EZCORP INC - Quarter Report: 2011 June (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 EXCHANGE ACT OF 1934

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

Commission File No. 0-19424

EZCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		74-2540145
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1901 Capital Parkway
Austin, Texas		78746
(Address of principal executive offices)		(Zip Code)

(512) 314-3400
Registrant’s telephone number, including area code:

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of June 30, 2011, 46,971,535 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.

 

 

EZCORP, INC.

INDEX TO FORM 10-Q

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2011, June 30, 2010 and September 30, 2010 (audited)			1
Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended June 30, 2011 and 2010			2
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2011 and 2010			3
Notes to Interim Condensed Consolidated Financial Statements			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures about Market Risk			36
Item 4. Controls and Procedures			38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 6. Exhibits			40
SIGNATURE			41
EXHIBIT INDEX			42
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

		June 30,				June 30,				September 30,
		2011				2010				2010
		(Unaudited)				(Unaudited)
		(In thousands)
Assets:
Current assets:
Cash and cash equivalents		$	27,492			$	14,912			$	25,854
Pawn loans			134,633				112,807				121,201
Signature loans, net			12,089				8,915				10,775
Auto title loans, net			2,348				2,802				3,145
Pawn service charges receivable, net			24,372				19,899				21,626
Signature loan fees receivable, net			5,646				5,493				5,818
Auto title loan fees receivable, net			1,238				1,314				1,616
Inventory, net			79,031				61,027				71,502
Deferred tax asset			16,150				15,857				23,208
Income taxes receivable			3,099				10,655				—
Prepaid expenses and other assets			21,932				15,179				17,427
Total current assets			328,030				268,860				302,172
Investments in unconsolidated affiliates			114,777				99,773				101,386
Property and equipment, net			75,049				59,045				62,293
Deferred tax asset, non-current			—				5,472				60
Goodwill			167,017				115,570				117,305
Other assets, net			28,748				22,663				23,196
Total assets		$	713,621			$	571,383			$	606,412
Liabilities and stockholders’ equity:
Current liabilities:
Current maturities of long-term debt		$	—			$	10,000			$	10,000
Accounts payable and other accrued expenses			53,242				44,194				49,663
Customer layaway deposits			6,131				5,404				6,109
Income taxes payable			—				—				3,687
Total current liabilities			59,373				59,598				69,459
Long-term debt, less current maturities			26,500				17,500				15,000
Deferred tax liability			1,237				—				—
Deferred gains and other long-term liabilities			2,209				2,630				2,525
Total liabilities			89,319				79,728				86,984
Commitments and contingencies
Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share; Authorized 54 million shares; issued and outstanding: 46,971,535 at June 30, 2011; 46,247,951 at June 30, 2010; and 46,256,051 at September 30, 2010			469				462				463
Class B Voting Common Stock, convertible, par value $.01 per share; 3 million shares authorized; issued and outstanding: 2,970,171			30				30				30
Additional paid-in capital			233,056				224,243				225,374
Retained earnings			385,730				272,084				299,936
Accumulated other comprehensive income (loss)			5,017				(5,164	)			(6,375	)
Total stockholders’ equity			624,302				491,655				519,428
Total liabilities and stockholders’ equity		$	713,621			$	571,383			$	606,412

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

Condensed Consolidated Statements of Operations (Unaudited)

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(in thousands, except per share amounts)
Revenues:
Sales		$	115,345			$	97,051			$	363,658			$	301,645
Pawn service charges			48,365				39,424				144,944				118,527
Signature loan fees			34,195				32,296				109,364				102,616
Auto title loan fees			4,675				4,658				16,288				11,716
Other			572				113				978				373
Total revenues			203,152				173,542				635,232				534,877
Cost of goods sold			69,128				58,985				219,258				183,717
Signature loan bad debt			10,491				8,917				25,975				22,104
Auto title loan bad debt			536				836				1,820				1,616
Net revenues			122,997				104,804				388,179				327,440
Operating Expenses:
Operations			66,753				57,952				197,302				174,338
Administrative			14,379				13,576				56,250				39,356
Depreciation and amortization			4,679				3,759				13,324				10,688
(Gain) / loss on sale or disposal of assets			169				734				(2	)			1,301
Total operating expenses			85,980				76,021				266,874				225,683
Operating income			37,017				28,783				121,305				101,757
Interest income			(21	)			(135	)			(35	)			(151	)
Interest expense			586				311				1,186				1,071
Equity in net income of unconsolidated affiliates			(4,099	)			(2,930	)			(12,157	)			(7,519	)
Other			(103	)			(100	)			(160	)			(103	)
Income before income taxes			40,654				31,637				132,471				108,459
Income tax expense			14,127				11,675				46,677				39,017
Net income		$	26,527			$	19,962			$	85,794			$	69,442
Net income per common share:
Basic		$	0.53			$	0.41			$	1.72			$	1.42
Diluted		$	0.53			$	0.40			$	1.71			$	1.40
Weighted average shares outstanding:
Basic			49,926				49,201				49,849				48,969
Diluted			50,385				49,640				50,292				49,541

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

Condensed Consolidated Statements of Cash Flows (Unaudited)

		Nine Months Ended June 30,
		2011				2010
		(in thousands)
Operating Activities:
Net income		$	85,794			$	69,442
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			13,324				10,688
Signature loan and auto title loan loss provisions			11,182				7,785
Deferred taxes			8,562				653
(Gain) / loss on sale or disposal of assets			(2	)			1,301
Stock compensation			11,536				3,457
Income from investments in unconsolidated affiliates			(12,157	)			(7,519	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net			(984	)			(2,019	)
Inventory, net			(1,249	)			1,194
Prepaid expenses, other current assets, and other assets, net			(4,274	)			(4,043	)
Accounts payable and accrued expenses			2,301				10,232
Customer layaway deposits			(157	)			1,120
Deferred gains and other long-term liabilities			(262	)			(630	)
Excess tax benefit from stock compensation			(3,165	)			(1,850	)
Income taxes			(3,459	)			(9,287	)
Net cash provided by operating activities			106,990				80,524
Investing Activities:
Loans made			(466,465	)			(389,548	)
Loans repaid			296,989				247,724
Recovery of pawn loan principal through sale of forfeited collateral			150,842				127,180
Additions to property and equipment			(24,421	)			(18,719	)
Proceeds on disposal of assets			—				1,347
Acquisitions, net of cash acquired			(64,823	)			(19,008	)
Investments in unconsolidated affiliates			—				(59,081	)
Dividends from unconsolidated affiliates			7,274				3,840
Net cash used in investing activities			(100,604	)			(106,265	)
Financing Activities:
Proceeds from exercise of stock options			397				1,536
Excess tax benefit from stock compensation			3,165				1,850
Debt issuance costs			(2,397	)			3
Taxes paid related to net share settlement of equity awards			(7,409	)			—
Net proceeds (payments) on revolving line of credit			26,500				—
Payments on bank borrowings			(25,004	)			(7,500	)
Net cash used in financing activities			(4,748	)			(4,111	)
Change in cash and cash equivalents			1,638				(29,852	)
Cash and cash equivalents at beginning of period			25,854				44,764
Cash and cash equivalents at end of period		$	27,492			$	14,912
Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory		$	152,415			$	123,896
Foreign currency translation adjustment		$	(10,901	)		$	544
Acquisition-related stock issuance		$	—			$	(31	)
Issuance of common stock to 401(k) plan		$	—			$	260

See accompanying 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, 2010. The balance sheet at September 30, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain prior period balances have been reclassified to conform to the current presentation.

Our business is subject to seasonal variations and operating results for the interim periods ended June 30, 2011 (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 investments in Albemarle & Bond Holdings, PLC and Cash Converters International Limited using the equity method.

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

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

Signature Loan Credit Service Bad Debt: We issue letters of credit to enhance the creditworthiness of our customers seeking signature loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed to the lenders by the borrowers plus any insufficient funds fees and late fees. Although amounts paid under letters of credit may be collected later, we charge those amounts to signature loan bad debt upon default. We record recoveries under the letters of credit as a reduction of bad debt at the time of collection. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery, and record the proceeds from such sales as a reduction of bad debt at the time of the sale.

The majority of our credit service customers obtain short-term signature loans with a single maturity date. These short-term loans, with maturity dates averaging about 16 days, are considered defaulted if they have not been repaid or renewed by the maturity date. Other credit service customers obtain installment loans with a series of payments due over as much as a 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 loan principal, accrued interest, insufficient funds fees and late fees, net of the amounts we expect to collect from borrowers (collectively, “Expected LOC Losses”). Changes in the allowance are charged to signature loan bad debt. We include the balance of Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheets. At June 30, 2011, 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 $23.7 million. This amount includes principal, interest, insufficient funds fees and late 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 and record the proceeds from such sales as a reduction of bad debt at the time of the sale.

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

Auto Title Loan Credit Service Fee Revenue Recognition: We earn auto title credit service fees when we assist customers in obtaining auto title loans from unaffiliated lenders. We recognize the fee revenue ratably over the life of the loan, and reserve the percentage of fees we expect not to collect. Auto title loan credit service fee revenue is included in “Auto title loan fees” on our statements of operations.

Bad Debt and Allowance for Losses on Auto Title Loan Credit Services: We issue letters of credit to enhance the creditworthiness of our customers seeking auto title loans from unaffiliated lenders. The letters of credit assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, all amounts owed to the lenders by the borrowers plus any late fees. Through a charge to auto title loan bad debt, we provide an allowance for losses we expect to incur under letters of credit for brokered auto title loans, and record actual charge-offs against this allowance. The allowance includes all amounts we expect to pay to the unaffiliated lenders upon loan default, including principal, accrued interest and late fees, net of the amounts we expect to collect from borrowers or through the sale of repossessed vehicles. We include the allowance for expected losses in “Accounts payable and other accrued expenses” on our balance sheets. At June 30, 2011, the allowance was $0.2 million and our maximum exposure for losses on letters of credit, if all brokered auto title loans defaulted and none was collected, was $5.9 million.

Auto Title Loan Revenue Recognition: We accrue fees in accordance with state laws on the percentage of auto title loans we have made that we believe to be collectible. We recognize the fee revenue ratably over the life of the loan.

Auto Title Loan Bad Debt and Allowance for Losses: Based on historical collection experience, the age of past-due loans and amounts we expect to receive through the sale of repossessed vehicles, we provide an allowance for losses on auto title loans and related fees receivable. We charge any increases in the principal valuation allowance to auto title loan bad debt and charge uncollectable loans against this allowance. We record changes in the fee receivable valuation allowance to auto title loan fee revenue.

Cash and Cash Equivalents and Cash Concentrations: Cash and cash equivalents consist primarily of cash on deposit or highly liquid investments or mutual funds with original contractual maturities of three months or less. We hold cash at major financial institutions that often exceed FDIC insured limits. We manage our credit risk associated with cash and cash equivalents and cash concentrations by investing in high quality instruments or funds, concentrating our cash deposits

in high quality financial institutions and by periodically evaluating the credit quality of the primary financial institutions issuing investments or holding such deposits. Historically, we have not experienced any losses due to such cash concentrations.

Inventory: If a pawn loan is not redeemed, we record the forfeited collateral at cost (the principal amount of the pawn loan). We do not record loan loss allowances or charge-offs on the principal portion of pawn loans, as they are fully collateralized. In order to state inventory at the lower of cost (specific identification) or market value, we record an allowance for excess, obsolete or slow-moving inventory based on the type and age of merchandise. At June 30, 2011, the inventory valuation allowance was $8.0 million or 9.2% 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 30 years for buildings and 2 to 7 years for furniture, equipment, and software development costs. We depreciate leasehold improvements over the shorter of their estimated useful life (typically 10 years) or the reasonably assured lease term at the inception of the lease. Property and equipment is shown net of accumulated depreciation of $125.7 million at June 30, 2011.

Valuation of Tangible Long-Lived Assets: We assess the impairment of tangible long-lived assets whenever events or changes in circumstances indicate that the net recorded amount may not be recoverable. The following factors could trigger an impairment review: significant underperformance relative to historical or projected future cash flows, significant changes in the manner of use of the assets or the strategy for the overall business, significant negative industry trends or legislative changes prohibiting us from offering our loan products. When we determine that the net recorded amount of tangible long-lived assets may not be recoverable, we measure impairment based on the excess of the assets’ net recorded amount over the estimated fair value. No impairment of tangible long-lived assets was recognized in the current or prior year periods.

Fair Value of Financial Instruments: We have elected not to measure at fair value any eligible items for which fair value measurement is optional. We determine the fair value of financial instruments by reference to various market data and other valuation techniques, as appropriate. Unless otherwise disclosed, the fair values of financial instruments approximate their recorded values, due primarily to their short-term nature. The recorded value of our outstanding debt is assumed to estimate its fair value, as it has no prepayment penalty and a floating interest rate based on market rates.

Foreign Currency Translation: Our equity investments in Albemarle & Bond and Cash Converters are translated from British pounds and Australian dollars, respectively, into U.S. dollars at the exchange rates as of the investees’ balance sheet date. The related interest in the investees’ net income is translated at the average exchange rates for each six-month period reported by the investees. The functional currency of our wholly-owned Empeño Fácil pawn segment is the Mexican peso and the functional currency of our wholly-owned foreign subsidiary CASHMAX is the Canadian dollar. Empeño Fácil’s and CASHMAX’s balance sheet accounts are translated from their respective functional currencies into U.S. dollars at the exchange rate at the end of each quarter, and their earnings are translated into U.S. dollars at the average exchange rate each quarter. We present resulting translation adjustments from Albemarle & Bond, Cash Converters, Empeño Fácil and CASHMAX 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 basis and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the related temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized when the rate change is enacted.

Stock Compensation: We account for stock compensation in accordance with the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10-25 (Compensation — Stock Compensation). The fair value of restricted shares is measured as the closing market price of our stock on the date of grant, which is amortized over the vesting period for each grant. We have

not granted any stock options since fiscal 2007. When granted, our policy is to estimate the grant-date fair value of options using the Black-Scholes-Merton option-pricing model and amortize that fair value to compensation expense on a ratable basis over the options’ vesting periods.

Recently Issued Accounting Pronouncements: In June 2009, FASB amended ASC 810-10-65 (Consolidation). Amended ASC 810-10-65 relates to the consolidation of variable interest entities. It eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This guidance also requires additional disclosures about an enterprise’s involvement in variable interest entities. We adopted this amended standard October 1, 2010, resulting in no effect on our financial position, results of operations or cash flows.

In July 2010, FASB issued Accounting Standards Update (“ASU”) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This update amends FASB ASC 310 (Receivables) to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide new disclosures about its financing receivables and related allowance for credit losses. We adopted this amended standard on October 1, 2010, resulting in no effect on our financial position, results of operations or cash flows. The additional required disclosures are included in Note M.

In June 2011, FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” This update amends FASB ASC 220 (Comprehensive Income) and eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We must adopt this amended standard in our fiscal year beginning October 1, 2012. Adoption of ASU 2011-05 will have no effect on our financial position, results of operations or cash flows other than the presentation of our results of operations.

Note C: Acquisitions

In the fiscal year ended September 2010, we acquired, through asset purchases, five pawn stores located in the Chicago metropolitan area, eight pawn stores located in Central and South Florida, two pawn stores located in Corpus Christi, Texas and one pawn store in Las Vegas, Nevada for approximately $21.8 million in cash. The stores were acquired from five separate sellers. We recorded approximately $4.9 million of net tangible assets and $1.0 million of intangible assets attributable to non-compete agreements and a pawn license. Goodwill of $15.9 million, which is expected to be fully tax deductible, was recorded in the U.S. Pawn Operations segment as part of these acquisitions.

In the quarter ended December 31, 2010, we acquired three pawn stores located in the Chicago metropolitan area and one pawn store located in Marietta, Georgia for approximately $13.7 million in cash. The stores were acquired from four separate sellers. One of the stores in Chicago was acquired by purchasing all of the capital stock of the corporation that owned it, and the other three were acquired through asset purchases. We recorded approximately $2.8 million of net tangible assets, $0.1 million of intangible assets attributable to non-compete agreements and $10.8 million of goodwill, all of which was recorded in the U.S. Pawn Operations segment. Of the total goodwill, $6.1 million is expected to be fully tax deductible and $4.7 million is expected to be non-deductible.

In the quarter ended March 31, 2011, we acquired five pawn stores located in Central and South Florida for approximately $17.8 million in cash. The stores were acquired from two separate sellers. One of the stores was acquired by purchasing all of the capital stock of the corporation that owned it, and the other four were acquired through asset purchases. We recorded approximately $2.8 million of net tangible assets, $0.1 million of intangible assets attributable to non-compete agreements and $14.9 million of goodwill, all of which was recorded in the U.S. Pawn Operations segment. Of the total goodwill, $10.0 million is expected to be fully tax deductible and $4.9 million is expected to be non-deductible.

On April 8, 2011, we acquired for approximately $1.7 million the trademark and licensing rights of Cash Converters in Canada, including rights to receive fees from 13 stores operated by franchisees in Canada. We recorded in the EZMONEY Operations segment approximately $0.1 million of net tangible assets and $1.6 million of intangible assets related to this acquisition.

In the quarter ended June 30, 2011, we acquired 23 stores located in Florida, Iowa, Wisconsin, Utah and the Chicago metropolitan area for approximately $31.6 million in cash. The stores were acquired from three separate sellers. Fifteen of the stores were acquired by purchasing all of the capital stock of the corporation that owned it, and the other eight were acquired through asset purchases. We recorded approximately $7.5 million of net tangible assets, $0.6 million of intangible assets mostly attributable to non-compete agreements and $23.5 million of goodwill, all of which was recorded in the U.S. Pawn Operations segment. Of the total goodwill, $10.8 million is expected to be fully tax deductible and $12.7 million is expected to be non-deductible.

The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include our initial entry into Chicago, Iowa, Wisconsin and Utah in addition to a greater presence in the prime pawn market of Florida and the ability to further leverage our expense structure through increased scale.

All stores were acquired as part of our continuing strategy to acquire domestic pawn stores to enhance and diversify our earnings. Transaction related expenses were not material and were expensed as incurred. The results of all acquired stores have been consolidated with our results since their acquisition. The purchase price allocation of stores acquired in the most recent twelve months is preliminary as we continue to receive information regarding the acquired assets. Pro forma results of operations have not been presented because the acquisitions were not significant on either an individual or an aggregate basis.

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 and restricted stock awards.

Potential common shares are required to be excluded from the computation of diluted earnings per share if the assumed proceeds upon exercise or vest, as defined by FASB ASC 718-10-25, are greater than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive.

Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows (in thousands except per share amounts):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Net income (A)		$	26,527			$	19,962			$	85,794			$	69,442
Weighted average outstanding shares of common stock (B)			49,926				49,201				49,849				48,969
Dilutive effect of stock options and restricted stock			459				439				443				572
Weighted average common stock and common stock equivalents (C)			50,385				49,640				50,292				49,541
Basic earnings per share (A/B)		$	0.53			$	0.41			$	1.72			$	1.42
Diluted earnings per share (A/C)		$	0.53			$	0.40			$	1.71			$	1.40
Potential common shares excluded from the calculation of diluted earnings per share			—				5				6				6

Note E: Strategic Investments and Fair Value of Financial Instruments

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

In its functional currency of British pounds, Albemarle & Bond’s total assets increased 16% from December 31, 2009 to December 31, 2010 and its net income for the six months ended December 31, 2010 decreased 1% including the drag from new stores. Below is summarized financial information for Albemarle & Bond’s most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

		As of December 31,
		2010				2009
		(in thousands)
Current assets		$	121,519			$	104,537
Non-current assets			56,755				53,128
Total assets		$	178,274			$	157,665
Current liabilities		$	25,801			$	21,128
Non-current liabilities			53,497				48,025
Shareholders’ equity			98,976				88,512
Total liabilities and shareholders’ equity		$	178,274			$	157,665

		Six Months Ended December 31
		2010				2009
		(in thousands)
Gross revenues		$	76,424			$	64,572
Gross profit			46,745				43,054
Profit for the year (net income)			12,088				12,752

At June 30, 2011, we owned 124,418,000 shares, or approximately 33% of the total ordinary shares of Cash Converters International Limited, which is a publicly traded company headquartered in Perth, Australia. We acquired the shares between November 2009 and May 2010 for approximately $57.8 million. Cash Converters franchises and operates a worldwide network of approximately 600 specialty financial services and retail stores that provide pawn loans, short-term unsecured loans and other consumer finance products, and buy and sell second-hand goods. Cash Converters has significant store concentrations in Australia and the United Kingdom.

We account for our investment in Cash Converters using the equity method. Since Cash Converters’ fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Cash Converters files semi-annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our quarter ended June 30, 2011 represents our percentage interest in the estimated results of Cash Converters’ operations from January 1, 2011 to March 31, 2011.

In its functional currency of Australian dollars, Cash Converters’ total assets increased 17% from December 31, 2009 to December 31, 2010 and its net income improved 42% for the six months ended December 31, 2010. Below is summarized financial information for Cash Converters’ most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

		As of December 31,
		2010				2009
		(in thousands)
Current assets		$	104,408			$	96,680
Non-current assets			109,336				64,212
Total assets		$	213,744			$	160,892
Current liabilities		$	30,844			$	19,251
Non-current liabilities			11,970				11,010
Shareholders’ equity			170,930				130,631
Total liabilities and shareholders’ equity		$	213,744			$	160,892

		Six Months Ended December 31
		2010				2009
		(in thousands)
Gross revenues		$	83,109			$	51,609
Gross profit			62,037				38,315
Profit for the year (net income)			13,528				8,759

The table below summarizes the recorded value and fair value of each of these strategic investments at the dates indicated. These fair values are considered level one estimates within the fair value hierarchy of FASB ASC 820-10-50, and were calculated as (a) the quoted stock price on each company’s principal market multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate at the dates indicated. We included no control premium for owning a large percentage of outstanding shares.

		June 30, 2011				June 30, 2010				September 30, 2010
		(In thousands of U.S. dollars)
Albemarle & Bond:
Recorded value		$	46,457			$	41,613			$	43,127
Fair value			99,180				57,108				75,520
Cash Converters:
Recorded value			68,320				58,160				58,259
Fair value			94,911				58,624				70,005

Included in “Other Assets, net” on our balance sheets are available for sale securities with a fair value of $5.4 million at June 30, 2011, $3.9 million at June 30, 2010 and $4.9 million at September 30, 2010. This is considered to be a level one measurement of fair value as it is based on the ending market price for the securities at that date, as quoted on an active public securities exchange.

In March 2011, we announced plans to increase our ownership of Cash Converters’ outstanding shares from 33% to 53% for a total cost of approximately $70 million. Following the additional investment, we and Cash Converters plan to establish two joint ventures, under which we will roll out a suite of financial services products globally under the Cash Converters brand. The joint ventures are conditional upon the share purchase which, in turn, requires the approval of Cash Converters’ shareholders. We expect to close the transaction in our fiscal quarter ending December 31, 2011, at which point we will begin to consolidate Cash Converters’ results with ours and discontinue use of the equity method for our current investment in Cash Converters.

Note F: Goodwill and Other Intangible Assets

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

		June 30, 2011				June 30, 2010				September 30, 2010
Pawn licenses		$	8,836			$	8,229			$	8,836
Trade name			4,870				4,870				4,870
Goodwill			167,017				115,570				117,305
Total		$	180,723			$	128,669			$	131,011

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

		U.S Pawn								EZMONEY
		Operations				Empeño Fácil				Operations				Consolidated
Balance at September 30, 2010		$	110,255			$	7,050			$	—			$	117,305
Acquisitions			49,317				—				—				49,317
Effect of foreign currency translation changes			—				395				—				395
Balance at June 30, 2011		$	159,572			$	7,445			$	—			$	167,017

		U.S Pawn								EZMONEY
		Operations				Empeño Fácil				Operations				Consolidated
Balance at September 30, 2009		$	94,192			$	6,527			$	—			$	100,719
Post-closing purchase price allocation adjustments for prior year acquisitions			193				—				—				193
Acquisitions			14,221				—				—				14,221
Effect of foreign currency translation changes			—				437				—				437
Balance at June 30, 2010		$	108,606			$	6,964			$	—			$	115,570

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

		June 30, 2011								June 30, 2010								September 30, 2010
		Carrying				Accumulated				Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization				Amount				Amortization
License application fees		$	345			$	(345	)		$	345			$	(345	)		$	345			$	(345	)
Real estate finders’ fees			1,147				(465	)			824				(392	)			948				(401	)
Non-compete agreements			3,837				(2,472	)			3,019				(1,639	)			3,081				(1,834	)
Favorable lease			755				(289	)			644				(189	)			644				(219	)
Franchise Rights			1,636				(17	)			—				—				—				—
Other			66				(11	)			53				(4	)			48				(6	)
Total		$	7,786			$	(3,599	)		$	4,885			$	(2,569	)		$	5,066			$	(2,805	)

The amortization of most definite lived intangible assets is recorded as amortization expense. The favorable lease asset and other intangibles are amortized to Operations expense (rent expense) over the related lease terms. The following table presents the amount and classification of amortization recognized as expense in each of the periods presented (in thousands):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Amortization Expense		$	221			$	151			$	654			$	433
Operations Expense			28				32				76				98
Total expense from the amortization of definite-lived intangible assets		$	249			$	183			$	730			$	531

The following table presents our estimate of the amount and classification of amortization expense for definite-lived intangible assets for each of the five succeeding full fiscal years beginning October 1, 2010 (in thousands):

Fiscal Year		Amortization Expense				Operations Expense
2011		$	870			$	103
2012			802				93
2013			319				77
2014			248				63
2015			223				52

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

Note G: Long-term Debt

On May 10, 2011, we entered into a new senior secured credit agreement with a syndicate of five banks, replacing our previous credit agreement. Among other things, the new credit agreement provides for a four year $175 million revolving credit facility that we may, under the terms of the agreement, request to be increased to a total of $225 million. Upon entering the new credit agreement, we repaid and retired our $17.5 million outstanding debt. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally.

Pursuant to the credit agreement, we may choose to pay interest to the lenders for outstanding borrowings at LIBOR plus 200 to 275 basis points or the bank’s base rate plus 100 to 175 basis points, depending on our leverage ratio computed at the end of each calendar quarter. On the unused amount of the credit facility, we pay a commitment fee of 37.5 to 50 basis points depending on our leverage ratio calculated at the end of each quarter. From the closing date to approximately October 31, 2011, we will pay a minimum interest rate of LIBOR plus 250 basis points or the bank’s base rate plus 150 basis points, at our option, and a commitment fee of 50 basis points on the unused portion of the credit line. Terms of the credit agreement require, among other things, that we meet certain financial covenants. We expect the recorded value of our debt to approximate its fair value as it is all variable rate debt and carries no pre-payment penalty.

At June 30, 2011, $26.5 million was outstanding under our revolving credit agreement. We also issued $5.0 million of bank letters of credit, leaving $143.5 million available on our revolving credit facility. The outstanding bank letters of credit secure our obligations under letters of credit we issue to unaffiliated lenders as part of our credit service operations.

In connection with the credit agreement we expensed $0.1 million of unamortized deferred financing costs related to our former credit agreement and recorded approximately $2.3 million deferred financing costs related to our new facility. These costs are included in other assets, net in our June 30, 2011 balance sheet, and are being amortized to interest expense over their four-year estimated useful life.

Note H: Stock Compensation

Our net income includes the following compensation costs related to our stock compensation arrangements (in thousands):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Gross compensation cost		$	1,508			$	1,113			$	11,536			$	3,457
Income tax benefits			(499	)			(385	)			(3,952	)			(1,216	)
Stock compensation cost, net of tax benefit		$	1,009			$	728			$	7,584			$	2,241

Included in the compensation cost for the nine months ended June 30, 2011 is $7.3 million for the accelerated vesting of restricted stock upon the retirement of our former Chief Executive Officer on October 31, 2010, and a related $2.5 million income tax benefit. In the three months ended June 30, 2011, stock option exercises resulted in the issuance of 17,000 shares of our Class A Non-voting Common Stock for total proceeds of $0.2 million. In the nine months ended June 30, 2011, stock option exercises resulted in the issuance of 40,800 shares of our Class A Non-voting Common Stock for total proceeds of $0.4 million. All options and restricted stock relate to our Class A Non-voting Common Stock.

Note I: Income Taxes

The current quarter’s effective tax rate is 34.7% of pretax income compared to 36.9% for the prior year quarter. For the current year-to-date period, the effective tax rate is 35.2% compared to 36.0% in the prior year-to-date period. The decrease in effective tax rates is primarily due to an increase in both domestic tax credits and the foreign tax credit on overseas earnings, partially offset by the valuation allowance established for operating losses in our Canada operations during their start-up period.

Note J: 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 K: Comprehensive Income

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 quarter and year-to-date period ended June 30, 2011 was $28.7 million and $97.2 million. For the comparable 2010 periods, comprehensive income was $19.4 million and $68.9 million. The difference between comprehensive income and net income results primarily from the effect of foreign currency translation adjustments and the unrealized gain or loss on available for sale securities. At June 30, 2011, the accumulated balance of net foreign currency and unrealized gain activity excluded from net income was $7.9 million, net of applicable tax of $2.9 million. The net $5.0 million is presented as “Accumulated other comprehensive income (loss)” in the balance sheet at June 30, 2011.

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 426 U.S. pawn stores, offers signature loans in 43 pawn stores and six EZMONEY stores and offers auto title loans in 44 pawn stores.
	•		The Empeño Fácil segment offers pawn related activities in 155 Mexico pawn stores.
	•		The EZMONEY Operations segment offers signature loans in 436 U.S. and 60 Canadian financial services stores. The segment also offers auto title loans in 365 of its U.S. stores and buys and sells second-hand goods in three of its Canadian stores.

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

		Three Months Ended June 30,
		US Pawn Operations								Empeño Fácil								EZMONEY Operations
		2011				2010				2011				2010				2011				2010
Revenues:
Merchandise sales		$	58,168			$	49,749			$	6,401			$	3,529			$	5			$	—
Jewelry scrapping sales			46,157				41,423				4,257				2,181				357				169
Pawn service charges			43,846				37,014				4,519				2,410				—				—
Signature loan fees			691				455				—				—				33,504				31,841
Auto title loan fees			352				359				—				—				4,323				4,299
Other			161				105				6				—				405				8
Total revenues			149,375				129,105				15,183				8,120				38,594				36,317
Merchandise cost of goods sold			32,911				27,749				3,767				1,961				13				—
Jewelry scrapping cost of goods sold			28,754				27,328				3,486				1,862				197				85
Signature loan bad debt			325				159				—				—				10,166				8,758
Auto title loan bad debt			69				44				—				—				467				792
Net revenues			87,316				73,825				7,930				4,297				27,751				26,682
Operations expense			44,280				39,148				5,406				2,999				17,067				15,805
Store operating income		$	43,036			$	34,677			$	2,524			$	1,298			$	10,684			$	10,877

		Nine Months Ended June 30,
		US Pawn Operations								Empeño Fácil								EZMONEY Operations
		2011				2010				2011				2010				2011				2010
Revenues:
Merchandise sales		$	196,893			$	174,060			$	17,329			$	10,142			$	5			$	—
Jewelry scrapping sales			137,221				112,660				11,363				4,550				847				233
Pawn service charges			133,355				112,211				11,589				6,316				—				—
Signature loan fees			1,607				1,442				—				—				107,757				101,174
Auto title loan fees			1,092				1,261				—				—				15,196				10,455
Other			420				365				34				—				524				8
Total revenues			470,588				401,999				40,315				21,008				124,329				111,870
Merchandise cost of goods sold			112,592				101,713				10,036				6,342				13				—
Jewelry scrapping cost of goods sold			86,979				71,635				9,201				3,911				437				116
Signature loan bad debt			583				446				—				—				25,392				21,658
Auto title loan bad debt			110				166				—				—				1,710				1,450
Net revenues			270,324				228,039				21,078				10,755				96,777				88,646
Operations expense			131,293				119,259				14,533				7,736				51,476				47,343
Store operating income		$	139,031			$	108,780			$	6,545			$	3,019			$	45,301			$	41,303

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

		Three Months Ended June 30,								Nine Months Ended June 30,
		2011				2010				2011				2010
U.S. Pawn Operations store operating income		$	43,036			$	34,677			$	139,031			$	108,780
Empeño Fácil store operating income			2,524				1,298				6,545				3,019
EZMONEY Operations store operating income			10,684				10,877				45,301				41,303
Consolidated store operating income			56,244				46,852				190,877				153,102
Administrative expenses			14,379				13,576				56,250				39,356
Depreciation and amortization			4,679				3,759				13,324				10,688
(Gain) / loss on sale or disposal of assets			169				734				(2	)			1,301
Interest income			(21	)			(135	)			(35	)			(151	)
Interest expense			586				311				1,186				1,071
Equity in net income of unconsolidated affiliates			(4,099	)			(2,930	)			(12,157	)			(7,519	)
Other			(103	)			(100	)			(160	)			(103	)
Consolidated income before income taxes		$	40,654			$	31,637			$	132,471			$	108,459

The following table presents separately identified segment assets (in thousands):

		U.S Pawn				Empeño				EZMONEY
		Operations				Fácil				Operations				Consolidated
Assets at June 30, 2011:
Pawn loans		$	124,810			$	9,823			$	—			$	134,633
Signature loans, net			1,174				—				10,915				12,089
Auto title loans, net			757				—				1,591				2,348
Service charges and fees receivable, net			23,169				1,524				6,563				31,256
Inventory, net			70,320				8,400				311				79,031
Goodwill			159,572				7,445				—				167,017
Total separately identified recorded segment assets		$	379,802			$	27,192			$	19,380			$	426,374
Brokered signature loans outstanding from unaffiliated lenders		$	168			$	—			$	20,571			$	20,739
Brokered auto title loans outstanding from unaffiliated lenders		$	152			$	—			$	5,408			$	5,560
Assets at June 30, 2010:
Pawn loans		$	107,419			$	5,388			$	—			$	112,807
Signature loans, net			425				—				8,490				8,915
Auto title loans, net			638				—				2,164				2,802
Service charges and fees receivable, net			19,322				813				6,571				26,706
Inventory, net			57,176				3,819				32				61,027
Goodwill			108,606				6,964				—				115,570
Total separately identified recorded segment assets		$	293,586			$	16,984			$	17,257			$	327,827
Brokered signature loans outstanding from unaffiliated lenders		$	228			$	—			$	21,442			$	21,670
Brokered auto title loans outstanding from unaffiliated lenders		$	210			$	—			$	5,557			$	5,767
Assets at September 30, 2010:
Pawn loans		$	113,944			$	7,257			$	—			$	121,201
Signature loans, net			456				—				10,319				10,775
Auto title loans, net			651				—				2,494				3,145
Service charges and fees receivable, net			20,830				1,053				7,177				29,060
Inventory, net			66,542				4,935				25				71,502
Goodwill			110,255				7,050				—				117,305
Total separately identified recorded segment assets		$	312,678			$	20,295			$	20,015			$	352,988
Brokered signature loans outstanding from unaffiliated lenders		$	231			$	—			$	22,709			$	22,940
Brokered auto title loans outstanding from unaffiliated lenders		$	236			$	—			$	6,589			$	6,825

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 brokered loan balances shown above are the gross principal balances of the loans outstanding at the specified dates.

Note M: Allowance for Losses and Credit Quality of Financing Receivables

We offer a variety of loan products and credit services to customers who do not have cash resources or access to credit to meet their short-term cash needs. Our customers are considered to be in a higher risk pool with regard to creditworthiness when compared to those of typical financial institutions. As a result, our receivables do not have a credit risk profile that can easily be measured by the normal credit quality indicators used by financial markets. We manage the risk through closely monitoring the performance of the portfolio and through our underwriting process. This process includes review of customer information, such as making a credit reporting agency inquiry, evaluating and verifying income sources and levels, verifying employment and verifying a telephone number where customers may be contacted. For auto title loans, we additionally inspect the automobile, title and reference to market values of used automobiles.

As described in Note B, “Significant Accounting Policies,” we consider a signature loan defaulted if it has not been repaid or renewed by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to signature loan bad debt upon default, leaving only active loans in the reported balance. Accrued fees related to defaulted loans reduce fee revenue upon loan default, and increase fee revenue upon collection. Based on historical collection experience, the age of past-due loans and amounts we expect to receive through the sale of repossessed vehicles, we provide an allowance for losses on auto title loans.

The accuracy of our allowance estimates is dependent upon several factors, including our ability to predict future default rates based on historical trends and expected future events. We base our estimates on observable trends and various other assumptions that we believe to be reasonable under the circumstances.

The following table presents changes in the allowance for credit losses as well as the recorded investment in our financing receivables by portfolio segment for the periods presented (in thousands):

		Allowance																Allowance				Financing
		Balance at																Balance at				Receivable
		Beginning																End of				at End of
Description		of Period				Charge-offs				Recoveries				Provision				Period				Period
Allowance for losses on signature loans:
Three-months ended June 30, 2011		$	1,110			$	(4,747	)		$	1,505			$	3,796			$	1,664			$	13,753
Three-months ended June 30, 2010			503				(3,733	)			1,240				2,719				729				9,644
Nine-months ended June 30, 2011		$	750			$	(12,992	)		$	4,575			$	9,331			$	1,664			$	13,753
Nine-months ended June 30, 2010			532				(10,543	)			4,174				6,566				729				9,644
Allowance for losses on auto title loans:
Three-months ended June 30, 2011		$	810			$	(2,800	)		$	2,074			$	489			$	573			$	2,921
Three-months ended June 30, 2010			811				(2,197	)			1,720				902				1,236				4,038
Nine-months ended June 30, 2011		$	1,137			$	(9,682	)		$	7,646			$	1,472			$	573			$	2,921
Nine-months ended June 30, 2010			291				(5,493	)			5,022				1,416				1,236				4,038

The provision presented in the table above includes only principal and excludes items such non-sufficient funds fees, late fees, repossession fees, auction fees and interest. In addition, all credit service expenses and fees related to loans made by our unaffiliated lenders are excluded, as we do not own the loans made in connection with our credit services and they are not recorded as assets on our balance sheet. Expected losses on credit services are accrued and reported in “Accounts payable and other accrued expenses” on our balance sheets.

Auto title loans are our only loans that remain as recorded investments when in delinquent/nonaccrual status. We consider an auto title loan past due if it has not been repaid or renewed by the maturity date. Based on experience, we establish a reserve on all auto title loans. On auto title loans more than 90 days past due, we reserve the percentage we estimate will not be recoverable through auction and reserve 100% of loans for which we have not yet repossessed the underlying collateral. No fees are accrued on any auto title loans more than 90 days past due.

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

																														Recorded
																														Investment >
		Days Past Due																Total				Current				Total Financing				90 Days &
		1-30				31-60				61-90				>90				Past Due				Receivable				Receivable				Accruing
June 30, 2011
Auto title loans		$	575			$	382			$	245			$	285			$	1,487			$	1,434			$	2,921			$	—
Reserve		$	93			$	94			$	84			$	252			$	523			$	50			$	573			$	—
Reserve %			16	%			25	%			34	%			88	%			35	%			3	%			20	%
June 30, 2010
Auto title loans		$	543			$	422			$	262			$	949			$	2,176			$	1,862			$	4,038			$	—
Reserve		$	109			$	104			$	129			$	778			$	1,120			$	116			$	1,236			$	—
Reserve %			20	%			25	%			49	%			82	%			51	%			6	%			31	%
September 30, 2010
Auto title loans		$	797			$	552			$	432			$	532			$	2,313			$	1,970			$	4,283			$	—
Reserve		$	188			$	229			$	256			$	367			$	1,040			$	97			$	1,137			$	—
Reserve %			24	%			41	%			59	%			69	%			45	%			5	%			27	%