EZCORP INC - Quarter Report: 2011 March (Form 10-Q)

e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2011


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

For the transition period from ___________ to ___________

Commission File No. 0-19424

EZCORP, INC.

(Exact name of registrant as specified in its charter)


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

1901 Capital Parkway Austin, Texas (Address of principal executive offices)		78746 (Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes 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 March 31, 2011, 46,954,535 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


	Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2011, March 31, 2010 and September 30, 2010 (audited)		1
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended March 31, 2011 and 2010		2
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 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		37
Item 4 Controls and Procedures		39
PART II OTHER INFORMATION
Item 1 Legal Proceedings		40
Item 1A Risk Factors		40
Item 6 Exhibits		41
SIGNATURE		42
EXHIBIT INDEX		43
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


	March 31,		March 31,			September 30,
	2011		2010			2010
	(Unaudited)		(Unaudited)
			(In thousands)
Assets:
Current assets:
Cash and cash equivalents	$	59,785	$	51,192		$	25,854
Pawn loans		106,525		89,040			121,201
Signature loans, net		9,926		7,287			10,775
Auto title loans, net		2,022		1,939			3,145
Pawn service charges receivable, net		19,976		16,353			21,626
Signature loan fees receivable, net		4,841		4,607			5,818
Auto title loan fees receivable, net		1,185		850			1,616
Inventory, net		70,275		56,403			71,502
Deferred tax asset		23,319		15,673			23,208
Income tax receivable		1,427		13,414			—
Prepaid expenses and other assets		20,045		15,625			17,427

Total current assets		319,326		272,383			302,172

Investments in unconsolidated affiliates		112,364		90,854			101,386
Property and equipment, net		70,105		54,044			62,293
Deferred tax asset, non-current		—		5,318			60
Goodwill		143,404		101,456			117,305
Other assets, net		23,694		22,223			23,196

Total assets	$	668,893	$	546,278		$	606,412


Liabilities and stockholders’ equity:
Current liabilities:
Current maturities of long-term debt	$	10,000	$	10,000		$	10,000
Accounts payable and other accrued expenses		44,754		38,592			49,663
Customer layaway deposits		6,844		4,487			6,109
Income taxes payable		—		—			3,687

Total current liabilities		61,598		53,079			69,459

Long-term debt, less current maturities		10,000		20,000			15,000
Deferred tax liability		1,192		—			—
Deferred gains and other long-term liabilities		2,314		2,735			2,525

Total liabilities		75,104		75,814			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: 46,954,535 at March 31, 2011; 46,192,698 at March 31, 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		231,263		222,423			225,374
Retained earnings		359,203		252,122			299,936
Accumulated other comprehensive income (loss)		2,824		(4,573	)		(6,375	)

Total stockholders’ equity		593,789		470,464			519,428

Total liabilities and stockholders’ equity	$	668,893	$	546,278		$	606,412

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

Condensed Consolidated Statements of Operations (Unaudited)


	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2011			2010			2011			2010
	(In thousands, except per share amounts)
Revenues:
Sales	$	125,768		$	102,536		$	248,313		$	204,594
Pawn service charges		46,769			38,306			96,579			79,103
Signature loan fees		35,103			31,642			75,169			70,320
Auto title loan fees		5,369			3,956			11,613			7,058
Other		245			144			406			260

Total revenues		213,254			176,584			432,080			361,335

Cost of goods sold		76,564			62,162			150,130			124,732
Signature loan bad debt		5,438			4,397			15,484			13,187
Auto title loan bad debt		302			320			1,284			780

Net revenues		130,950			109,705			265,182			222,636

Operating expenses:
Operations		66,045			58,205			130,549			116,386
Administrative		15,733			13,483			41,871			25,780
Depreciation and amortization		4,466			3,573			8,645			6,929
(Gain) loss on sale / disposal of assets		(178	)		356			(171	)		567

Total operating expenses		86,066			75,617			180,894			149,662


Operating income		44,884			34,088			84,288			72,974

Interest income		(11	)		(8	)		(14	)		(16	)
Interest expense		300			395			600			760
Equity in net income of unconsolidated affiliates		(4,691	)		(3,306	)		(8,058	)		(4,589	)
Other		4			12			(57	)		(3	)

Income before income taxes		49,282			36,995			91,817			76,822
Income tax expense		17,444			13,222			32,550			27,342

Net income	$	31,838		$	23,773		$	59,267		$	49,480


Net income per common share:
Basic	$	0.64		$	0.49		$	1.19			1.01

Diluted	$	0.63		$	0.48		$	1.18			1.00


Weighted average shares outstanding:
Basic		49,924			48,987			49,810			48,853
Diluted		50,362			49,558			50,243			49,486

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

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended
	March 31,
	2011			2010
	(In thousands)
Operating Activities:
Net income	$	59,267		$	49,480
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		8,645			6,929
Signature loan and auto title loan loss provisions		6,863			4,530
Deferred taxes		1,167			992
(Gain) loss on sale or disposal of assets		(171	)		567
Stock compensation		10,028			2,344
Income from investments in unconsolidated affiliates		(8,058	)		(4,589	)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net		3,647			2,559
Inventory, net		830			2,153
Prepaid expenses, other current assets, and other assets, net		(2,174	)		(4,264	)
Accounts payable and accrued expenses		(5,648	)		4,469
Customer layaway deposits		629			302
Deferred gains and other long-term liabilities		(156	)		(525	)
Excess tax benefit from stock compensation		(3,072	)		(1,645	)
Income taxes		(1,913	)		(12,223	)

Net cash provided by operating activities		69,884			51,079

Investing Activities:
Loans made		(292,544	)		(243,563	)
Loans repaid		203,672			169,503
Recovery of pawn loan principal through sale of forfeited collateral		104,547			89,013
Additions to property and equipment		(15,248	)		(9,619	)
Proceeds on disposal of assets		—			1,347
Acquisitions, net of cash acquired		(31,461	)		(31	)
Investments in unconsolidated affiliates		—			(50,932	)
Dividends from unconsolidated affiliates		4,218			1,689

Net cash used in investing activities		(26,816	)		(42,593	)

Financing Activities:
Proceeds from exercise of stock options		205			1,294
Excess tax benefit from stock compensation		3,072			1,645
Debt issuance costs		—			3
Taxes paid related to net share settlement of equity awards		(7,409	)		—
Payments on bank borrowings		(5,005	)		(5,000	)

Net cash used in financing activities		(9,137	)		(2,058	)

Change in cash and cash equivalents		33,931			6,428
Cash and cash equivalents at beginning of period		25,854			44,764

Cash and cash equivalents at end of period	$	59,785		$	51,192


Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory	$	102,145		$	83,339
Foreign currency translation adjustment	$	(8,708	)	$	(47	)
Acquisition-related stock issuance	$	—		$	(31	)

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

EZCORP, Inc. and Subsidiaries

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

March 31, 2011

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 three and six month periods ended March 31, 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 March 31, 2011, the allowance for Expected LOC Losses on signature loans was $0.8 million and our maximum exposure for losses on letters of credit, if all brokered signature loans defaulted and none was collected, was $18.8 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 March 31, 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 $7.7 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 March 31, 2011, the inventory valuation allowance was $7.0 million or 9.1% 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 $121.4 million at March 31, 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 FASB 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.

Note C: Acquisitions

Between June and 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. 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, a greater presence in prime pawn markets and the ability to further leverage our expense structure through increased scale.

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. 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 a greater presence in a prime pawn market and the ability to further leverage our expense structure through increased scale.

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. 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 a greater presence in a prime pawn market 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 twelve months ended March 31, 2011 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				Six Months Ended
	March 31,				March 31,
	2011		2010		2011		2010
Net income (A)	$	31,838	$	23,773	$	59,267	$	49,480

Weighted average outstanding shares of common stock (B)		49,924		48,987		49,810		48,853
Dilutive effect of stock options and restricted stock		438		571		433		633

Weighted average common stock and common stock equivalents (C)		50,362		49,558		50.243		49,486


Basic earnings per share (A/B)	$	0.64	$	0.49	$	1.19	$	1.01

Diluted earnings per share (A/C)	$	0.63	$	0.48	$	1.18	$	1.00


Potential common shares excluded from the calculation of diluted earnings per share		1		2		2		1

Note E: Strategic Investments and Fair Value of Financial Instruments

At March 31, 2011, we owned 16,644,640 common shares of Albemarle & Bond Holdings, PLC, representing almost 30% of its total outstanding shares. Our total cost for those shares was approximately $27.6 million. Albemarle & Bond is primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. We account for the investment using the equity method. Since Albemarle & Bond’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Albemarle & Bond files semi-annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our year-to-date period ended March 31, 2011 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2010 to December 31, 2010.

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)
Turnover (gross revenues)	$	76,424	$	64,572
Gross profit		46,745		43,054
Profit for the year (net income)		12,088		12,752

At March 31, 2011, we owned 124,418,000 shares, or approximately 33% of the total common shares of Cash Converters International Limited, which is a publicly traded company headquartered in Perth, Australia. We acquired the shares between November 2009 and May 2010 for approximately $57.8 million. Cash Converters franchises and operates a worldwide network of over 600 specialty financial services and retail stores that provide pawn loans, short-term unsecured loans and other consumer finance products, and buy and sell second-hand goods. Cash Converters has significant store concentrations in Australia and the United Kingdom.

We account for our investment in Cash Converters using the equity method. Since Cash Converters’ fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Cash Converters files semi-annual financial reports for its fiscal periods ending December 31 and June 30. The income reported for our year-to-date period ended March 31, 2011 represents our percentage interest in the results of Cash Converters’ operations from July 1, 2010 to December 31, 2010. Our results for the quarter ended March 31, 2010 reflect our share of Cash Converters’ 56 days of earnings from November 6, 2009 to December 31, 2009. This amount was estimated through daily proration of Cash Converters’ reported results for the six months ended December 31, 2009.

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.


	March 31, 2011		March 31, 2010		September 30, 2010
			(In thousands of U.S. dollars)
Albemarle & Bond:
Recorded value	$	44,784	$	41,606	$	43,127
Fair value		81,655		61,235		75,520

Cash Converters:
Recorded value		67,580		49,248		58,259
Fair value		102,610		57,714		70,005

Included in “Other Assets, net” on our balance sheets are available for sale securities with a fair value of $4.7 million at March 31, 2011, $3.8 million at March 31, 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 September 30, 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):


	March 31, 2011		March 31, 2010		September 30, 2010
Pawn licenses	$	8,836	$	8,229	$	8,836
Trade name		4,870		4,870		4,870
Goodwill		143,404		101,456		117,305

Total	$	157,110	$	114,555	$	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
	Operations		Empeño Fácil		EZMONEY Operations		Consolidated
Balance at September 30, 2010	$	110,255	$	7,050	$	—	$	117,305
Acquisitions		25,784		—		—		25,784
Effect of foreign currency translation changes		—		315		—		315

Balance at March 31, 2011	$	136,039	$	7,365	$	—	$	143,404


	U.S. Pawn
	Operations		Empeño Fácil		EZMONEY 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
Effect of foreign currency translation changes		—		544		—		544

Balance at March 31, 2010	$	94,385	$	7,071	$	—	$	101,456

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):


	March 31, 2011					March 31, 2010					September 30, 2010
			Accumulated					Accumulated					Accumulated
	Carrying Amount		Amortization			Carrying Amount		Amortization			Carrying Amount		Amortization
License application fees	$	345	$	(345	)	$	345	$	(344	)	$	345	$	(345	)
Real estate finders’ fees		1,098		(442	)		699		(382	)		948		(401	)
Non-compete agreements		3,313		(2,277	)		2,666		(1,514	)		3,081		(1,834	)
Favorable lease		644		(264	)		644		(158	)		644		(219	)
Other		63		(9	)		39		(3	)		48		(6	)

Total	$	5,463	$	(3,337	)	$	4,393	$	(2,401	)	$	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				Six Months Ended
	March 31,				March 31,
	2011		2010		2011		2010
Amortization expense	$	221	$	156	$	433	$	282
Operations expense		25		34		48		66

Total expense from the amortization of definite-lived intangible assets	$	246	$	190	$	481	$	348

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	$	813	$	99
2012		662		84
2013		174		68
2014		89		54
2015		80		43

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

Note G: 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 March 31, 2011, $20 million was outstanding under the term loan and bank letters of credit totaling $5 million were outstanding, leaving $75 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.

Pursuant to the credit agreement, we may choose to pay interest to the lenders for outstanding borrowings at the Eurodollar rate plus 175 to 250 basis points or the bank’s base rate plus 0 to 50 basis points, depending on our leverage ratio computed at the end of each calendar quarter. Our rates are currently at the minimum of the range. On the unused amount of the revolving credit facility, we pay a commitment fee of 25 to 30 basis points depending on our leverage ratio calculated at the end of each quarter. Terms of the credit agreement require, among other things, that we meet certain financial covenants. We were in compliance with all covenants at March 31, 2011. The payment of dividends and additional debt are restricted. The recorded value of our debt approximates its fair value as it is all variable rate debt and carries no pre-payment penalty.

Deferred financing costs of $0.3 million related to our credit agreement are included in Other assets, net in our March 31, 2011 balance sheet. These costs are being amortized to interest expense over their three-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 March 31,						Six Months Ended March 31,
	2011			2010			2011			2010
Gross compensation cost	$	1,480		$	1,288		$	10,028		$	2,344
Income tax benefits		(479	)		(473	)		(3,453	)		(831	)

Stock compensation cost, net of tax benefit	$	1,001		$	815		$	6,575		$	1,513

Included in the compensation cost for the six months ended March 31, 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 six months ended March 31, 2011, stock option exercises resulted in the issuance of 23,800 shares of our Class A Non-voting Common Stock for total proceeds of $0.2 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 35.4% of pretax income compared to 35.7% for the prior year quarter. For the current year-to-date period, the effective tax rate is 35.5% compared to 35.6% 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 March 31, 2011 was $34.0 million and $68.5 million. For the comparable 2010 periods, comprehensive income was $23.7 million and $49.5 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 March 31, 2011, the accumulated balance of net foreign currency and unrealized gain activity excluded from net income was $4.7 million, net of applicable tax of $1.9 million. The net $2.8 million is presented as “Accumulated other comprehensive income (loss)” in the balance sheet at March 31, 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 403 U.S. pawn stores, offers signature loans in 29 pawn stores and six EZMONEY stores and offers auto title loans in 44 pawn stores.

	•		The Empeño Fácil segment offers pawn related activities in 147 Mexico pawn stores.

	•		The EZMONEY Operations segment offers signature loans in 442 U.S. EZMONEY stores and 59 Canadian CASHMAX stores. The segment also offers auto title loans in 368 of its U.S. 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 March 31,
	U.S. Pawn Operations					Empeño Fácil				EZMONEY Operations
	2011			2010		2011		2010		2011		2010
Revenues:
Merchandise sales	$	72,420		$	63,049	$	5,353	$	3,259	$	—	$	—
Jewelry scrapping sales		44,058			34,414		3,644		1,762		293		52
Pawn service charges		43,073			36,256		3,696		2,050		—		—
Signature loan fees		407			434		—		—		34,696		31,208
Auto title loan fees		347			427		—		—		5,022		3,529
Other		142			144		25		—		78		—

Total revenues		160,447			134,724		12,718		7,071		40,089		34,789

Merchandise cost of goods sold		41,484			37,058		3,155		2,023		—		—
Jewelry scrapping cost of goods sold		28,687			21,483		3,077		1,574		161		24
Signature loan bad debt		93			101		—		—		5,345		4,296
Auto title loan bad debt		(20	)		52		—		—		322		268

Net revenues		90,203			76,030		6,486		3,474		34,261		30,201

Operations expense		43,817			39,912		4,849		2,573		17,379		15,720

Store operating income	$	46,386		$	36,118	$	1,637	$	901	$	16,882	$	14,481


	Six Months Ended March 31,
	U.S. Pawn Operations				Empeño Fácil				EZMONEY Operations
	2011		2010		2011		2010		2011		2010
Revenues:
Merchandise sales	$	138,725	$	124,311	$	10,928	$	6,613	$	—	$	—
Jewelry scrapping sales		91,064		71,237		7,106		2,369		490		64
Pawn service charges		89,509		75,197		7,070		3,906		—		—
Signature loan fees		916		987		—		—		74,253		69,333
Auto title loan fees		740		902		—		—		10,873		6,156
Other		259		260		28		—		119		—

Total revenues		321,213		272,894		25,132		12,888		85,735		75,553

Merchandise cost of goods sold		79,681		73,964		6,269		4,381		—		—
Jewelry scrapping cost of goods sold		58,225		44,307		5,715		2,049		240		31
Signature loan bad debt		258		287		—		—		15,226		12,900
Auto title loan bad debt		41		122		—		—		1,243		658

Net revenues		183,008		154,214		13,148		6,458		69,026		61,964

Operations expense		87,013		80,111		9,127		4,737		34,409		31,538

Store operating income	$	95,995	$	74,103	$	4,021	$	1,721	$	34,617	$	30,426

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


	Three Months Ended March 31,						Six Months Ended March 31,
	2011			2010			2011			2010
U.S. Pawn Operations store operating income	$	46,386		$	36,118		$	95,995		$	74,103
Empeño Fácil store operating income		1,637			901			4,021			1,721
EZMONEY Operations store operating income		16,882			14,481			34,617			30,426

Consolidated store operating income		64,905			51,500			134,633			106,250
Administrative expenses		15,733			13,483			41,871			25,780
Depreciation and amortization		4,466			3,573			8,645			6,929
(Gain) loss on sale / disposal of assets		(178	)		356			(171	)		567
Interest income		(11	)		(8	)		(14	)		(16	)
Interest expense		300			395			600			760
Equity in net income of unconsolidated affiliates		(4,691	)		(3,306	)		(8,058	)		(4,589	)
Other		4			12			(57	)		(3	)

Consolidated income before income taxes	$	49,282		$	36,995		$	91,817		$	76,822

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


	U.S. Pawn		Empeño
	Operations		Fácil		EZMONEY Operations		Consolidated
Assets at March 31, 2011:
Pawn loans	$	97,375	$	9,150	$	—	$	106,525
Signature loans, net		405		—		9,521		9,926
Auto title loans, net		595		—		1,427		2,022
Service charges and fees receivable, net		18,815		1,355		5,832		26,002
Inventory, net		63,164		7,033		78		70,275
Goodwill		136,039		7,365		—		143,404

Total separately identified recorded segment assets	$	316,393	$	24,903	$	16,858	$	358,154


Brokered signature loans outstanding from unaffiliated lenders	$	144	$	—	$	16,316	$	16,460
Brokered auto title loans outstanding from unaffiliated lenders	$	140	$	—	$	4,904	$	5,044

Assets at March 31, 2010:
Pawn loans	$	84,116	$	4,924	$	—	$	89,040
Signature loans, net		371		—		6,916		7,287
Auto title loans, net		577		—		1,362		1,939
Service charges and fees receivable, net		15,885		679		5,246		21,810
Inventory, net		53,122		3,262		19		56,403
Goodwill		94,385		7,071		—		101,456

Total separately identified recorded segment assets	$	248,456	$	15,936	$	13,543	$	277,935


Brokered signature loans outstanding from unaffiliated lenders	$	170	$	—	$	17,571	$	17,741
Brokered auto title loans outstanding from unaffiliated lenders	$	193	$	—	$	3,719	$	3,912

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 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 the financial markets. We manage the risk through closely monitoring the performance of the portfolio and through our underwriting process. This process includes review of customer information, such as making a credit reporting agency inquiry, evaluating and verifying income sources and levels, verifying employment and verifying a telephone number where customers may be contacted. For auto title loans, we additionally inspect the automobile, title and reference to market values of used automobiles.

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		End of
Description	of Period		Charge-offs			Recoveries		Provision		Period		Period
Allowance for losses on signature loans:
Three-months ended March 31, 2011	$	1,210	$	(3,985	)	$	1,574	$	2,311	$	1,110	$	11,036
Three-months ended March 31, 2010		789		(3,045	)		1,490		1,269		503		7,790

Six-months ended March 31, 2011	$	750	$	(8,245	)	$	3,070	$	5,535	$	1,110	$	11,036
Six-months ended March 31, 2010		532		(6,810	)		2,934		3,847		503		7,790

Allowance for losses on auto title loans:
Three-months ended March 31, 2011	$	1,316	$	(3,437	)	$	2,857	$	74	$	810	$	2,832
Three-months ended March 31, 2010		579		(1,745	)		1,764		213		811		2,750

Six-months ended March 31, 2011	$	1,137	$	(6,882	)	$	5,572	$	983	$	810	$	2,832
Six-months ended March 31, 2010		291		(3,296	)		3,302		514		811		2,750

The provision presented in the table above includes only principal and excludes items such as NSF 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):


	Days Past Due
																			Total			Recorded
													Total			Current			Financing			Investment > 90
	1-30			31-60			61-90			>90			Past Due			Receivable			Receivable			Days & Accruing
March 31, 2011
Auto title loans	$	324		$	272		$	368		$	493		$	1,457		$	1,375		$	2,832		$	—
Reserve	$	82		$	76		$	151		$	427		$	736		$	74		$	810		$	—
Reserve %		25	%		28	%		41	%		87	%		51	%		5	%		29	%

March 31, 2010
Auto title loans	$	332		$	226		$	180		$	586		$	1,324		$	1,426		$	2,750		$	—
Reserve	$	47		$	88		$	113		$	524		$	772		$	39		$	811		$	—
Reserve %		14	%		39	%		63	%		89	%		58	%		3	%		29	%

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	%

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

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

Three Months Ended March 31, 2011 vs. Three Months Ended March 31, 2010

The following table presents selected, unaudited, consolidated financial data for our three-month periods ended March 31, 2011 and 2010 (the current and prior year quarters):


	Three Months Ended March 31,				Percentage
	2011		2010		Change
	(in thousands)
Net revenues:
Sales	$	125,768	$	102,536		22.7	%
Pawn service charges		46,769		38,306		22.1	%
Signature loan fees		35,103		31,642		10.9	%
Auto title loan fees		5,369		3,956		35.7	%
Other		245		144		70.1	%

Total revenues		213,254		176,584		20.8	%

Cost of goods sold		76,564		62,162		23.2	%
Signature loan bad debt		5,438		4,397		23.7	%
Auto title loan bad debt		302		320		(5.6	)%

Net revenues	$	130,950	$	109,705		19.4	%


Net income	$	31,838	$	23,773		33.9	%

Six Months Ended March 31, 2011 vs. Six Months Ended March 31, 2010

The following table presents selected, unaudited, consolidated financial data for our six-month periods ended March 31, 2011 and 2010 (the current and prior year-to-date periods):


	Six Months Ended March 31,				Percentage
	2011		2010		Change
	(in thousands)
Net revenues:
Sales	$	248,313	$	204,594		21.4	%
Pawn service charges		96,579		79,103		22.1	%
Signature loan fees		75,169		70,320		6.9	%
Auto title loan fees		11,613		7,058		64.5	%
Other		406		260		56.2	%

Total revenues		432,080		361,335		19.6	%

Cost of goods sold		150,130		124,732		20.4	%
Signature loan bad debt		15,484		13,187		17.4	%
Auto title loan bad debt		1,284		780		64.6	%

Net revenues	$	265,182	$	222,636		19.1	%


Net income	$	59,267	$	49,480		19.8	%

Beginning in the current quarter, we reclassified fees from our Product Protection Plan and Jewelry VIP Program as well as layaway fees from “Other revenue” to “Sales” on the basis that fees from these products are incidental to sales of merchandise. Prior year figures have been reclassified to conform to this presentation and margins have been recalculated accordingly throughout management’s discussion and analysis.

Overview

We are a leading provider of specialty consumer financial services. We provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans including payday loans, installment loans and auto title loans, or fee-based credit services to customers seeking loans.

At March 31, 2011, we operated a total of 1,057 locations, consisting of 403 U.S. pawn stores (operating as EZPAWN or Value Pawn), 147 pawn stores in Mexico (operating as Empeño Fácil or Empeñe su Oro), 448 U.S. short-term consumer loan stores (operating primarily as EZMONEY) and 59 short-term consumer loan stores in Canada (operating as CASHMAX). We also own almost 30% of Albemarle & Bond Holdings, PLC, one of the U.K.’s largest pawnbroking businesses with over 140 stores, and almost 33% of Cash Converters International Limited, which franchises and operates a worldwide network of over 600 locations that provide financial services and buy and sell second-hand goods.

We manage our business as three segments. The U.S. Pawn Operations segment operates only in the United States. The Empeño Fácil segment operates only in Mexico. The EZMONEY Operations segment operates 442 stores in the United States and 59 stores in Canada. The following tables present store data and products offered in each segment:


	Three Months Ended March 31, 2011
	U.S. Pawn		Empeño		EZMONEY
	Operations		Fácil		Operations			Consolidated
Stores in operation:
Beginning of period		402		132		498			1,032
New openings		2		15		5			22
Acquired		5		—		—			5
Sold, combined, or closed		—		—		(2	)		(2	)

End of period		409		147		501			1,057

Average number of stores during the period		407		139		499			1,044


	Six Months Ended March 31, 2011
	U.S. Pawn			Empeño		EZMONEY
	Operations			Fácil		Operations			Consolidated
Stores in operation:
Beginning of period		396			115		495			1,006
New openings		5			32		10			47
Acquired		9			—		—			9
Sold, combined, or closed		(1	)		—		(4	)		(5	)

End of period		409			147		501			1,057

Average number of stores during the period		402			132		497			1,031

Composition of ending stores:
Pawn		403			147		—			550
Short-term consumer loan stores		6			—		501			507

Total stores in operation		409			147		501			1,057

Stores offering payday loans (a)		35			—		432			467
Stores offering installment loans (a)		—			—		415			415
Stores offering auto title loans (a)		44			—		368			412


	Three Months Ended March 31, 2010
	U.S. Pawn		Empeño		EZMONEY
	Operations		Fácil		Operations			Consolidated
Stores in operation:
Beginning of period		376		70		474			920
New openings		1		9		12			22
Acquired		—		—		—			—
Sold, combined, or closed		—		—		(10	)		(10	)

End of period		377		79		476			932

Average number of stores during the period		377		74		474			925


	Six Months Ended March 31, 2010
	U.S. Pawn		Empeño		EZMONEY
	Operations		Fácil		Operations			Consolidated
Stores in operation:
Beginning of period		375		62		473			910
New openings		2		17		18			37
Acquired		—		—		—			—
Sold, combined, or closed		—		—		(15	)		(15	)

End of period		377		79		476			932

Average number of stores during the period		376		70		473			919

Composition of ending stores:
Pawn		371		79		—			450
Short-term consumer loan stores		6		—		476			482

Total stores in operation		377		79		476			932


Stores offering payday loans (a)		60		—		476			536
Stores offering installment loans (a)		—		—		197			197
Stores offering auto title loans (a)		54		—		391			445


(a)		Including credit services

Pawn Activities

We earn pawn service charge revenues on our pawn lending. While allowable service charges vary by state and loan size, a majority of our U.S. pawn loans earn 20% per month. Our average U.S. pawn loan amount typically ranges between $80 and $120 but varies depending on the valuation of each item pawned. The total U.S. loan term ranges between 60 and 120 days, consisting of the primary term and grace period. In Mexico, pawn service charges range from 15% to 21% per month including applicable taxes, with the majority of loans earning 21%. The total Mexico pawn loan term is 40 days, consisting of the primary term and grace period. Individual loans are made in Mexican pesos and vary depending on the valuation of each item pawned, but typically equate to between $50 and $75 U.S. dollars.

In our pawn stores, we acquire inventory for retail sales through pawn loan forfeitures and, to a lesser extent, through purchases of customers’ merchandise and purchases of new or refurbished merchandise from third party vendors. The gross profit on sales of inventory depends primarily on our assessment of the loan or purchase value at the time the property is either accepted as loan collateral or purchased. Improper value assessment in the lending or purchasing process can result in lower margins or reduced marketability of the merchandise.

We record a valuation allowance for obsolete or slow-moving inventory based on the type and age of merchandise. We generally establish a higher allowance percentage on general merchandise, as it is more susceptible to obsolescence, and establish a lower allowance percentage on jewelry, as it retains much greater commodity value. The total allowance was 9.1% of gross inventory at March 31, 2011 compared to 8.8% at March 31, 2010 and 7.4% at September 30, 2010. Changes in the valuation allowance are charged to merchandise cost of goods sold.

Signature Loans and Auto Title Loan Activities

At March 31, 2011, 289 of our U.S. short-term consumer loan stores and 25 of our U.S. pawn stores offered credit services to customers seeking short-term consumer signature loans from unaffiliated lenders. We do not participate in any of the loans made by the lenders, but earn a fee for helping customers obtain credit and for enhancing customers’ creditworthiness by providing letters of credit.

In connection with our credit services, the unaffiliated lenders offer customers two types of signature loans. In all stores offering signature loan credit services, customers can obtain payday loans, with principal amounts up to $1,500 but averaging about $520. Terms of these loans are generally less than 30 days, averaging about 16 days, with due dates corresponding with the customers’ next payday. We typically earn a fee of 21.75% of the loan

amount for our credit services offered in connection with payday loans. In 289 of the U.S. short-term consumer loan stores offering credit services, customers can obtain longer-term unsecured installment loans from the unaffiliated lenders. The installment loans offered in connection with our credit services typically carry terms of about five months with ten equal installment payments due on customers’ paydays. Installment loan principal amounts range from $1,525 to $3,000, but average about $2,075. With each semi-monthly or bi-weekly installment payment, we earn a fee of 10% of the initial loan amount. At March 31, 2011, payday loans comprised 94% of the balance of signature loans brokered through our credit services, and installment loans comprised the remaining 6%.

We earn signature loan fee revenue on our payday loans. In four U.S. pawn stores, 90 U.S. short-term consumer loan stores and 59 Canadian short-term consumer loan stores, we make payday loans subject to state or provincial law. The average payday loan amount is approximately $435 and the term is generally less than 30 days, averaging about 16 days. We typically charge a fee of 15% to 22% of the loan amount for a 7 to 23-day period.

In 126 of our U.S. short-term consumer loan stores, we make installment loans subject to state law. Outside Colorado and Wisconsin, these installment loans typically carry a term of five months, with ten equal installment payments due on customers’ paydays. On those loans, we typically charge a fee of 10% of the initial loan amount with each semi-monthly or bi-weekly installment payment. In August 2010, we stopped offering payday loans in Colorado following a legislative change and instead began offering six-month installment loans with a 45% annual interest rate plus certain finance charges and maintenance fees. In January 2011, we stopped offering payday loans in Wisconsin following a legislative change but continue to offer installment loans that carry terms of four to seven months. On those loans, we typically charge a fee of 12.5% — 31.25% of the initial loan amount with each monthly, semi-monthly or bi-weekly installment payment. Installment loan principal amounts range from $100 to $3,000, but average approximately $530.

At March 31, 2011, 368 of our U.S. short-term consumer loan stores and 44 of our U.S. pawn stores offered auto title loans or credit services to assist customers in obtaining auto title loans from unaffiliated lenders. Auto title loans are 30-day loans secured by the titles to customers’ automobiles. Loan principal amounts range from $100 to $9,000, but average about $815. We earn a fee of 12.5% to 25% of auto title loan amounts.

In fiscal 2010, legislation adversely affecting our business was enacted in Colorado and Wisconsin. The Colorado law, which became effective in August 2010, essentially eliminated the traditional short-term payday loan product by requiring that payday loans have a minimum term of six months and changed the allowed fees. The Wisconsin law, which became effective January 1, 2011, limits the availability of payday loans and prohibits auto title loans. Although we closed or consolidated several short-term consumer loan stores in those states, we continue to operate the remaining stores with new or modified products that fit within the new regulatory frameworks and continue to evaluate the feasibility of additional product offerings to enhance our business in those stores. If we are unable to continue to operate profitably under the new laws in either or both of these states, we may decide to close or consolidate additional stores.

Acquisitions

In the fiscal year ended September 30, 2010, we acquired sixteen pawn stores located in the Chicago metropolitan area, Central and South Florida, Corpus Christi, Texas and Las Vegas, Nevada for approximately $21.8 million in cash. In the quarter ended December 31, 2010 we acquired three pawn stores located in the Chicago metropolitan area and one located in Marietta, Georgia for approximately $13.7 million in cash. In the current quarter, we acquired five pawn stores located in Central and South Florida for approximately $17.8 million in cash. All stores were acquired as part of our continuing strategy to acquire domestic pawn stores to enhance and diversify our earnings. The results of all acquired stores have been consolidated with our results since their acquisition.

Other

Included in the current year-to-date period results is a pre-tax administrative expense charge of $10.9 million related to the October 2010 retirement of our former Chief Executive Officer, including $3.4 million attributable to a cash payment and $7.5 million attributable to the vesting of restricted stock. The current year-to-date period income tax expense reflects a $3.8 million tax benefit related to this charge.

Results of Operations

Three Months Ended March 31, 2011 vs. Three Months Ended March 31, 2010

The following discussion compares our results of operations for the quarter ended March 31, 2011 to the quarter ended March 31, 2010. It should be read with the accompanying financial statements and related notes.

In the current quarter, consolidated total revenues increased 21%, or $36.7 million to $213.3 million, compared to the prior year quarter. Same store total revenues increased 12%, with the remainder of the increase coming from new and acquired stores. The overall increase in total consolidated revenues was comprised primarily of a $23.2 million increase in merchandise and jewelry scrapping sales, an $8.5 million increase in pawn service charges, a $3.5 million increase in signature loan fees, and a $1.4 million increase in auto title loan fees.

In the current quarter, the U.S. Pawn Operations segment contributed $10.3 million greater store operating income compared to the prior year quarter, primarily as the result of a $7.4 million increase in gross profit on merchandise and jewelry scrapping sales and a $6.8 million increase in pawn service charges, partially offset by higher operating costs. The Empeño Fácil segment contributed $0.7 million greater store operating income compared to the prior year quarter, primarily as the result of a $1.6 million increase in pawn service charges and a $1.3 million increase in gross profit on merchandise and jewelry scrapping sales, partially offset by higher operating expenses at new stores. Our EZMONEY Operations segment contributed $2.4 million greater store operating income, primarily from installment and auto title loans, partially offset by an increase in bad debt as a percent of fees and higher operating expenses at new stores. After a $2.2 million increase in administrative expenses, a $0.9 million increase in depreciation and amortization and a $0.5 million improved gain on disposal of assets, consolidated operating income improved $10.8 million to $44.9 million. After a $1.4 million increase in our equity in the net income of unconsolidated affiliates and a $4.2 million increase in income taxes and other smaller items, our consolidated net income improved 34% to $31.8 million from $23.8 million in the prior year quarter.

U.S. Pawn Operations Segment

The following table presents selected financial data for the U.S. Pawn Operations segment:


	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Merchandise sales	$	72,420		$	63,049
Jewelry scrapping sales		44,058			34,414
Pawn service charges		43,073			36,256
Signature loan fees		407			434
Auto title loan fees		347			427
Other		142			144

Total revenues		160,447			134,724

Merchandise cost of goods sold		41,484			37,058
Jewelry scrapping cost of goods sold		28,687			21,483
Signature loan bad debt		93			101
Auto title loan bad debt		(20	)		52

Net revenues		90,203			76,030

Operations expense		43,817			39,912

Store operating income	$	46,386		$	36,118


Other data:
Gross margin on merchandise sales		42.7	%		41.2	%
Gross margin on jewelry scrapping sales		34.9	%		37.6	%
Gross margin on total sales		39.8	%		39.9	%
Average pawn loan balance per pawn store at quarter-end	$	242		$	227
Average yield on pawn loan portfolio (a)		163	%		163	%
Pawn loan redemption rate		83	%		83	%


(a)		Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenues for the period divided by the average pawn loan balance during the period.

The U.S. Pawn Operations segment total revenues increased $25.7 million, or 19% from the prior year quarter to $160.4 million. Same store total revenues increased $14.8 million, or 11%, and new and acquired stores net of closed stores contributed $10.9 million. The overall increase in total revenues was comprised primarily of a $19.0 million increase in merchandise and jewelry scrapping sales and a $6.8 million increase in pawn service charges.

Our current quarter U.S. pawn service charge revenues increased $6.8 million, or 19% from the prior year quarter to $43.1 million. Same store pawn service charges increased $4.4 million, or 12% due primarily to a higher average pawn loan balance, while new and acquired stores net of closed stores contributed $2.4 million. Inventory purchases from customers represent 31% of total inventory additions, excluding acquisitions, in the current and prior year quarters.

The current quarter’s merchandise sales gross profit increased $4.9 million, or 19% from the prior year quarter to $30.9 million. This was due to a $4.7 million, or 8% increase in same store sales, a $4.7 million increase in sales from new and acquired stores net of closed stores and a 1.5 percentage point improvement in gross margins to 42.7%.

The current quarter’s gross profit on jewelry scrapping sales increased $2.4 million, or 19% from the prior year quarter to $15.4 million. Jewelry scrapping revenues increased $9.6 million, or 28% due to an 18% increase in proceeds realized per gram of jewelry scrapped and a 7% increase in volume. The current quarter’s jewelry scrapping sales include the sale of approximately $0.7 million of loose diamonds removed from scrapped jewelry with nominal loose diamond sales in the prior year quarter. As a result of the higher average cost per gram of jewelry scrapped, scrap cost of goods increased $7.2 million, or 34%. Gross margins on gold scrapping decreased 2.7 percentage points to 34.9% due to our more aggressive buying and lending programs designed to be competitive and maximize overall income including pawn service charges.

Operations expense increased to $43.8 million (49% of net revenues) in the current quarter from $39.9 million (52% of net revenues) in the prior year quarter. The dollar increase in expense was primarily due to higher operating costs at new and acquired stores and higher incentive compensation and related taxes. The improvement as a percent of net revenues is from greater scale at same stores and from expense management improvements made at acquired and existing stores.

In the current quarter, the $14.2 million greater net revenues from U.S. pawn activities, partially offset by the $3.9 million higher operations expense and other smaller items resulted in a $10.3 million overall increase in store operating income from the U.S. Pawn Operations segment. The segment comprised 71% of consolidated store operating income in the current quarter compared to 70% in the prior year quarter.

Empeño Fácil Segment

The following table presents selected financial data for the Empeño Fácil segment after translation to U.S. dollars and in its functional currency of the Mexican peso:


	Three Months Ended March 31,
	2011			2010			2011			2010
	(Dollars in thousands)						(Pesos in thousands)
Merchandise sales	$	5,353		$	3,259		$	64,692		$	41,696
Jewelry scrapping sales		3,644			1,762			44,020			22,530
Pawn service charges		3,696			2,050			44,644			26,233
Other		25			—			296			—

Total revenues		12,718			7,071			153,652			90,459
Merchandise cost of goods sold		3,155			2,023			38,122			25,862
Jewelry scrapping cost of goods sold		3,077			1,574			37,168			20,126

Net revenues		6,486			3,474			78,362			44,471
Operations expense		4,849			2,573			58,582			32,894

Store operating income	$	1,637		$	901		$	19,780		$	11,577


Other data:
Gross margin on merchandise sales		41.1	%		37.9	%		41.1	%		37.9	%
Gross margin on jewelry scrapping sales		15.6	%		10.7	%		15.6	%		10.7	%
Gross margin on total sales		30.7	%		28.4	%		30.7	%		28.4	%
Average pawn loan balance per pawn store at quarter end	$	62		$	62		$	742		$	777
Average yield on pawn loan portfolio (a)		186	%		177	%		186	%		177	%
Pawn loan redemption rate		73	%		74	%		73	%		74	%


(a)		Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenue for the period divided by the average pawn loan balance during the period.

The average exchange rate used to translate Empeño Fácil’s current quarter results from Mexican pesos to U.S. dollars was 6% stronger than in the prior year quarter, affecting all revenue and expense items. Store operating income improved 82% in the current quarter in dollars and 71% in peso terms. The 87% increase in net revenues was partially offset by higher operating costs from new stores that we expect will be a drag on earnings until they become profitable in their second year of operation. Approximately 46% of the stores open at March 31, 2011 had been open less than a year. We opened 15 new stores in the current quarter, one of which is an Empeñe su Oro jewelry-only pawn store. Our jewelry-only stores are much smaller and require less staff than our typical pawn stores, but also carry smaller average loan balances per store and immediately sell for scrap any forfeited loan collateral.

Empeño Fácil’s total revenues increased $5.6 million, or 80% in the current quarter to $12.7 million. Same store total revenues increased $1.6 million or 23%, and new stores contributed $4.0 million. The overall increase in total revenues was comprised of a $4.0 million increase in merchandise and jewelry scrapping sales and a $1.6 million improvement in pawn service charges.

Empeño Fácil’s pawn service charge revenues increased $1.6 million, or 80% in the current quarter to $3.7 million. Same store pawn service charges increased approximately $0.7 million, or 37% and new stores contributed $0.9 million. The same store increase was due to an increase in average loan balance during the quarter, coupled with an improvement in the average pawn loan yield. The yield increased primarily due to an increase in pawn service charge rates in certain geographic areas compared to the prior year, partially offset by a slightly lower loan redemption rate.

The current quarter’s merchandise gross profit increased $1.0 million from the prior year quarter to $2.2 million. This was due to a $0.7 million, or 22% same store sales increase and $1.4 million in sales from new stores, combined with a 3.2 percentage point improvement in gross margins to 41.1%. The prior year cost of goods sold was slightly higher than normally expected due to promotions to liquidate aged and damaged inventory.

The current quarter’s gross profit on jewelry scrapping sales increased $0.4 million from the prior year quarter to $0.6 million. Jewelry scrapping revenues increased $1.9 million due to an increase in volume and the sales proceeds per gram. Margins improved 4.9 percentage points to 15.6%. The significant volume increase is due primarily to new store openings and the continuing maturation of stores opened in the prior year. Increased purchases from customers in our jewelry-only pawn stores contributed to the margin improvement.

Operations expense increased to $4.9 million (75% of net revenues) in the current quarter from $2.6 million (74% of net revenues) in the prior year quarter. The dollar increase in expense was primarily due to new stores. We expect percentage improvements in future periods as we continue to build a larger base of maturing stores to support our new store growth.

In the current quarter, the $3.0 million greater net revenues were partially offset by the $2.3 million higher operations expense, resulting in a $0.7 million increase in store operating income from the Empeño Fácil segment. Empeño Fácil comprised 3% of consolidated store operating income in the current quarter compared to 2% in the prior year quarter.

EZMONEY Operations Segment

The following table presents selected financial data for the EZMONEY Operations segment:


	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Signature loan fees	$	34,696		$	31,208
Auto title loan fees		5,022			3,529
Jewelry scrapping sales		293			52
Other revenues		78			—

Total revenues		40,089			34,789

Signature loan bad debt		5,345			4,296
Auto title loan bad debt		322			268
Jewelry scrapping cost of goods sold		161			24

Net revenues		34,261			30,201


Operations expense		17,379			15,720

Store operating income	$	16,882		$	14,481


Other data:
Signature loan bad debt as a percent of signature loan fees		15.4	%		13.8	%
Auto title loan bad debt as a percent of auto title loan fees		6.4	%		7.6	%
Average signature loan balance per store offering signature loans at quarter end (a)	$	52		$	51
Average auto title loan balance per store offering title loans at quarter end (b)	$	17		$	13


(a)		Signature loan balances include payday and installment loans (net of valuation allowance) recorded on our balance sheets and the principal portion of active signature loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheets.

(b)		Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets and the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheets.

The EZMONEY Operations segment total revenues increased $5.3 million, or 15% to $40.1 million, compared to the prior year quarter. This was due to a $4.3 million, or 13% increase in same store total revenues and $1.0 million of total revenues at new stores net of closed or consolidated stores. The overall increase in total revenues was comprised primarily of a $1.5 million increase in auto title loan revenues and a $3.5 million increase in signature loan fees, which includes both installment loans and payday loans. In August 2010 and January 2011, we introduced installment loans in Colorado and Wisconsin, respectively, as a replacement product for payday loans. This contributed to the migration of some customers from payday loans to installment loans.

In the quarter, we opened five stores and closed two stores in Canada bringing our total there to 59. At March 31, 2010, we had 20 Canadian stores.

The segment’s signature loan net revenues increased $2.5 million, or 9% to $29.4 million, compared to the prior year quarter. The increase resulted from the growth in installment loans as the product continues to mature and following its introduction in Colorado and Wisconsin, partially offset by a 1.6 percentage point increase in bad debt to 15.4% of fees. Same store signature loan fees increased 9% compared to the prior year quarter.

The segment’s net revenues from auto title loans increased to $4.7 million in the current quarter, compared to $3.3 million in the prior year quarter, as the product continues to mature. Same store auto title loan fees increased 44%, partially offset by the regulatory elimination of auto title loans in Wisconsin beginning January 1, 2011. Bad debt decreased to 6.4% of related fees from 7.6% in the prior year quarter, mainly due to some operational improvements

at our collections center. We expect continued growth in the contribution from auto title loans as the product continues to reach maturity in the EZMONEY stores offering the product. We now offer auto title loans in 368 EZMONEY stores.

The EZMONEY segment began buying and scrapping gold jewelry in the prior year with very little volume. The segment generated $0.1 million of jewelry scrapping gross profit in the current quarter, with a 45% gross margin.

Operations expense increased to $17.4 million (51% of net revenues) from $15.7 million (52% of net revenues) in the prior year quarter. The improvement as a percent of net revenues was due to the growth in contribution from auto title and installment loan products, with minimal increases in costs at existing stores.

In the current quarter, the $2.5 million increase in net revenues from signature loans, the $1.4 million increase in net revenues from auto title loans, and the $0.2 million increase in scrap sales gross profit and other revenues were partially offset by a $1.7 million greater operations expense, resulting in a $2.4 million, or 17% increase in the segment’s store operating income. The EZMONEY Operations segment comprised 26% of consolidated store operating income in the current quarter compared to 28% in the prior year quarter.

Other Items

The following table reconciles our consolidated store operating income discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:


	Three Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Consolidated store operating income	$	64,905		$	51,500
Administrative expenses		15,733			13,483
Depreciation and amortization		4,466			3,573
(Gain) loss on sale / disposal of assets		(178	)		356
Interest income		(11	)		(8	)
Interest expense		300			395
Equity in net income of unconsolidated affiliates		(4,691	)		(3,306	)
Other		4			12

Consolidated income before income taxes		49,282			36,995
Income tax expense		17,444			13,222

Net income	$	31,838		$	23,773

Administrative expenses increased $2.2 million in the current quarter, but remained unchanged at 12% of net revenues. The dollar increase is primarily due to a $0.7 million increase in professional fees including acquisition-related services, a $0.4 million increase in administrative labor and benefits and a $0.9 million increase in other expenses.

Depreciation and amortization expense was $4.5 million in the current quarter, compared to $3.6 million in the prior year quarter. Depreciation on assets placed in service, primarily at new and acquired stores, was partially offset by assets that were retired or became fully depreciated during the period.

In the current quarter, we recognized a $0.2 million gain on disposal of assets as insurance proceeds received for assets destroyed exceeded the net book value of those assets, most of which were replaced. In the prior year quarter we recognized a $0.4 million loss on store closures or consolidations.

Our $0.3 million net interest expense in the current quarter and $0.4 million in the prior year quarter represent primarily interest on borrowed funds, the amortization of deferred financing costs and the commitment fee on our unused available credit. The only debt outstanding at the end of each period was our term debt, the terms of which require $2.5 million quarterly principal repayments.

Our equity in the net income of Albemarle & Bond decreased $0.6 million, or 23% in the current quarter to $1.9 million as a result of Albemarle & Bond’s slightly lower earnings and a weaker British pound in relation to the U.S. dollar. On November 6, 2009, we acquired approximately 30% of the capital stock of Cash Converters International Limited, a publicly traded company headquartered in Perth, Australia. We acquired additional shares on May 20, 2010 which increased our ownership level to almost 33%. In the current quarter our equity in the net income of Cash Converters was $2.8 million compared to $0.8 million in the prior year quarter. As we account for our earnings from Cash Converters on a 3-month lag, the prior year quarter included our pro rata share of their results of operations for the 56-day period from our November 6, 2009 initial investment date to the December 31, 2009 end of Cash Converters’ period.

The current quarter income tax expense was $17.4 million (35.4% of pretax income) compared to $13.2 million (35.7% of pretax income) for the prior year quarter. The decrease in effective tax rates is primarily due to an increase in both domestic employment 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.

Consolidated operating income for the current quarter improved $10.8 million over the prior year quarter to $44.9 million. Contributing to this were the $10.3 million, $0.7 million and $2.4 million increases in store operating income in our U.S. Pawn, Empeño Fácil and EZMONEY segments and the $0.5 million improvement in gain/loss on disposal of assets. Partially offsetting these was the $2.2 million increase in other administrative expenses and the $0.9 million increase in depreciation and amortization. After a $1.4 million increase in our equity in the net income of unconsolidated affiliates, a $4.2 million increase in income taxes and other smaller items, net income improved 34% to $31.9 million from $23.8 million in the prior year quarter.

Six Months Ended March 31, 2011 vs. Six Months Ended March 31, 2010

The following discussion compares our results of operations for the six months ended March 31, 2011 to the six months ended March 31, 2010. It should be read with the accompanying financial statements and related notes.

U.S. Pawn Operations Segment

The following table presents selected financial data for the U.S. Pawn Operations segment:


	Six Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Merchandise sales	$	138,725		$	124,311
Jewelry scrapping sales		91,064			71,237
Pawn service charges		89,509			75,197
Signature loan fees		916			987
Auto title loan fees		740			902
Other		259			260

Total revenues		321,213			272,894

Merchandise cost of goods sold		79,681			73,964
Jewelry scrapping cost of goods sold		58,225			44,307
Signature loan bad debt		258			287
Auto title loan bad debt		41			122

Net revenues		183,008			154,214

Operations expense		87,013			80,111

Store operating income	$	95,995		$	74,103


Other data:
Gross margin on merchandise sales		42.6	%		40.5	%
Gross margin on jewelry scrapping sales		36.1	%		37.8	%
Gross margin on total sales		40.0	%		39.5	%
Average pawn loan balance per pawn store at period end	$	242		$	227
Average yield on pawn loan portfolio (a)		163	%		162	%
Pawn loan redemption rate		82	%		81	%


(a)		Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenues for the period divided by the average pawn loan balance during the period.

The U.S. Pawn Operations segment total revenues increased $48.3 million, or 18% from the prior year-to-date period to $321.2 million. Same store total revenues increased $30.6 million, or 11%, and new and acquired stores net of closed stores contributed $17.7 million. The overall increase in total revenues was comprised primarily of a $34.2 million increase in merchandise and jewelry scrapping sales and a $14.3 million increase in pawn service charges.

Our current year-to-date period U.S. pawn service charge revenues increased $14.3 million, or 19% from the prior year-to-date period to $89.5 million. Same store pawn service charges increased $10.2 million, or 14%, while new and acquired stores net of closed stores contributed $4.1 million. The same store improvement was due to a higher average pawn loan balance coupled with a slightly higher yield. Inventory purchases from customers represent 31% of total inventory additions, excluding acquisitions, compared to 29% of total inventory additions in the prior year-to-date period.

The current year-to-date period’s merchandise sales gross profit increased $8.7 million, or 17% from the prior year-to-date period to $59.0 million. This was due to a $7.2 million, or 6% increase in same store sales, a $7.2 million increase in sales from new and acquired stores net of closed stores and a 2.1 percentage point improvement in gross margins to 42.6%.

The current year-to-date period’s gross profit on jewelry scrapping sales increased $5.9 million, or 22% from the prior year-to-date period to $32.8 million. Jewelry scrapping revenues increased $19.8 million, or 28% due to a 24% increase in proceeds realized per gram of jewelry scrapped and a 2% increase in volume. Jewelry scrapping sales include the sale of approximately $1.4 million in the current year-to-date period and $0.4 million in the prior year-to-date period of loose diamonds removed from scrapped jewelry. As a result of the higher average cost per gram of jewelry scrapped, scrap cost of goods increased $13.9 million, or 31%. Gross margins on gold scrapping decreased 1.7 percentage points to 36.1% due to our more aggressive buying and lending programs designed to be competitive and maximize overall income including pawn service charges.

Operations expense increased to $87.0 million (48% of net revenues) in the current year-to-date period from $80.1 million (52% of net revenues) in the prior year-to-date period. The dollar increase in expense was primarily due to higher operating costs at new and acquired stores and higher incentive compensation and related taxes. The improvement as a percent of net revenues is from greater scale at same stores and from expense management improvements made at acquired and existing stores.

In the current year-to-date period, the $28.9 million greater net revenues from U.S. pawn activities, the $6.9 million higher operations expense and other smaller items resulted in a $21.9 million overall increase in store operating income from the U.S. Pawn Operations segment. The segment comprised 71% of consolidated store operating income compared to 70% in the prior year-to-date period.

Empeño Fácil Segment

The following table presents selected financial data for the Empeño Fácil segment after translation to U.S. dollars and in its functional currency of the Mexican peso:


	Six Months Ended March 31,
	2011			2010			2011			2010
	(Dollars in thousands)						(Pesos in thousands)
Merchandise sales	$	10,928		$	6,613		$	133,770		$	85,385
Jewelry scrapping sales		7,106			2,369			86,912			30,442
Pawn service charges		7,070			3,906			86,449			50,512
Other		28			—			337			—

Total revenues		25,132			12,888			307,468			166,339
Merchandise cost of goods sold		6,269			4,381			76,710			56,543
Jewelry scrapping cost of goods sold		5,715			2,049			69,850			26,311

Net revenues		13,148			6,458			160,908			83,485
Operations expense		9,127			4,737			111,573			61,177

Store operating income	$	4,021		$	1,721		$	49,335		$	22,308


Other data:
Gross margin on merchandise sales		42.6	%		33.8	%		42.6	%		33.8	%
Gross margin on jewelry scrapping sales		19.6	%		13.5	%		19.6	%		13.5	%
Gross margin on total sales		33.5	%		28.4	%		33.5	%		28.4	%
Average pawn loan balance per pawn store at period end	$	62		$	62		$	742		$	777
Average yield on pawn loan portfolio (a)		182	%		179	%		182	%		179	%
Pawn loan redemption rate		73	%		77	%		73	%		77	%


(a)		Average yield on pawn loan portfolio is calculated as annualized pawn service charge revenue for the period divided by the average pawn loan balance during the period.

The average exchange rate used to translate Empeño Fácil’s current year-to-date period results from Mexican pesos to U.S. dollars was 6% stronger than in the prior year-to-date period, affecting all revenue and expense items. Store operating income improved 134% in the current year-to-date period in dollars and 121% in peso terms. The 104% increase in net revenues was further improved by greater scale at same stores. Approximately 46% of the stores open at March 31, 2011 had been open less than a year. We opened 32 new stores in the current year-to-date period, six of which are Empeñe su Oro jewelry-only pawn stores. These jewelry-only stores are much smaller and require

less staff than our typical pawn stores, but also carry smaller average loan balances per store and immediately sell for scrap any forfeited loan collateral.

Empeño Fácil’s total revenues increased $12.2 million, or 95% in the current year-to-date period to $25.1 million. Same store total revenues increased $4.9 million, or 38% and new stores contributed $7.3 million. The overall increase in total revenues was comprised of a $9.0 million increase in merchandise and jewelry scrapping sales and a $3.2 million improvement in pawn service charges.

Empeño Fácil’s pawn service charge revenues increased $3.2 million, or 81% in the current year-to-date period to $7.1 million. Same store pawn service charges increased approximately $1.7 million, or 42% and new stores contributed $1.5 million. The same store increase was due to an increase in average loan balance during the year-to-date period, coupled with a slight improvement in the average pawn loan yield. The yield increased primarily due to an increase in pawn service charge rates in certain geographic areas compared to the prior year, partially offset by a lower loan redemption rate.

Merchandise gross profit increased $2.4 million from the prior year-to-date period to $4.7 million. This was due to a $1.8 million, or 27% same store sales increase and $2.5 million in sales from new stores, combined with an 8.8 percentage point improvement in gross margins to 42.6%. The prior year cost of goods sold was unusually high due to promotions to liquidate aged and damaged inventory in that period.

The gross profit on jewelry scrapping sales increased $1.1 million from the prior year-to-date period to $1.4 million. Jewelry scrapping revenues increased $4.7 million due to an increase in volume and the sales proceeds per gram. Margins improved 6.1 percentage points to 19.6%. The significant volume increase is due primarily to new store openings and the continuing maturation of stores opened in the prior year. Increased purchases from customers in our jewelry-only pawn stores contributed to the margin improvement.

Operations expense increased to $9.1 million (69% of net revenues) from $4.7 million (73% of net revenues) in the prior year-to-date period. The dollar increase in expense was primarily due to new stores. The improvement as a percent of net revenues is primarily from greater scale at same stores as they mature. We expect further percentage improvements in future periods as we continue to build a larger base of maturing stores to support our new store growth.

In the current year-to-date period, the $6.7 million greater net revenues were partially offset by the $4.4 million higher operations expense, resulting in a $2.3 million increase in store operating income from the Empeño Fácil segment. Empeño Fácil comprised 3% of consolidated store operating income compared to 2% in the prior year-to-date period.

EZMONEY Operations Segment

The following table presents selected financial data for the EZMONEY Operations segment:


	Six Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Signature loan fees	$	74,253		$	69,333
Auto title loan fees		10,873			6,156
Jewelry scrapping sales		490			64
Other revenues		119			—

Total revenues		85,735			75,553

Signature loan bad debt		15,226			12,900
Auto title loan bad debt		1,243			658
Jewelry scrapping cost of goods sold		240			31

Net revenues		69,026			61,964


Operations expense		34,409			31,538

Store operating income	$	34,617		$	30,426


Other data:
Signature loan bad debt as a percent of signature loan fees		20.5	%		18.6	%
Auto title loan bad debt as a percent of auto title loan fees		11.4	%		10.7	%
Average signature loan balance per store offering signature loans at quarter end (a)	$	52		$	51
Average auto title loan balance per store offering title loans at quarter end (b)	$	17		$	13


(a)		Signature loan balances include payday and installment loans (net of valuation allowance) recorded on our balance sheets and the principal portion of active signature loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheets.

(b)		Auto title loan balances include title loans (net of valuation allowance) recorded on our balance sheets and the principal portion of active brokered loans outstanding from unaffiliated lenders, the balance of which is not included on our balance sheets.

The EZMONEY Operations segment total revenues increased $10.2 million, or 13% to $85.7 million, compared to the prior year-to-date period. This was due to an $8.5 million, or 11% increase in same store total revenues and $1.7 million of total revenues at new stores net of closed or consolidated stores. The overall increase in total revenues was comprised primarily of a $4.9 million increase in signature loan revenues, including both installment loans and payday loans, and a $4.7 million increase in auto title loan fees. In August 2010 and January 2011, we introduced installment loans in Colorado and Wisconsin, respectively, as a replacement product for payday loans. This contributed to the migration of some customers from payday loans to installment loans.

In the current year-to-date period, we opened ten stores in Canada and closed two stores, bringing our total there to 59. At March 31, 2010, we had 20 Canadian stores.

The segment’s signature loan net revenues increased $2.6 million, or 5%, to $59.0 million, compared to the prior year-to-date period. The increase resulted from the growth in installment loans as the product continues to mature and following its introduction in Colorado and Wisconsin, partially offset by a 1.9 percentage point increase in bad debt to 20.5% of fees. Same store signature loan fees increased 5% compared to the prior year-to-date period.

The segment’s net revenues from auto title loans increased to $9.6 million in the current year-to-date period, compared to $5.5 million in the prior year-to-date period, as the product continues to mature. Same store auto title loan fees increased 80%, partially offset by the regulatory elimination of auto title loans in Wisconsin beginning January 1, 2011. Bad debt increased to 11.4% of related fees from 10.7% in the prior year-to-date period, as we

accepted slightly higher risk to drive revenue and overall earnings growth. We expect continued growth in the contribution from auto title loans as the product continues to reach maturity in the EZMONEY stores offering the product. We now offer auto title loans in 368 EZMONEY stores.

The EZMONEY segment began buying and scrapping gold jewelry in the prior year-to-date period with very little volume. The segment generated $0.3 million of jewelry scrapping gross profit in the current year-to-date period, with a 51% gross margin.

Operations expense increased to $34.4 million (50% of net revenues) from $31.5 million (51% of net revenues) in the prior year-to-date period. The improvement as a percent of net revenues was due to the growth in contribution from auto title and installment loan products, with minimal increases in costs at existing stores.

In the current year-to-date period, the $4.1 million increase in net revenues from auto title loans, the $2.6 million increase in net revenues from signature loans, and the $0.3 million increase in jewelry scrapping gross profit and other revenue were partially offset by a $2.9 million greater operations expense, resulting in a $4.2 million, or 14% increase in the segment’s store operating income. The EZMONEY Operations segment comprised 26% of consolidated store operating income compared to 28% in the prior year-to-date period.

Other Items


	Six Months Ended March 31,
	2011			2010
	(Dollars in thousands)
Consolidated store operating income	$	134,633		$	106,250
Administrative expenses		41,871			25,780
Depreciation and amortization		8,645			6,929
(Gain) loss on sale / disposal of assets		(171	)		567
Interest income		(14	)		(16	)
Interest expense		600			760
Equity in net income of unconsolidated affiliates		(8,058	)		(4,589	)
Other		(57	)		(3	)

Consolidated income before income taxes		91,817			76,822
Income tax expense		32,550			27,342

Net income	$	59,267		$	49,480

Administrative expenses in the current year-to-date period were $41.9 million (16% of net revenues) compared to $25.8 million (12% of net revenues) in the prior year-to-date period. This increase is primarily due to a pre-tax charge of $10.9 million related to the retirement of our former Chief Executive Officer. This charge included $3.4 million attributable to a cash payment and $7.5 million attributable to the vesting of restricted stock. Excluding this charge, administrative expense increased $5.2 million over the prior year-to-date period but remained unchanged at 12% of net revenues in the current year-to-date period.

Depreciation and amortization expense was $8.6 million in the current year-to-date period, compared to $6.9 million in the prior year-to-date period. Depreciation on assets placed in service, primarily at new and acquired stores, was partially offset by assets that were retired or became fully depreciated during the period.

In the current year-to-date period, we recorded a $0.2 million gain on disposal of assets as insurance proceeds received for assets destroyed exceeded the net book value of those assets, most of which were replaced. In the prior year-to-date period we recognized a $0.6 million loss on store closures or consolidations.

Our $0.6 million net interest expense in the current year-to-date period and $0.7 million in the prior year-to-date period represent primarily interest on borrowed funds, the amortization of deferred financing costs and the commitment fee on our unused available credit. The only debt outstanding at the end of each period was our term debt, the terms of which require $2.5 million quarterly principal repayments.

Our equity in the net income of Albemarle & Bond decreased $0.2 million, or 4% in the current year-to-date period to $3.6 million as a result of Albemarle & Bond’s lower earnings and a weaker British pound in relation to the U.S. dollar. On November 6, 2009, we acquired approximately 30% of the capital stock of Cash Converters International Limited, a publicly traded company headquartered in Perth, Australia. We acquired additional shares on May 20, 2010 which increased our ownership level to almost 33%. In the current year-to-date period our equity in the net income of Cash Converters was $4.4 million compared to $0.8 million in the prior year-to-date period. As we account for our earnings from Cash Converters on a 3-month lag, the prior year-to-date period included our pro rata share of their results of operations for the 56-day period from our November 6, 2009 initial investment date to the December 31, 2009 end of Cash Converters’ period.

Income tax expense was $32.6 million (35.5% of pretax income) compared to $27.3 million (35.6% of pretax income) for the prior year-to-date period. The decrease in effective tax rates is primarily due to an increase in both domestic employment 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.

Consolidated operating income for the current year-to-date period improved $11.3 million over the prior year-to-date period to $84.3 million. Contributing to this were the $21.9 million, $2.3 million and $4.2 million increases in store operating income in our U.S. Pawn, Empeño Fácil and EZMONEY segments, respectively, and the $0.7 improvement in gain/loss on disposal of assets. Partially offsetting these was the $10.9 million charge related to the retirement of our former Chief Executive Officer, the $5.2 million increase in other administrative expenses and the $1.7 million increase in depreciation and amortization. After a $3.5 million increase in our equity in the net income of unconsolidated affiliates, a $5.2 million increase in income taxes and other smaller items, net income improved to $59.3 million. Excluding the one-time $10.9 million charge related to the retirement of our former Chief Executive Officer and the related tax benefit, net income increased 34% to $66.4 million from $49.5 million in the prior year-to-date period.

Liquidity and Capital Resources

In the current year-to-date period, our $69.9 million cash flow from operations consisted of (a) net income plus several non-cash items, aggregating to $77.7 million, net of (b) $7.8 million of normal, recurring changes in operating assets and liabilities. In the prior year-to-date period, our $51.1 million cash flow from operations consisted of (a) net income plus several non-cash items, aggregating to $60.3 million, net of (b) $9.2 million of normal, recurring changes in operating assets and liabilities.

The $26.8 million of net cash used in investing activities during the current year-to-date period was funded by cash flow from operations. In the current year-to-date period, we acquired nine pawn stores for $31.5 million and invested $15.2 million in additional property and equipment. Partially offsetting these investments was $15.7 million of customer loan repayments and the recovery of principal through the sale of forfeited loan collateral in excess of loans made. In the current year-to-date period, we also received $4.2 million in dividends from our unconsolidated affiliates and repaid $5.0 million of our term loan. Net of related tax benefits and proceeds from option exercises, we also paid $4.1 million of withholding tax upon the net share settlement of restricted stock vesting.

The net effect of these cash flows was a $33.9 million increase in cash on hand, providing a $59.8 million ending cash balance.

Below is a summary of our cash needs to meet future aggregate contractual obligations (in millions):


	Payments due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		More than 5 years
Long-term debt obligations	$	20.0	$	10.0	$	10.0	$	—	$	—
Interest on long-term debt obligations		0.8		0.6		0.2		—		—
Operating lease obligations		150.7		40.2		62.1		30.3		18.1

Total	$	171.5	$	50.8	$	72.3	$	30.3	$	18.1

In addition to the contractual obligations in the table above, we are obligated under letters of credit issued to unaffiliated lenders as part of our credit service operations. At March 31, 2011, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $26.5 million. Of that total, $7.7 million was secured by titles to customers’ automobiles. These amounts include principal, interest, insufficient funds fees and late fees.

In addition to the operating lease obligations in the table above, we are responsible for the maintenance, property taxes and insurance at most of our locations. In the most recent fiscal year ended September 30, 2010, these collectively amounted to $14.9 million.

The operating lease obligations in the table above include expected rent for all our store locations through the end of their current lease terms. Of the 448 U.S. EZMONEY short-term consumer loan stores, 159 adjoin an EZPAWN store. The lease agreements at approximately 94% of the remaining 289 free-standing EZMONEY stores contain provisions that limit our exposure to additional rent if laws were enacted that had a significant negative effect on our operations at these stores.

In the remaining six months of the fiscal year ending September 30, 2011, we plan to open approximately 25 to 30 Empeño Fácil pawn stores in Mexico, five to ten Cash Converters stores in Canada and five pawn stores in the United States for an aggregate investment of $5.3 million of capital expenditures plus the funding of working capital and start-up losses related to these store openings. We believe new stores will create a drag on earnings and liquidity until their second year of operations. We also have agreed, subject to a vote of the selling shareholders, to acquire 15 pawn stores in May 2011 for $18.5 million, and continue to evaluate additional acquisition opportunities.

Our syndicated credit agreement provides for, among other things, (i) an $80 million revolving credit facility expiring December 31, 2011 that we may, under the terms of the agreement, request to be increased to a total of $110 million and (ii) a $40 million term loan maturing December 31, 2012. Our term loan requires $2.5 million quarterly principal payments. At March 31, 2011, $20 million was outstanding under the term loan and bank letters of credit totaling $5 million were outstanding, leaving $75 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. Terms of the credit agreement require, among other things, that we meet certain financial covenants. We were in compliance with all covenants at March 31, 2011 and expect to remain in compliance based on our expected future performance. The payment of dividends and additional debt are restricted under our credit agreement.

We anticipate that cash flow from operations, cash on hand and availability under our revolving credit facility will be adequate to fund our contractual obligations, planned store growth, capital expenditures and working capital requirements during the coming year.

On January 13, 2011, the SEC declared effective our “shelf” Registration Statement on Form S-4, registering two million shares of our Class A Non-Voting Common Stock that we may offer from time to time in connection with future acquisitions of businesses, assets or securities. To date, we have not issued any of the shares covered by the registration statement.

Off-Balance Sheet Arrangements

We issue letters of credit (“LOCs”) to enhance the creditworthiness of our credit service customers seeking signature loans and auto title loans from unaffiliated lenders. The LOCs assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed them by the borrowers plus any insufficient funds fee or late fee. We do not record on our balance sheet the loans related to our credit services as the loans are made by unaffiliated lenders. We do not consolidate the unaffiliated lenders’ results with our results as we do not have any ownership interest in the lenders, do not exercise control over them and do not otherwise meet the criteria for consolidation as prescribed by FASB ASC 810-10-25 regarding variable interest entities.

We include an allowance for Expected LOC Losses in “Accounts payable and other accrued expenses” on our balance sheet. At March 31, 2011, the allowance for Expected LOC Losses was $0.9 million. At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $26.5 million. This amount includes principal, interest, insufficient funds fees and late fees.

We have no other off-balance sheet arrangements.

Seasonality

Historically, pawn service charges are highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season. Merchandise sales are highest in the first and second fiscal quarters (October through March) due to the holiday season, jewelry sales surrounding Valentine’s Day and the impact of tax refunds in the United States. Jewelry scrapping sales are heavily influenced by the timing of decisions to scrap excess jewelry inventory. Jewelry scrapping sales generally are greatest during our fourth fiscal quarter (July through September). This results from relatively low jewelry merchandise sales in that quarter and the higher loan balance, leading to a higher dollar amount of loan forfeitures in the summer lending season providing more inventory available for sale.

Signature loan fees are generally highest in our third and fourth fiscal quarters (April through September) due to a higher average loan balance during the summer lending season. Signature loan bad debt, both in dollar terms and as a percentage of related fees, is highest in the third and fourth quarters and lowest in the second quarter due primarily to the impact of tax refunds in the U.S.

The net effect of these factors is that net revenues and net income typically are strongest in the fourth fiscal quarter and weakest in the third fiscal quarter. Our cash flow typically is greatest in the second fiscal quarter due to a high level of loan redemptions and sales in the U.S. income tax refund season.

Use of Estimates and Assumptions

Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our condensed consolidated financial statements, which have been prepared according to accounting principles generally accepted in the United States for interim financial information. The preparation of these financial statements require us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventory, loan loss allowances, long-lived and intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience, observable trends and various other assumptions that we believe are reasonable under the circumstances. We use this information to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from the estimates under different assumptions or conditions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to interest rates, gold values and changes in foreign currency exchange rates. We do not use derivative financial instruments.

Our earnings are affected by changes in interest rates as our debt has a variable rate. If interest rates average 50 basis points more than our current rate in the remaining six months of the fiscal year ending September 30, 2011, our interest expense during that period would increase by approximately $41,000. This amount is determined by considering the impact of the hypothetical interest rate change on our variable-rate term debt at March 31, 2011, including mandatory quarterly principal repayments of $2.5 million.

Our earnings and financial position are affected by changes in gold values and the resulting impact on pawn lending, jewelry sales and jewelry cost of goods sold. The proceeds of scrap sales and our ability to sell jewelry inventory at an acceptable margin depend on gold values. The impact on our financial position and results of operations of a hypothetical change in gold values cannot be reasonably estimated. For further discussion, you should read “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2010.

Our earnings and financial position are affected by foreign exchange rate fluctuations related to our equity investments in Albemarle & Bond and Cash Converters, our Empeño Fácil pawn operations in Mexico, and our Canadian CASHMAX stores. Albemarle & Bond’s functional currency is the British pound, Cash Converter’s functional currency is the Australian dollar, Empeño Fácil’s functional currency is the Mexican peso, and CASHMAX’s functional currency is the Canadian dollar. The impact on our results of operations and financial position of hypothetical changes in foreign currency exchange rates cannot be reasonably estimated due to the interrelationship of operating results and exchange rates. Separate discussion regarding the Canadian dollar is not presented as our Canadian operations are not yet material.

The translation adjustment from Albemarle & Bond representing the weakening in the British pound during the quarter ended December 31, 2010 (included in our March 31, 2011 results on a three-month lag) was a $0.4 million decrease to stockholders’ equity. On March 31, 2011, the British pound strengthened to £1.00 to $1.6032 U.S. compared to $1.5471 at December 31, 2010.

The translation adjustment from Cash Converters representing the strengthening in the Australian dollar during the quarter ended December 31, 2010 (included in our March 31, 2011 results on a three-month lag) was a $1.6 million increase to stockholders’ equity. On March 31, 2011, the Australian dollar strengthened to $1.00 Australian dollar to $1.0309 U.S. from $1.0163 at December 31, 2010.

The translation adjustment from Empeño Fácil representing the strengthening of the Mexican peso during the quarter ended March 31, 2011 was a $1.2 million increase to stockholders’ equity. We have currently assumed permanent reinvestment of earnings and capital in Mexico. Accumulated translation gains or losses related to any future repatriation of earnings or capital would impact our earnings in the period of repatriation. On March 31, 2011, the peso strengthened to $1.00 Mexican peso to $0.0836 U.S. from $0.0809 at December 31, 2010.

We cannot predict the future valuation of foreign currencies or how further movements in them could affect our future earnings or financial position.

Forward-Looking Information

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like “may,” “should,” “could,” “will,” “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “projection” and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to

substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we cannot predict all of the risks and uncertainties that could cause our actual results to differ from those expressed in the forward-looking statements. Accordingly, you should not regard any forward-looking statements as a representation that the expected results will be achieved. Important risk factors that could cause results or events to differ from current expectations are identified in “Part II, Item 1A — Risk Factors” of this Quarterly Report and “Part I, Item 1A — Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2010.

We specifically disclaim any responsibility to publicly update any information contained in a forward-looking statement except as required by law. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

Item 4. Controls and Procedures

This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2011.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Internal Controls

Notwithstanding the foregoing, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. Limitations inherent in any control system include the following:

•		Judgments in decision-making can be faulty, and control and process breakdowns can occur because of simple errors or mistakes.

•		Controls can be circumvented by individuals, acting alone or in collusion with others, or by management override.

•		The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

•		Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures.

•		The design of a control system must reflect the fact that resources are constrained, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

PART II

Item 1. Legal Proceedings

See Note J, “Contingencies,” in the Notes to Interim Condensed Consolidated Financial Statements (unaudited) included in this filing and incorporated herein by reference.

Item 1A. Risk Factors

Important risk factors that could affect our operations and financial performance, or that could cause results or events to differ from current expectations, are described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2010. These factors are supplemented by those discussed under “Quantitative and Qualitative Disclosures about Market Risk” in Part I, Item 3 of this report and in Part II, Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2010.

Item 6. Exhibits


Exhibit No.		Description of Exhibit
10.1		Transaction Implementation Agreement, dated March 21, 2011, between Cash Converters International Limited and EZCORP, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 21, 2011 and filed March 22, 2011, Commission File No. 0-19424)

31.1		Certification of Paul E. Rothamel, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Stephen A. Stamp, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Paul E. Rothamel, Chief Executive Officer, and Stephen A. Stamp, Chief Financial Officer , pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		XBRL Taxonomy Label Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document


*		Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2011, March 31, 2010 and September 30, 2010; (ii) Consolidated Statements of Income for the three month and six month periods ended March 31, 2011 and March 31, 2010; (iii) Consolidated Statements of Cash Flows for the six month periods ended March 31, 2011 and March 31, 2010; and (iv) Notes to Consolidated Financial Statements (tagged as a block of text).

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	EZCORP, INC.
Date: May 5, 2011	/s/ Stephen A. Stamp
	Stephen A. Stamp
	Senior Vice President and Chief Financial Officer

EXHIBIT INDEX


Exhibit No.		Description of Exhibit
10.1		Transaction Implementation Agreement, dated March 21, 2011, between Cash Converters International Limited and EZCORP, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 21, 2011 and filed March 22, 2011, Commission File No. 0-19424)

31.1		Certification of Paul E. Rothamel, Chief Executive Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Stephen A. Stamp, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Paul E. Rothamel, Chief Executive Officer, and Stephen A. Stamp, Chief Financial Officer , pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		XBRL Taxonomy Label Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document


*		Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at March 31, 2011, March 31, 2010 and September 30, 2010; (ii) Consolidated Statements of Income for the three month and six month periods ended March 31, 2011 and March 31, 2010; (iii) Consolidated Statements of Cash Flows for the six month periods ended March 31, 2011 and March 31, 2010; and (iv) Notes to Consolidated Financial Statements (tagged as a block of text).