EZCORP INC - Quarter Report: 2009 December (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

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

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 (Address of principal executive offices)		78746 (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 þ No o

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

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.

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

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, 2009, 45,761,998 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

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31, 2009, December 31, 2008 and September 30, 2009 (audited)			1
Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2009 and 2008			2
Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2009 and 2008			3
Notes to Interim Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risk			29
Item 4. Controls and Procedures			31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 6. Exhibits			32
SIGNATURE			33
EXHIBIT INDEX			34
CERTIFICATIONS
EX-31.1
EX-31.2
EX-32.1

PART I

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

		December 31,				December 31,				September 30,
		2009				2008				2009
		(Unaudited)				(Unaudited)
						(In thousands)
Assets:
Current assets:
Cash and cash equivalents		$	17,032			$	41,595			$	44,764
Pawn loans			103,446				93,789				101,684
Signature loans, net			8,934				8,246				8,357
Auto title loans, net			2,110				1,174				1,663
Pawn service charges receivable, net			19,662				16,888				18,187
Signature loan fees receivable, net			6,044				5,968				5,599
Auto title loan fees receivable, net			827				92				529
Inventory, net			63,515				64,563				64,001
Deferred tax asset			15,671				15,773				15,670
Prepaid expenses and other assets			20,654				12,284				16,927
Total current assets			257,895				260,372				277,381
Investments in unconsolidated affiliates			90,455				37,873				38,851
Property and equipment, net			52,378				46,674				51,154
Deferred tax asset, non-current			5,011				7,754				6,311
Goodwill			101,134				98,300				100,719
Other assets, net			19,931				18,693				18,101
Total assets		$	526,804			$	469,666			$	492,517
Liabilities and stockholders’ equity:
Current liabilities:
Current maturities of long-term debt		$	10,000			$	10,000			$	10,000
Accounts payable and other accrued expenses			39,692				48,534				33,838
Customer layaway deposits			2,697				2,879				4,175
Federal income taxes payable			6,480				3,186				572
Total current liabilities			58,869				64,599				48,585
Long-term debt, less current maturities			22,500				30,337				25,000
Deferred gains and other long-term liabilities			2,840				3,566				3,247
Total liabilities			84,209				98,502				76,832
Commitments and contingencies
Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share; Authorized 54 million shares; 45,761,998 issued and outstanding at December 31, 2009; 45,457,188 issued and 45,447,188 outstanding at December 31, 2008; 45,732,998 issued and outstanding at September 30, 2009			458				451				457
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; 2,970,171 issued and outstanding			30				30				30
Additional paid-in capital			218,284				224,914				217,176
Retained earnings			228,349				148,998				202,642
Treasury stock, at cost; 10,000 shares at December 31, 2008			—				(12	)			—
Accumulated other comprehensive loss			(4,526	)			(3,217	)			(4,620	)
Total stockholders’ equity			442,595				371,164				415,685
Total liabilities and stockholders’ equity		$	526,804			$	469,666			$	492,517

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

Condensed Consolidated Statements of Operations (Unaudited)

		Three Months Ended
		December 31,
		2009				2008
		(In thousands, except per share amounts)
Revenues:
Sales		$	99,918			$	64,580
Pawn service charges			40,797				26,381
Signature loan fees			38,678				36,000
Auto title loan fees			3,102				221
Other			2,256				1,433
Total revenues			184,751				128,615
Cost of goods sold			62,570				40,425
Signature loan bad debt			8,790				9,484
Auto title loan bad debt			460				7
Net revenues			112,931				78,699
Operating expenses:
Operations			58,181				43,494
Administrative			12,297				10,411
Depreciation and amortization			3,356				3,066
(Gain) loss on sale / disposal of assets			211				(284	)
Total operating expenses			74,045				56,687
Operating income			38,886				22,012
Interest income			(8	)			(126	)
Interest expense			365				165
Equity in net income of unconsolidated affiliates			(1,283	)			(941	)
Other			(15	)			25
Income before income taxes			39,827				22,889
Income tax expense			14,120				8,061
Net income		$	25,707			$	14,828
Net income per common share:
Basic		$	0.53			$	0.34
Diluted		$	0.52			$	0.33
Weighted average shares outstanding:
Basic			48,722				43,661
Diluted			49,400				44,692

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

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Three Months Ended
		December 31,
		2009				2008
		(In thousands)
Operating Activities:
Net income		$	25,707			$	14,828
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			3,356				3,066
Signature loan and auto title loan loss provisions			2,938				2,691
Deferred taxes			1,300				1,239
Net (gain) loss on sale or disposal of assets			211				(284	)
Share-based compensation			1,056				1,059
Income from investments in unconsolidated affiliates			(1,283	)			(941	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net			(2,198	)			(84	)
Inventory, net			197				(819	)
Prepaid expenses, other current assets, and other assets, net			(5,659	)			(995	)
Accounts payable and accrued expenses			5,654				(389	)
Customer layaway deposits			(1,482	)			(435	)
Deferred gains and other long-term liabilities			(414	)			(43	)
Excess tax benefit from share-based compensation			(23	)			(1,639	)
Federal income taxes			5,967				4,606
Net cash provided by operating activities			35,327				21,860
Investing Activities:
Loans made			(128,315	)			(92,792	)
Loans repaid			77,849				58,772
Recovery of pawn loan principal through sale of forfeited collateral			45,256				32,732
Additions to property and equipment			(4,470	)			(4,197	)
Acquisitions, net of cash acquired			(31	)			(17,064	)
Investments in unconsolidated affiliates			(50,932	)			—
Net cash used in investing activities			(60,643	)			(22,549	)
Financing Activities:
Proceeds from exercise of stock options and warrants			61				4,580
Stock issuance costs related to acquisitions			—				(273	)
Excess tax benefit from share-based compensation			23				1,639
Debt issuance costs			—				(1,058	)
Proceeds from bank borrowings			—				40,000
Payments on bank borrowings			(2,500	)			(30,048	)
Net cash provided by (used in) financing activities			(2,416	)			14,840
Change in cash and equivalents			(27,732	)			14,151
Cash and equivalents at beginning of period			44,764				27,444
Cash and equivalents at end of period		$	17,032			$	41,595
Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory		$	44,872			$	35,278
Foreign currency translation adjustment		$	(94	)		$	5,798
Acquisition-related stock issuance		$	(31	)		$	82,080

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

EZCORP, Inc. and Subsidiaries
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
December 31, 2009

Note A: 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 C). 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, 2009. The balance sheet at September 30, 2009 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 three-month period ended December 31, 2009 (the “current quarter”) are not necessarily indicative of the results of operations for the full fiscal year.

Note B: Significant Accounting Policies

CONSOLIDATION: The consolidated financial statements include the accounts of EZCORP, Inc. and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We account for our interests in Albemarle & Bond Holdings, PLC and Cash Converters International Limited using the equity method.

PAWN LOAN AND SALES REVENUE RECOGNITION: We record pawn service charges using the interest method for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several factors, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following two to three months. Unexpected variations in any of these factors could change our estimate of collectible loans, affecting our earnings and financial condition. If a pawn loan is not repaid, we value the forfeited collateral (inventory) at the lower of cost (pawn loan principal) or market (net realizable value) of the property. We record sales revenue and the related cost when this inventory is sold. Sales tax collected upon the sale of inventory is excluded from the amount recognized as sales and instead is recorded as a liability in “Accounts payable and other accrued liabilities” on our balance sheets until remitted to the appropriate governmental authorities.

SIGNATURE LOAN CREDIT SERVICE FEE REVENUE RECOGNITION: We earn credit service fees when we assist customers in obtaining signature loans from unaffiliated lenders. We initially defer recognition of the fees we expect to collect, net of direct expenses, and recognize that deferred net amount over the life of the related loans. We reserve the percentage of credit service fees we expect not to collect. Accrued fees related to defaulted loans reduce credit service fee revenue upon loan default, and increase credit service fee revenue upon collection. Signature loan credit service fee revenue is included in “Signature loan fees” on our statements of operations.

SIGNATURE LOAN CREDIT SERVICE BAD DEBT: We issue letters of credit to enhance the creditworthiness of our credit service customers seeking signature loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed the lenders by the borrowers plus any insufficient funds fee. Although amounts paid under letters of credit may be collected later, we charge those amounts to signature loan bad debt upon default. We record recoveries under the letters of credit as a reduction of bad debt at the time of collection. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery. We account for the sale of defaulted accounts in the same manner as internal collections of defaulted accounts.

The majority of our credit service customers obtain short-term signature loans with a single maturity date. These short-term loans, with maturity dates averaging about 18 days, are considered defaulted if they have not been repaid or renewed by the maturity date. Other credit service customers obtain installment loans with a series of payments due over as much as a five-month period. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire loan is considered defaulted.

ALLOWANCE FOR LOSSES ON SIGNATURE LOAN CREDIT SERVICES: We provide an allowance for losses we expect to incur under letters of credit for brokered signature loans that have not yet matured. The allowance is based on recent loan default experience adjusted for seasonal variations. It includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including principal, accrued interest, and insufficient funds fees, net of the amounts we expect to collect from borrowers (“Expected LOC Losses”). Changes in the allowance are charged to signature loan bad debt. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheets. At December 31, 2009, the allowance for Expected LOC Losses on signature loans was $1.6 million and our maximum exposure for losses on letters of credit, if all brokered signature loans defaulted and none was collected, was $27.0 million. This amount includes principal, interest, and insufficient funds fees. Based on the expected loss and collection percentages, we also provide an allowance for the signature loan credit service fees we expect not to collect, and charge changes in this allowance to signature loan fee revenue.

SIGNATURE LOAN REVENUE RECOGNITION: We accrue fees in accordance with state and provincial laws on the percentage of signature loans (payday loans and installment loans) we have made that we believe to be collectible. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection.

SIGNATURE LOAN BAD DEBT: We consider a payday loan defaulted if it has not been repaid or renewed by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. We record collections of principal as a reduction of signature loan bad debt when collected. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery. We account for the sale of defaulted accounts in the same manner as internal collections of defaulted accounts.

SIGNATURE LOAN ALLOWANCE FOR LOSSES: We provide an allowance for losses on signature loans that have not yet matured and related fees receivable, based on recent loan default experience adjusted for seasonal variations. We charge any changes in the principal valuation allowance to signature loan bad debt. We record changes in the fee receivable valuation allowance to signature loan fee revenue.

INVENTORY: If a pawn loan is not redeemed, we record the forfeited collateral at cost (the principal amount of the pawn loan). We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized. In order to state inventory at the lower of cost (specific identification) or market (net realizable value), we record an allowance for shrinkage and excess, obsolete, or slow-moving inventory. The allowance is based on the type and age of merchandise and recent sales trends and margins. At December 31, 2009, the inventory valuation allowance was $5.8 million, or 8.4% of gross inventory. We record changes in the inventory valuation allowance as cost of goods sold.

INTANGIBLE ASSETS: Goodwill and other intangible assets having indefinite lives are not subject to amortization. They are tested for impairment each July 1^st, or more frequently if events or changes in circumstances indicate that they might be impaired, based on cash flows and other market valuation methods. We recognized no impairment of our intangible assets in the current or prior year periods. We amortize intangible assets with definite lives over their estimated useful lives, using the straight-line method.

PROPERTY AND EQUIPMENT: We record property and equipment at cost. We depreciate these assets on a straight-line basis using estimated useful lives of 2 to 8 years for furniture, equipment, and software development costs. We depreciate leasehold improvements over the shorter of their estimated useful life (typically 10 years) or the reasonably assured lease term at the inception of the lease. Property and equipment is shown net of accumulated depreciation of $104.6 million at December 31, 2009.

VALUATION OF TANGIBLE LONG-LIVED ASSETS: We assess the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or

projected future cash flows, significant changes in the manner of use of the assets or the strategy for the overall business, or significant negative industry trends. When we determine that the net recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based on the excess of the assets’ net recorded amount over the estimated fair value. No impairment of tangible long-lived assets was recognized in the current or prior year periods.

FOREIGN CURRENCY TRANSLATION: Our equity investment in Albemarle & Bond is translated from the British pound into U.S. dollars at the exchange rate as of Albemarle & Bond’s balance sheet date. The related interest in Albemarle & Bond’s net income is translated at the average exchange rate for each six-month period reported by Albemarle & Bond. The functional currency of our wholly-owned Empeño Fácil pawn segment is the Mexican peso. Empeño Fácil’s balance sheet accounts are translated into U.S. dollars at the exchange rate at the end of each quarter, and its earnings are translated into U.S. dollars at the average exchange rate each quarter. We present resulting translation adjustments from our foreign operations and foreign equity investments as a separate component of stockholders’ equity. Foreign currency transaction gains and losses have not been significant, and are reported as “Other” expense in our statements of operations. Due to the investment in Cash Converters occurring in the current quarter and our intention to account for those results on a three-month lag, the effect of exchange rate fluctuations on Cash Converters will first appear in our quarter ending March 31, 2010 and will be calculated in a manner consistent with the method described above for Albemarle & Bond.

INCOME TAXES: We account for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying value of assets and liabilities and their tax bases and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted.

SHARE-BASED COMPENSATION: We account for share-based compensation in accordance with the fair value recognition provisions of FASB ASC 718-10-25 (formerly SFAS No. 123(R), “Share-based Payment”). We estimate the grant-date fair value of options using the Black-Scholes-Merton option-pricing model and amortize that fair value to compensation expense on a straight-line basis over the options’ vesting periods. The fair value of restricted shares is measured as the closing market price of our stock on the date of grant, which is amortized over the vesting period for each grant.

FAIR VALUE: We adopted FASB ASC 820-10 (formerly SFAS No. 157, “Fair Value Measurements”) and ASC 825-10 (formerly SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”) on October 1, 2008, resulting in no impact on our financial position, results of operations or cash flows. Among other requirements, FASB ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosure about the use of fair value to measure assets and liabilities. FASB ASC 825-10 permits entities to choose, at specified election dates, to measure eligible items at fair value (the “fair value option”) and requires an entity to report in earnings at each subsequent reporting date those unrealized gains and losses on items for which the fair value option has been elected. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. Upon adoption of FASB ASC 825-10, we elected not to measure any eligible items at fair value.

We determine the fair value of financial instruments by reference to various market data and other valuation techniques, as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values, due primarily to their short-term nature. We consider investments with maturities of 90 days or less when purchased to be cash equivalents. The recorded value of our outstanding debt is assumed to estimate its fair value, as it has no prepayment penalty and a floating interest rate based on market rates.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS: In December 2007, FASB issued ASC 805-10-65 (formerly SFAS No. 141(R), “Business Combinations — Revised”). FASB ASC 805-10-65 establishes principles and requirements for how an acquirer in a business combination: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in an acquiree, (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase price, and (3) determines what information to disclose to enable users of the consolidated financial statements to evaluate the nature and financial effects of the business combination. Among other changes, FASB ASC 805-10-65 will require us to immediately expense transaction costs that have historically been included in the purchase price allocation under existing guidance. FASB ASC 805-10-65 will apply prospectively to any acquisitions we complete on or after October 1, 2009.

In April 2008, FASB issued ASC 350-30-65 (formerly FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”), which amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under FASB ASC 350-10-05 (formerly SFAS No. 142, “Goodwill and Other Intangible Assets”). The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. Under FASB ASC 350-30-65, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. We adopted this standard on October 1, 2009, resulting in no effect on our financial position, results of operations, or cash flows.

In June 2009, FASB amended ASC 810-10-65 (formerly SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”). Amended ASC 810-10-65 relates to the consolidation of variable interest entities. It eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance also requires additional disclosures about an enterprise’s involvement in variable interest entities. We must adopt this amended standard in our fiscal year beginning October 1, 2010. We expect adoption of amended ASC 810-10 will have no effect on our financial position, results of operations or cash flows.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, “Fair Value Measurements and Disclosures, Measuring Liabilities at Fair Value,” which amends FASB ASC 820-10, “Fair Value Measurements and Disclosures — Overall,” for the fair value measurement of liabilities. This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, an entity is required to measure fair value using a valuation technique that uses a quoted price of the identical liability when traded as an asset, a quoted price for similar liabilities or similar liabilities when traded as an asset, or another valuation technique that is consistent with the principles of FASB ASC 820. We adopted this ASU on October 1, 2009, resulting in no effect on our financial position, results of operations, or cash flows.

Note C: Acquisitions

On November 13, 2008, we acquired the operating assets of 11 pawnshops in the Las Vegas, Nevada area that operated under the Pawn Plus, Pawn Place and ASAP Pawn brands for approximately $34.4 million. The purchase price was paid by issuing approximately 1.1 million shares of our Class A Non-voting Common Stock valued at $17.3 million, paying $17.0 million to the seller and incurring $0.1 million in transaction costs. We estimated the fair value of the stock issued in the asset purchase at $15.45 per share, based on the market price of our stock surrounding the closing date of the acquisition.

We allocated the purchase price as follows (in thousands):

Current assets:
Pawn loans		$	5,442
Payday loans, net			55
Auto title loans, net			1,105
Pawn service charges receivable, net			1,231
Signature loan fees receivable, net			7
Auto title loan fees receivable, net			84
Inventory, net			2,860
Deferred tax asset, net			334
Prepaid expenses and other assets			79
Total current assets			11,197
Property and equipment, net			392
Goodwill			16,297
Other assets, net			6,711
Total assets		$	34,597
Liabilities:
Accounts payable and other accrued expenses		$	(27	)
Customer layaway deposits			(135	)
Total liabilities			(162	)
Net assets acquired		$	34,435

Included in the amount allocated above to “Other assets” is the estimated $6.7 million value of pawn licenses acquired. As these are considered indefinite lived intangible assets, they are not amortized but are tested at least annually for potential impairment.

The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisition. These benefits include a greater presence in a prime pawn market, a meaningful entry into the auto title loan business, increased scale and the ability to implement certain processes and practices at the acquired stores in our existing and planned other operations. The goodwill arising from this acquisition was recorded in the U.S. Pawn segment and is expected to be fully deductible for tax purposes over the fifteen years following the acquisition.

The results of the acquired stores have been consolidated with our results since their acquisition. Pro forma results of operations have not been presented because the acquisition was not material to our consolidated financial position or results of operations.

On December 31, 2008, we acquired through a merger all of the capital stock of Value Financial Services, Inc. (“VFS”) for a total estimated acquisition price of $77.7 million plus the assumption of VFS’s debt of $30.4 million, aggregating to approximately $108.1 million. VFS operated 67 pawn stores, located mostly in Florida.

The total purchase price was comprised of the issuance of approximately 4.1 million shares of EZCORP’s Class A Non-voting Common Stock originally valued at $64.6 million, $13.6 million of cash paid to VFS shareholders, and transaction costs of $0.9 million, less $1.4 million of cash acquired. We estimated the fair value of the stock issued in the acquisition at $15.92 per share, based on the average daily closing market price of our stock from two days before to two days after the announcement of the merger agreement.

Since the date of acquisition, the total purchase price increased approximately $0.3 million due to additional transaction related costs identified after the point of acquisition. We engaged an external valuation specialist as part of our process in determining the fair values. Taking into consideration their updated analysis and facts learned after the acquisition, the preliminary purchase price allocation was adjusted.

Other assets recorded include the estimated $4.9 million fair value of the acquired trademark and trade names and $0.6 million of favorable lease assets. As we expect to use the trademark and trade names indefinitely, they are not

amortized but are tested at least annually for potential impairment. We are amortizing the favorable lease assets over the related lease terms used for straight-line rent purposes.

The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisition. These benefits include a greater presence in prime pawn markets including making us the largest pawnshop operator in Florida, expected administrative savings, increased scale and the ability to implement certain processes and practices at the acquired company in our existing and future operations. The goodwill arising from this acquisition was recorded in the U.S. Pawn segment and is not expected to be deductible for tax purposes due to the acquisition being a stock acquisition rather than an asset acquisition.

We allocated the purchase price as follows (in thousands):

Current assets:
Pawn loans		$	17,886
Pawn service charges receivable, net			3,491
Inventory, net			16,265
Deferred tax asset, net			4,394
Prepaid expenses and other assets			1,438
Total current assets			43,474
Property and equipment, net			5,584
Deferred tax asset, non-current			690
Goodwill			61,877
Other assets, net			5,719
Total assets		$	117,344
Current Liabilities:
Current maturities of long-term debt		$	(4,000	)
Accounts payable and other accrued expenses			(8,404	)
Customer layaway deposits			(872	)
Total Current liabilities			(13,276	)
Long-term debt			(26,385	)
Total Liabilities			(39,661	)
Net assets acquired		$	77,683

The total purchase price presented above excludes contingent consideration paid under the terms of the acquisition, which depended on the price at which VFS shareholders sold their EZCORP shares. After the closing of the acquisition, we paid $10.7 million of contingent consideration to VFS shareholders related to the sale of approximately 3.9 million EZCORP shares. In accordance with accounting rules for contingent payments based on the acquirer’s stock price, all contingent consideration paid was recorded as a reduction of the additional paid-in capital recorded with the stock issuance and did not change the total recorded purchase price.

The results of the acquired stores have been consolidated with our results since their acquisition. The following table summarizes unaudited pro forma condensed combined statements of operations assuming the acquisition had occurred on the first day of fiscal 2009. Although VFS’s historical fiscal year ends on a different date than that of EZCORP, all VFS data included in the pro forma information are actual amounts for the periods indicated.

We expect and have realized operating synergies and administrative savings. These come primarily from using the best practices from EZCORP and VFS in each business, economies of scale, reduced administrative support staff and the closure of VFS’s corporate offices. The pro forma information does not include any potential operating efficiencies or cost savings from expected synergies. The pro forma information is not necessarily an indication of the results that would have been achieved had the acquisition been completed as of the date indicated or that may be achieved in the future.

		Three Months Ended
		December 31,
		2009				2008
		(Unaudited and Pro Forma)
		(In thousands, except per share amounts)
Revenues:
Sales		$	99,918			$	92,495
Pawn service charges			40,797				35,231
Signature loan fees			38,678				36,000
Auto title loan fees			3,102				221
Other			2,256				1,905
Total revenues			184,751				165,852
Cost of goods sold			62,570				57,576
Signature loan bad debt			8,790				9,484
Auto title loan bad debt			460				7
Net revenues			112,931				98,785
Operating expenses:
Operations			58,181				54,363
Administrative			12,297				15,768
Depreciation and amortization			3,356				3,339
(Gain) loss on sale/disposal of assets			211				(255	)
Total operating expenses			74,045				73,215
Operating income			38,886				25,570
Interest expense, net			357				528
Equity in net income of unconsolidated affiliate			(1,283	)			(941	)
Other			(15	)			25
Income before income taxes			39,827				25,958
Income tax expense			14,120				9,244
Net income		$	25,707			$	16,714
Net income per common share:
Basic		$	0.53			$	0.35
Diluted		$	0.52			$	0.34
Weighted average shares outstanding:
Basic			48,722				47,675
Diluted			49,400				48,706

Included in the pro forma administrative expense in the quarter ended December 31, 2008 is a non-recurring charge of $0.8 million for the write-off of VFS’s in-process development of a point of sale system that was abandoned and replaced by EZCORP’s point of sale system.

Note D: 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, warrants and restricted stock awards.

Components of basic and diluted earnings per share are as follows (in thousands, except per share amounts):

		Three Months Ended
		December 31,
		2009				2008
Net income (A)		$	25,707			$	14,828
Weighted average outstanding shares of common stock (B)			48,722				43,661
Dilutive effect of stock options, warrants, and restricted stock			678				1,031
Weighted average common stock and common stock equivalents (C)			49,400				44,692
Basic earnings per share (A/B)		$	0.53			$	0.34
Diluted earnings per share (A/C)		$	0.52			$	0.33

There were no anti-dilutive potential common shares at December 31, 2009. In the quarter ended December 31, 2008, we excluded 143,500 anti-dilutive options from the computation of diluted earnings per share because the assumed proceeds upon exercise, as defined by FASB ASC 718-10-25 (formerly SFAS No. 123(R)), were 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. All outstanding warrants expired July 25, 2009 and are no longer dilutive.

Note E: Strategic Investments

At December 31, 2009, we owned 16,619,640 common shares of Albemarle & Bond Holdings, PLC, representing 29.99% of its total outstanding shares. We acquired 16,298,875 of the shares in 1998 and 2007 at a cost of $26.2 million. To maintain our intended 29.99% ownership level, we acquired 320,765 additional shares in the quarter ended December 31, 2009 at a cost of approximately $1.3 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 interim and annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our quarter ended December 31, 2009 represents our percentage interest in the estimated results of Albemarle & Bond’s operations from July 1, 2009 to September 30, 2009.

In its functional currency of British pounds, Albemarle & Bond’s total assets increased 2% from June 30, 2008 to June 30, 2009 and its net income improved 47% for the year ended June 30, 2009. Below is summarized financial information for Albemarle & Bond’s most recently reported results after translation to a stronger U.S. dollar in 2009 in comparison to the British pound (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,
		2009				2008
		(In thousands)
Current assets		$	102,034			$	120,295
Non-current assets			51,980				61,388
Total assets		$	154,014			$	181,683
Current liabilities		$	13,247			$	13,710
Non-current liabilities			55,729				79,555
Equity shareholders’ funds			85,038				88,418
Total liabilities and equity shareholders’ funds		$	154,014			$	181,683

		Years ended June 30,
		2009				2008
		(in thousands)
Turnover (gross revenues)		$	89,712			$	93,914
Gross profit			68,572				72,996
Profit after tax (net income)			17,239				14,503

On November 5, 2009, we acquired 108,218,000 newly issued shares, or approximately 30% of the capital stock of Cash Converters International Limited, a publicly traded company headquartered in Perth, Australia. We paid AUS $0.50 per share, for a total cash investment of AUS $54.1 million (approximately $49.6 million U.S.). Cash Converters franchises and operates a worldwide network of over 500 financial services and retail stores, which provide pawn loans, short-term unsecured loans, and other consumer finance products, and buy and sell used merchandise. Cash Converters’ most recent public reports indicate it owns and operates 18 locations in Australia and 26 locations in the United Kingdom, and has more than 450 franchised stores in 21 countries, including 119 in Australia, 118 in the United Kingdom and significant presences in Spain, South Africa and France.

We account for our investment in Cash Converters using the equity method. Since Cash Converters’ fiscal year ends three months prior to ours, we will report the income from this investment on a three-month lag. Cash Converters files interim and annual financial reports for its fiscal periods ending December 31 and June 30. Because we will include Cash Converters’ earnings in our financial statements on a three-month lag, our share of Cash Converters’ results of operations will first be reflected in our results in the quarter ending March 31, 2010.

In its functional currency of Australian dollars, Cash Converters’ total assets increased 16% from June 30, 2008 to June 30, 2009 and its net income improved 6% for the year ended June 30, 2009. Below is summarized financial information for Cash Converters’ most recently reported results after translation to a stronger U.S. dollar in 2009 in comparison to the Australian dollar (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,
		2009				2008
		(In thousands)
Current assets		$	37,477			$	37,838
Non-current assets			54,900				57,602
Total assets		$	92,377			$	95,440
Current liabilities		$	14,523			$	15,627
Non-current liabilities			11,467				8,618
Equity shareholders’ funds			66,387				71,195
Total liabilities and equity shareholders’ funds		$	92,377			$	95,440

		Years ended June 30,
		2009				2008
		(in thousands)
Gross revenues		$	70,612			$	66,702
Gross profit			52,680				51,691
Profit for the year (net income)			12,084				13,603

The table below summarizes the recorded value and fair value of each of these strategic investments at the dates indicated. Fair values 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, 2009				December 31, 2008				September 30, 2009
		(In thousands of U.S. dollars)
Albemarle & Bond:
Recorded value		$	40,832			$	37,873			$	38,851
Fair value			69,091				47,788				61,504
Cash Converters:
Recorded value			49,623				—				—
Fair value			63,789				—				—

Note F: 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 G: Comprehensive Income (Loss)

Comprehensive income includes net income and other revenues, expenses, gains and losses that are excluded from net income but are included as a component of total stockholders’ equity. Comprehensive income for the fiscal quarters ended December 31, 2009 and 2008 was $25.8 million and $9.0 million. The difference between comprehensive income and net income results primarily from the effect of foreign currency translation adjustments determined in accordance with FASB ASC 830-30-45 (formerly SFAS No. 52, “Foreign Currency Translation”). At December 31, 2009, the accumulated balance of foreign currency activity excluded from net income was $(5.0) million, net of applicable tax of $0.5 million. The net $(4.5) million is presented as “Accumulated other comprehensive loss” in the balance sheet at December 31, 2009.

Note H: Long-term Debt

Our syndicated credit agreement provides for, among other things, (i) an $80 million revolving credit facility, expiring December 31, 2011, that we may, under the terms of the agreement, request to be increased to a total of $110 million and (ii) a $40 million term loan, maturing December 31, 2012. Our term loan requires $2.5 million quarterly principal payments. At December 31, 2009, $32.5 million was outstanding under the term loan and a $3.0 million bank letter of credit was outstanding, leaving $77 million available on our revolving credit facility. The outstanding bank letter of credit secures our obligations under letters of credit we issue to unaffiliated lenders as part of our credit service operations.

Pursuant to the credit agreement, we may choose either a Eurodollar rate or the base rate. We may choose to pay interest to the lenders for outstanding borrowings at the Eurodollar rate plus 175 to 250 basis points or the bank’s base rate plus 0 to 50 basis points, depending on our leverage ratio computed at the end of each calendar quarter. Our rates are currently at the minimum of the range. On the unused amount of the revolving credit facility, we pay a commitment fee of 25 to 30 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. We were in compliance with all covenants at December 31, 2009 and expect to remain in compliance based on our current and anticipated performance. The payment of dividends and additional debt are restricted. The recorded value of our debt approximates its fair value as it is all variable rate debt and carries no pre-payment penalty.

Note I: 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, 2009				December 31, 2008				September 30, 2009
		(In thousands)
Pawn licenses		$	8,229			$	8,289			$	8,229
Trade Name			4,870				4,060				4,870
Goodwill			101,134				98,300				100,719
Total		$	114,233			$	110,649			$	113,818

Of the total amount of goodwill recorded at December 31, 2009, $94.4 million relates to our U.S. Pawn Operations segment and $6.7 million relates to our Empeño Fácil Mexico pawn segment.

		U.S. Pawn								EZMONEY
		Operations				Empeño Fácil				Operations				Consolidated
		(in thousands)
Balance at September 30, 2009		$	94,192			$	6,527			$	—				100,719
Acquisitions — adjustments to initial estimate			193				—				—				193
Effect of foreign currency translation changes			—				222				—				222
Balance at December 31, 2009		$	94,385			$	6,749			$	—			$	101,134

		U.S. Pawn								EZMONEY
		Operations				Empeño Fácil				Operations				Consolidated
		(in thousands)
Balance at September 30, 2008		$	16,211			$	8,165			$	—			$	24,376
Acquisitions			75,580				—				—				75,580
Effect of foreign currency translation changes			—				(1,656	)			—				(1,656	)
Balance at December 31, 2008		$	91,791			$	6,509			$	—			$	98,300

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, 2009								December 31, 2008								September 30, 2009
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
		(In thousands)
License application fees		$	345			$	(342	)		$	345			$	(324	)		$	345			$	(339	)
Real estate finders’ fees			665				(377	)			556				(349	)			609				(367	)
Non-compete agreements			2,587				(1,354	)			2,493				(861	)			2,497				(1,192	)
Favorable lease			644				(126	)			1,800				—				644				(95	)
Other			11				(1	)			—				—				11				—
Total		$	4,252			$	(2,200	)		$	5,194			$	(1,534	)		$	4,106			$	(1,993	)

Total amortization expense from definite-lived intangible assets for the quarters ended December 31, 2009 and 2008 was $126,000 and $124,000. The favorable lease asset and other intangibles are amortized to rent expense and are included in Operations expense on our statements of operations. The following table presents our estimate of amortization expense for definite-lived intangible assets for each of the five succeeding fiscal years as of October 1, 2009 (in thousands):

Fiscal Year		Amortization Expense
2010		$	529
2011		$	492
2012		$	457
2013		$	50
2014		$	33

These amounts exclude amortization of other intangible assets and the favorable lease asset, which are amortized to rent expense over the related lease terms. As acquisitions and dispositions occur in the future, amortization expense may vary from these estimates.

Note J: Share-based Compensation

Our income includes the following compensation costs related to our share-based compensation arrangements:

		Three Months Ended December 31,
		2009				2008
		(in thousands)
Gross compensation cost		$	1,056			$	1,059
Income tax benefits			(358	)			(319	)
Share-based compensation cost, net of tax benefit		$	698			$	740

Stock option exercises resulted in the issuance of 21,500 shares of our Class A Non-voting Common Stock in the current quarter for total proceeds of $0.1 million. On October 1, 2009, the Compensation Committee approved restricted stock grants to 59 key employees totaling 178,500 shares. All options and restricted stock relate to our Class A Non-voting Common Stock.

Note K: Income Taxes

The current quarter’s effective tax rate is 35.5% of pretax income compared to 35.2% for the prior year quarter. The increase in effective tax rates is primarily due to a valuation allowance established for the expected operating losses in our Canada operations during their start-up period in the current year.

Note L: Operating Segment Information

We manage our business and internal reporting as three reportable segments with operating results reported separately for each segment.

	•		The U.S. Pawn Operations segment offers pawn related activities in our 370 U.S. pawn stores, offers signature loans in 76 pawn stores and six EZMONEY stores and offers auto title loans in 68 pawn stores.
	•		The Empeño Fácil segment offers pawn related activities in 70 Mexico pawn stores.
	•		The EZMONEY Operations segment offers signature loans in 466 U.S. EZMONEY stores and eight Canadian CASHMAX stores. The segment offers auto title loans in 393 of its U.S. EZMONEY stores.

There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information:

		U.S. Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
		(in thousands)
Three Months Ended December 31, 2009:
Revenues:
Sales		$	96,034			$	3,872			$	12			$	99,918
Pawn service charges			38,941				1,856				—				40,797
Signature loan fees			553				—				38,125				38,678
Auto title loan fees			475				—				2,627				3,102
Other			2,167				89				—				2,256
Total revenues			138,170				5,817				40,764				184,751
Cost of goods sold			59,730				2,833				7				62,570
Signature loan bad debt			186				—				8,604				8,790
Auto title loan bad debt			70				—				390				460
Net revenues			78,184				2,984				31,763				112,931
Operations expense			40,199				2,164				15,818				58,181
Store operating income		$	37,985			$	820			$	15,945			$	54,750
Three Months Ended December 31, 2008:
Revenues:
Sales		$	62,167			$	2,413			$	—			$	64,580
Pawn service charges			24,884				1,497				—				26,381
Signature loan fees			686				—				35,314				36,000
Auto title loan fees			210				—				11				221
Other			1,433				—				—				1,433
Total revenues			89,380				3,910				35,325				128,615
Cost of goods sold			38,938				1,487				—				40,425
Signature loan bad debt			236				—				9,248				9,484
Auto title loan bad debt			6				—				1				7
Net revenues			50,200				2,423				26,076				78,699
Operations expense			26,678				1,284				15,532				43,494
Store operating income		$	23,522			$	1,139			$	10,544			$	35,205

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

		Three Months Ended
		December 31,
		2009				2008
		(in thousands)
Consolidated store operating income		$	54,750			$	35,205
Administrative expenses			12,297				10,411
Depreciation and amortization			3,356				3,066
(Gain) loss on sale / disposal of assets			211				(284	)
Interest income			(8	)			(126	)
Interest expense			365				165
Equity in net income of unconsolidated affiliate			(1,283	)			(941	)
Other			(15	)			25
Consolidated income before income taxes		$	39,827			$	22,889

The following table presents separately identified segment assets:

		U.S. Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
		(in thousands)
Assets at December 31, 2009:
Pawn loans		$	99,326			$	4,120			$	—			$	103,446
Signature loans, net			426				—				8,508				8,934
Auto title loans, net			756				—				1,354				2,110
Inventory, net			60,899				2,614				2				63,515
Total separately identified recorded segment assets		$	161,407			$	6,734			$	9,864			$	178,005
Brokered signature loans outstanding from unaffiliated lenders		$	299			$	—			$	25,200			$	25,499
Brokered auto title loans outstanding from unaffiliated lenders		$	367			$	—			$	3,921			$	4,288
Assets at December 31, 2008:
Pawn loans		$	90,682			$	3,107			$	—			$	93,789
Signature loans, net			514				—				7,732				8,246
Auto title loans, net			1,123				—				51				1,174
Inventory, net			61,801				2,762				—				64,563
Total separately identified recorded segment assets		$	154,120			$	5,869			$	7,783			$	167,772
Brokered signature loans outstanding from unaffiliated lenders		$	370			$	—			$	24,968			$	25,338
Brokered auto title loans outstanding from unaffiliated lenders		$	—			$	—			$	—			$	—
Assets at September 30, 2009:
Pawn loans		$	98,099			$	3,585			$	—			$	101,684
Signature loans, net			453				—				7,904				8,357
Auto title loans, net			685				—				978				1,663
Inventory, net			61,196				2,804				1				64,001
Total separately identified recorded segment assets		$	160,433			$	6,389			$	8,883			$	175,705
Brokered signature loans outstanding from unaffiliated lenders		$	278			$	—			$	22,706			$	22,984
Brokered auto title loans outstanding from unaffiliated lenders		$	276			$	—			$	1,910			$	2,186

Brokered loans are not recorded as an asset on our balance sheets, as we do not own a participation in the loans made by independent lenders. We monitor the principal balance of these loans, as our credit service fees and bad debt are directly related to their volume due to the letters of credit we issue on these loans. The balances shown above are the gross principal balances of the loans outstanding at the specified dates.

Note M: Subsequent Events

We noted no events occurring subsequent to the end of the current quarter that should be disclosed in order to prevent these financial statements and related notes from being misleading. Our review considered all events that have occurred through February 5, 2010, which is the date we issued the financial statements included in this filing.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion in this section contains forward-looking statements that are based on our current expectations. Actual results could differ materially from those expressed or implied by the forward-looking statements due to a number of risks, uncertainties and other factors, including those identified in “Part II, Item 1A — Risk Factors” of this report.

Three Months Ended December 31, 2009 vs. Three Months Ended December 31, 2008

The following table presents selected, unaudited, consolidated financial data for our three-month periods ended December 31, 2009 and 2008 (the current and prior year quarters):

		Three Months Ended December 31,								Percentage
		2009				2008				Change
		(in thousands)
Net revenues:
Sales		$	99,918			$	64,580				54.7	%
Pawn service charges			40,797				26,381				54.6	%
Signature loan fees			38,678				36,000				7.4	%
Auto title loan fees			3,102				221				1303.6	%
Other			2,256				1,433				57.4	%
Total revenues			184,751				128,615				43.6	%
Cost of goods sold			62,570				40,425				54.8	%
Signature loan bad debt			8,790				9,484				(7.3	)%
Auto title loan bad debt			460				7				6471.4	%
Net revenues		$	112,931			$	78,699				43.5	%
Net income		$	25,707			$	14,828				73.4	%

Consolidated signature loan data (combined payday loan, installment loan and related credit service activities) are as follows:

		Three Months Ended December 31,
		2009				2008
		(Dollars in thousands)
Fee revenue		$	38,678			$	36,000
Bad debt:
Net defaults, including interest on brokered loans			8,379				9,385
Insufficient funds fees, net of collections			219				293
Change in valuation allowance			120				(254	)
Other related costs			72				60
Net bad debt			8,790				9,484
Fee revenue less bad debt		$	29,888			$	26,516
Average signature loan balance outstanding during period (a)		$	31,988			$	30,785
Signature loan balance at end of period (a)		$	34,433			$	33,584
Participating stores at end of period			556				554
Signature loan bad debt, as a percent of fee revenue			22.7	%			26.3	%
Net default rate (a) (b)			4.5	%			5.2	%

Overview

We provide loans or credit services to customers who do not have cash resources or access to credit to meet their short-term cash needs. In our pawnshops, we offer non-recourse loans collateralized by tangible personal property, commonly known as pawn loans. At these locations, we also sell merchandise, primarily collateral forfeited from our pawn lending operations, to consumers looking for good value. We also offer a variety of short-term consumer loans, including payday loans, installment loans and auto title loans, or fee-based credit services to customers seeking loans from unaffiliated lenders.

At December 31, 2009, we operated a total of 920 locations, consisting of 370 U.S. pawnshops (operating as EZPAWN or Value Pawn), 70 pawnshops in Mexico (operating as Empeño Fácil or Empeñe su Oro), 472 U.S. short-term consumer loan stores (operating as EZMONEY) and eight short-term consumer loan stores in Canada (operating as CASHMAX). We also own almost 30% of Albemarle & Bond Holdings PLC, one of the U.K.’s largest pawnbroking businesses with 115 stores, and 30% of Cash Converters Limited, a publicly traded Australian company that franchises and operates a worldwide network of over 500 stores that provide pawn loans, short-term unsecured loans and other consumer finance products and buys and sells used merchandise.

We manage our business as three segments. The U.S. Pawn Operations segment operates only in the United States. The Empeño Fácil segment operates only in Mexico. The EZMONEY Operations segment operates 466 stores in the United States and eight stores in Canada. The following tables present store data and products offered in each segment:

		Three Months Ended December 31, 2009
		U.S. Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
Stores in operation:
Beginning of period			375				62				473				910
New openings			1				8				6				15
Acquired			—				—				—				—
Sold, combined, or closed			—				—				(5	)			(5	)
End of period			376				70				474				920
Average number of stores during the period			375				66				472				914
Composition of ending stores:
Pawn			370				70				—				440
Short-term consumer loan stores			6				—				474				480
Total stores in operation			376				70				474				920
Stores offering payday loans (a)			82				—				474				556
Stores offering installment loans (a)			—				—				193				193
Stores offering auto title loans (a)			68				—				393				461

		Three Months Ended December 31, 2008
		U.S. Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
Stores in operation:
Beginning of period			300				38				471				809
New openings			—				2				6				8
Acquired			77				1				—				78
Sold, combined, or closed			—				—				(6	)			(6	)
End of period			377				41				471				889
Average number of stores during the period			322				39				471				832
Composition of ending stores:
Pawn			371				41				—				412
Short-term consumer loan stores			6				—				471				477
Total stores in operation			377				41				471				889
Stores offering payday loans (a)			83				—				471				554
Stores offering installment loans (a)			—				—				91				91
Stores offering auto title loans (a)			11				—				30				41