XNAS:EZPW EZCorp Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNAS:EZPW (EZCorp Inc): Fair Value Estimate
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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 June 30, 2012
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 June 30, 2012, 48,223,698 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Condensed Consolidated Balance Sheets
 
June 30,
2012
 
June 30,
2011
 
September 30,
2011
 
(Unaudited)
 
(Unaudited)
 
 
 
(In thousands)
Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
50,774

 
$
27,492

 
$
23,969

Cash, restricted
1,051

 

 

Pawn loans
147,503

 
134,633

 
145,318

Consumer loans, net
28,487

 
14,437

 
14,611

Pawn service charges receivable, net
26,092

 
24,372

 
26,455

Consumer loan fees receivable, net
25,729

 
6,884

 
6,775

Inventory, net
94,421

 
79,031

 
90,373

Deferred tax asset
18,226

 
16,150

 
18,125

Income tax receivable
9,898

 
3,099

 

Prepaid expenses and other assets
40,268

 
21,932

 
30,611

Total current assets
442,449

 
328,030

 
356,237

Investments in unconsolidated affiliates
125,309

 
114,777

 
120,319

Property and equipment, net
100,196

 
75,049

 
78,498

Goodwill
321,423

 
167,017

 
173,206

Intangible assets, net
78,666

 
20,192

 
19,790

Non-current consumer loans, net
50,587

 

 

Other assets, net
19,443

 
8,556

 
8,400

Total assets
$
1,138,073

 
$
713,621

 
$
756,450

Liabilities and stockholders’ equity:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current maturities of long-term debt
$
31,126

 
$

 
$

Current capital lease obligations
395

 

 

Accounts payable and other accrued expenses
70,696

 
53,242

 
57,400

Customer layaway deposits
6,740

 
6,131

 
6,176

Income taxes payable

 

 
693

Total current liabilities
108,957

 
59,373

 
64,269

Long-term debt, less current maturities
175,740

 
26,500

 
17,500

Long-term capital lease obligations
764

 

 

Deferred tax liability
7,788

 
1,237

 
8,331

Deferred gains and other long-term liabilities
14,187

 
2,209

 
2,102

Total liabilities
307,436

 
89,319

 
92,202

Commitments and contingencies
 
 
 
 
 
Temporary equity:
 
 
 
 
 
Redeemable noncontrolling interest
44,864

 

 

Stockholders’ equity:
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share; authorized 54 million shares; issued and outstanding: 48,223,698 at June 30, 2012; 46,971,535 at June 30, 2011; and 47,228,610 at September 30, 2011
482

 
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
266,653

 
233,056

 
242,398

Retained earnings
527,231

 
385,730

 
422,095

Accumulated other comprehensive income (loss)
(8,623
)
 
5,017

 
(746
)
EZCORP, Inc. stockholders’ equity
785,773

 
624,302

 
664,248

Total liabilities and stockholders’ equity
$
1,138,073

 
$
713,621

 
$
756,450

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

1


Condensed Consolidated Statements of Operations (Unaudited)
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Sales
$
117,932

 
$
115,345

 
$
409,401

 
$
363,658

Pawn service charges
56,163

 
48,365

 
172,399

 
144,944

Consumer loan fees
53,504

 
38,870

 
148,911

 
125,652

Other revenues
1,365

 
572

 
3,404

 
978

Total revenues
228,964

 
203,152

 
734,115

 
635,232

Cost of goods sold
72,453

 
69,128

 
244,463

 
219,258

Consumer loan bad debt
11,251

 
11,027

 
28,742

 
27,795

Net revenues
145,260

 
122,997

 
460,910

 
388,179

Operating expenses:
 
 
 
 
 
 
 
Operations
75,709

 
66,753

 
227,479

 
197,302

Administrative
22,697

 
14,379

 
63,761

 
56,250

Depreciation
6,215

 
4,458

 
16,805

 
12,670

Amortization
1,162

 
221

 
3,086

 
654

(Gain) loss on sale or disposal of assets
312

 
169

 
138

 
(2
)
Total operating expenses
106,095

 
85,980

 
311,269

 
266,874

Operating income
39,165

 
37,017

 
149,641

 
121,305

Interest income
(133
)
 
(21
)
 
(486
)
 
(35
)
Interest expense
1,030

 
586

 
4,180

 
1,186

Equity in net income of unconsolidated affiliates
(4,197
)
 
(4,099
)
 
(12,935
)
 
(12,157
)
Other
160

 
(103
)
 
(157
)
 
(160
)
Income before income taxes
42,305

 
40,654

 
159,039

 
132,471

Income tax expense
12,594

 
14,127

 
52,603

 
46,677

Net income
29,711

 
26,527

 
106,436

 
85,794

Net income attributable to redeemable noncontrolling interest
1,188

 

 
1,300

 

Net income attributable to EZCORP, Inc.
$
28,523

 
$
26,527

 
$
105,136

 
$
85,794

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.56

 
$
0.53

 
$
2.07

 
$
1.72

Diluted
$
0.56

 
$
0.53

 
$
2.06

 
$
1.71

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
51,162

 
49,926

 
50,769

 
49,849

Diluted
51,340

 
50,385

 
51,042

 
50,292

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

2


Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
 
(In thousands)
Net income
$
29,711

 
$
26,527

 
$
106,436

 
$
85,794

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
(8,513
)
 
2,445

 
(10,887
)
 
15,333

Unrealized holding gains (loss) arising during period
(108
)
 
748

 
(846
)
 
986

Income tax benefit (provision)
(948
)
 
(1,000
)
 
1,563

 
(4,927
)
Other comprehensive income (loss), net of tax
(9,569
)
 
2,193

 
(10,170
)
 
11,392

Comprehensive income
$
20,142

 
$
28,720

 
$
96,266

 
$
97,186

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
Net income
1,188

 

 
1,300

 

Foreign currency translation gain (loss)
(2,789
)
 

 
(2,293
)
 

Comprehensive income (loss)
(1,601
)
 

 
(993
)
 

Comprehensive income attributable to EZCORP, Inc.
$
21,743

 
$
28,720

 
$
97,259

 
$
97,186

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


3


Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Nine Months Ended
June 30,
 
2012
 
2011
 
(In thousands)
Operating Activities:
 
 
 
Net income
$
106,436

 
$
85,794

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19,891

 
13,324

Consumer loan loss provision
12,136

 
11,255

Deferred income taxes
(644
)
 
8,571

(Gain) loss on sale or disposal of assets
138

 
(2
)
Stock compensation
5,191

 
11,536

Income from investments in unconsolidated affiliates
(12,935
)
 
(12,157
)
Changes in operating assets and liabilities, net of business acquisitions:

 

Service charges and fees receivable, net
1,150

 
(984
)
Inventory, net
(874
)
 
(1,206
)
Prepaid expenses, other current assets, and other assets, net
(4,845
)
 
(4,845
)
Accounts payable and accrued expenses
(12,100
)
 
3,068

Customer layaway deposits
(182
)
 
(162
)
Deferred gains and other long-term liabilities
722

 
(275
)
Excess tax benefit from stock compensation
(1,582
)
 
(3,166
)
Income taxes receivable/payable
(8,370
)
 
(3,453
)
Net cash provided by operating activities
104,132

 
107,298

Investing Activities:
 
 
 
Loans made
(571,683
)
 
(466,137
)
Loans repaid
382,854

 
297,016

Recovery of pawn loan principal through sale of forfeited collateral
179,681

 
149,954

Additions to property and equipment
(33,193
)
 
(24,324
)
Acquisitions, net of cash acquired
(125,249
)
 
(64,823
)
Dividends from unconsolidated affiliates
5,560

 
7,274

Net cash used in investing activities
(162,030
)
 
(101,040
)
Financing Activities:
 
 
 
Proceeds from exercise of stock options
647

 
395

Excess tax benefit from stock compensation
1,582

 
3,166

Debt issuance cost

 
(2,397
)
Taxes paid related to net share settlement of equity awards
(1,153
)
 
(7,409
)
Change in restricted cash
(1,085
)
 

Proceeds from revolving line of credit
594,809

 
70,000

Payments on revolving line of credit
(502,575
)
 
(43,500
)
Proceeds from bank borrowings
343

 

Payments on bank borrowings and capital lease obligations
(8,164
)
 
(25,004
)
Net cash provided by (used) in financing activities
84,404

 
(4,749
)
Effect of exchange rate changes on cash and cash equivalents
299

 
129

Net increase in cash and cash equivalents
26,805

 
1,638

Cash and cash equivalents at beginning of period
23,969

 
25,854

Cash and cash equivalents at end of period
$
50,774

 
$
27,492

Non-cash Investing and Financing Activities:
 
 
 
Pawn loans forfeited and transferred to inventory
$
177,490

 
$
152,415

Issuance of common stock due to acquisitions
$
17,984

 
$

Contingent consideration
$
23,000

 
$

Deferred consideration
$
916

 
$

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

4


Consolidated Statements of Stockholders’ Equity (Unaudited)
 
Common Stock
 
Additional
Paid In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income
 
Total
Shareholders’
Equity
 
Redeemable
Noncontrolling
Interest
 
Shares
 
Par Value
 
 
(In thousands)
Balances at September 30, 2010
49,226

 
$
493

 
$
225,374

 
$
299,936

 
$
(6,375
)
 
$
519,428

 

Stock compensation

 

 
11,536

 

 

 
11,536

 

Stock options exercised
41

 
1

 
394

 

 

 
395

 

Release of restricted stock
675

 

 

 

 

 

 

Excess tax benefit from stock compensation

 
5

 
3,161

 

 

 
3,166

 

Taxes paid related to net share settlement of equity awards

 

 
(7,409
)
 

 

 
(7,409
)
 

Unrealized gain on available-for-sale securities

 

 

 

 
642

 
642

 

Foreign currency translation adjustment

 

 

 

 
10,750

 
10,750

 

Net income attributable to EZCORP, Inc.

 

 

 
85,794

 

 
85,794

 

Balances at June 30, 2011
49,942

 
$
499

 
$
233,056

 
$
385,730

 
$
5,017

 
$
624,302

 
$

Balances at September 30, 2011
50,199

 
$
501

 
$
242,398

 
$
422,095

 
$
(746
)
 
$
664,248

 

Stock compensation

 

 
5,191

 

 

 
5,191

 

Stock options exercised
201

 
2

 
645

 

 

 
647

 

Issuance of common stock due to acquisitions
635

 
7

 
17,992

 

 

 
17,999

 

Acquisition of redeemable noncontrolling interest

 

 

 

 

 

 
45,857

Release of restricted stock
159

 

 

 

 

 

 

Excess tax benefit from stock compensation

 
2

 
1,580

 

 

 
1,582

 

Taxes paid related to net share settlement of equity awards

 

 
(1,153
)
 

 

 
(1,153
)
 

Unrealized (loss) on available-for-sale securities

 

 

 

 
(550
)
 
(550
)
 

Foreign currency translation adjustment

 

 

 

 
(7,327
)
 
(7,327
)
 
(2,293
)
Net income attributable to EZCORP, Inc.

 

 

 
105,136

 

 
105,136

 

Net income attributable to redeemable noncontrolling interest

 

 

 

 

 

 
1,300

Balances at June 30, 2012
51,194

 
$
512

 
$
266,653

 
$
527,231

 
$
(8,623
)
 
$
785,773

 
$
44,864

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


5


EZCORP, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 2012

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. Our business is subject to seasonal variations and operating results for the three and nine-month periods ended June 30, 2012 (the “current quarter” and “current nine-month period”) 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 consolidated subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We own 60% of the outstanding equity interests in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. (“Crediamigo”) and 72% of Ariste Holding Limited and its affiliates ("Cash Genie"), and therefore, include their results in our consolidated financial statements. We account for our investments in Albemarle & Bond Holdings, PLC and Cash Converters International Limited using the equity method.
With the exception of the policies 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.
Consumer Loans
We provide 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. In Mexico, Crediamigo enters into agreements with employers that permit it to market long-term consumer loans to employees. Payments are withheld by the employers through payroll deductions and remitted to Crediamigo. With the exception of the consolidation of Crediamigo, there have been no changes to our consumer loans policy.
Revenue Recognition
We recognize consumer loan fees related to loans we directly originate based on the percentage of consumer loans made that we believe to be collectible. We earn credit service fees when we assist customers in obtaining consumer loans from unaffiliated lenders, and we recognize the fee revenue ratably over the life of the related loans. We reserve the percentage of interest and credit service fees we expect not to collect. Accrued fees related to defaulted loans reduce fee revenue upon loan default and increase fee revenue upon collection.
Allowance for Losses and Bad Debt Expense
See note K “Allowance for Losses and Credit Quality of Financing Receivables” for a discussion of the Company’s allowance for losses and bad debt expense on consumer loans.
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

6


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 loan collateral and sell it to refiners. In our first fiscal quarter of 2012, we began using derivate financial instruments 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, and simultaneously, we 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. These collars 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” in our consolidated statements of operations.
Reclassifications
Previously, we reported segment information based primarily on product offerings. Beginning with the second quarter of fiscal 2012, we redefined our reportable operating segments based on geography as our company is increasingly being organized and managed along geographic lines, with product offerings and channels based on local custom and regulation. For this reason, we concluded that segment reporting based on geography more closely aligns with our management organization and strategic direction. In connection with the new segment structure, we have changed the accountability for, and reporting of, certain items including administrative expenses, depreciation and amortization, interest and our equity in the net income of unconsolidated affiliates. When practical, these items are allocated to segments. Interest is also allocated to operating segments when debt is incurred at the local country level and is non-recourse to EZCORP, Inc. These items are now included in the segment’s measure of profit or loss (“segment contribution”). Expenses that cannot be allocated are included as corporate expenses.
In our second fiscal quarter of 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.
Recently Issued Accounting Pronouncements
In July 2012, the FASB issued Accounting Standards Updates ("ASU") 2012-02, Testing Indefinite-Lived Intangible Assets 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 a quantitative impairment test. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning on or after September 15, 2012. We do not anticipate the adoption of ASU 2012-02 will have a material effect on our financial position, results of operations or cash flows.
In December 2011, the FASB issued 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.
Recently Adopted Accounting Pronouncements
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

7


December 15, 2011. We adopted ASU 2011-04 in our interim period beginning January 1, 2012 with no material effect on our financial position, results of operations or cash flows.

In December 2011, the 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.

Note B: Acquisitions
Crediamigo
On January 30, 2012, we acquired a 60% interest in Crediamigo, a specialty consumer finance company, headquartered in Mexico City, with 45 loan servicing locations throughout the country, for total consideration of $60.1 million, net of cash acquired. This amount includes contingent consideration related to two earn out payments. If certain financial performance targets are achieved, during calendar years 2012 and 2013, we will make a payment to the sellers of $12.0 million dollars, each year, for a total amount of $24.0 million dollars. The purchase price above includes a fair value amount of $23.0 million attributable to the contingent consideration payments. This amount was calculated using a probability-weighted discounted cash flow approach, in which all outcomes were successful. The significant inputs used for the valuation are not observable in the market, and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy.
Pursuant to the Master Transaction Agreement, the sellers have a put option with respect to their remaining shares of Crediamigo. Each seller has the right to sell their Crediamigo shares to EZCORP, Inc., during the exercise period commencing on the second anniversary of the acquisition closing date and ending on the fifth anniversary of the acquisition closing date, with no more than 50% of the seller’s shares being sold within a consecutive twelve -month period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to Crediamigo in temporary equity.
The fair value of the redeemable noncontrolling interest in Crediamigo was estimated by applying an income approach and a market approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include discount rates ranging from 10% to 18%, representing discounts for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of Crediamigo was determined using a multiple of future earnings.
The nine-month period ended June 30, 2012, includes $18.2 million in revenues and $1.9 million in income related to the Crediamigo acquisition. The purchase price allocation is preliminary as we continue to receive information regarding the acquired assets. We have recorded provisional amounts for certain assets and liabilities for which we have not yet received all information necessary to finalize our assessment.
Cash Genie
On April 14, 2012, we acquired a 72% interest in Ariste Holding Limited and its affiliates, which provides online loans in the U.K under the name "Cash Genie." As this acquisition was individually immaterial, we present its related information, other than information related to the redeemable noncontrolling interest, on a combined basis.

8


Pursuant to the acquisition agreement, the seller has a put option with respect to his remaining shares of Cash Genie. The seller has the right to sell his Cash Genie shares to EZCORP, Inc, during the exercise period commencing on the second anniversary of the acquisition closing date and ending on the fourth anniversary of the acquisition closing date, with no more than 50% of the seller's shares being sold within a consecutive 12 month period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to Cash Genie in temporary equity.

The fair value of the Cash Genie redeemable noncontrolling interest was estimated by applying an income and market approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include discount rates ranging from 10% to 18%, representing discounts for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of Cash Genie was determined using a multiple of future earnings.
Other
The nine-month period ended June 30, 2012, includes the acquisition of 48 locations in the U.S. and one in Canada. As these acquisitions, were individually immaterial, we present their related information on a combined basis.
The following tables provide information related to the acquisitions of domestic and foreign retail and financial services locations during the nine months ended June 30, 2012 and 2011:

 
Nine Months Ended June 30,
 
2012
 
2011
 
Crediamigo
 
Other  Acquisitions
 
 
Number of asset purchase acquisitions
0
 
6
 
7
Number of stock purchase acquisitions
1
 
4
 
3
U.S. stores acquired
0
 
48
 
32
Foreign stores acquired
45
 
1
 
0
Total stores acquired
45
 
49
 
32


 
Nine Months Ended June 30,
 
2012
 
2011
 
(In thousands)
 
Crediamigo
 
Other  Acquisitions
 
 
Consideration:
 
 
 
 
 
Cash
$
45,001

 
$
91,843

 
$
65,844

Equity instruments

 
17,984

 

Deferred consideration
5,785

 

 

Contingent consideration
23,000

 

 

Fair value of total consideration transferred
73,786

 
109,827

 
65,844

Cash acquired
(13,641
)
 
(2,823
)
 
(1,051
)
Total purchase price
$
60,145

 
$
107,004

 
$
64,793


9


 
Nine Months Ended June 30,
 
(In thousands)
 
2012
 
2011
 
Crediamigo
 
Other  Acquisitions
 
 
Current assets:
 
 
 
 
 
Pawn loans, net
$

 
$
6,351

 
$
6,865

Consumer loans, net
8,658

 
3,640

 
710

Service charges and fees receivable, net
18,844

 
1,839

 
1,136

Inventory, net

 
5,596

 
4,396

Deferred tax asset

 
217

 
449

Prepaid expenses and other assets
3,543

 
204

 
200

Total current assets
31,045

 
17,847

 
13,756

Property and equipment, net
2,326

 
3,965

 
861

Goodwill
54,765

 
96,946

 
49,231

Non-current consumer loans, net
52,228

 

 

Intangible assets
57,900

 
3,960

 
2,367

Other assets
16,833

 
291

 
82

Total assets
$
215,097

 
$
123,009

 
$
66,297

Current liabilities:
 
 
 
 
 
Accounts payable and other accrued expenses
$
6,852

 
$
5,335

 
$
1,038

Customer layaway deposits

 
764

 
167

Current maturities of long-term debt
22,810

 

 
4

Other current liabilities
1,010

 
257

 
22

Total current liabilities
30,672

 
6,356

 
1,231

Deferred gains and other long-term liabilities
937

 

 

Long-term debt, less current maturities
86,872

 

 

Deferred tax liability
171

 
92

 
273

Total liabilities
118,652

 
6,448

 
1,504

Redeemable noncontrolling interest
36,300

 
9,557

 

Net assets acquired
$
60,145

 
$
107,004

 
$
64,793

Goodwill deductible for tax purposes
$

 
$
45,786

 
$
26,935

Indefinite lived intangible assets acquired:
 
 
 
 
 
Trade name
$
2,200

 
$
2,706

 
$

Definite lived intangible assets acquired:
 
 
 
 
 
Favorable lease asset
$

 
$
404

 
$
111

Non-compete agreements
$
300

 
$
400

 
$
658

Contractual relationship
$
55,400

 
$
450

 
$

Franchise license rights
$

 
$

 
$
1,598

All acquisitions were made as part of our continuing strategy to enhance and diversify our earnings. The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include our initial entry into several markets and a greater presence in others, as well as the ability to further leverage our expense structure through increased scale. 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. Transaction related expenses for the nine-month periods ended June 30, 2012 and 2011 of approximately $2.1 million and $0.8 million, respectively, were expensed as incurred and recorded as administrative expenses. These amounts exclude costs related to transactions that did not close and future acquisitions. The results of all acquisitions have been consolidated with our results since their respective closing. Pro forma results of operations have not been presented because it is impracticable to do so, as historical audited financial statements in U.S. GAAP are not readily available.

10


The amounts above for the nine months ended June 30, 2012 include the acquisition 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, an online lending business in the U.K. and 15 financial services stores in Hawaii and Texas, from FS Management, 1st Money Centers, Inc. and 1429 Funding, Inc., companies owned partially by Brent Turner, the former President of our eCommerce and Card Services division and a former executive officer, for total consideration of $3.0 million in cash and 387,924 shares of our Class A Non-Voting common stock. Mr. Turner received $2.0 million in cash and 167,811 shares of stock in connection with these acquisitions. The basic terms of the acquisitions were agreed prior to the commencement of Mr. Turner’s employment (and, thus, prior to Mr. Turner’s becoming an executive officer), subject to our completion of appropriate due diligence and the execution of appropriate definitive documentation. Even though the terms of the acquisitions were agreed to prior to Mr. Turner’s becoming an executive officer, we treated the transactions as related party transactions. Consequently, pursuant to our Policy for Review and Evaluation of Related Party Transactions, the Audit Committee reviewed and evaluated the terms of the acquisitions and concluded that the transactions were 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
June 30,
 
Nine Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands, except per share amounts)
Net income attributable to EZCORP, Inc. (A)
$
28,523

 
$
26,527

 
$
105,136

 
$
85,794

Weighted average outstanding shares of common stock (B)
51,162

 
49,926

 
50,769

 
49,849

Dilutive effect of stock options and restricted stock
178

 
459

 
273

 
443

Weighted average common stock and common stock equivalents (C)
51,340

 
50,385

 
51,042

 
50,292

Basic earnings per share (A/B)
$
0.56

 
$
0.53

 
$
2.07

 
$
1.72

Diluted earnings per share (A/C)
$
0.56

 
$
0.53

 
$
2.06

 
$
1.71

Potential common shares excluded from the calculation of diluted earnings per share
117

 

 
36

 
6


Note D: Strategic Investments and Fair Value of Financial Instruments
At June 30, 2012, 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 year-to-date period ended June 30, 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2011 to March 31, 2012.
Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.

11


In its functional currency of British pounds, Albemarle & Bond’s total assets increased 12% from December 31, 2010 to December 31, 2011 and its net income for the six months ended December 31, 2011 improved 16%. Below is summarized financial information for Albemarle & Bond’s most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
 
 
As of December 31,
 
2011
 
2010
 
(In thousands)
Current assets
$
134,387

 
$
121,519

Non-current assets
65,354

 
56,755

Total assets
$
199,741

 
$
178,274

Current liabilities
$
21,021

 
$
25,801

Non-current liabilities
62,169

 
53,497

Shareholders’ equity
116,551

 
98,976

Total liabilities and shareholders’ equity
$
199,741

 
$
178,274


 
Six Months Ended December 31,
 
2011
 
2010
 
(In thousands)
Gross revenues
$
99,804

 
$
76,424

Gross profit
58,165

 
46,745

Profit for the year (net income)
14,208

 
12,088


At June 30, 2012, 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 year-to-date period ended June 30, 2012 represents our percentage interest in the results of Cash Converters’ operations from July 1, 2011 to March 31, 2012.
Conversion of Cash Converters’ financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.

12


In its functional currency of Australian dollars, Cash Converters’ total assets increased 17% from December 31, 2010 to December 31, 2011 and its net income decreased 7% for the six months ended December 31, 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 December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
 
 
As of December 31,
 
2011
 
2010
 
(In thousands)
Current assets
$
128,289

 
$
104,408

Non-current assets
121,835

 
109,336

Total assets
$
250,124

 
$
213,744

Current liabilities
$
33,290

 
$
30,844

Non-current liabilities
37,797

 
11,970

Shareholders’ equity
179,037

 
170,930

Total liabilities and shareholders’ equity
$
250,124

 
$
213,744

 
 
Six Months Ended December 31,
 
2011
 
2010
 
(In thousands)
Gross revenues
$
115,256

 
$
82,343

Gross profit
76,405

 
57,038

Profit for the year (net income)
13,668

 
13,528


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 1 estimates within the fair value hierarchy of FASB ASC 820-10-50, and were calculated as (a) the quoted stock price on each company’s principal market multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate at the dates indicated. We included no control premium for owning a large percentage of outstanding shares.
 
 
June 30,
 
September 30,
 
2012
 
2011
 
2011
 
(In thousands of U.S. dollars)
Albemarle & Bond:
 
 
 
 
 
Recorded value
$
51,156

 
$
46,457

 
$
48,361

Fair value
63,677

 
99,180

 
91,741

Cash Converters:
 
 
 
 
 
Recorded value
$
74,153

 
$
68,320

 
$
71,958

Fair value
80,894

 
94,911

 
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. That legislation, as proposed, could have adversely affected, Cash Converters’ consumer loan business in Australia, 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. The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was passed by the Australian House of Representatives in June 2012. The Bill incorporates amendments that increase permitted fees and charges for microlending. The Bill is expected to be approved by the Australian Senate in September and to go into effect on July 1, 2013. As of June 30, 2012, the fair value of our investment in Cash Converters was above our recorded value, further supporting our assessment of the loss in value of its stock to be temporary.

13



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:
 
 
June 30,
 
September 30,
 
2012
 
2011
 
2011
 
(In thousands)
Pawn licenses
$
8,836

 
$
8,836

 
$
8,836

Trade name
9,621

 
4,870

 
4,870

Goodwill
321,423

 
167,017

 
173,206

Total
$
339,880

 
$
180,723

 
$
186,912


The following tables present the changes in the carrying value of goodwill, by segment, over the periods presented:
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(In thousands)
Balance at September 30, 2011
$
163,897

 
$
9,309

 
$

 
$
173,206

Acquisitions
57,653

 
54,765

 
39,293

 
151,711

Effect of foreign currency translation changes
(1
)
 
(2,752
)
 
(741
)
 
(3,494
)
Balance at June 30, 2012
$
221,549

 
$
61,322

 
$
38,552

 
$
321,423


 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(In thousands)
Balance at September 30, 2010
$
110,255

 
$
7,050

 
$

 
$
117,305

Acquisitions
49,317

 

 

 
49,317

Effect of foreign currency translation changes

 
395

 

 
395

Balance at June 30, 2011
$
159,572

 
$
7,445

 
$

 
$
167,017


The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:
 
 
June 30,
 
September 30,
 
2012
 
2011
 
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
$
1,373

 
$
(553
)
 
$
820

 
$
1,147

 
$
(465
)
 
$
682

 
$
1,157

 
$
(479
)
 
$
678

Non-compete agreements
4,356

 
(2,993
)
 
1,363

 
3,837

 
(2,472
)
 
1,365

 
3,722

 
(2,459
)
 
1,263

Favorable lease
1,159

 
(409
)
 
750

 
755

 
(289
)
 
466

 
755

 
(322
)
 
433

Franchise rights
1,559

 
(82
)
 
1,477

 
1,636

 
(17
)
 
1,619

 
1,547

 
(32
)
 
1,515

Deferred financing costs
7,512

 
(2,945
)
 
4,567

 
2,413

 
(113
)
 
2,300

 
2,411

 
(262
)
 
2,149

Contractual relationship
53,226

 
(2,299
)
 
50,927

 

 

 

 

 

 

Other
333

 
(28
)
 
305

 
66

 
(11
)
 
55

 
58

 
(12
)
 
46

Total
$
69,518

 
$
(9,309
)
 
$
60,209

 
$
9,854

 
$
(3,367
)
 
$
6,487

 
$
9,650

 
$
(3,566
)
 
$
6,084


The amortization of most definite-lived intangible assets is recorded as amortization expense. The favorable lease asset and

14


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
June 30,
 
Nine Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Amortization expense
$
1,162

 
$
221

 
$
3,086

 
$
654

Operations expense
49

 
28

 
103

 
76

Interest expense
569

 
252

 
1,164

 
464

Total expense from the amortization of definite-lived intangible assets
$
1,780

 
$
501

 
$
4,353

 
$
1,194

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
 
$
2,321

 
$
138

 
$
1,017

2013
 
6,063

 
136

 
2,112

2014
 
5,825

 
125

 
1,383

2015
 
5,558

 
113

 
442

2016
 
5,500

 
111

 


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



15


Note F: Long-term Debt
The table presents our long-term debt instruments and balances under capital lease obligations outstanding at June 30, 2012 and 2011 and September 30, 2011 (in thousands):
 
 
June 30, 2012
 
June 30,
 
September 30,
 
Carrying
Amount
 
Debt Premium
 
2011
 
2011
Recourse to EZCORP:
 
 
 
 
 
 
 
Domestic line of credit up to $175,000 due 2015
$
114,700

 
$

 
$
26,500

 
$
17,500

Capital lease obligations
1,159

 

 

 

Non-recourse to EZCORP:
 
 
 
 
 
 
 
Secured foreign currency line of credit up to $3,700 due 2014
2,803

 
210

 

 

Secured foreign currency line of credit up to $71,800 due 2015
58,455

 
9,004

 

 

Secured foreign currency line of credit up to $21,975 due 2017
6,903

 

 

 

10% unsecured notes due 2013
1,570

 

 

 

16% unsecured notes due 2013
5,013

 
174

 

 

20% unsecured notes due 2013
11,725

 
1,511

 

 

10% unsecured notes due 2014
906

 

 

 

10% unsecured notes due 2015
402

 

 

 

18% secured notes due 2015
4,273

 
611

 

 

10% unsecured notes due 2016
116

 

 

 

Total long-term obligations
$
208,025

 
$
11,510

 
$
26,500

 
$
17,500

Less current portion
31,521
 

 

 

Total long-term and capital lease obligations
$
176,504

 
$
11,510

 
$
26,500

 
$
17,500


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. Terms of the credit agreement require, among other things, that we meet certain financial covenants. At June 30, 2012, 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, and would be considered a level 3 estimate within the fair value hierarchy.
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 the term of the agreement.
On January 30, 2012, we acquired a 60% ownership interest in Crediamigo, a specialty consumer finance company headquartered in Mexico City. Non-recourse debt amounts in the table above represent Crediamigo’s third party debt. All lines of credit are guaranteed by the Crediamigo loan portfolio. Interest on lines of credit due 2014 and 2015 is charged at the Mexican Interbank Equilibrium ("TIIE") plus a margin varying from 9% to 20%. The line of credit due 2014 requires monthly payments of $0.1 million with remaining principal due at maturity. The line of credit due 2015 requires monthly payments of $0.8 million increasing to $1.9 million on November 30, 2012, with the remaining principal due at maturity. Beginning September 30, 2012, the 18% secured notes require monthly payments of $0.1 million with remaining principal due at maturity. The debt premium on Crediamigo’s debt was recorded at acquisition and is being amortized as a reduction of interest expense over the life of the debt. We expect the recorded value of our debt to approximate its fair value and would be considered level 3 estimates within the fair value hierarchy.

On June 29, 2012 Crediamigo renegotiated their revolving line of credit originally due 2016. The interest rate was decreased

16


from 20% to 14.5% and the term was extended 6 months, now being due at the end of April 2017. The maximum borrowing capacity was also raised from $14.6 million to $22.0 million. Due to the substantial improvement in the renegotiated terms, the remaining unamortized premium of $2.8 million, valued at acquisition, was accelerated and recognized as a reduction to interest expense in the current quarter.
Included in the amounts above are notes due to Crediamigo’s shareholders, which are presented in the table below (in thousands):
 
 
June 30, 2012
16% unsecured notes due 2013
$
5,013

10% unsecured notes due 2014
906

Secured foreign currency line of credit due 2015
10,284

Total debt to stockholders
$
16,203


Note G: Stock Compensation
Our net income includes the following compensation costs related to our stock compensation arrangements:
 
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
Gross compensation costs
$
1,953

 
$
1,508

 
$
5,191

 
$
11,536

Income tax benefits
(650
)
 
(499
)
 
(1,666
)
 
(3,952
)
Net compensation expense
$
1,303

 
$
1,009

 
$
3,525

 
$
7,584


Included in the compensation cost for the nine months ended June 30, 2011 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 current quarter, stock option exercises resulted in the issuance of 5,400 shares for immaterial proceeds. In the nine-month period ended June 30, 2012, stock option exercises resulted in the issuance of 201,298 shares for total proceeds of $0.6 million. All options and restricted stock relate to our Class A Non-voting Common Stock.

Note H: Income Taxes
Income tax expense is provided at the U.S. tax rate on financial statement earnings, adjusted for the difference between the U.S. tax rate and the rate of tax in effect for non-U.S. earnings deemed to be permanently reinvested in the Company's non-U.S. operations.  Deferred income taxes have not been provided for the potential remittance of non-U.S. undistributed earnings to the extent those earnings are deemed to be permanently reinvested, or to the extent such recognition would result in a deferred tax asset.
The current quarter’s effective tax rate is 29.8% of pretax income compared to 34.7% for the prior year quarter. For the current nine-month period, the effective tax rate is 33.1% compared to 35.2% in the prior nine-month period. The decrease in the effective tax rates is primarily due to the determination that the undistributed earnings of non-U.S. subsidiaries on which income taxes were previously recorded will not be repatriated in the foreseeable future, as well as the recognition of state net operating losses.

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.




17


Note J: Operating Segment Information
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Previously, we reported segment information based primarily on product offerings. Beginning with the second quarter of fiscal 2012, we redefined our reportable operating segments based on geography as our company is increasingly being organized and managed along geographic lines, with product offerings and channels based on local custom and regulation. As a result, we concluded that segment reporting based on geography more closely aligns with our management organization and strategic direction.
For periods ending after January 1, 2012, we will report segments as follows:
U.S. & Canada – All business activities in the United States and Canada
Latin America – All business activities in Mexico and other parts of Latin America
Other International – All business activities in the rest of the world (currently consisting of consumer loans online in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International)
Concurrent with the change in reportable operating segments, we revised our prior period financial information to reflect comparable financial information for the new segment structure.
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 for the three and nine-month periods ending June 30, 2012 and 2011, including the reclassifications discussed in Note A “Significant Accounting Policies.”


18


 
Three Months Ended June 30, 2012
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
65,799

 
$
10,159

 
$

 
$
75,958

Jewelry scrapping sales
37,456

 
4,518

 

 
41,974

Pawn service charges
49,979

 
6,184

 

 
56,163

Consumer loan fees
39,243

 
10,381

 
3,880

 
53,504

Other revenues
649

 
558

 
158

 
1,365

Total revenues
193,126

 
31,800

 
4,038

 
228,964

Merchandise cost of goods sold
38,519

 
5,735

 

 
44,254

Jewelry scrapping cost of goods sold
24,415

 
3,784

 

 
28,199

Consumer loan bad debt
9,368

 
632

 
1,251

 
11,251

Net revenues
120,824

 
21,649

 
2,787

 
145,260

Operating expenses:
 
 
 
 
 
 
 
Store operations
65,975

 
8,792

 
942

 
75,709

Administrative
5,970

 
4,335

 
1,870

 
12,175

Depreciation
3,622

 
1,054

 
73

 
4,749

Amortization
142

 
999

 
21

 
1,162

(Gain) loss on sale or disposal of assets
93

 
(4
)
 
223

 
312

Interest, net
(1
)
 
22

 
(1
)
 
20

Equity in net income of unconsolidated affiliates

 

 
(4,197
)
 
(4,197
)
Other
614

 
(13
)
 
(441
)
 
160

Segment contribution
$
44,409

 
$
6,464

 
$
4,297

 
$
55,170

Corporate expenses:
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
10,522

Depreciation
 
 
 
 
 
 
1,466

Interest, net
 
 
 
 
 
 
877

Income before taxes
 
 
 
 
 
 
42,305

Income tax expense
 
 
12,594

Net income
 
 
 
 
 
 
29,711

Net income attributable to redeemable noncontrolling interest
 
 
 
 
 
 
1,188

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
28,523



19


 
Three Months Ended June 30, 2011
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(In thousands)