10-Q 1 d263324d10q.htm FORM 10-Q Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934

For the quarterly period ended December 31, 2011

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File No. 0-19424

 

 

EZCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware   74-2540145

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1901 Capital Parkway

Austin, Texas

  78746
(Address of principal executive offices)   (Zip Code)

(512) 314-3400

Registrant’s telephone number, including area code:

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE ISSUERS:

The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.

As of December 31, 2011, 47,409,234 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.

 

 

 


EZCORP, INC.

INDEX TO FORM 10-Q

 

PART I. FINANCIAL INFORMATION

      
  Item 1.  

Financial Statements and Supplementary Data (Unaudited)

  
   

Condensed Consolidated Balance Sheets as of December 31, 2011, December 31, 2010 and September 30, 2011 (audited)

     1   
   

Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2011 and 2010

     2   
   

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended December 31, 2011 and 2010

     3   
   

Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2011 and 2010

     4   
   

Notes to Interim Condensed Consolidated Financial Statements

     5   
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations      27   
  Item 3.   Quantitative and Qualitative Disclosures about Market Risk      38   
 

Item 4.

 

Controls and Procedures

     39   

PART II. OTHER INFORMATION

  
 

Item 1.

 

Legal Proceedings

     41   
 

Item 1A.

 

Risk Factors

     41   
 

Item 6.

 

Exhibits

     42   

SIGNATURES

     43   

EXHIBIT INDEX

     44   


ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Condensed Consolidated Balance Sheets

 

     December 31,     December 31,      September 30,  
     2011     2010      2011  
     (Unaudited)     (Unaudited)     

 

 
     (In thousands)  

Assets:

       

Current assets:

       

Cash and cash equivalents

   $ 22,868      $ 23,908       $ 23,969   

Pawn loans

     150,060        124,388         145,318   

Signature loans, net

     12,676        11,953         11,389   

Auto title loans, net

     3,512        3,307         3,222   

Pawn service charges receivable, net

     28,593        24,068         26,455   

Signature loan fees receivable, net

     6,206        6,141         5,348   

Auto title loan fees receivable, net

     1,405        1,600         1,427   

Inventory, net

     100,319        77,677         90,373   

Deferred tax asset

     18,169        23,248         18,125   

Prepaid expenses and other assets

     38,914        20,724         30,611   
  

 

 

   

 

 

    

 

 

 

Total current assets

     382,722        317,014         356,237   

Investments in unconsolidated affiliates

     117,820        108,959         120,319   

Property and equipment, net

     84,513        66,641         78,498   

Goodwill

     212,475        128,181         173,206   

Intangible assets, net

     20,568        16,320         19,790   

Other assets, net

     7,781        7,932         8,400   
  

 

 

   

 

 

    

 

 

 

Total assets

   $ 825,879      $ 645,047       $ 756,450   
  

 

 

   

 

 

    

 

 

 

Liabilities and stockholders’ equity:

       

Current liabilities:

       

Current maturities of long-term debt

   $ —        $ 10,000       $ —     

Accounts payable and other accrued expenses

     57,451        48,986         57,400   

Customer layaway deposits

     6,152        5,950         6,176   

Income taxes payable

     12,672        5,267         693   
  

 

 

   

 

 

    

 

 

 

Total current liabilities

     76,275        70,203         64,269   

Long-term debt, less current maturities

     40,500        12,500         17,500   

Deferred tax liability

     8,724        1,619         8,331   

Deferred gains and other long-term liabilities

     1,997        2,419         2,102   
  

 

 

   

 

 

    

 

 

 

Total liabilities

     127,496        86,741         92,202   

Commitments and contingencies

       

Stockholders’ equity:

       

Class A Non-voting Common Stock, par value $.01 per share; Authorized 54 million shares; issued and outstanding: 47,409,234 at December 31, 2011; 46,952,495 at December 31, 2010;and 47,228,610 at September 30, 2011

     474        469         471   

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

     30        30         30   

Additional paid-in capital

     243,919        229,789         242,398   

Retained earnings

     461,447        327,365         422,095   

Accumulated other comprehensive income (loss)

     (7,487     653         (746
  

 

 

   

 

 

    

 

 

 

Total stockholders’ equity

     698,383        558,306         664,248   
  

 

 

   

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 825,879      $ 645,047       $ 756,450   
  

 

 

   

 

 

    

 

 

 

See accompanying notes to interim condensed consolidated financial statements (unaudited).

 

1


Condensed Consolidated Statements of Operations (Unaudited)

 

     Three Months Ended  
     December 31,  
     2011     2010  
     (In thousands, except per share amounts)  

Revenues:

    

Sales

   $ 143,297      $ 122,545   

Pawn service charges

     59,792        49,810   

Signature loan fees

     39,621        40,066   

Auto title loan fees

     5,467        6,244   

Other

     696        161   
  

 

 

   

 

 

 

Total revenues

     248,873        218,826   

Cost of goods sold

     83,820        73,566   

Signature loan bad debt

     10,101        10,046   

Auto title loan bad debt

     924        982   
  

 

 

   

 

 

 

Net revenues

     154,028        134,232   

Operating Expenses:

    

Operations

     74,501        64,504   

Administrative

     19,711        26,138   

Depreciation and amortization

     5,255        4,179   

(Gain) / loss on sale or disposal of assets

     (201     7   
  

 

 

   

 

 

 

Total operating expenses

     99,266        94,828   
  

 

 

   

 

 

 

Operating income

     54,762        39,404   

Interest income

     (39     (3

Interest expense

     590        300   

Equity in net income of unconsolidated affiliates

     (4,161     (3,367

Other income

     (1,119     (61
  

 

 

   

 

 

 

Income before income taxes

     59,491        42,535   

Income tax expense

     20,139        15,106   
  

 

 

   

 

 

 

Net income

   $ 39,352      $ 27,429   
  

 

 

   

 

 

 

Net income per common share:

    

Basic

   $ 0.78      $ 0.55   
  

 

 

   

 

 

 

Diluted

   $ 0.78      $ 0.55   
  

 

 

   

 

 

 

Weighted average shares outstanding:

    

Basic

     50,355        49,698   

Diluted

     50,693        50,119   

See accompanying notes to interim condensed consolidated financial statements (unaudited).

 

2


Condensed Consolidated Statements of Comprehensive Income (Unaudited)

 

     Three Months Ended
December 31,
 
     2011     2010  
     (In thousands)  

Net Income

   $ 39,352      $ 27,429   

Other comprehensive income (loss):

    

Foreign currency translation adjustments

     (8,768     9,777   

Unrealized holding gains arising during period

     (559     491   

Income tax benefit (provision)

     2,586        (3,240
  

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (6,741     7,028   
  

 

 

   

 

 

 

Comprehensive income

   $ 32,611      $ 34,457   
  

 

 

   

 

 

 

See accompanying notes to interim condensed consolidated financial statements (unaudited).

 

3


Condensed Consolidated Statements of Cash Flows (Unaudited)

 

     Three Months Ended December 31,  
     2011     2010  
     (In thousands)  

Operating Activities:

    

Net income

   $ 39,352      $ 27,429   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     5,255        4,179   

Signature loan and auto title loan loss provisions

     4,035        4,134   

Deferred taxes

     257        1,619   

(Gain) / loss on sale or disposal of assets

     (201     7   

Stock compensation

     1,513        8,548   

Income from investments in unconsolidated affiliates

     (4,161     (3,367

Changes in operating assets and liabilities, net of business acquisitions:

    

Service charges and fees receivable, net

     (2,392     (2,421

Inventory, net

     (1,609     (1,680

Prepaid expenses, other current assets, and other assets, net

     (8,187     (3,762

Accounts payable and accrued expenses

     (3,693     (832

Customer layaway deposits

     (1,865     (232

Deferred gains and other long-term liabilities

     (116     (107

Excess tax benefit from stock compensation

     (460     (3,065

Income taxes

     12,284        4,672   
  

 

 

   

 

 

 

Net cash provided by operating activities

     43,742        35,122   

Investing Activities:

    

Loans made

     (182,757     (152,763

Loans repaid

     110,988        91,340   

Recovery of pawn loan principal through sale of forfeited collateral

     61,701        50,750   

Additions to property and equipment

     (9,948     (7,933

Acquisitions, net of cash acquired

     (49,399     (13,700

Dividends from unconsolidated affiliates

     2,222        1,811   
  

 

 

   

 

 

 

Net cash used in investing activities

     (67,193     (30,495

Financing Activities:

    

Proceeds from exercise of stock options

     —          204   

Excess tax benefit from stock compensation

     460        3,065   

Taxes paid related to net share settlement of equity awards

     (988     (7,396

Proceeds on revolving line of credit

     116,500        15,000   

Payments on revolving line of credit

     (93,500     (15,000

Payments on bank borrowings

     —          (2,500
  

 

 

   

 

 

 

Net cash provided by (used) in financing activities

     22,472        (6,627

Effect of exchange rate changes on cash and cash equivalents

     (122     54   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (1,101     (1,946

Cash and cash equivalents at beginning of period

     23,969        25,854   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 22,868      $ 23,908   
  

 

 

   

 

 

 

Non-cash Investing and Financing Activities:

    

Pawn loans forfeited and transferred to inventory

   $ 66,068      $ 54,405   

Foreign currency translation adjustment

   $ 6,741      $ (6,537

Acquisition-related stock issuance

   $ 1,122      $ —     

See accompanying notes to interim condensed consolidated financial statements (unaudited).

 

4


 

EZCORP, INC. AND SUBSIDIARIES

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

December 31, 2011

Note A: Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Our management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to acquired businesses (described in Note B). The accompanying financial statements should be read with the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2011. The balance sheet at September 30, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period balances have been reclassified to conform to the current presentation.

Our business is subject to seasonal variations and operating results for the interim period ended December 31, 2011 (the “current quarter”) are not necessarily indicative of the results of operations for the full fiscal year.

The consolidated financial statements include the accounts of EZCORP, Inc. 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.

With the exception of the derivative instruments and hedging activities described in the section below, there have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2011.

Derivative Instruments and Hedging Activities

We record all derivative instruments according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-20-25, “Derivatives and Hedging – Recognition.” Accounting for changes in the fair value of derivatives is determined by the intended use of the derivative, whether it is designated as a hedge and whether the hedging relationship is effective in achieving offsetting changes for the risk being hedged.Derivatives designated to hedge the changes in the fair value of an asset, liability, or firm commitment due to an identified risk in the hedged item, such as interest rate risk or foreign currency exchange rate risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.

We acquire significant amounts of gold either through purchases or from forfeited pawn loans and sell it to refiners. In order to manage our commodity price risk associated with the forecasted sales of gold scrap, from time to time, we purchase put options related to the future market price of gold. Simultaneously, we may sell a call option for the same future period for a premium to offset the cost of the put. The combined put and call options, or collar, has the effect of providing us protection from the future downward gold price movement but also limits the extent we can participate in future upward price movement.In the current quarter, we began using derivative financial instruments. These derivatives are not designated as hedges as they do not meet the hedge accounting requirements FASB ASC 851-20-25. The fair value of the derivative instruments is recognized in “Prepaid expenses and other assets” in the consolidated balance sheets and changes in fair value are recognized in “Other Income” in our consolidated statements of operation.

 

5


Recently Issued Accounting Pronouncements

In December 2011, FASB issued Accounting Standards Update (“ASU”) 2011-11, Disclosures about Offsetting Assets and Liabilities. This update, which amends FASB ASC 210 (Balance Sheet), requires entities to disclose information about offsetting and related arrangements and the effect of those arrangements on its financial position. The amendments in ASU 2011-11 enhance disclosures required by FASB ASC 210 by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with FASB ASC 210-20-45 or 815-10-45 or are subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013. Disclosures are required retrospectively for all comparative periods presented. Currently, we do not enter into any right of offset arrangements and we do not anticipate that the adoption of ASU 2011-11 will have a material effect on our financial position, results of operations or cash flows.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment. This update amends FASB ASC 350 (Intangibles – Goodwill and Other) by allowing entities to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning on or after December 15, 2011. We do not anticipate the adoption of ASU 2011-08 will have a material effect on our financial position, results of operations or cash flows.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). This update amends FASB ASC 820 (Fair Value Measurement) by providing common principles and requirements for measuring fair value, as well as similar disclosure requirements between U.S. GAAP and IFRS. It changes certain fair value measurement principles, clarifies the application of existing fair value concepts, and expands disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning on or after December 15, 2011. We do not anticipate that the adoption of ASU 2011-04 will have a material effect on our financial position, results of operations or cash flows.

Recently Adopted Accounting Pronouncements

In December 2011, FASB issued ASU 2011-12 “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05.” This update supersedes certain content in ASU 2011-05 “Presentation of Comprehensive Income” that requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. All other requirements in ASU 2011-05, including the requirement to report comprehensive income in either a single continuous financial statement or in two separate but consecutive financial statements, were not affected by ASU 2011-12. This update is effective for fiscal years beginning on or after December 15, 2011. We early adopted this amended standard in our fiscal year beginning October 1, 2011 with no effect on our financial position, results of operations or cash flows.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” The amendments in this update specify that, when presenting comparative financial statements, entities should disclose revenue and earnings of the combined entity as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for material (on an individual or an aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010. We adopted this amended standard on October 1, 2011, resulting in no effect on our financial position, operations or cash flows.

 

6


Note B: Acquisitions

The following table provides information related to the acquisitions of domestic and foreign retail and financial services locations during the fiscal quarters ended December 31, 2011 and 2010:

 

     Three Months Ended December 31,  
     2011      2010  

Number of asset purchase acquisitions

     5         3   

Number of stock purchase acquisitions

     1         1   

U.S. stores acquired

     24         4   

Foreign stores acquired

     1         —     
  

 

 

    

 

 

 

Total stores acquired

     25         4   

 

     Three Months Ended December 31,  
     2011     2010  
     (In thousands)  

Consideration:

    

Cash

   $ 49,644      $ 13,736   

Equity instruments

     1,122        —     
  

 

 

   

 

 

 

Fair value of total consideration transferred

     50,766        13,736   

Cash acquired

     (245     (36
  

 

 

   

 

 

 

Total purchase price

   $ 50,521      $ 13,700   

Current assets:

    

Pawn loans

   $ 5,036      $ 1,542   

Service charges and fees receivable

     645        312   

Inventory

     4,307        847   

Deferred tax asset

     45        53   

Prepaid expenses and other assets

     39        2   
  

 

 

   

 

 

 

Total current assets

     10,072        2,756   

Property and equipment

     1,725        273   

Goodwill

     39,642        10,708   

Other assets

     1,007        115   
  

 

 

   

 

 

 

Total assets

   $ 52,446      $ 13,852   

Current liabilities:

    

Accounts payable and other accrued expenses

   $ 998      $ 27   

Customer layaway deposits

     682        72   

Other current liabilities

     226        —     
  

 

 

   

 

 

 

Total current liabilities

     1,906        99   

Deferred tax liability

     19        53   
  

 

 

   

 

 

 

Total liabilities

     1,925        152   
  

 

 

   

 

 

 

Net assets acquired

   $ 50,521      $ 13,700   
  

 

 

   

 

 

 

Goodwill deductible for tax purposes

   $ 6,864      $ 6,061   

Goodwill recorded in U.S. Pawn Segment

     39,610        10,708   

Goodwill recorded in EZMONEY segment

     32        —     

Definite lived intangible assets acquired:

    

Favorable lease asset

   $ 230      $ —     

Non-compete agreements

   $ 180      $ 115   

Contractual relationship

   $ 450      $ —     

All stores were acquired as part of our continuing strategy to acquire domestic and foreign 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 assets 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 it is impracticable to do so, as historical audited financial statements are not readily available.

 

7


The amounts above include the acquisition, from a related party, of a decision science model for the underwriting of consumer loans, a contractual relationship with an income tax return preparer to facilitate refund anticipation loans and an online lending business in the U.K., for an aggregate purchase price of $1.2 million, which was paid in cash. Pursuant to our Policy for Review and Evaluation of Related Party Transactions, the Audit Committee reviewed and evaluated the terms of the transaction and concluded that the transaction was fair to, and in the best interest of, the company and its stockholders.

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:

 

     Three Months Ended  
     December 31,  
     2011      2010  
     (In thousands, except per share amounts)  

Net income (A)

   $ 39,352       $ 27,429   

Weighted average outstanding shares of common stock (B)

     50,355         49,698   

Dilutive effect of stock options and restricted stock

     338         421   
  

 

 

    

 

 

 

Weighted average common stock and common stock equivalents (C)

     50,693         50,119   
  

 

 

    

 

 

 

Basic earnings per share (A/B)

   $ 0.78       $ 0.55   
  

 

 

    

 

 

 

Diluted earnings per share (A/C)

   $ 0.78       $ 0.55   
  

 

 

    

 

 

 

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

     10         —     

Note D: Strategic Investments and Fair Value of Financial Instruments

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

Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.

 

8


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  
     (In thousands)  

Gross revenues

   $ 162,002       $ 129,794   

Gross profit

     97,197         84,850   

Profit for the year (net income)

     24,324         22,792   

At December 31, 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 over 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 quarter ended December 31, 2011 represents our percentage interest in the estimated results of Cash Converters’ operations from July 1, 2011 to September 30, 2011.

Conversion of Cash Converters’ financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.

In its functional currency of Australian dollars, Cash Converters’ 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 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   
  

 

 

    

 

 

 

 

9


 

     Year 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   

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.

 

     December 31,      September 30,  
     2011      2010      2011  
     (In thousands of U.S. dollars)  

Albemarle & Bond:

        

Recorded value

   $ 49,616       $ 45,684       $ 48,361   

Fair value

     84,622         81,630         91,741   

Cash Converters:

        

Recorded value

   $ 68,204       $ 63,275       $ 71,958   

Fair value

     68,355         88,512         53,600   

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 refinancing. 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. 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 at that time regarding its ability to mitigate the potential impact of the proposed legislation, we considered this loss in value to be temporary. Following a series of representations from Cash Converters, its customers and other industry executives, the Australian Parliament, referred the bill to the Senate Economics committee and to the Joint Committee on Corporations and Financial Services for review. The committees concluded that the proposed legislation did not achieve an appropriate balance between consumer protection and industry viability and recommended that the Australian government revisit key aspects of its reform package with further industry consultation. As of December 31, 2011, the fair value of our investment in Cash Converters was slightly above our recorded value, further supporting our assessment of the loss in value of its stock to be temporary.

Note E: Goodwill and Other Intangible Assets

The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:

 

     December 31,      September 30,  
     2011      2010      2011  
     (In thousands)  

Pawn licenses

   $ 8,877       $ 8,836       $ 8,836   

Trade name

     4,870         4,870         4,870   

Goodwill

     212,475         128,181         173,206   
  

 

 

    

 

 

    

 

 

 

Total

   $ 226,222       $ 141,887       $ 186,912   
  

 

 

    

 

 

    

 

 

 

 

10


The following table presents the changes in the carrying value of goodwill, by segment, over the periods presented:

 

     U.S. Pawn
Operations
     Empeño
Fácil
    EZMONEY
Operations
    Consolidated  
     (In thousands)  

Balance at September 30, 2011

   $ 163,897       $ 9,309      $ —        $ 173,206   

Acquisitions

     39,610         —          32        39,642   

Effect of foreign currency translation changes

     —           (371     (2     (373
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

   $ 203,507       $ 8,938      $ 30      $ 212,475   
  

 

 

    

 

 

   

 

 

   

 

 

 
     U.S. Pawn
Operations
     Empeño
Fácil
    EZMONEY
Operations
    Consolidated  
     (In thousands)  

Balance at September 30, 2010

   $ 110,255       $ 7,050      $ —        $ 117,305   

Acquisitions

     10,793         —          —          10,793   

Effect of foreign currency translation changes

     —           83        —          83   
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010

   $ 121,048       $ 7,133      $ —        $ 128,181   
  

 

 

    

 

 

   

 

 

   

 

 

 

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:

 

     December 31,      September 30,  
     2011      2010      2011  
     Carrying
Amount
     Accumulated
Amortization
    Net
Book
Value
     Carrying
Amount
     Accumulated
Amortization
    Net
Book
Value
     Carrying
Amount
     Accumulated
Amortization
    Net
Book
Value
 
     (In thousands)  

Real estate finders’ fees

   $ 1,221       $ (500   $ 721       $ 1,029       $ (420   $ 609       $ 1,157       $ (479   $ 678   

Non-compete agreements

     3,836         (2,574     1,262         3,216         (2,040     1,176         3,722         (2,459     1,263   

Favorable lease

     985         (353     632         644         (241     403         755         (322     433   

Franchise rights

     1,567         (49     1,518         —           —          —           1,547         (32     1,515   

Deferred financing costs

     2,411         (413     1,998         1,470         (1,083     387         2,411         (262     2,149   

Contractual relationship

     450         (25     425         —           —          —           —           —          —     

Other

     276         (11     265         46         (7     39         58         (12     46   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 10,746       $ (3,925   $ 6,821       $ 6,405       $ (3,791   $ 2,614       $ 9,650       $ (3,566   $ 6,084   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

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:

 

     Three Months Ended  
     December 31,  
     2011      2010  
     (In thousands)  

Amortization Expense

   $ 227       $ 212   

Operations Expense

     31         23   

Interest Expense

     151         100   
  

 

 

    

 

 

 

Total expense from the amortization of definite-lived intangible assets

   $ 409       $ 335   
  

 

 

    

 

 

 

 

11


The following table presents our estimate of amortization expense for definite-lived intangible assets (in thousands):

 

Fiscal Years Ended September 30,

   Amortization Expense      Operations Expense      Interest Expense  

2012

   $ 768       $ 133       $ 599   

2013

     382         120         599   

2014

     279         107         599   

2015

     249         95         350   

2016

     203         93         —     

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

Note F: 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 December 31, 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 December 31, 2011, $40.5 million was outstanding under our revolving credit agreement. We also issued $5.0 million of bank letters of credit, leaving $129.5 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.

Deferred financing costs related to our credit agreement 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 G: Stock Compensation

Our net income includes the following compensation costs related to our stock compensation arrangements:

 

     Three Months Ended  
     December 31,  
     2011     2010  
     (In thousands)  

Gross compensation costs

   $ 1,513      $ 8,548   

Income tax benefits

     (446     (2,974
  

 

 

   

 

 

 

Net compensation expense

   $ 1,067      $ 5,574   
  

 

 

   

 

 

 

Included in the compensation cost for the three months ended December 31, 2010 is $7.3 million for the accelerated vesting of restricted stock upon the retirement of our former Chief Executive Officer on October 31, 2010, and a related $2.5 million income tax benefit. In the three months ended December 31, 2011, no stock options were exercised.

 

12


Note H: Income Taxes

The current quarter’s effective tax rate is 33.9% of pretax income compared to 35.5% for the prior year quarter. The decrease in effective tax rates is primarily due to the recognition of state net operating losses in the current quarter, as well as an increase in foreign tax credits on overseas earnings.

Note I: 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 J: 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 and retail activities in our 450 U.S. pawn stores and seven retail 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 192 Mexico pawn stores.

 

   

The EZMONEY Operations segment offers signature loans in 422 U.S. financial services stores, 64 Canadian financial services stores and online in the U.K. The segment offers auto title loans in 396 of its U.S. stores and buys and sells second-hand goods in 24 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:

 

     Three Months Ended December 31,  
     U.S. Pawn Operations      Empeño Fácil      EZMONEY Operations  
     2011      2010      2011      2010      2011      2010  
     (In thousands)  

Revenues:

                 

Merchandise sales

   $ 75,975       $ 66,305       $ 10,342       $ 5,575       $ 577       $ —     

Jewelry scrapping sales

     52,516         47,006         3,537         3,462         350         197   

Pawn service charges

     54,370         46,436         5,422         3,374         —           —     

Signature loan fees

     920         509         —           —           38,701         39,557   

Auto title loan fees

     457         393         —           —           5,010         5,851   

Other

     241         117         120         3         335         41   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

     184,479         160,766         19,421         12,414         44,973         45,646   

Merchandise cost of goods sold

     43,116         38,197         4,945         3,114         335         —     

Jewelry scrapping cost of goods sold

     32,973         29,538         2,274         2,638         177         79   

Signature loan bad debt

     352         165         —           —           9,749         9,881   

Auto title loan bad debt

     114         61         —           —           810         921   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net revenues

     107,924         92,805         12,202         6,662         33,902         34,765   

Operations expense

     50,073         43,196         5,998         4,278         18,430         17,030   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Store operating income

   $ 57,851       $ 49,609       $ 6,204       $ 2,384       $ 15,472       $ 17,735   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


The following table reconciles store operating income, as shown above, to our consolidated income before income taxes:

 

     Three Months Ended December 31,  
     2011     2010  
     (In thousands)  

U.S. Pawn Operations store operating income

   $ 57,851      $ 49,609   

Empeño Fácil store operating income

     6,204        2,384   

EZMONEY Operations store operating income

     15,472        17,735   
  

 

 

   

 

 

 

Consolidated store operating income

     79,527        69,728   

Administrative expenses

     19,711        26,138   

Depreciation and amortization

     5,255        4,179   

(Gain) / loss on sale or disposal of assets

     (201     7   

Interest income

     (39     (3

Interest expense

     590        300   

Equity in net income of unconsolidated affiliates

     (4,161     (3,367

Other

     (1,119     (61
  

 

 

   

 

 

 

Consolidated income before income taxes

   $ 59,491      $ 42,535   
  

 

 

   

 

 

 

Note K: 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.

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.

 

14


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:

 

      Allowance
Balance at
Beginning
of Period
     Charge-offs     Recoveries      Provision      Allowance
Balance at
End of
Period
     Financing
Receivable
at End of
Period
 

Description

   (In thousands)  

Allowance for losses on signature loans:

                

Three-months ended December 31, 2011

   $ 1,727       $ (4,679   $ 1,458       $ 3,224       $ 1,730       $ 14,406   

Three-months ended December 31, 2010

     750         (4,260     1,496         3,224         1,210         13,163   

Allowance for losses on auto title loans:

                

Three-months ended December 31, 2011

   $ 538       $ (2,494   $ 2,160       $ 778       $ 982       $ 4,494   

Three-months ended December 31, 2010

     1,137         (3,445     2,715         909         1,316         4,623   

The provision presented in the table above includes only principal and excludes items such as non-sufficient funds 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.

The following table presents an aging analysis of past due financing receivables by portfolio segment (in thousands):

 

     Days Past Due     Total     Current     Total
Financing
    Recorded
Investment >
90 Days &
 
     1-30     31-60     61-90     >90     Past Due     Receivable     Receivable     Accruing  

December 31, 2011

  

             

Auto title loans

   $ 659      $ 445      $ 424      $ 592      $ 2,120      $ 2,374      $ 4,494      $ —     

Reserve

   $ 98      $ 137      $ 165      $ 511      $ 911      $ 71      $ 982      $ —     

Reserve %

     15     31     39     86     43     3     22  

December 31, 2010

                

Auto title loans

   $ 609      $ 636      $ 452      $ 753      $ 2,450      $ 2,173      $ 4,623      $ —     

Reserve

   $ 109      $ 218      $ 217      $ 696      $ 1,240      $ 76      $ 1,316      $ —     

Reserve %

     18     34     48     92     51     3     28  

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  

 

15


Note L: Fair Value Measurements

In accordance with FASB ASC 820-10, Fair Value Measurements and Disclosures, our assets and liabilities, which are carried at fair value, are classified in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Other observable inputs other than quoted market prices.

Level 3: Unobservable inputs that are not corroborated by market data.

The tables below present our financial assets that are measured at fair value on a recurring basis as of December 31, 2011 and 2010 and September 30, 2011 (in thousands):

 

     December 31, 2011      Fair Value Measurements Using  

Financial assets:

      Level 1      Level 2      Level 3  

Gold collar

   $ 1,073       $ —         $ 1,073       $ —     

Marketable equity securities

     4,807         4,807         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,880       $ 4,807       $ 1,073       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2010      Fair Value Measurements Using  

Financial assets:

      Level 1      Level 2      Level 3  

Gold collar

   $ —         $ —         $ —         $ —     

Marketable equity securities

     5,192         5,192         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,192       $ 5,192       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     September 30, 2011      Fair Value Measurements Using  

Financial assets:

      Level 1      Level 2      Level 3  

Gold collar

   $ —         $ —         $ —         $ —     

Marketable equity securities

     5,366         5,366         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,366       $ 5,366       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

We measure the value of our gold collar under Level 2 inputs as defined by FASB ASC 820-10. The valuation is determined using widely accepted valuation techniques which reflect the contractual terms of the transaction, including the period to maturity and uses observable market-based inputs including gold forward curves and implied volatilities. We measure the value of our marketable equity securities under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily available. There were no transfers of assets in or out of Level 1 or Level 2 fair value measurements in the periods presented.

Note M: Derivative Instruments and Hedging Activities

Our earnings and financial position are affected by changes in gold values. In the current quarter, we began using derivative financial instruments in order to manage our commodity price risk associated with the forecasted sales of gold scrap. These derivatives are not designated as hedges, and according to FASB ASC 815-20-25, “Derivatives and Hedging – Recognition,” changes in their fair value are recorded directly in earnings. As of December 31, 2011, the notional amount of the gold collars recorded on our balance sheet was 19,000 ounces of gold.

 

16


The table below presents the fair value of our derivative financial instruments on the Condensed Consolidated Balance Sheet (in thousands):

 

            Fair Value of Derivative Instruments  

Derivative Instrument

  

Balance Sheet Location

     December 31, 2011  

Non-designated derivatives:

     

Gold Collar

     Prepaid expenses and other assets       $ 1,073   

The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Statement of Operations for the period ended December 31, 2011 (in thousands):

 

            (Gains) Losses Recognized in Income  

Derivative Instrument

   Location of (Gain) or Loss      Three Months Ended December 31,  

Non-designated derivatives:

     

Gold Collar

     Other income       $ (1,073

Note N: Condensed Consolidating Financial Information

On February 3, 2012, we filed with the United States Securities and Exchange Commission a “shelf” registration statement on Form S-3 registering the offer and sale of an indeterminate amount of a variety of securities, including debt securities. Unless otherwise indicated in connection with a particular offering of debt securities, each of our domestic subsidiaries will fully and unconditionally guarantee on a joint and several basis our payment obligations under such debt securities.

In accordance with Rule 3-10(d) of Regulation S-X, the following presents condensed consolidating financial information as of December 31, 2011 and 2010, and September 30, 2011 and for current and prior year fiscal quarters for EZCORP, Inc. (the “Parent”), each of the Parent’s domestic subsidiaries (the “Guarantor Subsidiaries”) on a combined basis and each of the Parent’s other subsidiaries (the “Non-Guarantor Subsidiaries”) on a combined basis. Eliminating entries presented are necessary to combine the groups of entities.

 

17


Condensed Consolidating Balance Sheets

 

     December 31, 2011  
     (Unaudited)  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Eliminations     Consolidated  

Assets:

          

Current assets:

          

Cash and cash equivalents

   $ 703      $ 15,749      $ 6,416      $ —        $ 22,868   

Pawn loans

     —          140,386        9,674        —          150,060   

Signature loans, net

     —          10,386        2,290        —          12,676   

Auto title loans, net

     —          3,512        —          —          3,512   

Pawn service charges receivable, net

     —          27,061        1,532        —          28,593   

Signature loan fees receivable, net

     —          6,002        204        —          6,206   

Auto title loan fees receivable, net

     —          1,405        —          —          1,405   

Inventory, net

     —          90,175        10,144        —          100,319   

Deferred tax asset

     12,747        5,422        —          —          18,169   

Receivable from affiliates

     86,590        (86,590     —          —          —     

Prepaid expenses and other assets

     17        35,777        3,120        —          38,914   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     100,057        249,285        33,380        —          382,722   

Investments in unconsolidated affiliates

     68,204        49,616        —          —          117,820   

Investments in subsidiaries

     84,303        44,573        —          (128,876     —     

Property and equipment, net

     —          62,009        22,504        —          84,513   

Goodwill

     —          203,507        8,968        —          212,475   

Other assets, net

     2,038        22,484        3,827        —          28,349   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 254,602      $ 631,474      $ 68,679      $ (128,876   $ 825,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and stockholders’ equity:

          

Current liabilities:

          

Accounts payable and other accrued expenses

   $ 46      $ 49,700      $ 7,705      $ —        $ 57,451   

Customer layaway deposits

     —          5,845        307        —          6,152   

Intercompany payables

     (219,474     193,339        26,145        (10     —     

Income taxes payable

     21,667        (5,156     (3,839     —          12,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     (197,761     243,728        30,318        (10     76,275   

Long-term debt, less current maturities

     40,500        —          —          —          40,500   

Deferred tax liability

     6,481        1,371        872        —          8,724   

Deferred gains and other long-term liabilities

     —          1,998        (1     —          1,997   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     (150,780     247,097        31,189        (10     127,496   

Commitments and contingencies

          

Stockholders’ equity:

          

Class A Non-voting Common Stock, par value $.01 per share;

     464        12        —          (2     474   

Class B Voting Common Stock, convertible, par value $.01 per share;

     30        (1     1        —          30   

Additional paid-in capital

     221,534        100,431        50,818        (128,864     243,919   

Retained earnings

     180,299        285,039        (3,891       461,447   

Accumulated other comprehensive income (loss)

     3,055        (1,104     (9,438     —          (7,487
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     405,382        384,377        37,490        (128,866     698,383   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 254,602      $ 631,474      $ 68,679      $ (128,876   $ 825,879   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


 

     December 31, 2010  
     (Unaudited)  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Eliminations     Consolidated  

Assets:

          

Current assets:

          

Cash and cash equivalents

   $ —        $ 20,411      $ 3,497      $ —        $ 23,908   

Pawn loans

     —          117,583        6,805        —          124,388   

Signature loans, net

     —          10,451        1,502        —          11,953   

Auto title loans, net

     —          3,307        —          —          3,307   

Pawn service charges receivable, net

     —          23,045        1,023        —          24,068   

Signature loan fees receivable, net

     —          6,026        115        —          6,141   

Auto title loan fees receivable, net

     —          1,600        —          —          1,600   

Inventory, net

     —          71,874        5,803        —          77,677   

Deferred tax asset

     18,258        4,990          —          23,248   

Receivable from affiliates

     15,100        (15,100     —          —          —     

Income taxes receivable

     3,185        (3,185     —          —          —     

Prepaid expenses and other assets

     25        17,680        3,019        —          20,724   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     36,568        258,682        21,764        —          317,014   

Investments in unconsolidated affiliates

     63,275        45,684        —            108,959   

Investments in subsidiaries

     76,999        9,095        —          (86,094     —     

Property and equipment, net

     —          52,042        14,599        —          66,641   

Deferred tax asset, non-current

     1,121        (1,121     —          —          —     

Goodwill

     —          121,048        7,133        —          128,181   

Other assets, net

     118        21,985        2,149        —          24,252   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 178,081      $ 507,415      $ 45,645      $ (86,094   $ 645,047   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and stockholders’ equity:

          

Current liabilities:

          

Current maturities of long-term debt

   $ 10,000      $ —        $ —        $ —        $ 10,000   

Accounts payable and other accrued expenses

     107        44,651        4,228        —          48,986   

Customer layaway deposits

     —          5,785        165        —          5,950   

Intercompany payables

     (237,528     203,963        33,515        50        —     

Income taxes payable

     13,107        (5,153     (2,687     —          5,267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     (214,314     249,246        35,221        50        70,203   

Long-term debt, less current maturities

     12,500        —          —          —          12,500   

Deferred tax liability

     1,590        18        11        —          1,619   

Deferred gains and other long-term liabilities

     —          2,418        1        —          2,419   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     (200,224     251,682        35,233        50        86,741   

Commitments and contingencies

          

Stockholders’ equity:

          

Class A Non-voting Common Stock, par value $.01 per share;

     458        11        —            469   

Class B Voting Common Stock, convertible, par value $.01 per share;

     30        (1     1        —          30   

Additional paid-in capital

     213,952        86,641        15,340        (86,144     229,789   

Retained earnings

     160,665        169,597        (2,897     —          327,365   

Accumulated other comprehensive income (loss)

     3,200        (515     (2,032     —          653   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     378,305        255,733        10,412        (86,144     558,306   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 178,081      $ 507,415      $ 45,645      $ (86,094   $ 645,047   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


 

     September 30, 2011  
     (Unaudited)  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Eliminations     Consolidated  

Assets:

          

Current assets:

          

Cash and cash equivalents

   $ —        $ 20,860      $ 3,109      $ —        $ 23,969   

Pawn loans

     —          134,457        10,861        —          145,318   

Signature loans, net

     —          9,304        2,085        —          11,389   

Auto title loans, net

     —          3,222        —          —          3,222   

Pawn service charges receivable, net

     —          24,792        1,663        —          26,455   

Signature loan fees receivable, net

     —          5,215        133        —          5,348   

Auto title loan fees receivable, net

     —          1,427        —          —          1,427   

Inventory, net

     —          81,277        9,096        —          90,373   

Deferred tax asset

     12,728        5,397        —          —          18,125   

Receivable from affiliates

     66,450        (66,450     —          —          —     

Income taxes receivable

     —          —          —          —          —     

Prepaid expenses and other assets

     29        25,976        4,606        —          30,611   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     79,207        245,477        31,553        —          356,237   

Investments in unconsolidated affiliates

     71,958        48,361        —          —          120,319   

Investments in subsidiaries

     84,303        44,323        —          (128,626     —     

Property and equipment, net

     —          59,434        19,064        —          78,498   

Deferred tax asset, non-current

     —          —          —          —          —     

Goodwill

     —          163,897        9,309        —          173,206   

Other assets, net

     2,147        22,219        3,822        2        28,190   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 237,615      $ 583,711      $ 63,748      $ (128,624   $ 756,450   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Current liabilities:

          

Accounts payable and other accrued expenses

   $ 13      $ 50,871      $ 6,516      $ —        $ 57,400   

Customer layaway deposits

     —          5,711        465        —          6,176   

Intercompany payables

     (199,190     178,375        20,761        54        —     

Income taxes payable

     9,552        (5,150     (3,709     —          693   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     (189,625     229,807        24,033        54        64,269   

Long-term debt, less current maturities

     17,500        —          —          —          17,500   

Deferred tax liability

     5,940        1,563        828        —          8,331   

Deferred gains and other long-term liabilities

     —          2,102        —          —          2,102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     (166,185     233,472        24,861        54        92,202   

Commitments and contingencies

          

Stockholders’ equity:

          

Class A Non-voting Common Stock, par value $.01 per share;

     461        12        —          (2     471   

Class B Voting Common Stock; convertible, par value $.01 per share;

     30        (1     1        —          30   

Additional paid-in capital

     221,526        98,980        50,568        (128,676     242,398   

Retained earnings

     174,860        251,418        (4,183     —          422,095   

Accumulated other comprehensive income (loss)

     6,923        (170     (7,499     —          (746
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     403,800        350,239        38,887        (128,678     664,248   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 237,615      $ 583,711      $ 63,748      $ (128,624   $ 756,450   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Condensed Consolidating Statements of Operations

 

     Three Months Ended December 31, 2011  
     (Unaudited)  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Eliminations     Consolidated  

Revenues:

          

Sales

   $ —        $ 128,546      $ 14,751      $ —        $ 143,297   

Pawn service charges

     —          54,370        5,422        —          59,792   

Signature loan fees

     —          36,950        2,671        —          39,621   

Auto title loan fees

     —          5,467        —          —          5,467   

Other

     20,139        850        318        (20,611     696   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     20,139        226,183        23,162        (20,611     248,873   

Cost of goods sold

     —          76,121        7,699        —          83,820   

Signature loan bad debt

     —          9,267        834        —          10,101   

Auto title loan bad debt

     —          924        —          —          924   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     20,139        139,871        14,629        (20,611     154,028   

Operating Expenses:

          

Operations

     —          65,009        9,492        —          74,501   

Administrative

     —          17,688        2,495        (472     19,711   

Depreciation and amortization

     —          4,147        1,108        —          5,255   

(Gain) / loss on sale or disposal of assets

     —          (224     23        —          (201
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          86,620        13,118        (472     99,266   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     20,139        53,251        1,511        (20,139     54,762   

Interest income

     —          (9     (38     8        (39

Interest expense

     (1,873     2,462        9        (8     590   

Equity in net income of unconsolidated affiliates

     (2,336     (1,825     —          —          (4,161

Other

     —          (1,137     18        —          (1,119
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     24,348        53,760        1,522        (20,139     59,491   

Income tax expense

     18,909        20,139        1,230        (20,139     20,139   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 5,439      $ 33,621      $ 292      $ —        $ 39,352   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


 

     Three Months Ended December 31, 2010  
     (Unaudited)  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Eliminations     Consolidated  

Revenues:

          

Sales

   $ —        $ 113,353      $ 9,192      $ —        $ 122,545   

Pawn service charges

     —          46,436        3,374        —          49,810   

Signature loan fees

     —          38,468        1,598        —          40,066   

Auto title loan fees

     —          6,244        —          —          6,244   

Other

     15,100        148        13        (15,100     161   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     15,100        204,649        14,177        (15,100     218,826   

Cost of goods sold

     —          67,752        5,814        —          73,566   

Signature loan bad debt

     —          9,484        562        —          10,046   

Auto title loan bad debt

     —          982        —          —          982   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

     15,100        126,431        7,801        (15,100     134,232   

Operating Expenses:

          

Operations

     —          58,260        6,244        —          64,504   

Administrative

     —          25,203        935        —          26,138   

Depreciation and amortization

     —          3,427        752        —          4,179   

(Gain) / loss on sale or disposal of assets

     —          (6     13        —          7   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     —          86,884        7,944        —          94,828   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     15,100        39,547        (143     (15,100     39,404   

Interest income

     —          (63     —          60        (3

Interest expense

     (2,311     2,610        61        (60     300   

Equity in net income of unconsolidated affiliates

     (1,678     (1,689     —          —          (3,367

Other

     —          (60     (1     —          (61
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     19,089        38,749        (203     (15,100     42,535   

Income tax expense

     14,753        15,106        347        (15,100     15,106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 4,336      $ 23,643      $ (550   $ —        $ 27,429   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


Condensed Consolidating Statement of Cash Flows

 

     Three Months Ended December 31, 2011  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Consolidated  

Operating Activities:

        

Net income

     5,439        33,621        292        39,352   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     —          4,147        1,108        5,255   

Signature loan and auto title loan loss provisions

     —          3,193        842        4,035   

Deferred taxes

     522        (191     (74     257   

Net loss/(gain) on sale or disposal of assets

     —          (224     23        (201

Stock compensation

     —          1,513        —          1,513   

Income from investments in unconsolidated affiliates

     (2,336     (1,825     —          (4,161

Changes in operating assets and liabilities, net of business acquisitions:

        

Service charges and fees receivable, net

     —          (2,389     (3     (2,392

Inventory, net

     —          (1,353     (256     (1,609

Prepaid expenses, other current assets, and other assets, net

     (20,019     10,632        1,200        (8,187

Accounts payable and accrued expenses

     (19,712     11,722        4,297        (3,693

Customer layaway deposits

     —          (766     2,631        1,865   

Deferred gains and other long-term liabilities

     —          (104     (12     (116

Excess tax benefit from stock compensation

     —          (460     —          (460

Income taxes

     12,115        454        (285     12,284   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by/(used in) operating activities

   $ (23,991   $ 57,970      $ 9,763      $ 43,742   

Investing Activities:

        

Loans made

     —          (154,584     (28,173     (182,757

Loans repaid

     —          89,880        21,108        110,988   

Recovery of pawn loan principal through sale of forfeited collateral

     —          55,885        5,816        61,701   

Additions to property and equipment

     —          (5,304     (4,644     (9,948

Acquisitions, net of cash acquired

     —          (48,958     (441     (49,399

Dividends from unconsolidated affiliates

     2,222        —          —          2,222   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

   $ 2,222      $ (63,081   $ (6,334   $ (67,193

Financing Activities:

        

Stock issuance costs related to acquisitions

     460        —          —          460   

Taxes paid related to net share settlement of equity awards

     (988     —          —          (988

Proceeds on revolving line of credit

     116,500        —          —          116,500   

Payments on revolving line of credit

     (93,500     —          —          (93,500
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

   $ 22,472      $ —        $ —        $ 22,472   

Effect of exchange rate changes on cash and cash equivalents

     —          —          (122     (122
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     703        (5,111     3,307        (1,101

Cash and cash equivalents at beginning of period

     —          20,860        3,109        23,969   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 703      $ 15,749      $ 6,416      $ 22,868   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

23


 

     Three Months Ended December 31, 2010  
     (In thousands)  
     Parent     Subsidiary
Guarantors
    Other
Subsidiaries
    Consolidated  

Operating Activities:

        

Net income

   $ 4,336      $ 23,643      $ (550     27,429   

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

     —          3,427        752        4,179   

Signature loan and auto title loan loss provisions

     —          3,643        491        4,134   

Deferred taxes

     1,641        (186     164        1,619   

(Gain) / loss on sale or disposal of assets

     —          (6     13        7   

Stock compensation

     —          8,548        —          8,548   

Income from investments in unconsolidated affiliates

     (1,678     (1,689     —          (3,367

Changes in operating assets and liabilities, net of business acquisitions:

        

Service charges and fees receivable, net

     —          (2,437     16        (2,421

Inventory, net

     —          (1,521     (159     (1,680

Prepaid expenses, other current assets, and other assets, net

     (15,020     11,765        (507     (3,762

Accounts payable and accrued expenses

     13,461        (18,852     4,559        (832

Customer layaway deposits

     —          (227     (5     (232

Deferred gains and other long-term liabilities

     —          (107     —          (107

Excess tax benefit from stock compensation

     —          (3,065     —          (3,065

Income taxes

     2,076        3,059        (463     4,672   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

   $ 4,816      $ 25,995      $ 4,311      $ 35,122   

Investing Activities:

        

Loans made

     —          (133,938     (18,825     (152,763

Loans repaid

     —          78,297        13,043        91,340   

Recovery of pawn loan principal through sale of forfeited collateral

     —          46,072        4,678        50,750   

Additions to property and equipment

     —          (6,177     (1,756     (7,933

Acquisitions, net of cash acquired

     —          (13,700     —          (13,700

Dividends from unconsolidated affiliates

     1,811        —          —          1,811   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

   $ 1,811      $ (29,446   $ (2,860   $ (30,495

Financing Activities:

        

Proceeds from exercise of stock options

     204        —          —          204   

Excess tax benefit from stock compensation

     3,065        —          —          3,065   

Taxes paid related to net share settlement of equity awards

     (7,396     —          —          (7,396

Proceeds on revolving line of credit

     15,000        —          —          15,000   

Payments on revolving line of credit

     (15,000     —          —          (15,000

Payments on bank borrowings

     (2,500     —          —          (2,500
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

   $ (6,627   $ —        $ —        $ (6,627

Effect of exchange rate changes on cash and cash equivalents

     —          —          54        54   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     —          (3,451     1,505        (1,946

Cash and cash equivalents at beginning of period

     —          23,862        1,992        25,854   
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ —        $ 20,411      $ 3,497      $ 23,908   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

24


Note O. Supplemental Consolidated Financial Information

Supplemental Consolidated Statements of Financial Position Information:

The following table provides information on amounts included in pawn service charges receivable, net, signature loan fees receivable, net, inventories, net and property and equipment, net:

 

     December 31,     September 30,  
     2011     2010     2011  
     (In thousands)  

Pawn service charges receivable:

      

Gross pawn service charges receivable

   $ 38,201      $ 32,125      $ 37,175   

Allowance for uncollectible pawn service charges receivable

     (9,608     (8,057     (10,720
  

 

 

   

 

 

   

 

 

 

Pawn service charges receivable, net

   $ 28,593      $ 24,068      $ 26,455   
  

 

 

   

 

 

   

 

 

 

Signature loan fees receivable:

      

Gross signature loan fees receivable

   $ 6,817      $ 6,657      $ 5,839   

Allowance for uncollectible signature loan fees receivable

     (611     (516     (491
  

 

 

   

 

 

   

 

 

 

Signature loan fees receivable, net

   $ 6,206      $ 6,141      $ 5,348   
  

 

 

   

 

 

   

 

 

 

Auto title loan fees receivable:

      

Gross auto title loan fees receivable

   $ 1,472      $ 1,685      $ 1,507   

Allowance for uncollectible auto title loan fees receivable

     (67     (85     (80
  

 

 

   

 

 

   

 

 

 

Auto title loan fees receivable, net

   $ 1,405      $ 1,600      $ 1,427   
  

 

 

   

 

 

   

 

 

 

Inventory:

      

Inventory, gross

   $ 108,329      $ 84,096      $ 99,854   

Inventory reserves

     (8,010     (6,419     (9,481
  

 

 

   

 

 

   

 

 

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