Loans” and our CSO stores operate under the name “EZMONEY Loan Services.” Our financial services stores in Canada operate under the names “CASHMAX” or “Cash Converters.” 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 new locations and through acquisitions. We believe that in the near term the largest growth opportunities are with new pawn stores in Mexico and the U.S., Cash Converters stores in Canada, pawn store acquisitions in the United States and online lending, both in the U.S. and internationally. We continually evaluate and test new products and formats, which may result in further expansion opportunities.
In fiscal 2011, we acquired 34 U.S. pawn stores, six Mexico pawn stores and the trademark and licensing rights of Cash Converters in Canada for a total of $75.2 million. The U.S. pawn stores were located in the Chicago area, Georgia, Florida, Iowa, Wisconsin and Utah, and the Mexico stores were in the states of Hidalgo and Tlaxcala. During fiscal 2011, we also opened 10 pawn stores in the United States, 57 pawn stores in Mexico, 10 financial services and 5 financial and retail services stores in Canada. In fiscal 2012, we plan to open approximately 55 to 65 pawn stores in Mexico, 12 to 15 pawn stores in the United States, and 10 Canadian Cash Converters locations.
All licensing rights and stores were acquired as part of our continuing strategy to acquire pawn stores and other assets to enhance and diversify our earnings. The results of all acquired stores have been consolidated with our results since their acquisition.
The cost of opening new stores varies based on the size, type and location of stores opened. During fiscal 2011, the new U.S. pawn stores opened required an average property and equipment investment of approximately $326,000. The new Canadian financial services stores required an average property and equipment investment of approximately $83,000 and the financial and retail services stores required an average property and equipment investment of approximately $184,000. In fiscal 2011 we opened 43 full line pawn stores and 14 Empeñe Su Oro jewelry-only pawn stores and for a total of 57 new pawn stores in Mexico. The full line pawn stores required an average property and equipment investment of approximately $130,000 and the jewelry-only stores required an average property and equipment investment of approximately $50,000.
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.
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, credits unions and other financial institutions, such as consumer finance companies. 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, including jewelry stores, discount retail stores, consumer electronics stores, other pawn stores, other resale stores, electronic commerce

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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.
In offering general purpose, reloadable debit cards, our competitors include other specialty financial service providers, banks and credit unions as well as specialists in offering debit cards. Competitive factors in our debit card operations include offering competitive, comprehensive services at competitive rates.
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 433 locations at September 30, 2011. The three largest pawn store operators account for approximately ten percent 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 still in an expansion phase in Mexico, although is closer to maturity than full-line stores.
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 other 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, and online competition has increased in recent years. 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 remains in a growth stage. The industry consists of approximately 1,500 locations that are either mono-line stores offering only short-term consumer loans or other 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 74% of the total number of locations.
Strategic Investments
Albemarle & Bond — At September 30, 2011, we held almost 30% of the outstanding shares of Albemarle & Bond Holdings PLC. At June 30, 2011, the latest date at which Albemarle & Bond has publicly reported results, Albemarle & Bond operated over 150 locations in the United Kingdom that offer pawn loans, payday loans, installment loans, check cashing and retail jewelry. For Albemarle & Bond’s fiscal year ended June 30, 2011, its gross revenues increased 24% to £101.9 million ($162.0 million), its net income increased 6% over the prior year to approximately £15.3 million ($24.3 million), and its diluted earnings per share increased 7% to £0.2770 ($0.4406). Albemarle & Bond is based in Bristol, England, and its stock is publicly traded on the Alternative Investment Market of the London Stock Exchange. We are its largest single shareholder and currently hold three of the nine seats on Albemarle & Bond’s board of directors. We account for our investment in Albemarle & Bond under the equity method. In fiscal 2011, our interest in Albemarle & Bond’s income was $7.3 million and we received dividends of $3.2 million. Based on the closing price and exchange rates on September 30, 2011, the market value of our investment in Albemarle & Bond was approximately $91.7 million compared to its book value of $48.4 million.
Cash Converters International — At September 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. As its largest single shareholder and pursuant to a shareholder agreement, we hold two of the five seats on Cash Converters’ board of directors. Cash Converters franchises and operates a worldwide

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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. 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. If proposed Australian legislation limiting fees on short-term consumer loans is passed, Cash Converters has indicated it may limit its short-term consumer lending in Australia and redirect capital elsewhere, including a greater focus on the United Kingdom.
For its fiscal year ended June 30, 2011, Cash Converters’ gross revenue improved 48% to AUS $186.1 million (U.S. $184.0 million), net income improved 27% to AUS $27.6 million (U.S. $27.3 million), and diluted earnings per share increased 10% to AUS $0.0723 (U.S. $0.0710). For the year, Cash Converters paid dividends of AUS $0.0325 (U.S. $0.0321) per share. We account for our investment in Cash Converters under the equity method. In fiscal 2011, our interest in Cash Converters’ income was $8.9 million and we received dividends of $4.1 million. Based on the closing price and exchange rates on September 30, 2011, the market value of our investment in Cash Converters was approximately $53.6 million compared to its book value of $71.9 million.
In March 2011, we entered into an agreement with Cash Converters to increase our ownership to approximately 53% and to enter into two joint ventures to develop the Cash Converters business in areas outside of Australia and the United Kingdom. In August 2011 and before the plan had been submitted to Cash Converters’ shareholders for approval, we terminated that agreement as a result of the introduction of proposed legislation in Australia that could have an adverse effect on Cash Converters’ signature loan business there. We continue to hold our existing 33% investment in Cash Converters, as well as the Cash Converters master franchise rights in Canada. We have already converted 10 of our existing Canadian financial services stores to the Cash Converters brand and have added the Cash Converters buy/sell model, and we expect to convert most of the remaining stores during fiscal 2012. In addition, in October 2011 we acquired substantially all the assets of Cash Converters United LC, including seven stores doing business under the Cash Converters brand in Virginia and Pennsylvania, the exclusive right to develop Cash Converters stores in Virginia, North Florida and Eastern Pennsylvania, and a right of first refusal to acquire the Cash Converters franchise rights in the District of Columbia and 17 other states in the East, South, Midwest and Southwest.
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 “Item 2 — Properties.”
Pawn 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 service charges and interest rates 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 sold. 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 interest, fees, total payments and annual percentage rate related to each pawn loan transaction. Additional federal regulations applicable to our pawn lending business are described in “Other Federal Regulations” below.
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

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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.
We do not purchase, sell or make pawn loans on handguns or assault weapons. Some of our pawn stores in the U.S. handle other types of firearms, such as sporting rifles and other long guns, and each of those shops 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.
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 payday 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’ payday loan activities to a state-wide database, and prohibit the making of payday loans to customers who have payday 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 interest, fees, total payments and annual percentage rate related to each loan transaction. With respect to our debt collection activities, we comply with 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 new state laws effective January 1, 2012, will be 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 new 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 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.
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

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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 was enacted in July 2010. This new federal law, among other things, establishes a Bureau of Consumer Financial Protection, which will regulate companies that offer or supply consumer financial products and services, including payday loans, pawn loans and other products and services that we offer. The act contains provisions relating to the establishment of the bureau, the transfer of authority and staff from existing federal regulatory agencies and the provision of funding for the bureau. Those provisions are still in the implementation stage, and until the bureau has become operational and begins to propose rules and regulations that apply to our activities, it is not possible to accurately predict what affect the bureau 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 “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 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. In addition, the Federal Fair and Accurate Credit Transactions Act 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 the importance of protecting non-public personal information 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. If we deny an application for credit, we are required to provide the applicant with a Notice of Adverse Action, informing the applicant of the action taken regarding the credit application, a statement of the prohibition on discrimination, the name and address of both the creditor and the federal agency that monitors compliance, and the applicant’s right to learn the specific reasons for the denial.
  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 requires us to report and maintain records of certain high-dollar transactions. In addition, federal regulations 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.
  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 signature loans, though it does not apply to pawn loans. We do not make signature

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    loans to active duty military personnel or their immediate families because it is not economically feasible for us to do so at these rates.
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.
    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.
 
      As noted above under “Item 1 — Business — Regulation,” the Dodd-Frank Wall Street Reform and Consumer Protection Act establishes a Bureau of Consumer Financial Protection, which will have the power to, among other things, regulate companies that offer or supply payday loans, pawn loans and other products and services that we offer. Until the bureau has become operational and begins to propose rules and regulations that apply to our activities, it is not possible to accurately predict what affect the bureau will have on our business. There can be no assurance that the bureau will not propose and enact rules or regulations that would have a material adverse effect on our operations and financial performance.
 
      Adverse legislation could also be enacted in any 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.
 
      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, in August 2011, legislation was proposed in Australia that would, among other things, limit the interest charged on certain consumer loans and prohibit loan extensions and refinancings. If this legislation is enacted in its currently proposed form, Cash Converters International’s consumer loan business in Australia may be adversely affected, which could have the effect of decreasing Cash Converters International’s revenues and earnings.
 
      Many of the legislative and regulatory efforts that are adverse to the short-term consumer loan industry are

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      the result of the negative characterization of the industry by some consumer advocacy groups and some media reports that do not focus on the credit risk and high transaction costs of serving our segment. 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 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. The impact on our financial position and results of operations of a hypothetical decrease in gold values cannot be reasonably estimated because the market and competitive response to changes in gold values is not known; however, a significant decline in gold values could result in decreases in sales, sales margins, and pawn service charge revenues.
 
    A significant portion of our business is concentrated in Texas. Over half of our financial services stores and almost half of our domestic pawn stores are located in Texas, and those stores account for a significant portion of our revenues and profitability. The legislative, regulatory and general business environment in Texas has been, and continues to be, 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 (including Mexico and Canada) will continue to grow faster than our business in Texas. In the foreseeable future, however, a negative legislative or regulatory change in Texas could have a material adverse effect on our overall operations and financial performance.
 
    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 and Canada and equity investments in the United Kingdom and Australia. Our assets, investments in, earnings from and dividends from each of these must be translated to U.S. dollars from their respective functional currencies of the Mexican peso, Canadian dollar, British pound and the Australian dollar. 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 signature loan products and services require the customer to have a verifiable recurring source of income. Consequently, we may experience reduced demand for our signature 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 short-term consumer loans to customers, but assist customers in arranging loans with unaffiliated lenders. Our short-term consumer loan 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.

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    Achievement of our growth objectives is dependent upon our ability to open and acquire new stores. Our expansion strategy includes opening new stores and acquiring existing stores. The success of this strategy is subject to numerous factors that cannot be predicted or controlled, such as the availability of acceptable locations, the ability to obtain required government permits and licenses, the availability of attractive acquisition candidates and our ability to attract, train and retain qualified associates. 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 or Canada could adversely affect our operations in those countries, which could adversely affect our growth plans. Our growth plans include significant expansion in Mexico and Canada. Changes in the business, regulatory or political climate in either of those countries, 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.
 
    Drug related violence could adversely affect our operations and growth plans in Mexico. To date, the drug related violence in Mexico has been most prevalent along the United States border and other areas where we do not have a significant presence, and has had little effect on our operations. If the violence were to spread to other areas of Mexico, where we have a greater presence, it could affect our ability to expand or continue our operations there, which could have a material adverse impact on our prospects, results of operations, cash flows and assets.
 
    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 credit agreement with a syndicate of banks. If one of those lenders is unable to provide funding in accordance with its commitment, our available credit could be reduced by the amount of that lender’s commitment.
 
    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, 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.
 
    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.
 
    We are beginning to implement an online short-term consumer lending business, which will be subject to additional risks. We recently announced the formation of an eCommerce and Card Services division, which among things, will be responsible for developing an online short-term consumer lending

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      business. In addition to being subject to the various federal, state and local regulations that are applicable to short-term consumer lending generally, this business will also be 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 will depend 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.
 
    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 and controls the outcome of all issues requiring a vote of stockholders. 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. This lack of voting rights may adversely affect the market value of the publicly traded Class A Non-voting Common Stock.
 
    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 these 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. Furthermore, there can be no assurance that we will be able to dispose of some or all of an 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

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      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.
 
    We face other risks discussed under Quantitative and Qualitative Disclosures about Market Risk in Item 7A of this Form 10-K.
Item1B. Unresolved Staff Comments
None.

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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. Approximately 30% of our pawn stores in Mexico are gold jewelry-only pawn stores with no retail activities, which typically occupy 500 to 1,000 square feet. 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 December 31, 2011 and July 31, 2026, 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 2011, 2010 and 2009
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
Store count at beginning of fiscal year
    1,006       910       809  
New stores opened
    82       111       42  
Acquired stores
    40       16       78  
Stores closed or consolidated
    (17 )     (31 )     (19 )
 
                 
Store count at end of fiscal year
    1,111       1,006       910  
 
                 
In 2011, we opened 57 Empeño Fácil pawn stores in Mexico, 10 CASHMAX financial services stores and five Cash Converters financial and retail services stores in Canada and 10 U.S pawn stores. We also acquired 34 pawn stores in the U.S. and six pawn stores in Mexico during fiscal 2011.
On an ongoing basis, we may close or consolidate under-performing store locations. In fiscal 2011, we closed five U.S. financial services stores and two financial services stores in Canada, consolidated nine U.S. financial services stores into other existing U.S. financial services stores and consolidated one U.S. pawn store into an existing pawn store. In fiscal 2010, we closed 10 financial services stores and consolidated 19 financial services stores into other existing financial services stores and consolidated two U.S. pawn stores into existing pawn stores.
Of our 436 U.S. financial services stores, 158 adjoin a pawn store, but they are covered by the same lease agreement. The lease agreements at approximately 94% of the remaining 278 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 were enacted that had 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. Following the passage of such laws in fiscal 2010, we closed or consolidated 11 signature loan stores in Colorado and Wisconsin, resulting in a total rent exposure of approximately $0.2 million.

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The following table presents the number of pawn and financial services store locations by state or province as of September 30, 2011:
                         
    Pawn     Financial Services     Total  
    Locations     Locations     Locations  
United States:
                       
Texas
    186       286       472  
Florida
    93             93  
Colorado
    38       28       66  
Wisconsin
    3       35       38  
Oklahoma
    21       6       27  
Idaho
          20       20  
Utah
    7       14       21  
Alabama
    7       9       16  
Nevada
    16             16  
Indiana
    15             15  
Iowa
    11             11  
Kansas
          13       13  
Missouri
          13       13  
South Dakota
          7       7  
Tennessee
    7             7  
Nebraska
          5       5  
Illinois
    15             15  
Georgia
    7             7  
Louisiana
    3             3  
Mississippi
    3             3  
Arkansas
    1             1  
 
                 
Total United States Locations
    433       436       869  
 
                       
Mexico:
                       
Guanajuato
    24             24  
Veracruz
    25             25  
Jalisco
    16             16  
Puebla
    18             18  
Mexico
    30             30  
Tamaulipas
    12             12  
Michoacán
    10             10  
Querétaro
    6             6  
Oaxaca
    8             8  
Aguascalientes
    5             5  
Tabasco
    10             10  
San Luis Potosí
    4             4  
Hidalgo
    4             4  
Tlaxcala
    3             3  
Chiapas
    2             2  
Campeche
    1             1  
 
                 
Total Mexico Locations
    178             178  
 
                       
Canada:
                       
Ontario
          64       64  
 
                 
Total Canada Locations
          64       64  
 
                 
 
                       
Total Company
    611       500       1,111  
 
                 
In addition to our store locations, we lease our corporate office space in Austin, Texas (68,900 square feet), Dallas Texas (2,900 square feet), Querétaro, Mexico (6,700 square feet), and Ontario, Canada (4,200 square feet).

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The following table presents store data by segment as of September 30, 2011:
                                         
    Company-owned Stores          
    U.S. Pawn     Empeño     EZMONEY                  
    Operations     Fácil     Operations     Consolidated     Franchises  
Pawn stores
    433       178             611        
Financial services stores adjoining U.S. pawn stores
    6             152       158        
Financial services stores — free standing
                342       342       13  
 
                             
Total stores in operation
    439       178       494       1,111       13  
 
                             
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. Removed and Reserved

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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 (NASDAQ Global Select Market) under the symbol “EZPW.” As of October 31, 2011, there were 100 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, 2011.
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 2011:
               
Fourth quarter ended September 30, 2011
  $ 38.66     $ 27.10  
Third quarter ended June 30, 2011
    35.98       27.78  
Second quarter ended March 31, 2011
    31.80       25.56  
First quarter ended December 31, 2010
    28.75       19.23  
 
               
Fiscal 2010:
               
Fourth quarter ended September 30, 2010
  $ 20.80     $ 17.88  
Third quarter ended June 30, 2010
    23.75       10.07  
Second quarter ended March 31, 2010
    22.19       16.43  
First quarter ended December 31, 2009
    17.72       12.75  
On September 30, 2011, the closing sales price of our Class A Common Stock, as reported by the NASDAQ Stock Market, was $28.54 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 December 31, 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.

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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, 2006. 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.
     (GRAPHIC)

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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:
Selected Financial Data
                                         
    Fiscal Years Ended September 30,  
    2011     2010     2009     2008     2007  
            (In thousands, except per share and store figures)          
Operating Data:
                                       
Sales
  $ 494,562     $ 411,865     $ 329,923     $ 234,679     $ 194,305  
Pawn service charges
    201,135       163,695       130,169       94,244       73,551  
Signature loan fees
    150,250       139,315       133,344       128,478       104,347  
Auto title loan fees
    21,701       17,707       3,589              
Other
    1,669       463       431       2       12  
 
                             
Total revenues
    869,317       733,045       597,456       457,403       372,215  
Cost of goods sold
    295,620       251,122       203,589       139,402       118,007  
Signature loan bad debt
    36,328       31,709       33,553       37,150       28,508  
Auto title loan bad debt
    2,431       2,735       380              
 
                             
Net revenues
    534,938       447,479       359,934       280,851       225,700  
Store operating expenses
    267,052       236,664       206,237       158,927       133,180  
Administrative expenses
    75,270       52,740       40,497       34,951       27,171  
Depreciation and amortization
    18,344       14,661       12,746       12,354       9,812  
(Gain) loss on disposal of assets
    309       1,528       (1,024 )     939       (72 )
Interest expense (income), net
    1,653       1,199       1,144       (57 )     (1,373 )
Equity in net income of unconsolidated affiliates
    (16,237 )     (10,750 )     (5,016 )     (4,342 )     (2,945 )
Other
    (164 )     (93 )     38       8        
 
                             
Income before income taxes
    188,711       151,530       105,312       78,071       59,927  
Income tax expense
    66,552       54,236       36,840       25,642       22,053  
 
                             
Net income
  $ 122,159     $ 97,294     $ 68,472     $ 52,429     $ 37,874  
 
                             
Earnings per common share, diluted
  $ 2.43     $ 1.96     $ 1.42     $ 1.21     $ 0.88  
 
Cash dividends per common share
  $     $     $     $     $  
 
Weighted average common shares and share equivalents, diluted
    50,369       49,576       48,076       43,327       43,230  
 
Stores operated at end of period
    1,111       1,006       910       809       731  
                                         
    September 30,  
    2011     2010     2009     2008     2007  
                    (In thousands)                  
Balance Sheet Data:
                                       
Pawn loans
  $ 145,318     $ 121,201     $ 101,684     $ 75,936     $ 60,742  
Signature loans
    11,389       10,775       8,357       7,124       4,814  
Auto title loans
    3,222       3,145       1,663       1        
Inventory
    90,373       71,502       64,001       43,209       37,942  
Working capital
    291,968       232,713       228,796       159,918       124,871  
Total assets
    756,450       606,412       492,517       308,720       251,186  
Long-term debt
    17,500       25,000       35,000              
Stockholders’ equity
    664,248       519,428       415,685       273,050       215,925  

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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” of this report.
The following table presents summary consolidated financial data for our fiscal years ended September 30, 2011 (“current year” or “fiscal 2011”), September 30, 2010 (“prior year” or “fiscal 2010”) and September 30, 2009 (“fiscal 2009”).
Summary Financial Data
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
            (In thousands)          
Revenues:
                       
Sales
  $ 494,562     $ 411,865     $ 329,923  
Pawn service charges
    201,135       163,695       130,169  
Signature loan fees
    150,250       139,315       133,344  
Auto title loan fees
    21,701       17,707       3,589  
Other
    1,669       463       431  
 
                 
Total revenues
    869,317       733,045       597,456  
Cost of goods sold
    295,620       251,122       203,589  
Signature loan bad debt
    36,328       31,709       33,553  
Auto title loan bad debt
    2,431       2,735       380  
 
                 
Net revenues
  $ 534,938     $ 447,479     $ 359,934  
 
                 
Net Income
  $ 122,159     $ 97,294     $ 68,472  
 
                 
In fiscal 2011, we reclassified fees from our Product Protection Plan and Jewelry VIP Program as well as layaway fees from “Other” revenue to “Sales,” as fees from these products are incidental to sales of merchandise. Prior year figures have been reclassified to conform to this presentation and margins have been recalculated accordingly throughout management’s discussion and analysis.
Overview
We are a leading provider of specialty consumer financial services. We provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans including payday loans, installment loans and auto title loans, and in Texas only, fee-based credit services to customers seeking loans.
At September 30, 2011, we operated a total of 1,111 locations, consisting of 433 U.S. pawn stores (operating as EZPAWN or Value Pawn), 178 pawn stores in Mexico (operating as Empeño Fácil or Empeñe Su Oro), 436 U.S. financial services stores (operating primarily as EZMONEY), 49 financial services stores in Canada (operating as CASHMAX) and 15 financial and retail services stores (operating as Cash Converters). In addition, we are the franchisor for 13 franchised Cash Converters stores in Canada. We also own almost 30% of Albemarle & Bond Holdings PLC, one of the U.K.’s largest pawnbroking businesses with over 150 stores, and almost 33% of Cash Converters International Limited, which franchises and operates a worldwide network of over 600 locations that buy and sell second-hand merchandise and offer financial services.

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Our business consists of three reportable segments: The U.S. Pawn Operations, which operates only in the United States; Empeño Fácil, which operates only in Mexico; and EZMONEY Operations which operates 430 stores in the United States and 64 stores in Canada. The following tables present stores by segment:
                                         
    Fiscal Year Ended September 30, 2011  
    Company-owned Stores        
    U.S. Pawn     Empeño     EZMONEY                
    Operations     Fácil     Operations     Consolidated     Franchises  
Stores in operation:
                                       
Beginning of period
    396       115       495       1,006        
New openings
    10       57       15       82       1  
Acquired
    34       6             40       13  
Sold, combined, or closed
    (1 )           (16 )     (17 )     (1 )
 
                             
End of period
    439       178       494       1,111       13  
 
                             
 
Average number of stores during the period
    415       145       497       1,058       6  
                                         
    Fiscal Year Ended September 30, 2010  
    Company-owned Stores        
    U.S. Pawn     Empeño     EZMONEY                
    Operations     Fácil     Operations     Consolidated     Franchises  
Stores in operation:
                                       
Beginning of period
    375       62       473       910        
New openings
    7       53       51       111        
Acquired
    16                   16        
Sold, combined, or closed
    (2 )           (29 )     (31 )      
 
                             
End of period
    396       115       495       1,006        
 
                             
 
Average number of stores during the period
    381       84       481       946        
                                         
    Fiscal Year Ended September 30, 2009  
    Company-owned Stores        
    U.S. Pawn     Empeño     EZMONEY                
    Operations     Fácil     Operations     Consolidated     Franchises  
Stores in operation:
                                       
Beginning of period
    300       38       471       809        
New openings
          23       19       42        
Acquired
    77       1             78        
Sold, combined, or closed
    (2 )           (17 )     (19 )      
 
                             
End of period
    375       62       473       910        
 
                             
 
Average number of stores during the period
    360       45       473       878        
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 $125 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 15% 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 depending on the valuation of each item pawned, but typically equate to between $65 and $70 U.S. dollars.
In our pawn stores and certain financial services 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. 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 upon

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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 an inventory 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 generally has greater inherent commodity value. At September 30, 2011 our total allowance was 9.5% of gross inventory compared to 7.4% at September 30, 2010. Changes in the valuation allowance are charged to merchandise cost of goods sold.
Signature Loan and Auto Title Loan Activities
At September 30, 2011, 286 of our U.S. financial services stores and 25 of our U.S. pawn stores in Texas offered credit services to customers seeking short-term 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 two types of signature loans from the unaffiliated lenders. In all stores offering signature loan credit services, customers can obtain payday loans, with principal amounts up to $1,500 but averaging about $520. Terms of these loans are generally less than 30 days, averaging about 16 days, with due dates corresponding with the customers’ next payday. We typically earn a fee of 22% of the loan amount for our credit services offered in connection with payday loans. In 286 of the U.S. financial services stores offering credit services, customers can obtain longer-term unsecured installment loans from the unaffiliated lenders. The installment loans offered in connection with our credit services typically carry terms of about five months with ten equal installment payments, including principal amortization, due on customers’ paydays. Installment loan principal amounts range from $1,525 to $3,000, but average about $2,015. With each semi-monthly or bi-weekly installment payment, we earn a fee of 10% of the initial loan amount. At September 30, 2011, payday loans comprised 94% of the balance of signature loans brokered through our credit services, and installment loans comprised the remaining 6%.
Outside of Texas, we earn signature loan fee revenue on our payday loans. In 15 U.S. pawn stores, 74 U.S. financial services stores and 64 Canadian financial services stores we make payday loans subject to state or provincial law. The average payday loan amount is approximately $435 and the term is generally less than 30 days, averaging about 16 days. We typically charge a fee of 15% to 22% of the loan amount. In 117 of our U.S. financial services stores and three U.S. pawn stores, we make installment loans subject to state law. These installment 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 customers’ 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. We began offering installment loans rather than payday loans in Colorado in August 2010, in Wisconsin in January 2011 and in Missouri in June 2011. Installment loan principal amounts range from $100 to $3,000, but average approximately $530.
At September 30, 2011, 397 of our U.S. financial services stores and 44 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 $810. We earn a fee of 12.5% to 25% of auto title loan amounts.
Acquisitions
In the fiscal year ended September 30, 2010, we acquired 16 pawn stores located in the Chicago metropolitan area, Central and South Florida, Corpus Christi, Texas and Las Vegas, Nevada for approximately $21.8 million in cash. In the year ended September 30, 2011, we acquired 40 pawn stores located in the Chicago metropolitan area, Georgia, Central and South Florida, Iowa, Wisconsin, Utah and the Mexican states of Hidalgo and Tlaxcala for approximately $66.2 million in cash and the issuance of approximately 0.2 million shares of EZCORP stock valued at $7.3 million. All stores were acquired as part of our continuing strategy to acquire pawn stores to enhance and diversify our earnings. The results of all acquired stores have been consolidated with our results since their acquisition. In April 2011 we also acquired the trademark and licensing rights of Cash Converters in Canada, including rights to receive fees from 13 stores operated by franchisees in Canada.

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Other
Included in the current year-to-date period results is a pre-tax administrative expense charge of $10.9 million related to the October 2010 retirement of our former Chief Executive Officer, including $3.4 million attributable to a cash payment and $7.5 million attributable to the vesting of restricted stock. The current year-to-date period income tax expense reflects a $3.8 million tax benefit related to this charge.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted 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 A of our consolidated financial statements for a more complete review of other accounting policies and estimates used in the preparation of our consolidated financial statements.
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 upon 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.
Signature Loan Credit Service Fee Revenue Recognition: We earn credit service fees when we assist customers in obtaining signature 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. Signature loan credit service fee revenue is included in “Signature loan fees” on our statements of operations.
Signature Loan Credit Service Bad Debt: We issue letters of credit to enhance the creditworthiness of our customers seeking signature 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, accrued interest and late fees 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 signature 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, and record the proceeds from such sales as a reduction of bad debt at the time of the sale.
The majority of our credit service customers obtain short-term signature loans with a single maturity date. These short-term loans, with maturity dates averaging about 16 days, are considered defaulted if they have not been repaid or renewed by the maturity date. Other credit service customers obtain installment loans with a series of payments due over as much as a seven-month period. If one payment of an installment loan is delinquent, that one payment is

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considered defaulted. If more than one installment payment is delinquent at any time, the entire loan is considered defaulted.
Allowance for Losses on Signature Loan Credit Services: We provide an allowance for losses we expect to incur under letters of credit for brokered signature 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 and insufficient funds fees, net of the amounts we expect to collect from borrowers (collectively, “Expected LOC Losses”). Changes in the allowance are charged to signature loan bad debt. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheets. Based on the expected loss and collection percentages, we also provide an allowance for the signature loan credit service fees we expect not to collect, and charge changes in this allowance to signature loan fee revenue.
Signature Loan Revenue Recognition: We accrue fees in accordance with state and provincial laws on the percentage of signature loans (payday loans and installment loans) 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.
Signature Loan Bad Debt: We consider a payday loan defaulted if it has not been repaid or renewed by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of signature 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.
Signature Loan Allowance for Losses: We provide an allowance for losses on signature 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 signature loan bad debt. We record changes in the fee receivable valuation allowance to signature loan fee revenue.
Auto Title Loan Credit Service Fee Revenue Recognition: 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 “Auto title loan fees” on our statements of operations.
Bad Debt and Allowance for Losses on Auto Title Loan Credit Services: 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 plus any late 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 and late fees, 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 balance sheets.
Auto Title Loan Revenue Recognition: 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 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 auto title loan bad debt and charge uncollectable loans against this allowance. We record changes in the fee receivable valuation allowance to auto title loan fee revenue.

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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.
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 granted, our policy is to estimate the grant-date fair value of 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.
Fair Value of Financial Instruments: We have elected not to measure at fair value any eligible items for which fair value measurement is optional. We determine the fair value of financial instruments by reference to various market data and other valuation techniques, as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values, due primarily to their short-term nature. The recorded value of our outstanding debt is assumed to estimate its fair value, as it has no prepayment penalty and a floating interest rate based on market rates.
Acquisitions: We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 now immediately expense transaction costs that would have been included in the purchase price allocation under previous accounting standards.
Results of Operations
Fiscal 2011 Compared to Fiscal 2010
The following discussion compares our results of operations for the year ended September 30, 2011 to the year ended September 30, 2010. It should be read with the accompanying consolidated financial statements and related notes.
In fiscal 2011, consolidated total revenues increased 19%, or $136.3 million, to $869.3 million, compared to the prior year. Same store total revenues increased $70.4 million, or 10%, and new and acquired stores contributed $65.9 million. Net income increased 26% or $24.9 million. Excluding the onetime $10.9 million charge related to the retirement of our former Chief Executive Officer and the related tax benefit, net income increased 33% to $129.3 million from $97.3 million in the prior year.

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U.S. Pawn Operations Segment
The following table presents selected financial data for the U.S. Pawn Operations segment:
                 
    Fiscal Years Ended September 30,  
    2011     2010  
    (Dollars in thousands)  
Merchandise sales
  $ 256,643     $ 226,424  
Jewelry scrapping sales
    195,276       163,667  
Pawn service charges
    184,234       154,505  
Signature loan fees
    2,501       1,930  
Auto title loan fees
    1,539       1,659  
Other
    634       442  
 
           
Total revenues
    640,827       548,627  
 
Merchandise cost of goods sold
    147,239       131,825  
Jewelry scrapping cost of goods sold
    120,767       104,531  
Signature loan bad debt
    923       641  
Auto title loan bad debt
    165       236  
 
           
Net revenues
    371,733       311,394  
 
Operations expense
    177,191       161,145  
 
           
Store operating income
  $ 194,542     $ 150,249  
 
           
 
Other data:
               
Gross margin on merchandise sales
    42.6 %     41.8 %
Gross margin on jewelry scrapping sales
    38.2 %     36.1 %
Gross margin on total sales
    40.7 %     39.4 %
Average pawn loan balance per pawn store at period end
  $ 311     $ 292  
Average yield on pawn loan portfolio (a)
    158 %     156 %
Pawn loan redemption rate
    81.1 %     80.5 %
 
(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. Pawn Operations segment total revenues increased $92.2 million, or 17%, from the prior year to $640.8 million. Same store total revenues increased $46.7 million, or 9% and new and acquired stores net of closed stores contributed $45.5 million. The overall increase in total revenues comprised a $61.8 million increase in merchandise and jewelry scrapping sales, a $29.7 million increase in pawn service charges, and minor increases in loan fees and other revenues. In fiscal 2011, we acquired 34 U.S. pawn stores for $68.3 million, and we opened 10 new U.S. pawn stores. As part of these acquisitions, we began operations in three new states; Iowa, Utah and Wisconsin, bringing the total number of states in which we have pawn operations to 16 at September 30, 2011.
Our current year U.S. pawn service charge revenue increased 19%, or $29.7 million, from the prior year to $184.2 million. Same store pawn service charges increased $18.4 million, or 12%, with new and acquired stores net of closed stores contributing $11.3 million. The same store improvement was due to a higher average same store pawn loan balance coupled with higher yield. The yield improved primarily due to a slightly 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. Inventory purchases represented 30% of all inventory additions during the year.
The current year merchandise sales gross profit increased $14.8 million, or 16%, from the prior year to $109.4 million. This was due to a $13.0 million, or 6%, increase in same store sales, a $17.2 million increase in sales from new and acquired stores net of closed stores, and a 0.8 percentage point improvement in gross margins.

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Gross profit on jewelry scrapping sales increased $15.4 million, or 26%, from the prior year to $74.5 million. Jewelry scrapping revenues increased $31.6 million, or 19%, due to a 28% increase in proceeds realized per gram of gold jewelry scrapped partially offset by a 9% decrease in gold volume. Same store jewelry scrapping sales increased $15.7 million, or 10%, and new and acquired stores contributed $15.9 million. Jewelry scrapping sales include the sale of approximately $8.1 million of loose diamonds removed from scrap jewelry in the current year and $3.2 million in the prior year. As a result of the higher average cost per gram of jewelry scrapped, scrap cost of goods increased $16.2 million, or 16%.
Operations expense increased to $177.2 million (48% of net revenues) in the current year from $161.1 million (52% of net revenues) in the prior year. The dollar increase in expense was primarily due to higher operating costs resulting from new and acquired stores. The improvement as a percent of net revenues is from greater scale at same stores and from expense management improvements made at acquired and existing stores.
In the current year, the $60.1 million greater net revenue from pawn activities, the $0.2 higher signature and auto title loan contribution, and the $16.0 million higher operations expense resulted in a $44.3 million overall increase in store operating income from the U.S. Pawn Operations segment. For the current year, the U.S. Pawn segment contributed 73% of consolidated store operating income compared to 71% in the prior year.
Empeño Fácil Segment
The following table presents selected financial data for the Empeño Fácil segment after translation to U.S. dollars from its functional currency of the Mexican peso:
                 
    Fiscal Years Ended September 30,  
    2011     2010  
    (Dollars in thousands)  
Merchandise sales
  $ 25,237     $ 14,030  
Jewelry scrapping sales
    15,997       7,389  
Pawn service charges
    16,901       9,190  
Other
    122        
 
           
Total revenues
    58,257       30,609  
 
Merchandise cost of goods sold
    14,672       8,459  
Jewelry scrapping cost of goods sold
    12,205       6,137  
 
           
Net revenues
    31,380       16,013  
 
Operations expense
    20,636       11,658  
 
           
Store operating income
  $ 10,744     $ 4,355  
 
           
 
Other data:
               
Gross margin on merchandise sales
    41.9 %     39.7 %
Gross margin on jewelry scrapping sales
    23.7 %     16.9 %
Gross margin on total sales
    34.8 %     31.9 %
Average pawn loan balance per pawn store at period end
  $ 61     $ 63  
Average yield on pawn loan portfolio (a)
    187 %     182 %
Pawn loan redemption rate
    73.5 %     75.2 %
 
(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 Empeño Fácil’s current year results from Mexican pesos to U.S. dollars was 12.1 pesos to the dollar, 6% stronger than in the prior year. Store operating income increased 147% in U.S. dollars and 134% in peso terms. The 96% increase in net revenues was partially offset by higher costs from new stores. We expect new stores will be a drag on earnings until they become profitable in their second year of operation. Approximately 32% of the stores open at September 30, 2011 had been open less than one year. We opened 57 new stores in the current year, 14 of which are Empeñe Su Oro jewelry-only pawn stores. These jewelry-

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only stores are smaller and require less staff than our full-line pawn stores, but also carry smaller average loan balances per store.
Empeño Fácil’s total revenues increased $27.6 million, or 90%, in the current year to $58.3 million. Same store total revenues increased $10.5 million or 34%, and new and acquired stores contributed $17.1 million. The overall increase in total revenues comprised a $19.8 million increase in merchandise and jewelry scrapping sales, a $7.7 million increase in pawn service charges and a $0.1 million increase in other revenues.
Empeño Fácil’s pawn service charge revenues increased $7.7 million, or 84%, in the current year to $16.9 million. Same store pawn service charges increased approximately $3.4 million, or 37%, and new and acquired stores contributed $4.3 million. The same store increase was due to an improvement in the average pawn loan yield coupled with an increase in average loan balance during the period. The yield increased primarily due to an increase in pawn service charge rates in certain geographic areas compared to the prior year, partially offset by a lower loan redemption rate.
Merchandise gross profit increased $5.0 million, or 90%, from the prior year to $10.6 million. This was due to a $4.2 million, or 30%, same store sales increase and $7.0 million in sales from new and acquired stores in addition to a 2.2 percentage point increase in gross margins to 41.9%.
Gross profit on jewelry scrapping sales increased $2.5 million, or 203%, from the prior year to $3.8 million. Jewelry scrapping revenues increased $8.6 million, or 116%, due to 107% increase in gold volume and a 5% increase in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales increased $2.9 million, or 40%, and new and acquired stores contributed $5.7 million. The significant volume increase and the margin increase are due primarily to the continued maturation of our Empeñe Su Oro jewelry-only stores. As a result of the greater volume, scrap cost of goods increased $6.1 million.
Operations expense increased to $20.6 million (66% of net revenues) in the current year from $11.7 million (73% of net revenues) in the prior year. The increase was due primarily to the addition of 63 stores through greenfield and acquisitions.
In the current year, the $15.4 million greater net revenues were partially offset by the $9.0 million higher operations expense, resulting in a $6.4 million increase in store operating income for the segment. Empeño Fácil contributed 4% of consolidated store operating income in the current year compared to 2% in the prior year.

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EZMONEY Operations Segment
The following table presents selected financial data for the EZMONEY Operations segment:
                 
    Fiscal Years Ended September 30,  
    2011     2010  
    (Dollars in thousands)  
Signature loan fees
  $ 147,749     $ 137,385  
Auto title loan fees
    20,162       16,048  
Merchandise sales
    203        
Jewelry scrapping sales
    1,206       355  
Other
    913       21  
 
           
Total revenues
    170,233       153,809  
 
Signature loan bad debt
    35,405       31,068  
Auto title loan bad debt
    2,266       2,499  
 
Merchandise cost of goods sold
    149        
Jewelry scrapping cost of goods sold
    588       170  
 
           
Net revenues
    131,825       120,072  
 
Operations expense
    69,225       63,861  
 
           
Store operating income
  $ 62,600     $ 56,211  
 
           
 
Other data:
               
Signature loan bad debt as a percent of signature loan fees
    24.0 %     22.6 %
Auto title loan bad debt as a percent of auto title loan fees
    11.2 %     15.6 %
Average signature loan balance per store offering signature loans at period end (a)
  $ 63     $ 67  
Average auto title loan balance per store offering auto title loans at period end (b)
  $ 21     $ 23  
 
(a)   Signature loan balances include payday and installment loans (net of valuation allowance) recorded on our balance sheet and the principal portion of active signature loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheet.
 
(b)   Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheet and the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheet.
The EZMONEY Operations segment total revenues increased $16.4 million, or 11%, to $170.2 million, compared to the prior year. This was due to a $13.1 million, or 9%, increase in same store total revenues and $3.3 million of total revenues at new stores net of closed or consolidated stores. The overall increase in total revenues comprised a $10.4 million increase in signature loan revenues, including installment loans and payday loans, a $4.1 million increase in auto title loan fees and smaller increases in other revenues. In August 2010, January 2011 and July 2011 we introduced installment loans as a replacement product for payday loans in Colorado, Wisconsin and Missouri, respectively following the introduction of new laws governing payday loans in those states. This contributed to the migration of some of our signature loan balances from payday loans to installment loans.
In the current year, we opened 15 stores in Canada and closed two, bringing our total at September 30, 2011 to 64. Also, in the current year, we closed 14 EZMONEY stores in the U.S., bringing our total there to 430.
EZMONEY’s total signature loan revenues increased $10.4 million or 8% and same store signature loan revenues increased $8.0 million, or 6% due to the growth in loan volume, particularly installment loans, which continue to mature following their introduction in Colorado, Wisconsin and Missouri as a replacement for payday loans. Signature loan net revenue increased $6.0 million, or 6%, compared to fiscal 2010 to $112.3 million due to increased loan volume offset by a 1.4 percentage point increase in bad debt expressed as a percentage of fees to

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24.0%. The increase in bad debt was in part due to the transition to a lower yielding product in Colorado and in part due to operational changes, including underwriting changes, made during the year, which have since been addressed.
The segment’s net revenues from auto title loans increased $4.3 million or 32% to $17.9 million compared to $13.5 million in the prior year. Same store auto title loan fees increased $4.3 million or 28%. The same store increase resulted primarily from an increase in gross revenues as the product matures, partially offset by the regulatory elimination of auto tile loans in Wisconsin from January 1, 2011 to June 30, 2011, and a 4.4 percentage point improvement in bad debt to 11.2% of related fees. The improvement in bad debt was due to improvements in execution, enhanced productivity and use of technology in our collections department. Following a favorable legislative change, auto title loans were re-introduced in Wisconsin effective July 1, 2011.
The EZMONEY Operations segment began buying and scrapping gold jewelry in the prior year. The segment generated $0.6 million of jewelry scrapping profit in the current year, with a 51% gross margin compared to $0.2 million with a 52% gross margin in the prior year.
In April 2011, we acquired the Cash Converters franchise rights for Canada, which allows us to open new stores and operate our Canadian stores as Cash Converters stores. By September 30, 2011, we had 15 Canadian stores buying and selling second-hand goods, in addition to offering payday loans, under the Cash Converters brand. We also began receiving franchise fees from franchisees, which made up the majority of the increase in the segment’s other revenues. Merchandise sales in the current year-to-date period were nominal. We expect to rebrand most of our remaining Canadian stores as Cash Converters stores during fiscal year 2012.
Operations expense increased to $69.2 million (53% of net revenues) from $63.9 million (53% of net revenues) in the prior year. The increase was mostly from additional labor, rent and other costs at new stores net of closed stores, as operating expenses in our stores opened less than one year, more than offset the decrease due to store closures.
In the current year, the $6.0 million increase in net revenues from signature loans, $4.3 million increase in net revenues from auto title loans, the $0.6 million in scrap sales gross profit and $0.9 million in other revenues were partially offset by $5.4 million greater operations expense, resulting in a $6.4 million net increase in store operating income from the EZMONEY Operations segment. For the current year, EZMONEY Operations contributed 23% of consolidated store operating income compared to 27% in fiscal 2010.
Other Items
The following table reconciles our consolidated store operating income discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:
                 
    Fiscal Years Ended September 30,  
    2011     2010  
    (Dollars in thousands)  
Consolidated store operating income
  $ 267,886     $ 210,815  
Administrative expenses
    75,270       52,740  
Depreciation and amortization
    18,344       14,661  
(Gain) loss on sale / disposal of assets
    309       1,528  
Interest income
    (37 )     (186 )
Interest expense
    1,690       1,385  
Equity in net income of unconsolidated affiliates
    (16,237 )     (10,750 )
Other
    (164 )     (93 )
 
           
Consolidated income before income taxes
    188,711       151,530  
Income tax expense
    66,552       54,236  
 
           
Net income
  $ 122,159     $ 97,294  
 
           
Administrative expenses in the current year were $75.3 million (14% of net revenues) compared to $52.7 million (12% of net revenues) in the prior year. This increase is primarily due to a pre-tax charge of $10.9 million related to the retirement of our former Chief Executive Officer. This charge included $3.4 million attributable to a cash

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payment and $7.5 million attributable to the accelerated vesting of restricted stock. Excluding this charge, administrative expense increased $11.6 million over the prior year and remained unchanged at 12% of net revenues.
Depreciation and amortization expense was $18.3 million in the current year, compared to $14.7 million in the prior year. Depreciation on assets placed in service, primarily related to acquired pawn stores and new stores, was partially offset by assets that were retired or became fully depreciated during the year.
In the current year, we recognized $0.3 million in losses on disposal of assets, as losses related to store closures were partially offset by gains on disposal of other assets. In the prior year we recognized a $1.5 million loss on store closures or consolidations including a charge for 11 store closures following the passage of legislation negative to the payday lending industry in Colorado and Wisconsin.
Our $1.7 million net interest expense in the current year and $1.2 million in the prior year represent primarily interest on borrowed funds, the amortization of deferred financing costs and the commitment fee on our unused available revolving credit facility. At September 30, 2011, we had $17.5 million in outstanding debt under our revolving credit agreement compared to $25.0 million of term debt outstanding at the end of the prior year.
Our equity in the net income of Albemarle & Bond increased $0.5 million, or 7%, in the current year to $7.3 million as a result of Albemarle & Bond’s higher earnings, and a slightly stronger British pound in relation to the U.S. dollar. On November 6, 2009, we acquired 108,218,000 newly issued shares, or approximately 30% of the capital stock of Cash Converters International Limited, a publicly traded company headquartered in Perth, Australia for approximately AUS $54.1 million (approximately U.S. $49.6 million). We acquired 16,200,000 additional shares on May 20, 2010 at a cost of AUS $9.7 million (approximately U.S. $8.2 million), which increased our ownership level to approximately 33%. In the current year our equity in the net income of Cash Converters was $8.9 million compared to $3.9 million in the prior year. As we account for our earnings from Cash Converters on a 3-month lag, the prior year-to-date period included our pro rata share of their results of operations for the 237-day period from our November 6, 2009 initial investment date to the June 30, 2010 end of Cash Converters’ period.
The current year’s income tax expense was $66.6 million (35.3% of pretax income) compared to $54.2 million (35.8% of pretax income) in the prior year. The decrease in the effective tax rates is primarily due to an increase in both domestic employment tax credits and the foreign tax credit on overseas earnings, partially offset by the valuation allowance established for operating losses in our Canada operations during their start-up period.
In fiscal year 2011, our net income increased $24.9 million, or 26%, to $122.2 million in fiscal 2011. Excluding the one-time $10.9 million charge related to the retirement of our former Chief Executive Officer and the related tax benefit, net income increased 33% to $129.3 million from $97.3 million in the prior year.

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Fiscal 2010 Compared to Fiscal 2009
The following discussion compares our results of operations for the year ended September 30, 2010 to the year ended September 30, 2009. It should be read with the accompanying consolidated financial statements and related notes.
U.S. Pawn Operations Segment
The following table presents selected financial data for the U.S. Pawn Operations segment:
                 
    Fiscal Years Ended September 30,  
    2010     2009  
    (Dollars in thousands)  
Merchandise sales
  $ 226,424     $ 202,250  
Jewelry scrapping sales
    163,667       117,013  
Pawn service charges
    154,505       124,396  
Signature loan fees
    1,930       2,293  
Auto title loan fees
    1,659       1,313  
Other
    442       431  
 
           
Total revenues
    548,627       447,696  
 
Merchandise cost of goods sold
    131,825       121,170  
Jewelry scrapping cost of goods sold
    104,531       75,744  
Signature loan bad debt
    641       828  
Auto title loan bad debt
    236       124  
 
           
Net revenues
    311,394       249,830  
 
Operations expense
    161,145       140,525  
 
           
Store operating income
  $ 150,249     $ 109,305  
 
           
 
Other data:
               
Gross margin on merchandise sales
    41.8 %     40.1 %
Gross margin on jewelry scrapping sales
    36.1 %     35.3 %
Gross margin on total sales
    39.4 %     38.3 %
Average pawn loan balance per pawn store at period end
  $ 292     $ 266  
Average yield on pawn loan portfolio (a)
    156 %     150 %
Pawn loan redemption rate
    80.5 %     78.7 %
 
(a)   Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenue for the period divided by the average pawn loan balance during the period.
The U.S. Pawn Operations segment total revenues increased $100.9 million, or 23% from fiscal 2009 to $548.6 million. Same store total revenues increased $57.6 million, or 13%. The overall increase in total revenues comprised a $70.8 million increase in merchandise and jewelry scrapping sales and a $30.1 million increase in pawn service charges. In fiscal 2010, we acquired 16 U.S. pawn stores for $21.8 million, and opened seven new U.S. pawn stores. As part of these acquisitions, we began operations in Illinois, bringing the total number of states in which we had pawn operations to 13 as of September 30, 2010.
Our fiscal 2010 U.S. pawn service charge revenue increased 24%, or $30.1 million, from fiscal 2009 to $154.5 million. Same store pawn service charges increased $19.4 million, or 16%, with new and acquired stores net of closed stores contributing $10.7 million. The same store improvement was due to a higher average same store pawn loan balance coupled with a higher yield. The yield improved primarily due to a higher loan redemption rate as we focused 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. Inventory purchases from customers increased 51% compared to fiscal 2009.

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Fiscal 2010 merchandise sales gross profit increased $13.5 million, or 17%, from fiscal 2009 to $94.6 million. This was due to a $17.8 million increase in sales from new and acquired stores net of closed stores, a 1.7 percentage point improvement in gross margin to 41.8%, and a $6.3 million or 3% increase in same store sales.
Gross profit on jewelry scrapping sales increased $17.8 million, or 43%, from fiscal 2009 to $59.1 million on greater volume and a 0.8 percentage point improvement in gross margins to 36.1%. Including a $14.1 million increase from stores acquired late in the first fiscal quarter of 2009, scrapping revenues increased $46.7 million, or 40%, on 9% more volume, while proceeds realized per gram of jewelry scrapped increased 28%. In fiscal 2010 and fiscal 2009 respectively, jewelry scrapping sales include the sale of approximately $3.2 million and $1.2 million of loose diamonds removed from scrapped jewelry. As a result of the greater volume and a higher average cost per gram of jewelry scrapped, scrap cost of goods increased $28.8 million, or 38%.
Operations expense increased to $161.1 million (52% of net revenues) in fiscal 2010 from $140.5 million (56% of net revenues) in fiscal 2009. The dollar increase in expense was primarily due to higher operating costs at new and acquired stores and higher incentive compensation. The improvement as a percent of net revenues is attributable to greater scale at same stores and expense management improvements made at acquired and existing stores.
In fiscal 2010, the $61.5 million greater net revenue from U.S. pawn activities, the $20.6 million higher operations expense and offsetting changes in contributions from signature loans and auto title loans resulted in a $40.9 million overall increase in store operating income from the U.S. Pawn Operations segment. For fiscal 2010 and 2009, the segment comprised 71% of consolidated store operating income.
Empeño Fácil Segment
The following table presents selected financial data for the Empeño Fácil segment after translation to U.S. dollars from its functional currency of the Mexican peso:
                 
    Fiscal Years Ended September 30,  
    2010     2009  
    (Dollars in thousands)  
Merchandise sales
  $ 14,030     $ 8,751  
Jewelry scrapping sales
    7,389       1,900  
Pawn service charges
    9,190       5,773  
Other
           
 
           
Total revenues
    30,609       16,424  
 
Merchandise cost of goods sold
    8,459       5,392  
Jewelry scrapping cost of goods sold
    6,137       1,277  
 
           
Net revenues
    16,013       9,755  
 
Operations expense
    11,658       5,833  
 
           
Store operating income
  $ 4,355     $ 3,922  
 
           
 
Other data:
               
Gross margin on merchandise sales
    39.7 %     38.4 %
Gross margin on jewelry scrapping sales
    16.9 %     32.8 %
Gross margin on total sales
    31.9 %     37.4 %
Average pawn loan balance per pawn store at period end
  $ 63     $ 58  
Average yield on pawn loan portfolio (a)
    182 %     168 %
Pawn loan redemption rate
    75.2 %     82.3 %
 
(a)   Average yield on pawn loan portfolio is calculated as pawn service charge revenue for the period divided by the average pawn loan balance during the period.
The average exchange rate used to translate Empeño Fácil’s fiscal 2010 results from Mexican pesos to U.S. dollars was 5% stronger than in fiscal 2009, affecting all revenue and expense items. Store operating income improved

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11% in dollars and 5% in peso terms. The 64% increase in net revenues was mostly offset by higher costs from new stores that we expect will be a drag on earnings until they become profitable in their second year of operation. Approximately 46% of the stores open at September 30, 2010 had been open less than a year. We opened 53 new stores in fiscal 2010, 34 of which are Empeñe Su Oro jewelry-only pawn stores. These jewelry-only stores are much smaller and require less staff than our typical pawn stores, but also carry smaller average loan balances per store and immediately sell for scrap any forfeited loan collateral.
Empeño Fácil’s total revenues increased $14.2 million, or 86%, in fiscal 2010 to $30.6 million. Same store total revenues increased $6.4 million or 39%, and new stores contributed $7.8 million. The overall increase in total revenues comprised a $10.8 million increase in merchandise and jewelry scrapping sales and a $3.4 million increase in pawn service charges.
Empeño Fácil’s pawn service charge revenues increased $3.4 million, or 59%, in fiscal 2010 to $9.2 million. Same store pawn service charges increased approximately $1.9 million, or 34%, and new stores contributed $1.5 million. The same store increase was due to an improvement in the average pawn loan yield coupled with an increase in average loan balance during the period. The yield increased primarily due to an increase in pawn service charge rates in certain geographic areas compared to fiscal 2009, partially offset by a lower loan redemption rate.
Fiscal 2010’s merchandise gross profit increased $2.2 million, or 66%, from fiscal 2009 to $5.6 million. This was due to a $3.0 million, or 34%, same store sales increase, $2.3 million in sales from new stores and a 1.3 percentage point increase in gross margins to 39.7%.
The gross profit on jewelry scrapping sales increased $0.6 million to $1.2 million. The $5.5 million increase in proceeds was mostly offset by a decrease in jewelry scrapping margins to 16.9%, compared to 32.8% in fiscal 2009. The significant volume increase and the margin decrease are due primarily to the introduction of our new Empeñe Su Oro jewelry-only pawn stores. As these new jewelry-only stores open, the gold values employed are aggressive in the marketplace in order to establish both the new store and the brand.
Operations expense increased to $11.7 million (73% of net revenues) in fiscal 2010 from $5.8 million (60% of net revenues) in fiscal 2009. The increase was due primarily to new stores which, typically produce a loss in their first several quarters of operation.
In fiscal 2010, the $6.3 million greater net revenues were mostly offset by the $5.9 million higher operations expense, resulting in a $0.4 million increase in store operating income for the segment. Empeño Fácil made up 2% of consolidated store operating income in the fiscal 2010 compared to 3% in fiscal 2009.

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EZMONEY Operations Segment
The following table presents selected financial data for the EZMONEY Operations segment:
                 
    Fiscal Years Ended September 30,  
    2010     2009  
    (Dollars in thousands)  
Signature loan fees
  $ 137,385     $ 131,051  
Auto title loan fees
    16,048       2,276  
Merchandise sales
           
Jewelry scrapping sales
    355       9  
Other
    21        
 
           
Total revenues
    153,809       133,336  
 
Signature loan bad debt
    31,068       32,725  
Auto title loan bad debt
    2,499       256  
Merchandise cost of goods sold
           
Jewelry scrapping cost of goods sold
    170       6  
 
           
Net revenues
    120,072       100,349  
 
Operations expense
    63,861       59,879  
 
           
Store operating income
  $ 56,211     $ 40,470  
 
           
 
Other data:
               
Signature loan bad debt as a percent of signature loan fees
    22.6 %     25.0 %
Auto title loan bad debt as a percent of auto title loan fees
    15.6 %     11.2 %
Average signature loan balance per store offering signature loans at period end (a)
  $ 67     $ 65  
Average auto title loan balance per store offering auto title loans at period end (b)
  $ 23     $ 11  
 
(a)   Signature loan balances include payday and installment loans (net of valuation allowance) recorded on our balance sheets and the principal portion of active signature loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheet.
 
(b)   Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets and the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheet.
The EZMONEY Operations segment total revenues increased $20.5 million, or 15%, to $153.8 million, compared to fiscal 2009. This was due to a $20.8 million, or 16%, increase in same store total revenues partially offset by a $0.3 million decrease due to closed or consolidated stores net of revenues from new stores. The overall increase in total revenues comprised a $13.8 million increase in auto title loan fees, a $6.3 million increase in signature loan fees, which include both installment loans and payday loans and a $0.4 million increase in jewelry scrapping sales and other revenues. In August 2010, we introduced installment loans in Colorado as a replacement product for payday loans. This contributed to the migration of some customers from payday loans to installment loans.
In fiscal 2010, we opened 50 stores in Canada and closed one, bringing our total there to 51. At September 30, 2009 we had two Canadian stores. During fiscal 2010 we closed 28 EZMONEY stores in the U.S., bringing our total to 444.
The segment’s signature loan net revenues increased $8.0 million, or 8%, compared to fiscal 2009. The increase resulted primarily from the rapid growth in installment loans and a 2.4 percentage point improvement in bad debt to 22.6% of fees, net of the drag from new stores and closed or consolidated stores. The improvement in bad debt was due to continuing improvements in the store level execution of servicing the customer and the loan, as well as enhanced productivity measurement tools and enhanced use of technology in our collections department.

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The segment’s net revenues from auto title loans increased to $13.5 million in fiscal 2010 with bad debt at 15.6% of related fees. This loan product had little volume in fiscal 2009. We expect continued growth in the contribution from auto title loans as the product continues to mature.
The EZMONEY segment began buying and scrapping gold jewelry in fiscal 2010, generating $0.2 million of gross profit, with a 52% gross margin.
Operations expense increased to $63.9 million (53% of net revenues) from $59.9 million (60% of net revenues) in the fiscal 2009. The increase was mostly from additional labor, rent and other costs at new stores net of closed stores.
In fiscal 2010, the $8.0 million increase in net revenues from signature loans, $11.5 million increase in net revenues from auto title loans and $0.2 million in scrap sales gross profit were partially offset by $4.0 million greater operations expense, resulting in a $15.7 million net increase in store operating income from the EZMONEY Operations segment. For fiscal 2010 EZMONEY Operations comprised 27% of consolidated store operating income compared to 26% in fiscal 2009.
Other Items
The following table reconciles our consolidated store operating income discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:
                 
    Fiscal Years Ended September 30,  
    2010     2009  
    (Dollars in thousands)  
Consolidated store operating income
  $ 210,815     $ 153,697  
Administrative expenses
    52,740       40,497  
Depreciation and amortization
    14,661       12,746  
(Gain) loss on sale / disposal of assets
    1,528       (1,024 )
Interest income
    (186 )     (281 )
Interest expense
    1,385       1,425  
Equity in net income of unconsolidated affiliates
    (10,750 )     (5,016 )
Other
    (93 )     38  
 
           
Consolidated income before income taxes
    151,530       105,312  
Income tax expense
    54,236       36,840  
 
           
Net income
  $ 97,294     $ 68,472  
 
           
Administrative expenses in fiscal 2010 were $52.7 million (12% of net revenues) compared to $40.5 million (11% of net revenues) in the prior year. This increase was primarily due to an $8.9 million increase in administrative labor and benefits, a $2.1 million increase in professional fees and a $0.8 million increase in stock compensation. Included in the increased labor and benefits is a higher accrual for incentive compensation reflective of the year’s strong earnings performance and additional investments made in infrastructure to support our growth. In the first fiscal quarter of fiscal 2009 administrative expense includes a $1.1 million bonus to two executives upon their exercise of employee stock options granted in 1998. Terms of the grants required us to pay a cash bonus to the two executives equal to the related tax savings realized by the company. We do not expect this to recur, as no other outstanding options contain similar terms.
Depreciation and amortization expense was $14.7 million in fiscal 2010, compared to $12.7 million in fiscal 2009. Depreciation on assets placed in service, primarily related to acquired pawn stores and new stores, was partially offset by assets that were retired or became fully depreciated during the year.
In fiscal 2010, we recognized a $1.5 million loss on the closure or consolidation of several stores, including the 11 EZMONEY stores in the states of Wisconsin and Colorado, compared to a $1.0 million gain on disposal of assets in fiscal 2009. In fiscal 2009, insurance proceeds received for assets destroyed by Hurricane Ike exceeded the net book value of those assets, most of which were replaced.

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We borrowed $40 million on December 31, 2008 to complete the VFS acquisition, and repaid $15 million by September 30, 2010 through quarterly installments of $2.5 million each. Our $1.2 million net interest expense in fiscal 2010 and $1.1 million in fiscal 2009 represent primarily interest on borrowed funds, the amortization of deferred financing costs and the commitment fee on our unused available credit facility, partially offset by interest income on our invested cash. Borrowings were outstanding for only three quarters of fiscal 2009 but were outstanding for the entire fiscal 2010. This was mostly offset by the quarterly amortization of loan principal and lower interest rates in fiscal 2010.
Our equity in the net income of Albemarle & Bond increased $1.8 million, or 36%, in fiscal 2010 to $6.8 million as a result of Albemarle & Bond’s higher earnings, partially offset by a weaker British pound in relation to the U.S. dollar. On November 6, 2009, we acquired 108,218,000 newly issued shares, or approximately 30% of the capital stock of Cash Converters International Limited, a publicly traded company headquartered in Perth, Australia for approximately AUS $54.1 million (approximately U.S. $49.6 million). We acquired 16,200,000 additional shares on May 20, 2010 at a cost of AUS $9.7 million (approximately U.S. $8.2 million), which increased our ownership level to approximately 33%. In fiscal 2010 our equity in the net income of Cash Converters was $3.9 million, accounted for on a 3-month lag.
Fiscal 2010’s income tax expense was $54.2 million (35.8% of pretax income) compared to $36.8 million (35.0% of pretax income) in fiscal 2009. The increase in the effective tax rate is primarily due to an increase in the valuation allowance established for the operating losses in our Canada operations during their start-up period in fiscal 2010.
Consolidated operating income for fiscal 2010 improved $40.4 million, or 40%, over fiscal 2009 to $141.9 million. Contributing to this were the $40.9 million, $15.7 million and $0.4 million increases in store operating income in our U.S. Pawn, EZMONEY and Empeño Fácil segments, respectively, partially offset by the $12.2 million increase in administrative expenses, the $1.9 million increase in depreciation and amortization and the $2.5 million increase in loss on disposal of assets. After a $5.7 million increase in our equity interest in the earnings of unconsolidated affiliates and a $17.4 million increase in income taxes and other smaller items, net income improved $28.8 million, or 42%, to $97.3 million in fiscal 2010.
Liquidity and Capital Resources
In fiscal 2011, our $148.5 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $166.5 million, net of (ii) $18.0 million of normal, recurring changes in operating assets and liabilities. In fiscal 2010, our $124.7 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $117.5 million, and (ii) $7.2 million of normal, recurring changes in operating assets and liabilities. The primary differences in cash flow from operations between the current and prior years were the contribution from acquisitions and organic growth throughout our other operations and revenue streams, net of higher taxes paid.
The $136.6 million of net cash used in investing activities during the current year was funded by cash flow from operations, cash on hand and borrowings on our line of credit facility. In the current year, we received $3.2 million in dividends from Albemarle & Bond and $4.1 million from Cash Converters. We invested $67.9 million in cash to acquire 34 pawn stores in the U.S., six pawn stores in Mexico and the trademark and licensing rights of Cash Converters in Canada. Other significant investments in the period were the $34.8 million in additions to property and equipment and the $41.1 million of loans made in excess of customer loan repayments and the recovery of principal through the sale of forfeited pawn loan collateral. In fiscal 2011, we incurred $2.4 million of debt issuance costs related to our new $175 million revolving credit facility. Net of related tax benefits and proceeds from option exercises, we also paid $3.9 million of withholding tax upon the net share settlement of restricted stock vesting.
The net effect of these and other smaller cash flows was a $1.9 million decrease in cash on hand, providing a $24.0 million ending cash balance.

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Below is a summary of our cash needs to meet future aggregate contractual obligations (in millions):
                                         
            Payments due by Period  
            Less than                     More than  
Contractual Obligations   Total     1 year     1-3 years     3-5 years     5 years  
Long-term debt obligations
  $ 17.5     $     $     $ 17.5     $  
Interest on long-term debt obligations
    5.5       1.5       3.1       0.9        
Operating lease obligations
    170.2       45.2       69.2       36.1       19.7  
 
                             
Total
  $ 193.2     $ 46.7     $ 72.3     $ 54.5     $ 19.7  
 
                             
In addition to the contractual obligations in the table above, we are obligated under letters of credit issued to unaffiliated lenders as part of our credit service operations. At September 30, 2011, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $30.3 million. Of that total, $6.4 million was secured by titles to customers’ automobiles. These amounts include principal, interest, insufficient funds fees and late fees.
In addition to the operating lease obligations in the table above, we are responsible for the maintenance, property taxes and insurance at most of our locations. In the fiscal year ended September 30, 2011, these collectively amounted to $17.4 million.
The operating lease obligations in the table above include expected rent for all our store locations through the end of their current lease terms. Of the 436 U.S. EZMONEY financial services stores, 158 adjoin an EZPAWN store. The lease agreements at approximately 94% of the remaining 278 free-standing U.S. EZMONEY stores contain provisions that limit our exposure for additional rent to only a few months if laws were enacted that had a significant negative effect on our operations at these stores.
In fiscal 2012, we plan to open approximately 90 new stores for an aggregate investment of $15.3 million of capital expenditures plus the funding of working capital and start-up losses related to these store openings. We believe new stores will create a drag on earnings and liquidity until their second year of operations.
On May 10, 2011, we entered into a new senior secured credit agreement with a syndication 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 all other outstanding debt. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally. Terms of the credit agreement require, among other things, that we meet certain financial covenants. We were in compliance with all covenants at September 30, 2011 and expect to remain in compliance based on our expected future performance. At September 30, 2011, bank letters of credit totaling $5 million were outstanding and we had borrowed $17.5 million, leaving $152.5 million available on the facility.
We anticipate that cash flow from operations, cash on hand and availability under our revolving credit facility will be adequate to fund our contractual obligations, planned store growth, capital expenditures and working capital requirements during the coming year.
We have an effective “shelf” Registration Statement on Form S-4 covering an aggregate of 2 million shares of our Class A Common Stock that we may offer from time to time in connection with future acquisitions of businesses, assets or securities. During fiscal 2011, we issued an aggregate of approximately 209,000 shares of Class A Common Stock in connection with several acquisitions of pawn stores, leaving approximately 1.8 million shares covered by the registration statement and available for issuance in future acquisitions as of September 30, 2011.
Off-Balance Sheet Arrangements
We issue letters of credit (“LOCs”) to enhance the creditworthiness of our credit service customers seeking signature loans and auto title loans from unaffiliated lenders. The LOCs assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed them by the borrowers

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plus any insufficient funds fee or late fee. We do not record on our balance sheet the loans related to our credit services as the loans are made by unaffiliated lenders. We do not consolidate the unaffiliated lenders’ results with our results as we do not have any ownership interest in the lenders, do not exercise control over them and do not otherwise meet the criteria for consolidation as prescribed by FASB ASC 810-10-25 regarding variable interest entities.
We include an allowance for Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheet. At September 30, 2011, the allowance for Expected LOC Losses was $1.8 million. At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $30.3 million. This amount includes principal, interest, insufficient funds fees and late fees.
We have no other off-balance sheet arrangements.
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. 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.
Signature loan fees are generally highest in our third and fourth fiscal quarters (April through September) due to a higher average loan balance during the summer lending season. Signature loan bad debt, both in dollar terms and as a percentage of related fees, is highest in the third and fourth quarters and lowest in the second quarter due primarily to the impact of tax refunds.
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. Our cash flow typically is greatest in the second fiscal quarter due to a high level of loan redemptions and sales in the U.S. income tax refund season.
Cautionary Statement Regarding Risks and Uncertainties That May Affect Future Results
Forward-Looking Information
This Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like “may,” “should,” “could,” “will,” “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “projection” and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved. Important risk factors that could cause results or events to differ from current expectations are identified and described in “Part I, Item 1A — Risk Factors” of this report.

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We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk Disclosures
We are exposed to market risk related to interest rates, gold values and changes in foreign currency exchange rates. We do not use derivative financial instruments.
Our earnings are affected by changes in interest rates as our debt has a variable rate. If interest rates average 50 basis points more than our current rate in the fiscal year ending September 30, 2012, our interest expense during the year would increase by approximately $88,000. This amount is determined by considering the impact of the hypothetical interest rate change on our variable-rate debt at September 30, 2011.
Our earnings and financial position are affected by changes in gold values and the resulting impact on pawn lending, jewelry sales and jewelry cost of goods sold. The proceeds of scrap sales and our ability to sell jewelry inventory at an acceptable margin depend on gold values. The impact on our financial position and results of operations of a hypothetical change in gold values cannot be reasonably estimated. For further discussion, you should read “Part I, Item 1A — Risk Factors” of this report.
Our earnings and financial position are affected by foreign exchange rate fluctuations related to our equity investments in Albemarle & Bond and Cash Converters International, our Empeño Fácil pawn operations in Mexico, and our operations in Canada. Albemarle & Bond’s functional currency is the British pound, Cash Converters’ International functional currency is the Australian dollar, Empeño Fácil’s functional currency is the Mexican peso and our Canada operations’ functional currency is the Canadian dollar. The impact on our results of operations and financial position of hypothetical changes in foreign currency exchange rates cannot be reasonably estimated due to the interrelationship of operating results and exchange rates.
The translation adjustment from Albemarle & Bond representing the strengthening in the British pound during the year ended June 30, 2011 (included in our September 30, 2011 results on a three-month lag) was a $1.1 million increase to stockholders’ equity. On September 30, 2011, the British pound weakened to £1.00 to $1.5625 U.S. from $1.6018 at June 30, 2011.
The translation adjustment from Cash Converters International representing the strengthening in the Australian dollar from our investment dates to June 30, 2011 (included in our September 30, 2011 results on a three-month lag) was an $8.9 million increase to stockholders’ equity. On September 30, 2011, the Australian dollar weakened to $1.00 Australian dollar to $0.97910 U.S. from $1.0595 at June 30, 2011.
The translation adjustment from Empeño Fácil representing the weakening of the Mexican peso during the year ended September 30, 2011 was a $4.6 million decrease to stockholders’ equity. We have currently assumed permanent reinvestment of earnings and capital in Mexico. Accumulated translation gains or losses related to any future repatriation of earnings or capital would impact our earnings in the period of repatriation. On September 30, 2011, the peso further weakened to $1.00 Mexican peso to $0.0745 U.S. from $0.0845 at June 30, 2011.
The translation adjustment from our Canadian operations representing the weakening of the Canadian dollar during the year ended September 30, 2011 was a $0.4 million decrease to stockholders’ equity. On September 30, 2011, the Canadian dollar weakened to $1.00 Canadian dollar to $0.9682 U.S. from $1.0238 at June 30, 2011.
We cannot predict the future valuation of foreign currencies or how further movements in them could affect our future earnings or financial position.

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Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
         
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    52  
 
       
    53  
 
       
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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
EZCORP, Inc.
Austin, Texas
We have audited the accompanying consolidated balance sheets of EZCORP, Inc. (the Company) as of September 30, 2011 and 2010 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EZCORP, Inc. at September 30, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2011, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of EZCORP, Inc.’s internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated November 23, 2011 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Dallas, Texas
November 23, 2011

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EZCORP, Inc.
Consolidated Balance Sheets
                 
    September 30,  
    2011     2010  
    (In thousands)  
Assets:
               
Current assets:
               
Cash and cash equivalents
  $ 23,969     $ 25,854  
Pawn loans
    145,318       121,201  
Signature loans, net
    11,389       10,775  
Auto title loans, net
    3,222       3,145  
Pawn service charges receivable, net
    26,455       21,626  
Signature loan fees receivable, net
    5,348       5,818  
Auto title loan fees receivable, net
    1,427       1,616  
Inventory, net
    90,373       71,502  
Deferred tax asset
    18,125       23,208  
Prepaid expenses and other assets
    30,611       17,427  
 
           
Total current assets
    356,237       302,172  
 
               
Investments in unconsolidated affiliates
    120,319       101,386  
Property and equipment, net
    78,498       62,293  
Deferred tax asset, non-current
          60  
Goodwill
    173,206       117,305  
Intangible assets, net
    19,790       16,454  
Other assets, net
    8,400       6,742  
 
           
Total assets
  $ 756,450     $ 606,412  
 
           
Liabilities and stockholders’ equity:
               
Current liabilities:
               
Current maturities of long-term debt
  $     $ 10,000  
Accounts payable and other accrued expenses
    57,400       49,663  
Customer layaway deposits
    6,176       6,109  
Income taxes payable
    693       3,687  
 
           
Total current liabilities
    64,269       69,459  
 
               
Long-term debt, less current maturities
    17,500       15,000  
Deferred tax liability
    8,331        
Deferred gains and other long-term liabilities
    2,102       2,525  
 
           
Total liabilities
    92,202       86,984  
 
               
Commitments and contingencies
               
Stockholders’ equity:
               
Class A Non-voting Common Stock, par value $.01 per share; authorized 54 million shares; 47,228,610 issued and outstanding in 2011; 46,256,051 issued and outstanding in 2010
    471       463  
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; issued and outstanding: 2,970,171
    30       30  
Additional paid-in capital
    242,398       225,374  
Retained earnings
    422,095       299,936  
Accumulated other comprehensive income (loss)
    (746 )     (6,375 )
 
           
Total stockholders’ equity
    664,248       519,428  
 
           
Total liabilities and stockholders’ equity
  $ 756,450     $ 606,412  
 
           
See accompanying notes to consolidated financial statements.

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EZCORP, Inc.
Consolidated Statements of Operations
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands, except per share amounts)  
Revenues:
                       
Sales
  $ 494,562     $ 411,865     $ 329,923  
Pawn service charges
    201,135       163,695       130,169  
Signature loan fees
    150,250       139,315       133,344  
Auto title loan fees
    21,701       17,707       3,589  
Other
    1,669       463       431  
 
                 
Total revenues
    869,317       733,045       597,456  
 
                       
Cost of goods sold
    295,620       251,122       203,589  
Signature loan bad debt
    36,328       31,709       33,553  
Auto title loan bad debt
    2,431       2,735       380  
 
                 
Net revenues
    534,938       447,479       359,934  
 
                       
Operating expenses:
                       
Operations
    267,052       236,664       206,237  
Administrative
    75,270       52,740       40,497  
Depreciation and amortization
    18,344       14,661       12,746  
(Gain) / loss on sale or disposal of assets
    309       1,528       (1,024 )
 
                 
Total operating expenses
    360,975       305,593       258,456  
 
                 
 
                       
Operating income
    173,963       141,886       101,478  
 
                       
Interest income
    (37 )     (186 )     (281 )
Interest expense
    1,690       1,385       1,425  
Equity in net income of unconsolidated affiliates
    (16,237 )     (10,750 )     (5,016 )
Other
    (164 )     (93 )     38  
 
                 
Income before income taxes
    188,711       151,530       105,312  
Income tax expense
    66,552       54,236       36,840  
 
                 
Net income
  $ 122,159     $ 97,294     $ 68,472  
 
                 
 
                       
Net income per common share:
                       
Basic
  $ 2.45     $ 1.98     $ 1.45  
 
                 
Diluted
  $ 2.43     $ 1.96     $ 1.42  
 
                 
 
                       
Weighted average shares outstanding:
                       
Basic
    49,917       49,033       47,372  
Diluted
    50,369       49,576       48,076  
See accompanying notes to consolidated financial statements.

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EZCORP, Inc.
Consolidated Statements of Comprehensive income
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
            (In thousands)          
Net Income
  $ 122,159     $ 97,294     $ 68,472  
Other comprehensive income (loss):
                       
Foreign currency translation adjustments
    10,393       (3,673 )     (8,799 )
Unrealized holding gains arising during period
    930              
Income tax benefit (provision)
    (5,694 )     1,918       1,598  
 
                 
Other comprehensive income, net of tax
    5,629       (1,755 )     (7,201 )
 
                 
Comprehensive income
  $ 127,788     $ 95,539     $ 61,271  
 
                 
See accompanying notes to consolidated financial statements.

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EZCORP, Inc.
Consolidated Statements of Cash Flows
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Operating Activities:
                       
Net income
  $ 122,159     $ 97,294     $ 68,472  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    18,344       14,661       12,746  
Signature loan and auto title loan loss provisions
    15,052       11,588       9,023  
Deferred taxes
    13,647       (1,287 )     2,493  
(Gain) / loss on sale or disposal of assets
    309       1,528       (1,024 )
Stock compensation
    13,208       4,512       3,701  
Income from investments in unconsolidated affiliates
    (16,237 )     (10,750 )     (5,016 )
Changes in operating assets and liabilities, net of business acquisitions:
                       
Service charges and fees receivable, net
    (2,998 )     (4,312 )     (1,408 )
Inventory, net
    (5,422 )     (2,144 )     (783 )
Prepaid expenses, other current assets, and other assets, net
    (12,759 )     (6,277 )     (4,767 )
Accounts payable and accrued expenses
    6,881       15,592       (3,649 )
Customer layaway deposits
    (70 )     1,824       861  
Deferred gains and other long-term liabilities
    (345 )     (736 )     (363 )
Excess tax benefit from stock compensation
    (3,230 )     (1,861 )     (1,789 )
Income taxes
    (98 )     5,093       2,120  
 
                 
Net cash provided by operating activities
    148,441       124,725       80,617  
 
                       
Investing Activities:
                       
Loans made
    (652,403 )     (545,579 )     (446,023 )
Loans repaid
    405,594       335,832       276,255  
Recovery of pawn loan principal through sale of forfeited collateral
    205,662       174,224       154,235  
Additions to property and equipment
    (34,776 )     (25,741 )     (19,264 )
Acquisitions, net of cash acquired
    (67,919 )     (21,837 )     (40,922 )
Investments in unconsolidated affiliates
          (59,188 )      
Dividends from unconsolidated affiliates
    7,274       3,841       1,634  
Proceeds on disposal of assets
          1,347       1,062  
 
                 
Net cash used in investing activities
    (136,568 )     (137,101 )     (73,023 )
 
                       
Financing Activities:
                       
Proceeds from exercise of stock options
    397       1,602       4,943  
Stock issuance costs related to acquisitions
                (442 )
Excess tax benefit from stock compensation
    3,230       1,861       1,789  
Debt issuance costs
    (2,397 )     3       (1,179 )
Taxes paid related to net share settlement of equity awards
    (7,484 )            
Proceeds on revolving line of credit
    164,500       63,050        
Payments on revolving line of credit
    (147,000 )     (63,050 )      
Proceeds from bank borrowings
                40,000  
Payments on bank borrowings
    (25,004 )     (10,000 )     (35,385 )
 
                 
Net cash provided by (used in) financing activities
    (13,758 )     (6,534 )     9,726  
 
                 
 
                       
Change in cash and equivalents
    (1,885 )     (18,910 )     17,320  
Cash and equivalents at beginning of period
    25,854       44,764       27,444  
 
                 
Cash and equivalents at end of period
  $ 23,969     $ 25,854     $ 44,764  
 
                 
 
                       
Cash paid during the period for:
                       
Interest
  $ 1,147     $ 913     $ 1,181  
Income taxes
  $ 55,124     $ 50,631     $ 32,231  
 
                       
Non-cash Investing and Financing Activities:
                       
Pawn loans forfeited and transferred to inventory
  $ 215,188     $ 177,821     $ 155,690  
Foreign currency translation adjustment
  $ (5,024 )   $ 1,755     $ 7,201  
Acquisition-related stock issuance
  $ 7,304     $ (31 )   $ 71,197  
Issuance of common stock to 401(k) plan
  $ 377     $ 260     $ 178  
See accompanying notes to consolidated financial statements.

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EZCORP, Inc.
Consolidated Statements of Stockholders’ Equity
                                                         
                                            Accumulated        
    Common Stock     Additional                     Other        
            Par     Paid In     Retained     Treasury     Comprehensive        
    Shares     Value     Capital     Earnings     Stock     Income (Loss)     Total  
    (In thousands)  
Balances at September 30, 2008
    41,535     $ 416     $ 135,895     $ 134,170     $ (12 )   $ 2,581     $ 273,050  
Issuance of Common Stock to 401(k) plan
    17             178                         178  
Stock compensation
                3,701                         3,701  
Stock options and warrants exercised
    1,517       16       4,915             12             4,943  
Issuance of Common Stock due to acquisitions
    5,175       51       70,702                         70,753  
Release of Restricted Stock
    459       4       (4 )                        
Excess tax benefit from stock compensation
                1,789                         1,789  
Unrealized gain (loss) on available-for-sale securities
                                         
Foreign currency translation adjustment
                                  (7,201 )     (7,201 )
Net income
                      68,472                   68,472  
 
                                                     
Total comprehensive income
                                        61,271  
 
                                         
Balances at September 30, 2009
    48,703       487       217,176       202,642             (4,620 )     415,685  
 
                                                       
Issuance of Common Stock to 401(k) plan
    13             260                         260  
Stock compensation
                4,512                         4,512  
Stock options exercised
    494       6       1,596                         1,602  
Issuance of Common Stock due to acquisitions
                (31 )                       (31 )
Release of Restricted Stock
    16                                      
Excess tax benefit from stock compensation
                1,861                         1,861  
Unrealized gain (loss) on available-for-sale securities
                                         
Foreign currency translation adjustment
                                  (1,755 )     (1,755 )
Net income
                      97,294                   97,294  
 
                                                     
Total comprehensive income
                                        95,539  
 
                                         
Balances at September 30, 2010
    49,226       493       225,374       299,936             (6,375 )     519,428  
 
                                         
 
                                                       
Issuance of Common Stock to 401(k) plan
    12             377                         377  
Stock compensation
                13,208                         13,208  
Stock options exercised
    62       1       396                         397  
Issuance of Common Stock due to acquisitions
    209       2       7,302                         7,304  
Release of Restricted Stock
    690                                      
Excess tax benefit from stock compensation
          5       3,225                         3,230  
Taxes paid related to net share settlement of equity awards
                (7,484 )                       (7,484 )
Unrealized gain (loss) on available-for-sale securities
                                  605       605  
Foreign currency translation adjustment
                                  5,024       5,024  
Net income
                      122,159                   122,159  
 
                                                     
Total comprehensive income
                                        127,788  
 
                                         
Balances at September 30, 2011
    50,199     $ 501     $ 242,398     $ 422,095     $     $ (746 )   $ 664,248  
 
                                         
See accompanying notes to consolidated financial statements.

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EZCORP, Inc.
Notes to Consolidated Financial Statements
Note A: Organization and Summary of Significant Accounting Policies
Organization: We are a leading provider of specialty consumer financial services. We provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans including payday loans, installment loans and auto title loans, or fee-based credit services to customers seeking loans.
At September 30, 2011, we operated a total of 1,111 locations, consisting of 433 U.S. pawn stores (operating as EZPAWN or Value Pawn), 178 pawn stores in Mexico (operating as Empeño Fácil or Empeñe Su Oro), 436 U.S. financial services stores (operating primarily as EZMONEY), 49 financial services stores in Canada (operating as CASHMAX) and 15 financial and retail services stores in Canada (operating as Cash Converters). In addition, we are the franchisor for 13 franchised stores in Canada pursuant to our acquisition of the Cash Converters master franchise in that country. We also own almost 30% of Albemarle & Bond Holdings PLC, one of the U.K.’s largest pawnbroking businesses with over 150 stores, and almost 33% of Cash Converters International Limited, which franchises and operates a worldwide network of over 600 financial services and second-hand retail stores.
Consolidation: The consolidated financial statements include the accounts of EZCORP, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. 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 upon 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.
Signature Loan Credit Service Fee Revenue Recognition: We earn credit service fees when we assist customers in obtaining signature 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. Signature loan credit service fee revenue is included in “Signature loan fees” on our statements of operations.
Signature Loan Credit Service Bad Debt: We issue letters of credit to enhance the creditworthiness of our customers seeking signature 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 signature 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, and record the proceeds from such sales as a reduction of bad debt at the time of the sale.
The majority of our credit service customers obtain short-term signature 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 installment loans with a series of payments due over as much as a seven-month period. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire loan is considered defaulted.
Allowance for Losses on Signature Loan Credit Services: We provide an allowance for losses we expect to incur under letters of credit for brokered signature loans that have not yet matured. The allowance is based on recent loan default

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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, and late fees, net of the amounts we expect to collect from borrowers (collectively, “Expected LOC Losses”). Changes in the allowance are charged to signature loan bad debt. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheets. Based on the expected loss and collection percentages, we also provide an allowance for the signature loan credit service fees we expect not to collect, and charge changes in this allowance to signature loan fee revenue.
Signature Loan Revenue Recognition: We accrue fees in accordance with state and provincial laws on the percentage of signature loans (payday loans and installment loans) 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.
Signature Loan Bad Debt: We consider a payday loan defaulted if it has not been repaid or renewed by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of signature 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.
Signature Loan Allowance for Losses: We provide an allowance for losses on signature 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 signature loan bad debt. We record changes in the fee receivable valuation allowance to signature loan fee revenue.
Auto Title Loan Credit Service Fee Revenue Recognition: 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 “Auto title loan fees” on our statements of operations.
Bad Debt and Allowance for Losses on Auto Title Loan Credit Services: 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 plus any late 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 and late fees, 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 balance sheets.
Auto Title Loan Revenue Recognition: 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 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 auto title loan bad debt and charge uncollectable loans against this allowance. We record changes in the fee receivable valuation allowance to auto title loan fee revenue.
Cash and Cash Equivalents and Cash Concentrations: Cash and cash equivalents consist primarily of cash on deposit or highly liquid investments or mutual funds with original contractual maturities of three months or less. We hold cash at major financial institutions that often exceed FDIC insured limits. We manage our credit risk associated with cash and cash equivalents and cash concentrations by investing in high quality instruments or funds, concentrating our cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions issuing investments or holding such deposits. Historically, we have not experienced any losses due to such cash concentrations.
Inventory: If a pawn loan is not redeemed, we record the forfeited collateral at cost (the principal amount of the pawn loan). We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized.

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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 record changes in the inventory valuation allowance as cost of goods sold.
Software Development Costs: We capitalize certain costs incurred in connection with developing or obtaining software for internal use, and amortize the costs by the straight-line method over the estimated useful lives of each system, typically five years.
Customer Layaway Deposits: Customer layaway deposits are recorded as deferred revenue until we collect the entire related sales price and deliver the related merchandise to the customer.
Intangible Assets: Goodwill and other intangible assets having indefinite lives are not subject to amortization. They are tested for impairment each July 1st, or more frequently if events or changes in circumstances indicate that they might be impaired, based on cash flows and other market valuation methods. We amortize intangible assets with definite lives over their estimated useful lives using the straight-line method.
Property and Equipment: We record property and equipment at cost. We depreciate these assets on a straight-line basis using estimated useful lives of 30 years for buildings and 2 to 7 years for furniture, equipment, and software development costs. We depreciate leasehold improvements over the shorter of their estimated useful life (typically 10 years) or the reasonably assured lease term at the inception of the lease.
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. When we determine that the net recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based on the excess of the assets’ net recorded amount over the estimated fair value.
Fair Value of Financial Instruments: We have elected not to measure at fair value any eligible items for which fair value measurement is optional. We determine the fair value of financial instruments by reference to various market data and other valuation techniques, as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values, due primarily to their short-term nature. The recorded value of our outstanding debt is assumed to estimate its fair value, as it has no prepayment penalty and a floating interest rate based on market rates.
Acquisitions: We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 now 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 our wholly-owned Empeño Fácil pawn segment is the Mexican peso and the functional currency of our wholly-owned foreign subsidiary in Canada is the Canadian dollar. Empeño Fácil’s and our Canadian subsidiary’s 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 from Albemarle & Bond, Cash Converters International, Empeño Fácil and our Canadian subsidiary as a separate component of stockholders’ equity. Foreign currency transaction gains and losses have not been significant, and are reported as “Other” expense in our statements of operations.
Cost of Goods Sold: We include in cost of goods sold 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.

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Operations Expense: Included in operations expense are costs related to operating our stores. These costs include labor, other direct expenses such as utilities, supplies and banking fees, and indirect expenses such as store rent, building repairs and maintenance, advertising, store property taxes and insurance, regional and area management expenses and the costs of our bad debt collection center.
Administrative Expense: Included in administrative expense are costs related to our executive and administrative offices. This includes executive and administrative salaries, wages, stock and incentive compensation, professional fees, license fees and costs related to the operation of our administrative offices such as rent, property taxes, insurance, and information technology.
Advertising: We expense advertising costs as incurred.
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.
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 granted, our policy is to estimate the grant-date fair value of 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.
Use of Estimates: Generally accepted accounting principles require us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.
Reclassifications: Certain prior year balances have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements: In June 2009, FASB amended ASC 810-10-65 (Consolidation). Amended ASC 810-10-65 relates to the consolidation of variable interest entities. It eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance also requires additional disclosures about an enterprise’s involvement in variable interest entities. We adopted this amended standard October 1, 2010, resulting in no effect on our financial position, results of operations or cash flows.
In July 2010, FASB issued Accounting Standards Update (“ASU”) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This update amends FASB ASC 310 (Receivables) to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide new disclosures about its financing receivables and related allowance for credit losses. We adopted this amended standard on October 1, 2010, resulting in no effect on our financial position, results of operations or cash flows. The additional required disclosures are included in Note S.
In June 2011, FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” This update amends FASB ASC 220 (Comprehensive Income) and eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We early adopted this amended standard in our fiscal year beginning October 1, 2010 with no effect on our financial position, results of operations or cash flows other than the presentation of our results of operations.

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Note B: Acquisitions
On December 31, 2008, we acquired through a merger all of the capital stock of Value Financial Services, Inc. (“VFS”). The following table provides information related to the acquisition:
         
    Fiscal Year Ended  
    September 30, 2009  
    (In thousands  
    except store counts)  
Pawn stores acquired
    67  
 
       
Consideration:
       
Cash
  $ 13,590  
Equity instruments (4.1 million shares of Class A Non-voting stock at $15.92 per share)
    64,609  
 
     
Fair value of total consideration transferred
    78,199  
 
       
Capitalized acquisition costs
    894  
Cash acquired
    (1,410 )
 
     
Total purchase price
    77,683  
 
     
 
       
Assumed debt
    30,385  
 
     
Total acquisition costs
  $ 108,068  
 
     
 
       
Current assets:
       
Pawn loans
  $ 17,886  
Pawn service charges receivable
    3,491  
Inventory
    16,265  
Deferred tax asset
    4,394  
Prepaid expenses and other assets
    1,438  
 
     
Total current assets
    43,474  
 
       
Property and equipment
    5,584  
Deferred tax asset, non-current
    690  
Goodwill
    61,877  
Other assets
    5,719  
 
     
Total assets
  $ 117,344  
 
       
Current liabilities:
       
Current maturities of long-term debt
  $ (4,000 )
Accounts payable and other accrued expenses
    (8,404 )
Customer layaway deposits
    (872 )
 
     
Total current liabilities
    (13,276 )
 
       
Long-term debt
    (26,385 )
 
     
Total liabilities
    (39,661 )
 
     
Net assets acquired
  $ 77,683  
 
     
 
       
Goodwill recorded in U.S. Pawn segment
  $ 61,877  
Goodwill deductible for tax purposes
     
Indefinite lived intangible assets acquired:
       
Trademark and trade names
  $ 4,870  
Definite lived intangible assets acquired:
       
Favorable lease asset
  $ 644  
We estimated the fair value of the stock issued in the acquisition based on the average daily closing market price of our stock from two days before to two days after the announcement of the merger agreement. Since the date of acquisition, the total purchase price increased approximately $0.3 million due to additional transaction related costs identified after the point of acquisition.

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As we expect to use the trademark and trade names indefinitely, they are not amortized but are tested at least annually for potential impairment. We are amortizing the favorable lease assets over the related lease terms used for straight-line rent purposes.
The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisition. These benefits include a greater presence in prime pawn markets including making us the largest pawn store operator in Florida, expected administrative savings, increased scale and the ability to implement certain processes and practices at the acquired company in our existing and future operations.
The total purchase price presented above excludes contingent consideration paid under the terms of the acquisition, which depended on the price at which VFS shareholders sold their EZCORP shares. After the closing of the acquisition, we paid $10.7 million of contingent consideration to VFS shareholders related to the sale of approximately 3.9 million EZCORP shares. In accordance with accounting rules for contingent payments based on the acquirer’s stock price, all contingent consideration paid was recorded as a reduction of the additional paid-in capital recorded with the stock issuance and did not change the total recorded purchase price.
The results of the acquired stores have been consolidated with our results since their acquisition. The following table summarizes unaudited pro forma condensed combined statements of operations assuming the acquisition had occurred on the first day of fiscal 2009. Although VFS’s historical fiscal year ended on a different date than that of EZCORP, all VFS data included in the pro forma information are actual amounts for the periods indicated.
We have realized operating synergies and administrative savings. These come primarily from using the best practices from EZCORP and VFS in each business, economies of scale, reduced administrative support staff and the closure of VFS’s corporate offices. The pro forma information does not include any potential operating efficiencies or cost savings from expected synergies. The pro forma information is not necessarily an indication of the results that would have been achieved had the acquisition been completed as of the date indicated or that may be achieved in the future.
The following table presents unaudited consolidated pro forma information as if the VFS acquisition had occurred on October 1, 2009:
         
    Fiscal Year Ended  
    September 30, 2009  
    (In thousands)  
Total revenues
  $ 634,693  
Net revenues
    380,020  
Net income
    70,358  

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The following table provides information related to the acquisitions of domestic and foreign pawn lending locations made during the years ended September 30, 2011, 2010 and 2009 (excluding locations acquired in connection with the acquisition described above related to Value Financial Services):
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands except store counts)  
Number of asset purchase acquisitions
    9       5       1  
Number of stock purchase acquisitions
    3              
 
                       
U.S. pawn stores acquired
    34       16       11  
Mexico pawn stores acquired
    6              
 
                 
Total pawn stores acquired
    40       16       11  
 
                       
Consideration:
                       
Cash
  $ 69,977     $ 22,507     $ 17,124  
Equity instruments
    7,304             17,250  
 
                 
Fair value of total consideration transferred
    77,281       22,507     34,374  
 
                       
Capitalized acquisition costs
                178  
Acquisition related costs included in administrative expenses
    (920 )     (643 )      
Cash acquired
    (1,138 )     (58 )     (117 )
 
                 
Total purchase price
  $ 75,223     $ 21,806     $ 34,435  
 
                       
Current assets:
                       
Pawn loans
  $ 8,572     $ 2,700     $ 5,442  
Signature loans
    710             55  
Auto title loans
                1,105  
Service charges and fees receivable
    1,270       379       1,322  
Inventory
    4,838       1,542       2,860  
Deferred tax asset
    461       223       334  
Prepaid expenses and other assets
    728       66       79  
 
                 
Total current assets
    16,579       4,910     11,197  
 
                       
Property and equipment
    1,051       387       392  
Goodwill
    56,703       15,870       16,297  
Other assets
    2,558       1,057       6,711  
 
                 
Total assets
  $ 76,891     $ 22,224     $ 34,597  
 
                       
Current liabilities:
                       
Accounts payable and other accrued expenses
  $ (1,176 )   $ (93 )   $ (27 )
Customer layaway deposits
    (182 )     (102 )     (135 )
Other current liabilities
    (26 )            
 
                 
Total current liabilities
    (1,384 )     (195 )     (162 )
 
                       
Deferred tax liability
    (284 )     (223 )      
 
                 
Total liabilities
    (1,668 )     (418 )     (162 )
 
                 
Net assets acquired
  $ 75,223     $ 21,806     $ 34,435  
 
                 
 
                       
Goodwill deductible for tax purposes
  $ 34,376     $ 15,870     $ 16,297  
Goodwill recorded in U.S. Pawn Segment
    53,555       15,870       16,297  
Goodwill recorded in Empeño Fácil segment
    3,148              
 
                       
Indefinite lived intangible assets acquired:
                       
Pawn licenses
  $     $ 607     $ 6,680  
Definite lived intangible assets acquired:
                       
Favorable lease asset
  $ 111     $     $  
Non-compete agreements
    769       420        
The fiscal year 2011 acquisitions in the table above include an acquisition of the trademark and licensing rights for Cash Converters in Canada, in which no goodwill was acquired. The factors contributing to the recognition of goodwill were

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based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include our initial entry into Chicago, Iowa, Wisconsin, Utah, Hidalgo and Tlaxcala in addition to a greater presence in the prime pawn market of Florida and the ability to further leverage our expense structure through increased scale.
All stores were acquired as part of our continuing strategy to acquire pawn stores to enhance and diversify our earnings. Transaction related expenses were not material and were expensed as incurred. The results of all acquired stores have been consolidated with our results since their acquisition. The purchase price allocation of stores acquired in the most recent twelve months is preliminary as we continue to receive information regarding the acquired assets. Pro forma results of operations have not been presented because the acquisitions were not significant on either an individual or an aggregate basis, and it is not practicable to do so, as historical audited financial statements are not readily available.
Note C: 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.
Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands, except per share amounts)  
Net income (A)
  $ 122,159     $ 97,294     $ 68,472  
 
                 
 
                       
Weighted average outstanding shares of common stock (B)
    49,917       49,033       47,372  
Dilutive effect of stock options and restricted stock
    452       543       704  
 
                 
Weighted average common stock and common stock equivalents (C)
    50,369       49,576       48,076  
 
                 
 
                       
Basic earnings per share (A/B)
  $ 2.45     $ 1.98     $ 1.45  
 
                 
 
                       
Diluted earnings per share (A/C)
  $ 2.43     $ 1.96     $ 1.42  
 
                 
 
                       
Potential common shares excluded from the calculation of diluted earnings per share
    2       15       124  
Note D: Strategic Investments and Fair Value of Financial Instruments
At September 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 fiscal year ended September 30, 2011 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2010 to June 30, 2011. In fiscal 2011, 2010 and 2009, we received dividends from Albemarle & Bond of $3.2 million, $2.3 million and $1.6 million. Albemarle & Bond’s accumulated undistributed after-tax earnings included in our consolidated retained earnings were $23.5 million at September 30, 2011.
Conversion of Albemarle & Bond’s financial statements into US Generally Accepted Accounting Principles (“GAAP”) resulted in no material differences from those reported by Albemarle & Bond following International Financial Reporting Standards (“IFRS”).

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In its functional currency of British pounds, Albemarle & Bond’s total assets increased 19% from June 30, 2010 to June 30, 2011 and its net income improved 6% for the year ended June 30, 2011. 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 June 30 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
                 
    As of June 30,  
    2011     2010  
    (In thousands)  
Current assets
  $ 125,862     $ 97,476  
Non-current assets
    64,325       52,325  
 
           
Total assets
  $ 190,187     $ 149,801  
 
           
 
               
Current liabilities
  $ 18,620     $ 17,898  
Non-current liabilities
    57,016       42,078  
Shareholders’ equity
    114,551       89,825  
 
           
Total liabilities and shareholders’ equity
  $ 190,187     $ 149,801  
 
           
                         
    Years ended June 30,  
    2011     2010     2009  
    (In thousands)  
Gross revenues
  $ 162,002     $ 129,794     $ 89,712  
Gross profit
    97,197       84,850       68,572  
Profit for the year (net income)
    24,324       22,792       17,239  
At September 30, 2011, the recorded balance of our investment in Albemarle & Bond, accounted for on the equity method, was $48.4 million. Because Albemarle & Bond publicly reports its financial results only semi-annually as of June 30 and December 31, the latest Albemarle & Bond figures available are as of June 30, 2011, at which point our equity in net assets of Albemarle & Bond was $34.4 million. The difference between the recorded balance and our equity in Albemarle & Bond’s net assets represents the $10.0 million of unamortized goodwill, plus the cumulative difference resulting from Albemarle & Bond’s earnings, dividend payments and translation gains and losses since the dates of investment.
At September 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. Due to the three-month lag, income reported for our fiscal year ended September 30, 2011 represents our percentage interest in the results of cash Converters’ operations from July 1, 2010 to June 30, 2011. Our results for the twelve-month period ended September 30, 2010 include our percentage interest in Cash Converters’ 237 days of earnings from November 6, 2009 to June 30, 2010. This amount was estimated through daily proration of Cash Converters’ reported results for the twelve months ended June 30, 2010. In fiscal 2011 and 2010, we received dividends from Cash Converters of $4.1 and $1.5 million. Cash Converters’ accumulated undistributed after-tax earnings included in our consolidated retained earnings were $7.3 million at September 30, 2011.
Conversion of Cash Converters’ financial statements into US GAAP resulted in no material differences from those reported by Cash Converters following IFRS.
In its functional currency of Australian dollars, Cash Converters’ total assets increased 18% from June 30, 2010 to June 30, 2011 and its net income improved 27% for the year ended June 30, 2011. Below is summarized financial information for

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Cash Converters’ 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):
                 
    As of June 30,  
    2011     2010  
    (In thousands)  
Current assets
  $ 119,633     $ 96,489  
Non-current assets
    126,811       72,408  
 
           
Total assets
  $ 246,444     $ 168,897  
 
           
 
               
Current liabilities
  $ 38,235     $ 19,179  
Non-current liabilities
    22,528       10,199  
Shareholders’ equity
    185,681       139,519  
 
           
Total liabilities and shareholders’ equity
  $ 246,444     $ 168,897  
 
           
                 
    Years Ended June 30,  
    2011     2010  
    (In thousands)  
Gross revenues
  $ 184,011     $ 111,218  
Gross profit
    138,997       84,296  
Profit for the year (net income)
    27,328       19,122  
At September 30, 2011, the recorded balance of our investment in Cash Converters, accounted for on the equity method, was $72.0 million. Because Cash Converters publicly reports its financial results only semi-annually as of June 30 and December 31, the latest Cash Converters figures available are as of June 30, 2011, at which point our equity in net assets of Cash Converters was $60.8 million. The difference between the recorded balance and our equity in Cash Converters’ net assets represents the $15.0 million of unamortized goodwill, plus the cumulative difference resulting from Cash Converters’ earnings, dividend payments and translation gains and losses since the dates of investment.
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.
                 
    September 30,  
    2011     2010  
    (In thousands of U.S. dollars)  
Albemarle & Bond:
               
Recorded value
  $ 48,361     $ 43,127  
Fair value
    91,741       75,520  
 
               
Cash Converters:
               
Recorded value
    71,958       58,259  
Fair value
    53,600       70,005  
In August 2011, legislation was proposed in Australia that would, among other things, limit the interest charged on certain consumer loans and prohibit loan extensions and refinancings. If this legislation is enacted in its currently proposed form, Cash Converters’ consumer loan business in Australia may be adversely affected, which could have the effect of decreasing Cash Converters’ revenues and earnings. Cash Converters has announced that it is considering a wide range of steps which it can implement to reduce the potential adverse impact if the proposed legislation is enacted and that it believes it may be able to substantially reduce the adverse effects. As of September 30, 2011, the fair value of our investment in Cash Converters (based on the market price of Cash Converters stock as of that date) was below our recorded value. In light of Cash Converters’ statements regarding its ability to mitigate the potential impact of the proposed legislation, we consider this loss in value to be temporary.

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Included in “Other Assets, net” on our balance sheets are available for sale securities with a fair value of $5.4 million at September 30, 2011 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.
Note E: Property and Equipment
Major classifications of property and equipment were as follows:
                                                 
    September 30,  
    2011   2010  
    Carrying     Accumulated     Net Book     Carrying     Accumulated     Net Book  
    Amount     Depreciation     Value     Amount     Depreciation     Value  
    (In thousands)  
Land
  $ 4     $     $ 4     $     $     $  
Buildings and improvements
    88,263       (53,094 )     35,169       78,997       (47,851 )     31,146  
Furniture and equipment
    85,654       (52,562 )     33,092       70,419       (44,209 )     26,210  
Software
    28,653       (23,238 )     5,415       25,128       (21,871 )     3,257  
Construction in progress
    4,818             4,818       1,680             1,680  
 
                                   
Total
  $ 207,392     $ (128,894 )   $ 78,498     $ 176,224     $ (113,931 )   $ 62,293  
 
                                   
Depreciation expense for fiscal 2011, 2010 and 2009 was $17.5 million, $14.0 million and $12.3 million. Included in these amounts for fiscal 2011, 2010 and 2009 is $1.4 million, $0.9 million and $1.0 million of depreciation expense related to capitalized computer software.
Note F: Goodwill and Other Intangible Assets
The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:
                 
    September 30,  
    2011     2010  
    (In thousands)  
Pawn licenses
  $ 8,836     $ 8,836  
Trade name
    4,870       4,870  
Goodwill
    173,206       117,305  
 
           
Total
  $ 186,912     $ 131,011  
 
           
The following table presents the changes in the carrying value of goodwill, by segment, for the fiscal years ended September 30, 2011 and 2010:
                                 
    U.S. Pawn     Empeño     EZMONEY        
    Operations     Fácil     Operations     Consolidated  
            (In thousands)          
Balance at September 30, 2009
  $ 94,192     $ 6,527     $     $ 100,719  
Acquisitions
    15,871                   15,871  
Post-closing purchase price allocation adjustments for prior year acquisitions
    192                   192  
Effect of foreign currency translation changes
          523             523  
 
                       
Balance at September 30, 2010
    110,255       7,050             117,305  
 
                       
Acquisitions
    53,642       3,148             56,790  
Effect of foreign currency translation changes
          (889 )           (889 )
 
                       
Balance at September 30, 2011
  $ 163,897     $ 9,309     $     $ 173,206  
 
                       

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The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:
                                                 
    September 30,  
    2011     2010  
    Carrying     Accumulated     Net Book     Carrying     Accumulated     Net Book  
    Amount     Amortization     Value     Amount     Amortization     Value  
                    (In thousands)                  
Real estate finders’ fees
  $ 1,157     $ (479 )   $ 678     $ 948     $ (401 )   $ 547  
Non-compete agreements
    3,722       (2,459 )     1,263       3,081       (1,834 )     1,247  
Favorable lease
    755       (322 )     433       644       (219 )     425  
Franchise Rights
    1,547       (32 )     1,515                    
Deferred financing costs
    2,411       (262 )     2,149       1,469       (982 )     487  
Other
    58       (12 )     46       48       (6 )     42  
 
                                   
Total
  $ 9,650     $ (3,566 )   $ 6,084     $ 6,190     $ (3,442 )   $ 2,748  
 
                                   
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 our credit agreement. The following table presents the amount and classification of amortization recognized as expense in each of the periods presented:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
            (In thousands)          
Amortization expense
  $ 855     $ 631     $ 485  
Operations expense
    111       129       95  
Interest expense
    615       403       296  
 
                 
Total expense from the amortization of definite-lived intangible assets
  $ 1,581     $ 1,163     $ 876  
 
                 
The following table presents our estimate of amortization expense for definite-lived intangible assets:
                         
Fiscal Years Ended September 30,   Amortization Expense     Operations Expense     Interest Expense  
            (In thousands)          
2012
  $ 784     $ 92     $ 599  
2013
    346       76       599  
2014
    271       62       599  
2015
    234       51       352  
2016
    193       48        
As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates.
Note G: Accounts Payable and Other Accrued Expenses
Accounts payable and other accrued expenses consisted of the following:
                 
    September 30,  
    2011     2010  
    (In thousands)  
Trade accounts payable
  $ 9,949     $ 9,135  
Accrued payroll and related expenses
    22,326       20,838  
Accrued interest
    13       94  
Accrued rent and property taxes
    10,728       9,121  
Accrual for expected losses on credit service letters of credit
    1,795       1,699  
Collected funds payable to unaffiliated lenders under credit service programs
    1,705       823  
Other accrued expenses
    10,884       7,953  
 
           
 
  $ 57,400     $ 49,663  
 
           

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Note H: Long-Term Debt
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. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally.
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 bank’s 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 basis points depending on our leverage ratio calculated at the end of each quarter. From the closing date to approximately October 31, 2011, we paid a minimum interest rate of LIBOR plus 250 basis points or the bank’s base rate plus 150 basis points, at our option, and a commitment fee of 50 basis points on the unused portion of the credit line. Terms of the credit agreement require, among other things, that we meet certain financial covenants. At September 30, 2011, we were in compliance with all covenants. We expect the recorded value of our debt to approximate its fair value as it is all variable rate debt and carries no pre-payment penalty.
At September 30, 2011, $17.5 million was outstanding under our revolving credit agreement. We also issued $5.0 million of bank letters of credit, leaving $152.5 million available on our revolving credit facility. The outstanding bank letters of credit secure our obligations under letters of credit we issue to unaffiliated lenders as part of our credit service operations.
In connection with the credit agreement we expensed $0.1 million of unamortized deferred financing costs related to our former credit agreement and recorded approximately $2.3 million deferred financing costs related to our new facility. These costs are included in intangible assets, net on the balance sheet and are being amortized to interest expense over their four-year estimated useful life.
Note I: Common Stock, Options, and Stock Compensation
Our capital stock consists of two classes of common stock designated as Class A Non-voting Common Stock (“Class A Common Stock”) and Class B Voting Common Stock (“Class B Common Stock”). The rights, preferences and privileges of the Class A and Class B Common Stock are similar except that each share of Class B Common Stock has one vote and each share of Class A Common Stock has no voting privileges. All Class A Common Stock is publicly held. Holders of Class B Common Stock may, individually or as a class, convert some or all of their shares into Class A Common Stock on a one-to-one basis. Class A Common Stock becomes voting common stock upon the conversion of all Class B Common Stock to Class A Common Stock. We are required to reserve the number of authorized but unissued shares of Class A Common Stock that would be issuable upon conversion of all outstanding shares of Class B Common Stock.
The following table presents information on newly registered shares of our Class A Common Stock issued as acquisition consideration:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
Shares issued due to acquisitions
    208,763             5,174,900  
We account for stock compensation in accordance with the fair value recognition and measurement provisions of FASB ASC 718-10-25 (Compensation-Stock Compensation). Compensation cost recognized includes compensation cost for all unvested stock compensation payments, based on the closing market price of our stock on the date of grant. We amortize the fair value of grants to compensation expense on a ratable basis over the vesting period for both cliff vesting and pro-rata vesting grants. We have not granted any stock options since fiscal 2007.

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Our net income includes the following compensation costs related to our stock compensation arrangements:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Gross compensation costs
                       
Stock options
  $     $ 4     $ 63  
Restricted stock
    13,208       4,508       3,638  
 
                 
Total gross compensation costs
    13,208       4,512       3,701  
 
                       
Income tax benefits
                       
Stock options
    (1 )     (56 )     (32 )
Restricted stock
    (4,508 )     (1,517 )     (1,208 )
 
                 
Total income tax benefits
    (4,509 )     (1,573 )     (1,240 )
 
                 
 
                       
Net compensation expense
  $ 8,699     $ 2,939     $ 2,461  
 
                 
All options and restricted stock relate to our Class A Common Stock.
Our non-employee directors have been granted restricted stock awards and non-qualified stock options that vest in one to two years from grant, with the options expiring in ten years. Restricted stock awards, non-qualified options and incentive stock options have been granted to our officers and employees under our 1998, 2003, 2006 and 2010 Incentive Plans. Most options have a contractual life of ten years and provide for pro-rata vesting over five years, but some provide for cliff vesting. Outstanding options have been granted with strike prices ranging from $0.86 per share to $4.05 per share. These were granted at or above the market price at the time of grant, and had no intrinsic value on the grant date.
On May 1, 2010 our Board of Directors approved the adoption of the EZCORP, Inc. 2010 Long-Term Incentive Plan (the “2010 Plan”). The 2010 Plan permits grants of options, restricted stock awards (“RSAs”) and stock appreciation rights covering up to 1,575,750 shares of our Class A Common Stock, including 75,750 shares that remained available for issuance under the previous plan. Awards that expire or are canceled without delivery of shares under the 2010 Incentive Plan generally become available for issuance in new grants. We generally issue new shares to satisfy stock option exercises, but used 10,000 treasury shares to satisfy one option exercise in fiscal 2009. We no longer hold any treasury shares. At September 30, 2011, 779,750 shares were available for grant under the 2010 Plan.
We measure the fair value of RSAs based upon the closing market price of our common stock as of the grant date. A summary of the RSA activity as follows:
                 
    Fiscal Year Ended September 30, 2011  
            Weighted  
            Average  
            Grant Date  
    Shares     Fair Value  
Outstanding at beginning of year
    1,781,250     $ 13.50  
Granted
    868,500       20.34  
Released
    (1,035,250 )     13.08  
Forfeited
    (79,500 )     16.61  
 
           
Outstanding at end of year
    1,535,000     $ 17.49  
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In millions except per share amounts)  
Weighted average grant-date fair value per share of RSAs granted
  $ 20.34     $ 14.64     $ 17.51  
Total grant —date fair value of RSAs vested
  $ 13.5     $ 0.2     $ 4.8  

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At September 30, 2011, the unamortized fair value of RSAs to be amortized over their remaining vesting periods was approximately $20.8 million and the fair value of all options had been fully amortized to expense. The weighted average period over which these costs will be amortized is four years.
A summary of the option activity for the current fiscal year follows:
                                 
                    Weighted        
                    Average        
            Weighted     Remaining     Aggregate  
            Average     Contractual     Intrinsic  
            Exercise     Term     Value  
    Shares     Price     (In years)     (In thousands)  
Outstanding at September 30, 2010
    293,398     $ 3.81                  
Granted
                           
Forfeited
                           
Expired
    (8,400 )     1.48                  
Exercised
    (62,600 )     6.57                  
 
                           
Outstanding at September 30, 2011
    222,398     $ 3.12       2.37     $ 5,652  
Vested and expected to vest
    222,398     $ 3.12       2.37     $ 5,652  
Vested at September 30, 2011
    222,398     $ 3.12       2.37     $ 5,652  
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In millions except share amounts)  
Shares issued due to stock option exercises
    62,173       494,202       1,528,048  
Proceeds due to stock option exercises
  $ 0.4     $ 1.6     $ 4.9  
Tax benefit from stock option exercises
  $ 0.2     $ 2.1     $ 1.4  
Intrinsic value of stock options exercised
  $ 1.5     $ 7.7     $ 15.5  
Note J: Income Taxes
Significant components of the income tax provision are as follows:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Current
                       
Federal
  $ 50,148     $ 54,931     $ 38,898  
State and foreign
    2,728       2,172       1,519  
 
                 
 
    52,876       57,103       40,417  
Deferred
                       
Federal
    13,408       (2,811 )     (3,516 )
State and foreign
    268       (56 )     (61 )
 
                 
 
    13,676       (2,867 )     (3,577 )
 
                 
 
  $ 66,552     $ 54,236     $ 36,840  
 
                 

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A reconciliation of income taxes calculated at the statutory rate and the provision for income taxes attributable to continuing operations is as follows:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Income taxes at the federal statutory rate
  $ 66,049     $ 53,035     $ 36,859  
Non-deductible expense related to incentive stock options
          1       112  
State income tax, net of federal benefit
    2,728       2,172       1,519  
Change in valuation allowance
    1,425       1,273       157  
Federal tax credits
    (167 )     (134 )     (181 )
Foreign tax credit
    (4,356 )     (2,849 )     (1,228 )
Other
    873       738       (398 )
 
                 
Total provision
  $ 66,552     $ 54,236     $ 36,840  
 
                 
 
                       
Effective Tax Rate
    35.3 %     35.8 %     35.0 %
 
                 
The decrease in the fiscal 2011 effective tax rate is due primarily to an increase in foreign tax credits, partly offset by a valuation allowance established on our foreign net operating losses during the start-up phase of operations in Canada. If we are able to generate taxable income in Canada in future years, this valuation allowance may then be reversed and the related deferred tax assets realized. Taking into account all the above factors and our expectations, we estimate our effective tax rate in the year ending September 30, 2012 will be approximately 35.2%.
Significant components of our deferred tax assets and liabilities as of September 30 are as follows (in thousands):
                 
    September 30,  
    2011     2010  
    (In thousands)  
Deferred tax assets:
               
Book over tax depreciation
  $ 1,001     $ 3,894  
Tax over book inventory
    3,457       9,836  
Accrued liabilities
    12,220       11,041  
Pawn service charges receivable
    3,775       3,552  
Stock compensation
          2,838  
Net operating loss carry-forward on foreign operations
    1,425       1,273  
 
           
Total deferred tax assets
    21,878       32,434  
 
               
Deferred tax liabilities:
               
Tax over book amortization
    6,605       5,122  
Foreign income and dividends
    2,932       2,163  
Stock compensation
    194          
Prepaid expenses
    928       608  
 
           
Total deferred tax liabilities
    10,659       7,893  
 
           
 
               
Net deferred tax asset
    11,219       24,541  
Valuation allowance
    (1,425 )     (1,273 )
 
           
Net deferred tax asset
  $ 9,794     $ 23,268  
 
           
Substantially all of our operating income was generated from U.S. operations during 2010 and 2011, and we have elected to have our Mexican operations treated as a foreign branch of a U.S. subsidiary for U.S. income tax purposes. At September 30, 2011 and 2010, we provided deferred income taxes on all undistributed earnings from Albemarle & Bond, and received dividends of approximately $3.2 million and $2.3 million. At September 30, 2011 and 2010, we provided deferred income taxes on all undistributed earnings from Cash Converters, and received dividends of approximately $4.1 million and $1.5 million. Any taxes paid to foreign governments on these earnings may be used in whole or in part as credits against the U.S. tax on any dividends distributed from such earnings.

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Under FASB ASC 740-10-25 (“Accounting for Uncertainty in Income Taxes”), a tax position must be more-likely-than-not to be sustained upon examination, based on the technical merits of the position to be recognized in the financial statements. In making the determination of sustainability, we must presume the appropriate taxing authority with full knowledge of all relevant information will examine tax positions. FASB ASC 740-10-25 also prescribes how the benefit should be measured, including the consideration of any penalties and interest. It requires that the standard be applied to the balances of tax assets and liabilities as of the beginning of the period of adoption and that a corresponding adjustment be made to the opening balance of equity. As a result of the adoption of FASB ASC 740-10-25, we recognized a $106,000 liability, including $8,600 of penalties and interest, for unrecognized state income tax benefits net of federal taxes, and recorded this as a cumulative adjustment to our beginning retained earnings at October 1, 2007. We recorded an additional $380,000 uncertain tax position in fiscal 2008, and reversed it in fiscal 2009 due to a change in accounting method for tax purposes.
We recognize interest and penalties related to unrecognized tax benefits as federal income tax expense on our statement of operations.
Below is a reconciliation of the beginning and ending unrecognized tax benefits for the periods since adoption of FASB ASC 740-10-25 (in thousands):
         
Unrecognized tax benefits at September 30, 2008
  $ 486  
Reduction based on prior year tax positions
    (380 )
Additions based on current year tax positions
     
Reductions based on settlements with taxing authorities
     
Reductions due to lapse in statute of limitations
     
 
     
Unrecognized tax benefits at September 30, 2009
    106  
Reduction based on prior year tax positions
     
Additions based on current year tax positions
     
Reductions based on settlements with taxing authorities
     
Reductions due to lapse in statute of limitations
    (55 )
 
     
Unrecognized tax benefits at September 30, 2010
    51  
Reduction based on prior year tax positions
     
Additions based on current year tax positions
     
Reductions based on settlements with taxing authorities
     
Reductions due to lapse in statute of limitations
    (51 )
 
     
Unrecognized tax benefits at September 30, 2011
  $  
 
     
We are subject to U.S., Mexican, and Canadian income taxes as well as to income taxes levied by various state and local jurisdictions. With few exceptions, we are no longer subject to examinations by tax authorities for years before the tax year ended September 30, 2007.
Note K: Related Party Transactions
Effective October 1, 2010, 2009 and 2008, we entered one-year financial advisory services agreements with Madison Park, LLC, a business and financial advisory firm wholly-owned by Phillip E. Cohen, the beneficial owner of all of our outstanding Class B Common Stock. Either party could terminate the agreements at any time on thirty days written notice, but neither party elected to do so. The agreements required Madison Park to provide advice on our business and long-term strategic plan, including acquisitions and strategic alliances, operating and strategic objectives, investor relations, relations with investment bankers and other members of the financial services industry, international business development and strategic investment opportunities, and financial matters. The monthly fee for the services was $400,000 in fiscal 2011, $300,000 in fiscal 2010 and $200,000 in fiscal 2009. Total payments to Madison Park were $4.8 million in fiscal 2011, $3.6 million in fiscal 2010 and $2.4 million in fiscal 2009.
Effective October 1, 2011, we entered into a new financial advisory services agreement with Madison Park with a one-year term that expires September 30, 2012. The terms of the agreement are substantially the same as those in the fiscal 2011 agreement described above, except the monthly fee is $500,000.
Prior to approval of the Madison Park agreement and pursuant to our Policy for Review and Evaluation of Related Party Transactions, the Audit Committee of our Board of Directors implemented measures designed to ensure that the advisory services agreement with Madison Park was considered, analyzed, negotiated and approved objectively. Those measures

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included the engagement of an independent financial advisory firm to counsel and advise the committee in the course of its consideration and evaluation of the Madison Park relationship and the proposed terms of the new advisory services agreement and the receipt of a fairness opinion with respect to the fee to be paid to Madison Park.
After consideration and discussion of a number of factors, the information and fairness opinion provided by its independent financial advisory firm, and the relationships and the interests of Mr. Cohen, the Audit Committee concluded that the advisory services agreement was fair to, and in the best interests of, the company and its stockholders and, on that basis, approved the engagement of Madison Park pursuant to the advisory services agreement.
Note L: Leases
We lease various facilities and certain equipment under operating leases. We also sublease some of the above facilities. Future minimum rentals due under non-cancelable leases and annual future minimum rentals expected under subleases are as follows:
                 
    Fiscal Years Ended September 30,  
    Lease     Sublease  
    Payments     Revenue  
 
           
    (In thousands)  
2012
  $ 45,181     $ 226  
2013
    39,243       161  
2014
    30,001       111  
2015
    22,171       12  
2016
    13,874        
Thereafter
    19,731        
 
           
 
  $ 170,201     $ 510  
 
           
After an initial lease term of generally three to ten years, our lease agreements typically allow renewals in three to five-year increments. Our lease agreements generally include rent escalations throughout the initial lease term. Rent escalations are included in the above numbers. For financial reporting purposes, the aggregate rentals over the lease term, including lease renewal options that are reasonably assured, are expensed on a straight-line basis.
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Gross rent expense
  $ 46,710     $ 39,394     $ 35,005  
Sublease rent revenue
    (141 )     (132 )     (81 )
 
                 
Net rent expense
  $ 46,569     $ 39,262     $ 34,924  
 
                 
Prior to fiscal 2008, we completed several sale-leaseback transactions of previously owned facilities. Losses on sales were recognized immediately, and gains were deferred and are being amortized as a reduction of lease expense over the terms of the related leases. The remaining unamortized long-term portion of these deferred gains, amounting to $2.1 million at September 30, 2011, is included in “Deferred gains and other long-term liabilities” in our consolidated balance sheet. The short-term portion, included in “Accounts payable and other accrued expenses” was $0.4 million at September 30, 2011. Future rentals on these sale-leasebacks are included in the above schedule of future minimum rentals. Terms of these leases are consistent with the terms on our other lease agreements.
Note M: Employment Agreements
Effective January 1, 2009, we entered into an Employment and Compensation Agreement with Joseph L. Rotunda, who was our Chief Executive Officer at the time. That agreement expired on October 8, 2010, and Mr. Rotunda retired from his positions as Chief Executive Officer and a member of the Board of Directors on October 31, 2010. The agreement provided Mr. Rotunda with certain severance and termination benefits if he served the full term of the agreement (through October 8, 2010). These benefits included (1) a cash payment in an amount equal to one year’s base salary plus his most recent annual incentive bonus award (total of approximately $3.4 million, payable on January 7, 2011) and (2) a five-year consulting

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agreement that provides for the following: an annual consulting fee of $500,000; an annual incentive bonus with a target amount equal to 50% of the annual fee and a maximum amount equal to 100% of the annual fee; and reimbursement of reasonable business expenses. The company has also agreed to continue the healthcare benefits for Mr. Rotunda during the term of the consulting agreement. If the consulting agreement is terminated by reason of Mr. Rotunda’s death or disability, he will be entitled to payment of an amount equal to one year’s annual consulting fee plus one year of incentive bonus (calculated at the target amount) and continuation of healthcare benefits for Mr. Rotunda and/or his spouse (as applicable) for one year. In addition, if the company terminates the consulting agreement (other than due to a material breach by Mr. Rotunda) or Mr. Rotunda terminates the consulting agreement because of a material breach by the company, then the company will pay Mr. Rotunda an amount of cash equal to all annual consulting fees that would have been payable to Mr. Rotunda had the agreement continued until the expiration of the five-year term, plus an additional $500,000 in lieu of subsequent annual incentive bonuses, and shall continue to provide the healthcare benefits for Mr. Rotunda until the expiration of the five-year term.
On October 8, 2010, the Board of Directors, acting pursuant to the terms of the applicable restricted stock award agreement and with the recommendation of the Compensation Committee, determined that Mr. Rotunda had satisfied the specified conditions for the accelerated vesting of all his unvested restricted stock (having served the full term of his employment agreement and successfully implemented a transition plan to a new Chief Executive Officer) and approved the vesting of the remaining 756,000 unvested shares on October 31, 2010, the effective date of Mr. Rotunda’s retirement.
On August 3, 2009, we entered into an employment agreement with Paul E. Rothamel, who became President in February 2010 and Chief Executive Officer on November 1, 2010. The agreement provides for certain benefits (principally, a payment equal to one year of then-current base salary) if (a) Mr. Rothamel terminates his employment for good reason (including a change in control), (b) we terminate Mr. Rothamel’s employment without cause, or (c) Mr. Rothamel dies or becomes totally and permanently disabled during his active employment. Mr. Rothamel is subject to confidentiality obligations and, for a period of two years following the termination of his employment, is prohibited from competing with us, soliciting our customers or soliciting our employees. The agreement had an initial term of two years, which expired on August 3, 2011, but under its terms, has been renewed for an additional one-year term and will continue to be renewed for successive one-year terms unless either party gives 90-days’ notice to terminate.
The company provides the following additional severance or change-in-control benefits to its executive officers:
  The terms of employment for certain of our executive officers provide that the executive officer will receive salary continuation for one year if his or her employment is terminated by the company without cause.
 
  Sterling B. Brinkley, Chairman of the Board, received a restricted stock award on October 2, 2006 that provides for accelerated vesting of some or all of the unvested shares under certain circumstances, including death or disability, failure to be re-elected to his current position or termination of employment without cause.
 
  Generally, restricted stock awards, including those granted to the executive officers, provide for accelerated vesting of some or all of the unvested shares in the event of the holder’s death or disability.
Note N: Retirement Plans
We sponsor a 401(k) retirement savings plan under which eligible employees may contribute a portion of pre-tax earnings. In our sole discretion, we may match employee contributions in the form of our Class A Common Stock. A participant vests in the matching contributions pro rata over their first four years of service and is 100% vested in all matching contributions after four years of service.
The following table presents matching contribution information to our 401(k) Plan:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Matching contributions to EZCORP 401(k) Plan
  $ 377     $ 260     $ 178  
Matching contributions to Value Financial Services 401(k) Plan
                97  
 
                 
Total Matching contributions
  $ 377     $ 260     $ 275  
 
                 

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We also provide a non-qualified Supplemental Executive Retirement Plan for selected executives. Funds in the Supplemental Executive Retirement Plan vest over three years from the grant date, with one-third vesting each year. All of a participant’s Supplemental Executive Retirement Plan funds from all grants vest 100% in the event of the participant’s death or disability or the termination of the plan due to a change in control. In addition, the Supplemental Executive Retirement Plan funds are 100% vested when a participant attains his or her normal retirement age (60 years old and five years of active service) while actively employed by us. Expense of contributions to the Supplemental Executive Retirement Plan is recognized based on the vesting schedule.
The following table provides contribution and amortized expense amounts related to the Supplemental Executive Retirement Plan:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Contributions to the Supplemental Executive Retirement Plan
  $ 701     $ 746     $ 579  
Amortized expense due to Supplemental Executive Retirement Plan
  $ 526     $ 562     $ 463  
Note O: 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. However, we cannot give any assurance as to their ultimate outcome.
Note P: Quarterly Information (Unaudited)
                                 
    First Quarter     Second Quarter     Third Quarter     Fourth Quarter  
    (In thousands, except per share amounts)  
Year Ended September 30, 2011
                               
Total revenues
  $ 218,826     $ 213,254     $ 203,152     $ 234,085  
Net revenues
    134,232       130,950       122,997       146,759  
Net income
    27,429       31,838       26,527       36,365  
 
                               
Earnings per common share:
                               
Basic
  $ 0.55     $ 0.64     $ 0.53     $ 0.73  
Diluted
  $ 0.55     $ 0.63     $ 0.53     $ 0.72  
 
                               
Year Ended September 30, 2010
                               
Total revenues
  $ 184,751     $ 176,584     $ 173,542     $ 198,168  
Net revenues
    112,931       109,705       104,804       120,039  
Net income
    25,707       23,773       19,962       27,852  
 
                               
Earnings per common share:
                               
Basic
  $ 0.53     $ 0.49     $ 0.41     $ 0.57  
Diluted
  $ 0.52     $ 0.48     $ 0.40     $ 0.56  
Note Q: Comprehensive Income
The table below presents the tax benefit (provision) of each component of comprehensive income:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
    (In thousands)  
Foreign currency translation tax benefit / (provision)
  $ (5,369 )   $ 1,918     $ 1,598  
Available for sale securities tax benefit / (provision)
    (325 )            
 
                 
Total tax benefit / (provision)
  $ (5,694 )   $ 1,918     $ 1,598  
 
                 

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Note R: Operating Segment Information
We manage our business and internal reporting as three reportable segments with operating results reported separately for each segment.
    The U.S. Pawn Operations segment offers pawn related activities in our 433 U.S. pawn stores, offers signature loans in 43 pawn stores and six EZMONEY stores and offers auto title loans in 44 pawn stores.
 
    The Empeño Fácil segment offers pawn related activities in 178 Mexico pawn stores.
 
    The EZMONEY Operations segment offers signature loans in 430 U.S. and 64 Canadian financial services stores. The segment offers auto title loans in 397 of its U.S. stores and buys and sells second-hand goods 15 of its Canadian stores.
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:
                                 
    U.S. Pawn     Empeño     EZMONEY          
    Operations     Fácil     Operations     Consolidated  
    (In thousands)  
Year Ended September 30, 2011:
                               
Revenues:
                               
Merchandise Sales
  $ 256,643     $ 25,237     $ 203     $ 282,083  
Jewelry Scrapping Sales
    195,276       15,997       1,206       212,479  
Pawn service charges
    184,234       16,901             201,135  
Signature loan fees
    2,501             147,749       150,250  
Auto title loan fees
    1,539             20,162       21,701  
Other
    634       122       913       1,669  
 
                       
Total revenues
    640,827       58,257       170,233       869,317  
 
                               
Merchandise cost of goods sold
    147,239       14,672       149       162,060  
Jewelry scrapping cost of goods sold
    120,767       12,205       588       133,560  
Signature loan bad debt
    923             35,405       36,328  
Auto title loan bad debt
    165             2,266       2,431  
 
                       
Net revenues
    371,733       31,380       131,825       534,938  
 
                               
Operations expense
    177,191       20,636       69,225       267,052  
 
                       
Store operating income
  $ 194,542     $ 10,744     $ 62,600     $ 267,886  
 
                       

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    U.S. Pawn     Empeño     EZMONEY        
    Operations     Fácil     Operations     Consolidated  
            (In thousands)          
Year Ended September 30, 2010:
                               
Revenues:
                               
Merchandise Sales
  $ 226,424     $ 14,030     $     $ 240,454  
Jewelry scrapping Sales
    163,667       7,389       355       171,411  
Pawn service charges
    154,505       9,190             163,695  
Signature loan fees
    1,930             137,385       139,315  
Auto title loan fees
    1,659             16,048       17,707  
Other
    442             21       463  
 
                       
Total revenues
    548,627       30,609       153,809       733,045  
 
                               
Merchandise cost of goods sold
    131,825       8,459             140,284  
Jewelry scrapping cost of goods sold
    104,531       6,137       170       110,838  
Signature loan bad debt
    641             31,068       31,709  
Auto title loan bad debt
    236             2,499       2,735  
 
                       
Net revenues
    311,394       16,013       120,072       447,479  
 
                               
Operations expense
    161,145       11,658       63,861       236,664  
 
                       
Store operating income
  $ 150,249     $ 4,355     $ 56,211     $ 210,815  
 
                       
 
                               
Year Ended September 30, 2009:
                               
Revenues:
                               
Merchandise Sales
  $ 202,250     $ 8,751     $     $ 211,001  
Jewelry scrap Sales
    117,013       1,900       9       118,922  
Pawn service charges
    124,396       5,773             130,169  
Signature loan fees
    2,293             131,051       133,344  
Auto title loan fees
    1,313             2,276       3,589  
Other
    431                   431  
 
                       
Total revenues
    447,696       16,424       133,336       597,456  
 
                               
Merchandise cost of goods sold
    121,170       5,392             126,562  
Jewelry scraping cost of goods sold
    75,744       1,277       6       77,027  
Signature loan bad debt
    828             32,725       33,553  
Auto title loan bad debt
    124             256       380  
 
                       
Net revenues
    249,830       9,755       100,349       359,934  
 
                               
Operations expense
    140,525       5,833       59,879       206,237  
 
                       
Store operating income
  $ 109,305     $ 3,922     $ 40,470     $ 153,697  
 
                       
The following table reconciles store operating income, as shown above, to our consolidated income before income taxes:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
            (In thousands)          
Consolidated store operating income
  $ 267,886     $ 210,815     $ 153,697  
Administrative expenses
    75,270       52,740       40,497  
Depreciation and amortization
    18,344       14,661       12,746  
(Gain) / loss on sale or disposal of assets
    309       1,528       (1,024 )
Interest income
    (37 )     (186 )     (281 )
Interest expense
    1,690       1,385       1,425  
Equity in net income of unconsolidated affiliates
    (16,237 )     (10,750 )     (5,016 )
Other
    (164 )     (93 )     38  
 
                 
Consolidated income before income taxes
  $ 188,711     $ 151,530     $ 105,312  
 
                 

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The following table presents separately identified segment assets:
                                 
    U.S. Pawn     Empeño     EZMONEY        
    Operations     Fácil     Operations     Consolidated  
            (In thousands)          
Assets at September 30, 2011:
                               
Pawn loans
  $ 134,457     $ 10,861     $     $ 145,318  
Signature loans, net
    990             10,399       11,389  
Auto title loans, net
    930             2,292       3,222  
Service charges and fees receivable, net
    25,148       1,663       6,419       33,230  
Inventory, net
    81,257       8,514       602       90,373  
Goodwill
    163,897       9,309             173,206  
 
                       
Total separately identified recorded segment assets
  $ 406,679     $ 30,347     $ 19,712     $ 456,738  
 
                       
 
                               
Brokered signature loans outstanding from unaffiliated lenders
  $ 206     $     $ 20,767     $ 20,973  
Brokered auto title loans outstanding from unaffiliated lenders
  $ 175     $     $ 5,892     $ 6,067  
 
                               
Assets at September 30, 2010:
                               
Pawn loans
  $ 113,944     $ 7,257     $     $ 121,201  
Signature loans, net
    456             10,319       10,775  
Auto title loans, net
    651             2,494       3,145  
Service charges and fees receivable, net
    20,830       1,053       7,177       29,060  
Inventory, net
    66,542       4,935       25       71,502  
Goodwill
    110,255       7,050             117,305  
 
                       
Total separately identified recorded segment assets
  $ 312,678     $ 20,295     $ 20,015     $ 352,988  
 
                       
 
                               
Brokered signature loans outstanding from unaffiliated lenders
  $ 231     $     $ 22,709     $ 22,940  
Brokered auto title loans outstanding from unaffiliated lenders
  $ 236     $     $ 6,589     $ 6,825  
 
                               
Assets at September 30, 2009:
                               
Pawn loans
  $ 98,099     $ 3,585     $     $ 101,684  
Signature loans, net
    453             7,904       8,357  
Auto title loans, net
    685             978       1,663  
Service charges and fees receivable, net
    17,910       513       5,892       24,315  
Inventory, net
    61,196       2,804       1       64,001  
Goodwill
    94,192       6,527             100,719  
 
                       
Total separately identified recorded segment assets
  $ 272,535     $ 13,429     $ 14,775     $ 300,739  
 
                       
 
                               
Brokered signature loans outstanding from unaffiliated lenders
  $ 278     $     $ 22,706     $ 22,984  
Brokered auto title loans outstanding from unaffiliated lenders
  $ 276     $     $ 1,910     $ 2,186  
Brokered loans are not recorded as an asset on our balance sheet, as we do not own a participation in the loans made by unaffiliated lenders. We monitor the principal balance of these loans, as our credit service fees and bad debt are directly related to their volume due to the letters of credit we issue on these loans. The balance shown above is the gross principal balance of the loans outstanding.
The following table reconciles separately identified recorded segment assets, as shown above, to our consolidated total assets:
                         
    September 30,  
    2011     2010     2009  
    (In thousands)  
Total separately identified recorded segment assets
  $ 456,738     $ 352,988     $ 300,739  
Corporate assets
    299,712       253,424       191,778  
 
                 
Total assets
  $ 756,450     $ 606,412     $ 492,517  
 
                 

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Note S: Allowance for Losses and Credit Quality of Financing Receivables
We offer a variety of loan products and credit services to customers who do not have cash resources or access to credit to meet their short-term cash needs. Our customers are considered to be in a higher risk pool with regard to creditworthiness when compared to those of typical financial institutions. As a result, our receivables do not have a credit risk profile that can easily be measured by the normal credit quality indicators used by the financial markets. We manage the risk through closely monitoring the performance of the portfolio and through our underwriting process. This process includes 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 customers may be contacted. For auto title loans, we additionally inspect the automobile, title and reference to market values of used automobiles.
As described in Note A, “Significant Accounting Policies,” we consider a signature loan defaulted if it has not been repaid or renewed by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection. 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.
The accuracy of our allowance estimates is dependent upon several factors, including our ability to predict future default rates based on historical trends and expected future events. We base our estimates on observable trends and various other assumptions that we believe to be reasonable under the circumstances.
The following table presents changes in the allowance for credit losses as well as the recorded investment in our financing receivables by portfolio segment for the periods presented (in thousands):
                                                 
    Allowance                             Allowance     Financing  
    Balance at                             Balance at     Receivable  
    Beginning                             End of     End of  
Description   of Period     Charge-offs     Recoveries     Provision     Period     Period  
Allowance for losses on signature loans:
                                               
Year ended September 30, 2011
  $ 750     $ (18,043 )   $ 6,349     $ 12,671     $ 1,727     $ 13,116  
Year ended September 30, 2010
    532       (14,807 )     5,757       9,268       750       11,525  
Year ended September 30, 2009
    580       (14,456 )     5,571       8,837       532       8,889  
 
                                               
Allowance for losses on auto title loans:
                                               
Year ended September 30, 2011
  $ 1,137     $ (12,616 )   $ 10,074     $ 1,943     $ 538     $ 3,760  
Year ended September 30, 2010
    291       (9,240 )     7,425       2,661       1,137       4,282  
Year ended September 30, 2009
          (2,478 )     2,387       382       291       1,954  
The provision presented in the table above includes only principal and excludes items such as NSF fees, late fees, repossession fees, auction fees and interest. In addition, all credit service expenses and fees related to loans made by our unaffiliated lenders are excluded, as we do not own the loans made in connection with our credit services and they are not recorded as assets on our balance sheet. Expected losses on credit services are accrued and reported in “Accounts payable and other accrued expenses” on our balance sheets.
Auto title loans are our only loans that remain as recorded investments when in delinquent/nonaccrual status. We consider an auto title loan past due if it has not been repaid or renewed by the maturity date. Based on experience, we establish a reserve on all auto title loans. On auto title loans more than 90 days past due, we reserve the percentage we estimate will not be recoverable through auction and reserve 100% of loans for which we have not yet repossessed the underlying collateral. No fees are accrued on any auto title loans more than 90 days past due.

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The following table presents an aging analysis of past due financing receivables by portfolio segment:
                                                                 
                                                            Recorded Investment  
    Days Past Due             Current     Total Financing     > 90 Days &  
    1-30     31-60     61-90     >90     Total Past Due     Receivable     Receivable     Accruing  
September 30, 2011
                                                               
Auto title loans
  $ 840     $ 479     $ 283     $ 219     $ 1,821     $ 1,939     $ 3,760     $  
Reserve
  $ 117     $ 114     $ 67     $ 172     $ 470     $ 68     $ 538     $  
Reserve %
    14 %     24 %     24 %     79 %     26 %     4 %     14 %      
 
                                                               
September 30, 2010
                                                               
Auto title loans
  $ 796     $ 552     $ 432     $ 532     $ 2,312     $ 1,970     $ 4,282     $  
Reserve
  $ 188     $ 229     $ 256     $ 367     $ 1,040     $ 97     $ 1,137     $  
Reserve %
    24 %     41 %     59 %     69 %     45 %     5 %     27 %      
Note T: Supplemental Consolidated Financial Information
Supplemental Consolidated Statements of Financial Position Information
The following table provides information on amounts included in accounts receivable, net and inventories, net:
                 
    September 30,  
    2011     2010  
    (In thousands)  
Pawn service charges receivable:
               
Gross pawn service charges receivable
  $ 37,175     $ 31,575  
Allowance for uncollectible pawn service charges receivable
    (10,720 )     (9,949 )
 
           
Pawn service charges receivable, net
  $ 26,455     $ 21,626  
 
           
 
               
Signature loan fees receivable:
               
Gross signature loan fees receivable
  $ 5,839     $ 6,144  
Allowance for uncollectible signature loan fees receivable
    (491 )     (326 )
 
           
Signature loan fees receivable, net
  $ 5,348     $ 5,818  
 
           
 
               
Auto title loan fees receivable:
               
Gross auto title loan fees receivable
  $ 1,507     $ 1,721  
Allowance for uncollectible auto title loan fees receivable
    (80 )     (105 )
 
           
Auto title loan fees receivable, net
  $ 1,427     $ 1,616  
 
           
 
               
Inventory:
               
Inventory, gross
               
Inventory reserves
  $ 99,854     $ 77,211  
Inventory, net
    (9,481 )     (5,709 )
 
           
 
  $ 90,373     $ 71,502  
 
           
Supplemental Consolidated Statements of Income
The table below provides advertising expense for periods presented. Advertising costs are included in administrative expenses in the Consolidated Statements of Income:
                         
    Fiscal Years Ended September 30,  
    2011     2010     2009  
            (In thousands)          
Advertising Expense
  $ 3,577     $ 2,205     $ 2,033  

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Other Supplemental Information
                 
    September 30,  
    2011     2010  
    (In thousands)  
Signature Loans:
               
Expected LOC losses
  $ 1,562     $ 1,337  
Maximum exposure for LOC losses
  $ 23,845     $ 24,449  
 
               
Auto title loans:
               
Expected LOC losses
  $ 233     $ 362  
Maximum exposure for LOC losses
  $ 6,423     $ 7,197  
Valuation and Qualifying Accounts
                                         
    Balance at     Additions             Balance at  
    Beginning     Charged to     Charged to             End  
Description   of Period     Expense     Other Accts     Deductions     of Period  
    (In thousands)  
Allowance for valuation of inventory:
                                       
Year ended September 30, 2011
  $ 5,709     $ 3,772     $     $     $ 9,481  
 
                             
Year ended September 30, 2010
  $ 5,719     $     $     $ 10     $ 5,709  
 
                             
Year ended September 30, 2009
  $ 4,028     $ 1,691     $     $     $ 5,719  
 
                             
 
                                       
Allowance for uncollectible pawn service charges receivable:
                                       
Year ended September 30, 2011
  $ 9,949     $     $ 771     $     $ 10,720  
 
                             
Year ended September 30, 2010
  $ 8,521     $     $ 1,428     $     $ 9,949  
 
                             
Year ended September 30, 2009
  $ 5,315     $     $ 3,206     $     $ 8,521  
 
                             
 
                                       
Allowance for uncollectible signature loan fees receivable:
                                       
Year ended September 30, 2011
  $ 326     $     $ 165     $     $ 491  
 
                             
Year ended September 30, 2010
  $ 461     $     $ (135 )   $     $ 326  
 
                             
Year ended September 30, 2009
  $ 581     $     $ (120 )   $     $ 461  
 
                             
 
                                       
Allowance for valuation of deferred tax assets:
                                       
Year ended September 30, 2011
  $ 1,273     $ 152     $     $     $ 1,425  
 
                             
Year ended September 30, 2010
  $     $ 1,273     $     $     $ 1,273  
 
                             
Year ended September 30, 2009
  $ 233     $     $     $ 233     $  
 
                             
 
                                       
Allowance for uncollectible auto title loan fees receivable:
                                       
Year ended September 30, 2011
  $ 105     $     $ (25 )   $     $ 80  
 
                             
Year ended September 30, 2010
  $ 21     $     $ 84     $     $ 105  
 
                             
Year ended September 30, 2009
  $     $     $ 21     $     $ 21  
 
                             
Note U: Subsequent Events
Acquisitions
Since the end of our fiscal year, we acquired 17 pawn stores located in Florida and the greater San Antonio, Texas metropolitan area and eight Cash Converters locations located in Pennsylvania, Virginia and Ontario, Canada, for consideration of approximately $49.2 million. The consideration was comprised of $48.2 million cash and approximately $1.0 million related to the issuance of 33,011 shares of EZCORP Class A Non-voting Common Stock. The purchase price allocation for these acquisitions is incomplete as we continue to receive information regarding the acquired assets. As a result, we are unable to provide at this time a breakout between net tangible assets, intangible assets and goodwill.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of our internal control over financial reporting. Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Securities Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the United States of America (“GAAP”). Internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the board of directors, and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2011. To make this assessment, management utilized the criteria for effective internal control over financial reporting described in “Internal Control — Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of September 30, 2011.
Our internal control over financial reporting as of September 30, 2011 has been audited by BDO USA, LLP, the independent registered public accounting firm that audited our financial statements included in this report, and their report follows immediately.

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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
EZCORP, Inc.
Austin, Texas
We have audited EZCORP, Inc.’s internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). EZCORP, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, EZCORP, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of EZCORP, Inc. as of September 30, 2011 and 2010 and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2011. Our report dated November 23, 2011 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Dallas, Texas
November 23, 2011

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Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Internal Controls
Notwithstanding the foregoing, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Limitations inherent in any control system include the following:
  Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes.
 
  Controls can be circumvented by individuals, acting alone or in collusion with others, or by management override.
 
  The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
 
  Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures.
 
  The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Item 9B. Other Information
None.

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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
Set forth below are the names of the persons who, as of November 15, 2011, constituted our Board of Directors and their ages and committee assignments as of that date.
         
Name   Age   Committees
Sterling B. Brinkley (Chairman)
  59  
Paul E. Rothamel
  47  
Joseph J. Beal
  66   Compensation (Chair)
Pablo Lagos Espinosa
  56   Compensation
John Farrell
  53   Audit
William C. Love
  62   Audit (Chair)
Thomas C. Roberts (Lead Director)
  69   Audit, Compensation
Director Qualifications — The Board believes that individuals who serve on the Board should have demonstrated notable or significant achievements in business, education or public service; should possess the requisite intelligence, education and experience to make a significant contribution to the Board and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of our stockholders. The following are qualifications, experience and skills for Board members which are important to our business and its future:
    Leadership Experience — Our directors should demonstrate extraordinary leadership qualities. Strong leaders bring vision, strategic agility, diverse and global perspectives and broad business insight to the company. They demonstrate practical management experience, skills for managing change and deep knowledge of industries, geographies and risk management strategies relevant to our business. They have experience in identifying and developing the current and future leaders of the company.
 
    Finance Experience — We believe that all directors should possess an understanding of finance and related reporting processes.
 
    Strategically Relevant Experience — Our directors should have business experience that is relevant to our strategic goals and objectives, including geographical and product expansion. We value experience in our high priority growth areas, including new or expanding geographies or customer segments and existing and new technologies; understanding of our business environments; and experience with, exposure to or reputation among a broad subset of our customer base.
 
    Government Experience — Our business is subject to a variety of legislative and regulatory risks. Accordingly, we value experience in the legislative, judicial or regulatory branches of government or government relations.
Biographical Information — Set forth below is current biographical information about our directors, including the qualifications, experience and skills that make them suitable for service as a director.
    Sterling B. Brinkley — Mr. Brinkley serves as our Chairman of the Board of Directors. He has served as either Chairman of the Board of Directors or Chairman of the Executive Committee of the Board of Directors since 1989. Mr. Brinkley also serves as a director and Deputy Chairman of Albemarle & Bond Holdings PLC. From 1988 until March 2005, Mr. Brinkley served as Chairman of the Board, Chairman of the Executive Committee or Chief Executive Officer of Crescent Jewelers, Inc., and from 1990 until December 2003, he served as Chairman of the Board or Chairman of the Executive Committee of Friedman’s, Inc. Both Crescent Jewelers, Inc. and Friedman’s, Inc. were affiliates of MS Pawn Limited Partnership, the owner of all of our outstanding Class B Voting Common

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      Stock. Crescent Jewelers filed for Chapter 11 bankruptcy protection in August 2004, and Friedman’s, Inc. filed for Chapter 11 bankruptcy protection in January 2005.
 
      Director qualifications: leadership experience; broad business experience; financial experience; international experience and global perspective; industry knowledge; experience in developing growth strategies; understanding of our unique business environment.
 
    Paul E. Rothamel — Mr. Rothamel is our President and Chief Executive Officer and also serves as a director. Mr. Rothamel joined us in September 2009 as Executive Vice President and Chief Operating Officer, became President in February 2010 and became Chief Executive Officer in November 2010. Prior to joining us, Mr. Rothamel was the President and Chief Executive Officer of Pamida, a privately held company that owns and operates more than 200 general merchandise and pharmacy stores. Mr. Rothamel joined Pamida in 1999 as Senior Vice President, Store Operations, was promoted to the position of Senior Vice President, Operations in 2005 and served in that capacity until assuming the President and Chief Executive Officer position in November 2007. From 1997 to 1999, Mr. Rothamel held the positions of Regional Vice President, Store Operations and District Team Leader at ShopKo Stores, Inc., also a privately-held owner and operator of general merchandise and pharmacy stores and an affiliate of Pamida. Before joining ShopKo, Mr. Rothamel held various operational positions with Target Stores, Inc. and Venture Stores Inc.
 
      Director qualifications: leadership, chief executive officer and executive management experience; retail management experience; deep understanding of consumer businesses and customer service strategies; risk management experience; financial experience; experience in developing, implementing and managing strategic plans; personnel development; deep understanding of conducting business in highly regulated environments.
 
    Joseph J. Beal — Mr. Beal has served as a director since September 2009 and serves as Chair of the Compensation Committee. Mr. Beal also serves as a director of Cash Converters International Limited. Until his retirement in 2008, Mr. Beal was the General Manager and Chief Executive Officer of the Lower Colorado River Authority. Prior to joining the LCRA in 1995, he was the Senior Vice President and Chief Operating Officer for Espey Hudson & Associates, an international engineering and environmental consulting firm based in Austin, Texas.
 
      Director qualifications: leadership, chief executive officer and executive management experience; risk management experience; financial experience; experience in developing, implementing and managing strategic plans; personnel development; deep understanding of conducting business in highly regulated environments; legislative and government relations experience.
 
    Pablo Lagos Espinosa — Mr. Lagos joined us as a director in October 2010 and is a member of the Compensation Committee. Mr. Lagos served as President and Chief Executive Officer of Pepsi Bottling Group Mexico from 2006 to 2008 and as its Chief Operating Officer from 2003 to 2006. He previously held various executive management positions with Pepsi Bottling Group, PepsiCo Inc., Unilever Mexico and PepsiCola International, Inc., concentrating exclusively in Latin America. Since his retirement in December 2008, Mr. Lagos has been an investor and consultant in various private business ventures and has served as a keynote speaker on organizational leadership and management. He currently serves as Chairman of the Board and Executive President for the Mexican subsidiary of Areas, a Spanish global organization dedicated to restaurant and retailing operations in key public transportation hubs, and as Chairman of the board of Residencial Puente de Piedra, a privately-held enterprise focused on developing affordable housing projects in and around Mexico City.
 
      Director qualifications: leadership, chief executive officer and executive management experience in significant multi-national environments; deep understanding of strategically important geographies and international markets; risk management experience; financial experience; experience in developing, implementing and managing strategic plans, including international expansion; personnel development; legislative and government relations experience.
 
    John Farrell — Mr. Farrell was appointed to our board of directors in July 2011 and serves on the Audit Committee. Mr. Farrell formerly served as President and Chief Executive Officer of the Specialised Agencies and Marketing Services business of Publicis Groupe, one of the world’s top three advertising and communications agency groups. During his business career, Mr. Farrell has held various executive management positions with a number of global advertising and communications firms, including Publicis Groupe (2003 — 2009); D’Arcy Masius Benton & Bowles (1993 — 2003);

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      and IMP International (1985 — 1993). He serves as non-executive director of a number of advertising and communications related businesses, including Huntsworth Plc, Albion Digital Advertising Group, DWA, Media Equals, Acceleration and LBI, and as senior consultant advisor to several businesses. Mr. Farrell is also a director of Albemarle & Bond Holdings PLC.
 
      Director qualifications: leadership, chief executive officer and executive management experience in significant multi-national environments; deep understanding of strategically important geographies and international markets; risk management experience; financial experience, experience in developing, implementing and managing strategic plans, including international expansion; experience in developing, implementing and managing marketing plans; personnel development.
 
    William C. Love — Mr. Love has served as a director since October 2008 and is Chair of the Audit Committee. Mr. Love also serves as a director of Cash Converters International Limited. Mr. Love is a Certified Public Accountant and Certified Valuation Analyst, and since January 1993 has practiced public accounting in the Austin, Texas based William C. Love accounting firm. From 1972 to 1993, Mr. Love worked with the accounting firm of KPMG Peat Marwick and its predecessors, including appointments as Partner in Charge of Audit, Partner in Charge of Tax and Managing Partner of its Austin, Texas office.
 
      Director qualifications: leadership experience; broad business insight; accounting, tax and financial reporting expertise.
 
    Thomas C. Roberts — Mr. Roberts has served as a director since January 2005 and as our Lead Director since November 2008. He is a member of both the Audit Committee and the Compensation Committee. Mr. Roberts also serves as a director of Albemarle & Bond Holdings PLC. Since 1990, Mr. Roberts has been a private investor and is currently Chairman of the Board of Directors of Pensco, Inc., a financial services company, having previously served as a senior executive (including Chief Financial Officer) of Schlumberger, Ltd. (1970 to 1985) and President and director of Control Data Computer Systems and Services (1985 to 1989).
 
      Director qualifications: leadership experience; chief financial officer, chief executive officer and general management experience in significant and complex multi-national environments; deep understanding of strategically important geographies and international markets; risk management experience; financial expertise; experience in developing, implementing and managing strategic plans, including international expansion; personnel development.
Executive Officers
Set forth below are the name, age, position and biographical information of each of the persons serving as our executive officers as of November 15, 2011 except for Mr. Brinkley and Mr. Rothamel, whose biographical information is included under “Board of Directors” above.
             
Name   Age   Title
Sterling B. Brinkley
    59     Chairman of the Board of Directors
Paul E. Rothamel
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