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

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

Commission File No. 000-19424

EZCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		74-2540145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Austin, Texas 78746
(Address of principal executive offices)

Registrant’s telephone number: (512) 314-3400

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 (section 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

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 one record holder who is an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.

As of June 30, 2009, 45,682,294 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 June 30, 2009, June 30, 2008 and September 30, 2008 (audited)			1
Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2009 and 2008			2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 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			19
Item 3. Quantitative and Qualitative Disclosures about Market Risk			39
Item 4. Controls and Procedures			41
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 6. Exhibits			42
SIGNATURE			43
EXHIBIT INDEX			44
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I

Item 1.		Financial Statements

Condensed Consolidated Balance Sheets

		June 30,				June 30,				September 30,
		2009				2008				2008
		(Unaudited)				(Unaudited)
		(In thousands)
Assets:
Current assets:
Cash and cash equivalents		$	46,546			$	29,812			$	27,444
Pawn loans			94,648				68,022				75,936
Payday loans, net			7,649				6,598				7,124
Auto title loans, net			1,126				—				1
Pawn service charges receivable, net			16,693				10,061				12,755
Signature loan fees receivable, net			5,105				5,086				5,406
Auto title loan fees receivable, net			352				—				—
Inventory, net			57,141				39,444				43,209
Deferred tax asset, net			15,809				9,007				10,926
Federal income tax receivable			—				454				—
Prepaid expenses and other assets			14,866				5,622				9,115
Total current assets			259,935				174,106				191,916
Investment in unconsolidated affiliate			34,784				37,248				38,439
Property and equipment, net			49,752				38,661				40,079
Deferred tax asset, non-current			9,090				5,620				8,139
Goodwill			100,742				24,779				24,376
Other assets, net			17,892				5,585				5,771
Total assets		$	472,195			$	285,999			$	308,720
Liabilities and stockholders’ equity:
Current liabilities:
Current maturities of long-term debt		$	10,000			$	—			$	—
Accounts payable and other accrued expenses			33,958				24,120				29,425
Customer layaway deposits			3,603				2,254				2,327
Federal income taxes payable			1,988				—				246
Total current liabilities			49,549				26,374				31,998
Long-term debt, less current maturities			27,500				—				—
Deferred gains and other long-term liabilities			3,352				2,909				3,672
Commitments and contingencies			—				—				—
Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share; Authorized 54 million shares; 45,692,294 issued and 45,682,294 outstanding at June 30, 2009; 38,497,830 issued and 38,470,731 outstanding at June 30, 2008; 38,564,331 issued and 38,554,331 outstanding at September 30, 2008			457				385				386
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			215,961				134,598				135,895
Retained earnings			181,703				118,139				134,170
Treasury stock, at cost; 10,000 shares at June 30, 2009 and September 30, 2008; 30,000 shares at June 30, 2008			(12	)			(35	)			(12	)
Accumulated other comprehensive income (loss)			(6,345	)			3,599				2,581
Total stockholders’ equity			391,794				256,716				273,050
Total liabilities and stockholders’ equity		$	472,195			$	285,999			$	308,720

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Operations (Unaudited)

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(In thousands, except per share amounts)
Revenues:
Sales		$	81,309			$	53,635			$	234,902			$	170,472
Pawn service charges			32,880				22,691				92,777				67,384
Signature loan fees			30,815				31,223				98,409				94,917
Auto title loan fees			1,030				—				1,666				—
Other			1,740				521				4,901				1,228
Total revenues			147,774				108,070				432,655				334,001
Cost of goods sold			50,965				31,460				147,816				101,732
Signature loan bad debt			8,618				8,545				23,174				24,847
Auto title loan bad debt			104				—				153				—
Net revenues			88,087				68,065				261,512				207,422
Operating expenses:
Operations			53,833				39,873				151,955				117,308
Administrative			9,687				8,527				29,892				25,418
Depreciation and amortization			3,254				3,081				9,471				9,027
(Gain) loss on sale / disposal of assets			(146	)			284				(967	)			527
Total operating expenses			66,628				51,765				190,351				152,280
Operating income			21,459				16,300				71,161				55,142
Interest income			(59	)			(165	)			(257	)			(359	)
Interest expense			428				72				1,064				228
Equity in net income of unconsolidated affiliate			(851	)			(997	)			(3,163	)			(3,162	)
Other			11				11				38				11
Income before income taxes			21,930				17,379				73,479				58,424
Income tax expense			7,545				6,552				25,946				22,026
Net income		$	14,385			$	10,827			$	47,533			$	36,398
Net income per common share:
Basic		$	0.30			$	0.26			$	1.01			$	0.88
Diluted		$	0.29			$	0.25			$	1.00			$	0.84
Weighted average shares outstanding:
Basic			48,628				41,419				46,932				41,380
Diluted			49,279				43,325				47,724				43,269

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Nine Months Ended
		June 30,
		2009				2008
		(In thousands)
Operating Activities:
Net income		$	47,533			$	36,398
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,471				9,027
Payday loan and auto title loan loss provisions			6,295				5,666
Deferred taxes			626				(856	)
Net (gain) loss on sale or disposal of assets			(967	)			527
Share-based compensation			2,753				2,826
Income from investment in unconsolidated affiliate			(3,163	)			(3,162	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net			768				1,196
Inventory, net			905				(120	)
Prepaid expenses, other current assets, and other assets, net			(2,571	)			271
Accounts payable and accrued expenses			(4,663	)			(1,327	)
Customer layaway deposits			286				198
Deferred gains and other long-term liabilities			(265	)			(46	)
Excess tax benefit from stock-based compensation			(1,724	)			(352	)
Federal income taxes			3,566				(5,003	)
Net cash provided by operating activities			58,850				45,243
Investing Activities:
Loans made			(317,064	)			(245,280	)
Loans repaid			204,806				152,840
Recovery of pawn loan principal through sale of forfeited collateral			113,040				80,751
Additions to property and equipment			(14,350	)			(13,094	)
Acquisitions, net of cash acquired			(41,002	)			(15,467	)
Dividends from unconsolidated affiliate			1,634				1,745
Proceeds from sale of assets			1,062				—
Net cash used in investing activities			(51,874	)			(38,505	)
Financing Activities:
Proceeds from exercise of stock options and warrants			4,907				189
Stock issuance costs related to acquisitions			(442	)			—
Excess tax benefit from stock-based compensation			1,724				352
Debt issuance costs			(1,178	)			—
Proceeds from bank borrowings			40,000				—
Payments on bank borrowings			(32,885	)			—
Net cash provided by financing activities			12,126				541
Change in cash and cash equivalents			19,102				7,279
Cash and cash equivalents at beginning of period			27,444				22,533
Cash and cash equivalents at end of period		$	46,546			$	29,812
Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory		$	109,258			$	81,115
Foreign currency translation adjustment		$	8,926			$	(997	)
Cumulative effect of adopting a new accounting principle		$	—			$	106
Acquisition-related stock issuance		$	71,197			$	—
Issuance of common stock to 401(k) plan		$	—			$	135

See Notes to Interim Condensed Consolidated Financial Statements (unaudited).

EZCORP, Inc. and Subsidiaries

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, 2008. The balance sheet at September 30, 2008 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 and nine-month periods ended June 30, 2009 (the “current quarter” and “current year-to-date period”) 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 interest in Albemarle & Bond Holdings, plc 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 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 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 June 30, 2009, the allowance for Expected LOC Losses on signature loans was $1.5 million and our maximum exposure for losses on letters of credit, if all brokered signature loans defaulted and none was collected, was $22.2 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.

PAYDAY LOAN REVENUE RECOGNITION: We accrue fees in accordance with state laws on the percentage of payday loans we believe to be collectible. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection. Payday loan fee revenue is included in “Signature loan fees” on our statements of operations.

PAYDAY LOAN BAD DEBT: We consider a loan defaulted if it has not been repaid or renewed by the maturity date. 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.

PAYDAY LOAN ALLOWANCE FOR LOSSES: We also provide an allowance for losses on payday 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 June 30, 2009, the inventory valuation allowance was $6.0 million, or 9.4% 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. 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 $99.2 million at June 30, 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 U.K. 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 Albemarle & Bond and Empeño Fácil 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.

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 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.

SEGMENTS: We account for our operations in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” We manage our business operations and internal reporting as three reportable segments. See Note L for further discussion and separate data for each segment.

FAIR VALUE: We adopted SFAS No. 157, “Fair Value Measurements” and 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, SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about the use of fair value to measure assets and liabilities. SFAS No. 159 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 SFAS No. 159, 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 SFAS No. 141, “Business Combinations — Revised” (“SFAS No. 141(R)”). SFAS No. 141(R) 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, SFAS No. 141(R) will require us to immediately expense transaction costs that have historically been included in the purchase price allocation under existing guidance. SFAS No. 141(R) will apply prospectively to any acquisitions we complete on or after October 1, 2009.

In April 2008, FASB issued 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 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 FSP FAS 142-3, 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 must adopt FSP FAS 142-3 in our fiscal year ending September 30, 2010. We do not expect adoption of FSP FAS 142-3 to have a material effect on our financial position, results of operations or cash flows.

In April 2009, FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” which requires disclosures about the fair value of financial instruments in interim and annual financial statements. We adopted this standard on June 30, 2009, resulting in no effect on our financial position, results of operations or cash flows.

In May 2009, FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 establishes principles and standards related to the accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. SFAS No. 165 requires us to recognize, in the financial statements, subsequent events that provide additional information about conditions that existed at the balance sheet date. Subsequent events that provide information about conditions that did not exist at the balance sheet date shall not be recognized in the financial statements under SFAS No. 165. We adopted this standard on June 30, 2009, resulting in no effect on our financial position, results of operations or cash flows.

In June 2009, FASB issued SFAS No. 167, “Amendments to FASB Interpretation No 46(R)” (“SFAS No. 167”). SFAS No. 167 retains the scope of Interpretation 46(R) with the addition of entities previously considered qualifying special purpose entities, as the concept of these entities was eliminated in SFAS No. 166. We must adopt this standard in our fiscal year beginning October 1, 2010. We expect adoption of SFAS No. 167 will have no effect on our financial position, results of operations or cash flows.

In June 2009, FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“SFAS No. 168”). Under SFAS No. 168, the FASB Accounting Standards Codification will become the only source of authoritative U.S. generally accepted accounting principles (“U.S. GAAP”) to be applied by non-governmental entities. On the effective date of this statement, the Codification will supersede all existing non-SEC accounting and reporting standards. We must adopt this standard September 30, 2009. As the Codification does not create new accounting rules but only provides a comprehensive system to reorganize existing U.S. GAAP in a single authoritative source, its adoption will have no effect on our financial position, results of operations or cash flows.

Note C: Acquisitions

On October 22, 2007, we completed the acquisition of twenty Mexico pawnshops from MMFS Intl., S.A. de C.V, a subsidiary of Mister Money Holdings, Inc., for $15.5 million cash and direct transaction costs.

The purchase price was allocated as follows (in thousands):

Current assets:
Pawn loans		$	3,230
Pawn service charges receivable, net			224
Inventory, net			940
Deferred tax asset			41
Prepaid expenses and other assets			40
Total current assets			4,475
Property and equipment			800
Non-compete agreement			2,000
Goodwill			8,156
Other assets, net			131
Total assets		$	15,562
Liabilities:
Accrued liabilities		$	(30	)
Customer deposits			(65	)
Total liabilities			(95	)
Net assets acquired		$	15,467

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. The goodwill noted above was recorded in the Empeño Fácil Mexico pawn segment and is expected to be fully deductible for tax purposes over the fifteen years following the acquisition.

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.

Since the date of acquisition, the total purchase price increased approximately $48,000 due to additional transaction related costs that were not known at 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.

The estimated fair values of the assets acquired and liabilities assumed are preliminary. We are gathering information to finalize the valuation of assets and liabilities. Any subsequent adjustments to separately identified tangible or intangible assets will be recorded with an offsetting adjustment to goodwill. We will complete the valuation within a year of the acquisition. Other assets recorded include the estimated $6.7 million value of pawn licenses acquired. As these are considered indefinite lived intangible assets, they will not be amortized but will be 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.

The purchase price is preliminarily allocated as follows, including the adjustments discussed above (in thousands):

Current assets:
Pawn loans		$	5,442
Payday loans, net			55
Auto title loans, net			1,090
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			11,182
Property and equipment, net			392
Goodwill			16,312
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

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. See our registration statement on Form S-4 (File number 333-153703), as amended and filed with the SEC on December 2, 2008, for a detailed description of the procedure for calculation and payment of the merger consideration to VFS shareholders.

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.

The estimated fair values of the assets acquired and liabilities assumed are preliminary. We are gathering information to finalize the valuation of assets and liabilities. Any subsequent adjustments to separately identified tangible or intangible assets will be recorded with an offsetting adjustment to goodwill. We will complete the valuation within a year of the acquisition. 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 will not be amortized but will be tested at least annually for potential impairment. The favorable lease assets will be amortized 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.

The purchase price is preliminarily allocated as follows, including the adjustments discussed above (in thousands):

Current assets:
Pawn loans		$	17,886
Pawn service charges receivable, net			3,491
Inventory, net			16,265
Deferred tax asset, net			4,557
Federal income taxes receivable			53
Prepaid expenses and other assets			1,434
Total current assets			43,686
Property and equipment, net			5,580
Deferred tax asset, non-current			1,578
Goodwill			61,542
Other assets, net			5,830
Total assets		$	118,216
Current Liabilities:
Current maturities of long-term debt		$	(4,000	)
Accounts payable and other accrued expenses			(9,276	)
Customer layaway deposits			(872	)
Total Current liabilities			(14,148	)
Long-term debt			(26,385	)
Total Liabilities			(40,533	)
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. Between the closing of the acquisition and June 30, 2009, we paid $10.7 million of contingent consideration to VFS shareholders related to the sale of approximately 3.9 million EZCORP shares. At June 30, 2009, approximately 0.2 million shares remained eligible for contingent payments if the EZCORP shares were sold by May 5, 2009. 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. See our registration statement on Form S-4 (File number 333-153703), as amended and filed with the SEC on December 2, 2008, for a detailed description of the terms of the contingent payments to VFS shareholders.

Separate audited historical financial statements of VFS for the year ended December 31, 2007 and unaudited interim financial statements for the nine months ended September 30, 2008 are presented in our registration statement on Form S-4 (File number 333-153703) filed with the SEC on December 2, 2008.

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 2008. 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 have not finalized our purchase price allocation, and accordingly, this pro forma information does not include all potential adjustments to that allocation or costs related to the acquisition.

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. As VFS was acquired December 31, 2008, the information presented below for the three months ended June 30, 2009 includes the results from VFS, requiring no pro forma adjustments for that period.

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(Unaudited and Pro Forma)
		(In thousands, except per share amounts)
Revenues:
Sales		$	81,309			$	74,055			$	262,817			$	237,289
Pawn service charges			32,880				30,453				101,627				90,099
Signature loan fees			30,815				31,223				98,409				94,917
Auto title loan fees			1,030				—				1,666				—
Other			1,740				884				5,373				2,406
Total revenues			147,774				136,615				469,892				424,711
Cost of goods sold			50,965				43,833				164,967				142,305
Signature loan bad debt			8,618				8,545				23,174				24,847
Auto title loan bad debt			104				—				153				—
Net revenues			88,087				84,237				281,598				257,559
Operating expenses:
Operations			53,833				49,585				162,824				146,343
Administrative			9,687				11,333				35,249				35,237
Depreciation and amortization			3,254				3,558				9,744				10,482
(Gain) loss on sale/disposal of assets			(146	)			293				(938	)			588
Total operating expenses			66,628				64,769				206,879				192,650
Operating income			21,459				19,468				74,719				64,909
Interest expense, net			369				396				1,296				1,336
Equity in net income of unconsolidated affiliate			(851	)			(997	)			(3,163	)			(3,162	)
Other			11				11				38				11
Income before income taxes			21,930				20,058				76,548				66,724
Income tax expense			7,545				7,623				27,129				25,149
Net income		$	14,385			$	12,435			$	49,419			$	41,575
Net income per common share:
Basic		$	0.30			$	0.27			$	1.02			$	0.91
Diluted		$	0.29			$	0.26			$	1.01			$	0.88
Weighted average shares outstanding:
Basic			48,628				45,477				48,285				45,438
Diluted			49,279				47,383				49,077				47,327

The table above includes an actual (for the three months ended June 30, 2009) or pro forma loss of interest income from cash paid to former VFS shareholders through June 30, 2009 for contingent consideration. It does not include a pro forma loss of interest income for any contingent payments that will be required on the sale of the 0.2 million EZCORP shares remaining eligible for contingent consideration at June 30, 2009, as we do not yet know the amount of contingent consideration we will pay related to those shares, if any. As discussed above, we expect little to no additional claims for contingent consideration.

The following items occurred in the six months ended March 31, 2008 and, as a result, are included in pro forma results for the nine-month period ended June 30, 2008 but are excluded from the quarter then ended. Included in pro forma administrative expense in the nine months ended June 30, 2008 is a non-recurring $1.2 million charge for the write-off of costs related to VFS’s previously planned initial public offering, which it abandoned to pursue the acquisition by EZCORP. Included in the pro forma administrative expense in the nine months ended June 30, 2008 is a non-recurring charge of $0.8 million for 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								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net income (A)		$	14,385			$	10,827			$	47,533			$	36,398
Weighted average outstanding shares of common stock (B)			48,628				41,419				46,932				41,380
Dilutive effect of stock options, warrants, and restricted stock			651				1,906				792				1,889
Weighted average common stock and common stock equivalents (C)			49,279				43,325				47,724				43,269
Basic earnings per share (A/B)		$	0.30			$	0.26			$	1.01			$	0.88
Diluted earnings per share (A/C)		$	0.29			$	0.25			$	1.00			$	0.84

Anti-dilutive options, warrants and restricted stock grants have been excluded from the computation of diluted earnings per share because the assumed proceeds upon exercise, as defined by 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.

As described in Note C, we issued approximately 1.1 million shares of our Class A Non-voting Common Stock on November 13, 2008 and approximately 4.1 million shares on December 31, 2008 in conjunction with the completion of two acquisitions on those dates. The additional shares have been included in our calculations of weighted average shares outstanding since the dates of the acquisitions. The year-to-date dilutive effect of the additional shares will increase in the remainder of fiscal 2009 as they are outstanding for a larger portion of the year.

Note E: Investment in Unconsolidated Affiliate

At June 30, 2009, we owned 16,298,875 common shares of Albemarle & Bond Holdings, plc, or approximately 29.58% of Albemarle & Bond’s total outstanding shares. The investment is accounted for 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 year-to-date period ended June 30, 2009 represents our percentage interest in the estimated results of Albemarle & Bond’s operations from July 1, 2008 to March 31, 2009.

Below is summarized financial information for Albemarle & Bond’s most recently reported results (using average exchange rates for the periods indicated):

		Six Months Ended December 31,
		2008				2007
		(in thousands)
Turnover (gross revenues)		$	45,977			$	50,660
Gross profit			34,859				36,574
Profit after tax (net income)			7,718				7,230

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

Certain revenues, expenses, gains and losses are excluded from net income and instead are included as a component of total stockholders’ equity. Comprehensive income includes these items plus all items recognized in net income. Comprehensive income for the quarter and year-to-date periods ended June 30, 2009 was $15.7 million and $38.6 million. For the comparable 2008 periods, comprehensive income was $11.5 million and $37.4 million. The difference between comprehensive income and net income results primarily from the effect of foreign currency translation adjustments determined in accordance with SFAS No. 52, “Foreign Currency Translation.” At June 30, 2009, the accumulated balance of foreign currency activity excluded from net income was $(7.6) million, net of applicable tax of $1.3 million. The net $(6.3) million is presented as “Accumulated other comprehensive income (loss)” in the balance sheet at June 30, 2009.

Note H: Long-term Debt

Our syndicated credit agreement provides for, among other things, (i) an $80 million revolving credit facility, maturing 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 June 30, 2009, $37.5 million was outstanding under the term loan, but the $80 million revolving credit facility remained unused.

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 base rate plus 0 to 50 basis points, depending upon the leverage ratio computed at the end of each calendar quarter. Our rates are currently at the minimum of the range. Regardless of our leverage ratio and as an inducement to our lenders, we paid interest at the Eurodollar rate plus 250 basis points from December 31, 2008 through June 30, 2009. On the unused amount of the revolving credit facility, we pay a commitment fee of 25 to 30 basis points depending on the 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 June 30, 2009 and expect to remain in compliance based on our current and anticipated performance. The payment of dividends is prohibited and additional debt is restricted.

Upon acquiring VFS, we assumed VFS’s outstanding debt of $30.4 million. Immediately after the acquisition, on December 31, 2008, we repaid and terminated VFS’s outstanding bank debt of $30.1 million plus accrued interest. The remaining $0.3 million of VFS’s debt we assumed in the acquisition was comprised of outstanding debentures that we repaid and retired in early January 2009 with no prepayment penalty.

Deferred financing costs of $1.0 million related to our credit agreement are included in Other assets, net in our June 30, 2009 balance sheet. These costs are being amortized to interest expense over their three-year estimated useful life.

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:

		June 30, 2009				June 30, 2008				September 30, 2008
		(In thousands)
Pawn licenses		$	8,229			$	1,549			$	1,549
Trade Name			4,870				—				—
Goodwill			100,742				24,779				24,376
Total		$	113,841			$	26,328			$	25,925

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, 2009								June 30, 2008								September 30, 2008
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
		(In thousands)
License application fees		$	345			$	(334	)		$	345			$	(311	)		$	345			$	(318	)
Real estate finders’ fees			556				(357	)			556				(340	)			556				(345	)
Non-compete agreements			2,534				(1,095	)			2,998				(712	)			2,899				(829	)
Favorable lease asset			644				(63	)			—				—				—				—
Total		$	4,079			$	(1,849	)		$	3,899			$	(1,363	)		$	3,800			$	(1,492	)

Total amortization expense from definite-lived intangible assets for the quarter and year-to-date periods ended June 30, 2009 was $121,000 and $359,000. For the comparable 2008 periods, amortization expense was $146,000 and $414,000. The favorable lease asset is amortized to rent expense and is 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, 2008, including the effect of current year acquisitions (in thousands):

Fiscal Year		Amortization Expense
2009		$	480
2010		$	472
2011		$	465
2012		$	433
2013		$	30

These amounts exclude amortization of the favorable lease asset, which is 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: Common Stock, Warrants, Options, and Share-based Compensation

Our income includes the following share-based compensation expense, determined in accordance with the fair value provisions of SFAS No. 123(R):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in thousands)
Gross share-based compensation cost		$	971			$	902			$	2,753			$	2,826
Income tax benefit			(320	)			(275	)			(946	)			(874	)
Share-based compensation cost, net of tax benefit		$	651			$	627			$	1,807			$	1,952

Stock option and warrant exercises resulted in the issuance of 53,649 shares of Class A Non-voting Common Stock in the current quarter for total proceeds of $0.2 million. For the current year-to-date period, 1,501,063 shares of Class A Non-voting Common Stock were issued for total proceeds of $4.9 million. Also, on October 2, 2008, restrictions lapsed on 324,000 restricted shares granted in October 2006 to our Chief Executive Officer and the Chairman of our Board of Directors. On January 14, 2009, restrictions lapsed on 120,000 restricted shares granted in January 2004 to our Chief Executive Officer. These restriction lapses resulted in the increase in the shares of Class A Non-voting Common Stock outstanding.

Effective October 1, 2008, the Compensation Committee of the Board of Directors approved an award of restricted stock to 54 key employees and the Board of Directors approved an award of restricted stock to our independent directors. In total, we awarded 143,500 shares of restricted stock. The key employees’ awards will vest October 1, 2011 and the independent directors’ awards will vest 50% per year on October 1, 2009 and 2010. The aggregate market value of the restricted stock on the award date was $2.6 million.

In conjunction with the November 13, 2008 acquisition of 11 pawnshops in the Las Vegas, Nevada area, we issued approximately 1.1 million shares of our Class A Non-voting Common Stock valued at $17.3 million. In conjunction with the December 31, 2008 acquisition of VFS, we issued approximately 4.1 million shares of our Class A Non-voting Common Stock valued at $64.6 million. Both of these acquisitions and the total consideration issued are described more fully in Note C, “Acquisitions.”

Note K: Income Taxes

The current quarter’s effective tax rate is 34.4% of pretax income compared to 37.7% for the prior year quarter. For the current year-to-date period, the effective tax rate is 35.3% compared to 37.7% in the prior year-to-date period. The decrease in effective tax rates is primarily due to the current year refund claim for prior year tax credits, current year tax credits, and a lower expected Texas margin tax than in the prior year period.

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 domestic pawn stores, offers signature loans in 77 pawn stores and six EZMONEY stores and offers auto title loans in 35 pawn stores.

•

The Empeño Fácil segment offers pawn related activities in 47 Mexico pawn stores.

•

The EZMONEY Operations segment offers signature loans in 474 domestic EZMONEY stores and offers auto title loans in 246 of these 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 June 30, 2009:
Revenues:
Sales		$	78,519			$	2,790			$	—			$	81,309
Pawn service charges			31,409				1,471				—				32,880
Signature loan fees			523				—				30,292				30,815
Auto title loan fees			430				—				600				1,030
Other			1,706				34				—				1,740
Total revenues			112,587				4,295				30,892				147,774
Cost of goods sold			49,157				1,808				—				50,965
Signature loan bad debt			237				—				8,381				8,618
Auto title loan bad debt			30				—				74				104
Net revenues			63,163				2,487				22,437				88,087
Operations expense			37,719				1,441				14,673				53,833
Store operating income		$	25,444			$	1,046			$	7,764			$	34,254
Three Months Ended June 30, 2008:
Revenues:
Sales		$	51,799			$	1,836			$	—			$	53,635
Pawn service charges			21,378				1,313				—				22,691
Signature loan fees			650				—				30,573				31,223
Auto title loan fees			—				—				—				—
Other			521				—				—				521
Total revenues			74,348				3,149				30,573				108,070
Cost of goods sold			30,301				1,159				—				31,460
Signature loan bad debt			202				—				8,343				8,545
Auto title loan bad debt			—				—				—				—
Net revenues			43,845				1,990				22,230				68,065
Operations expense			24,831				1,065				13,977				39,873
Store operating income		$	19,014			$	925			$	8,253			$	28,192

		U.S. Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
		(in thousands)
Nine Months Ended June 30, 2009:
Revenues:
Sales		$	227,494			$	7,408			$	—			$	234,902
Pawn service charges			88,558				4,219				—				92,777
Signature loan fees			1,766				—				96,643				98,409
Auto title loan fees			991				—				675				1,666
Other			4,866				35				—				4,901
Total revenues			323,675				11,662				97,318				432,655
Cost of goods sold			143,167				4,649				—				147,816
Signature loan bad debt			581				—				22,593				23,174
Auto title loan bad debt			72				—				81				153
Net revenues			179,855				7,013				74,644				261,512
Operations expense			102,764				4,024				45,167				151,955
Store operating income		$	77,091			$	2,989			$	29,477			$	109,557
Nine Months Ended June 30, 2008:
Revenues:
Sales		$	165,749			$	4,723			$	—			$	170,472
Pawn service charges			64,089				3,295				—				67,384
Signature loan fees			2,131				—				92,786				94,917
Auto title loan fees			—				—				—				—
Other			1,224				4				—				1,228
Total revenues			233,193				8,022				92,786				334,001
Cost of goods sold			98,853				2,879				—				101,732
Signature loan bad debt			741				—				24,106				24,847
Auto title loan bad debt			—				—				—				—
Net revenues			133,599				5,143				68,680				207,422
Operations expense			72,831				2,810				41,667				117,308
Store operating income		$	60,768			$	2,333			$	27,013			$	90,114

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

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
		(in thousands)
Consolidated store operating income		$	34,254			$	28,192			$	109,557			$	90,114
Administrative expenses			9,687				8,527				29,892				25,418
Depreciation and amortization			3,254				3,081				9,471				9,027
(Gain) loss on sale / disposal of assets			(146	)			284				(967	)			527
Interest income			(59	)			(165	)			(257	)			(359	)
Interest expense			428				72				1,064				228
Equity in net income of unconsolidated affiliate			(851	)			(997	)			(3,163	)			(3,162	)
Other			11				11				38				11
Consolidated income before income taxes		$	21,930			$	17,379			$	73,479			$	58,424

The following table presents separately identified segment assets:

		U.S. Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
		(in thousands)
Assets at June 30, 2009:
Pawn loans		$	91,451			$	3,197			$	—			$	94,648
Payday loans, net			463				—				7,186				7,649
Auto title loans, net			695				—				431				1,126
Inventory, net			54,115				3,026				—				57,141
Total separately identified recorded segment assets		$	146,724			$	6,223			$	7,617			$	160,564
Brokered signature loans outstanding from unaffiliated lenders		$	260			$	—			$	20,673			$	20,933
Brokered auto title loans outstanding from unaffiliated lenders		$	133			$	—			$	1,040			$	1,173
Assets at June 30, 2008:
Pawn loans		$	63,741			$	4,281			$	—			$	68,022
Payday loans, net			421				—				6,177				6,598
Auto title loans, net			—				—				—				—
Inventory, net			37,303				2,141				—				39,444
Total separately identified recorded segment assets		$	101,465			$	6,422			$	6,177			$	114,064
Brokered signature loans outstanding from unaffiliated lenders		$	390			$	—			$	22,009			$	22,399
Brokered auto title loans outstanding from unaffiliated lenders		$	—			$	—			$	—			$	—
Assets at September 30, 2008:
Pawn loans		$	71,393			$	4,543			$	—			$	75,936
Payday loans, net			472				—				6,652				7,124
Auto title loans, net			—				—				1				1
Inventory, net			40,357				2,852				—				43,209
Total separately identified recorded segment assets		$	112,222			$	7,395			$	6,653			$	126,270
Brokered signature loans outstanding from unaffiliated lenders		$	384			$	—			$	23,169			$	23,553
Brokered auto title loans outstanding from unaffiliated lenders		$	—			$	—			$	—			$	—

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, auto title loan 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.

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 identified in Part II, Item 1A, “Risk Factors” of this report.

Three Months Ended June 30, 2009 vs. Three Months Ended June 30, 2008

The following table presents selected, unaudited, consolidated financial data for our three-month periods ended June 30, 2009 and 2008 (the current and prior year quarters):

		Three Months Ended June 30,								Percentage
		2009				2008				Change
		(in thousands)
Net revenues:
Sales		$	81,309			$	53,635				51.6	%
Pawn service charges			32,880				22,691				44.9	%
Signature loan fees			30,815				31,223				(1.3	)%
Auto title loan fees			1,030				—				N/A
Other			1,740				521				234.0	%
Total revenues			147,774				108,070				36.7	%
Cost of goods sold			50,965				31,460				62.0	%
Signature loan bad debt			8,618				8,545				0.9	%
Auto title loan bad debt			104				—				N/A
Net revenues		$	88,087			$	68,065				29.4	%
Net income		$	14,385			$	10,827				32.9	%