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EZCORP INC - Quarter Report: 2013 March (Form 10-Q)

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
 
 
FORM 10-Q
 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934
For the quarterly period ended March 31, 2013
or 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                         
Commission File No. 0-19424
 
 
 
 
EZCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware
74-2540145
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
1901 Capital Parkway
Austin, Texas
78746
(Address of principal executive offices)
(Zip Code)
(512) 314-3400
Registrant’s telephone number, including area code:
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
APPLICABLE ONLY TO CORPORATE ISSUERS:
The only class of voting securities of the registrant issued and outstanding is the Class B Voting Common Stock, par value $.01 per share, all of which is owned by an affiliate of the registrant. There is no trading market for the Class B Voting Common Stock.
As of March 31, 2013, 51,208,328 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.


Table of Contents

EZCORP, INC.
INDEX TO FORM 10-Q
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents


ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (UNAUDITED)

EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
March 31,
2013
 
March 31,
2012
 
September 30,
2012
 
(in thousands)
 
 
 
 
 
 
Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
41,443

 
$
46,674

 
$
48,477

Restricted cash
1,204

 
930

 
1,145

Pawn loans
138,380

 
122,305

 
157,648

Consumer loans, net
36,596

 
24,275

 
34,152

Pawn service charges receivable, net
25,388

 
22,296

 
29,401

Consumer loan fees receivable, net
33,507

 
24,551

 
30,416

Inventory, net
116,517

 
87,834

 
109,214

Deferred tax asset
15,716

 
18,228

 
14,984

Income tax receivable
3,079

 
2,351

 
10,511

Prepaid expenses and other assets
42,421

 
34,474

 
45,451

Total current assets
454,251

 
383,918

 
481,399

Investments in unconsolidated affiliates
147,232

 
120,056

 
126,066

Property and equipment, net
118,979

 
95,044

 
108,131

Restricted cash, non-current
2,197

 

 
4,337

Goodwill
432,124

 
324,281

 
374,663

Intangible assets, net
61,487

 
38,804

 
45,185

Non-current consumer loans, net
77,414

 
56,632

 
61,997

Other assets, net
20,723

 
8,792

 
16,229

Total assets (1)
$
1,314,407

 
$
1,027,527

 
$
1,218,007

Liabilities and stockholders’ equity:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current maturities of long-term debt
$
34,912

 
$
22,849

 
$
21,085

Current capital lease obligations
533

 

 
594

Accounts payable and other accrued expenses
63,298

 
58,110

 
64,104

Other current liabilities
36,096

 
16,723

 
14,821

Customer layaway deposits
8,191

 
7,193

 
7,238

Total current liabilities
143,030

 
104,875

 
107,842

Long-term debt, less current maturities
137,376

 
108,084

 
198,836

Long-term capital lease obligations
648

 

 
995

Deferred tax liability
10,104

 
8,455

 
7,922

Deferred gains and other long-term liabilities
15,080

 
13,487

 
13,903

Total liabilities (2)
306,238

 
234,901

 
329,498

Commitments and contingencies


 


 


Temporary equity:
 
 
 
 
 
Redeemable noncontrolling interest
52,982

 
36,908

 
53,681

Stockholders’ equity:
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share; authorized 54 million shares; issued and outstanding: 51,208,328 at March 31, 2013, 48,002,116 at March 31, 2012; and 48,255,536 at September 30, 2012
508

 
480

 
482

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
315,092

 
258,343

 
268,626

Retained earnings
630,501

 
498,708

 
565,803

Accumulated other comprehensive income (loss)
9,056

 
(1,843
)
 
(113
)
EZCORP, Inc. stockholders’ equity
955,187

 
755,718

 
834,828

Total liabilities and stockholders’ equity
$
1,314,407

 
$
1,027,527

 
$
1,218,007

Assets and Liabilities of Grupo Finmart Securitization Trust
(1) Our consolidated assets as of March 31, 2013 and September 30, 2012, include the following assets of Grupo Finmart's securitization trust that can only be used to settle its liabilities: Restricted cash, $2.2 million and $4.3 million; Consumer loans, net, $36.1 million and $33.6 million; Consumer loan fees receivable, net, $8.1 million and $7.7 million; Intangible assets, net $3.0 million and $2.6 million and total assets, $49.4 million and $48.2 million respectively.
(2) Our consolidated liabilities as of March 31, 2013 and September 30, 2012, include $34.0 million and $32.7 million of long-term debt for which the creditors of Grupo Finmart's securitization trust do not have recourse to EZCORP, Inc.
See accompanying notes to interim condensed consolidated financial statements.

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Table of Contents

EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
100,906

 
$
94,997

 
$
196,488

 
$
181,891

Jewelry scrapping sales
43,568

 
53,175

 
89,493

 
109,578

Pawn service charges
62,594

 
56,444

 
128,618

 
116,236

Consumer loan fees
62,310

 
50,319

 
127,075

 
95,407

Other revenues
2,696

 
1,343

 
7,526

 
2,039

Total revenues
272,074

 
256,278

 
549,200

 
505,151

Merchandise cost of goods sold
59,177

 
55,880

 
114,678

 
104,276

Jewelry scrapping cost of goods sold
30,092

 
32,310

 
62,291

 
67,734

Consumer loan bad debt
8,880

 
6,466

 
22,954

 
17,491

Net revenues
173,925

 
161,622

 
349,277

 
315,650

Operating expenses:
 
 
 
 
 
 
 
Operations
105,547

 
86,624

 
212,809

 
169,182

Administrative
8,603

 
11,998

 
22,274

 
23,652

Depreciation and amortization
8,763

 
7,259

 
16,415

 
12,514

(Gain) loss on sale or disposal of assets
13

 
27

 
42

 
(174
)
Total operating expenses
122,926

 
105,908

 
251,540

 
205,174

Operating income
50,999

 
55,714

 
97,737

 
110,476

Interest income
(138
)
 
(314
)
 
(316
)
 
(353
)
Interest expense
3,891

 
2,560

 
7,706

 
3,150

Equity in net income of unconsolidated affiliates
(4,125
)
 
(4,577
)
 
(9,163
)
 
(8,738
)
Other (income) expense
405

 
802

 
(96
)
 
(317
)
Income before income taxes
50,966

 
57,243

 
99,606

 
116,734

Income tax expense
16,086

 
19,870

 
32,571

 
40,009

Net income
34,880

 
37,373

 
67,035

 
76,725

Net income attributable to redeemable noncontrolling interest
899

 
112

 
2,337

 
112

Net income attributable to EZCORP, Inc.
$
33,981

 
$
37,261

 
$
64,698

 
$
76,613

 
 
 
 
 
 
 
 
Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Diluted
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
54,172

 
50,794

 
53,099

 
50,573

Diluted
54,252

 
51,069

 
53,172

 
50,887

See accompanying notes to interim condensed consolidated financial statements.

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Table of Contents

EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Net income
$
34,880

 
$
37,373

 
$
67,035

 
$
76,725

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
11,111

 
6,394

 
14,579

 
(2,374
)
Unrealized holding loss arising during period
(221
)
 
(179
)
 
(264
)
 
(738
)
Income tax benefit (provision)
(1,057
)
 
(75
)
 
(3,037
)
 
2,511

Other comprehensive income (loss), net of tax
9,833

 
6,140

 
11,278

 
(601
)
Comprehensive income
$
44,713

 
$
43,513

 
$
78,313

 
$
76,124

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
Net income
899

 
112

 
2,337

 
112

Foreign currency translation gain
2,760

 
496

 
2,109

 
496

Comprehensive income attributable to redeemable noncontrolling interest
3,659

 
608

 
4,446

 
608

Comprehensive income attributable to EZCORP, Inc.
$
41,054

 
$
42,905

 
$
73,867

 
$
75,516

See accompanying notes to interim condensed consolidated financial statements.


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EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Operating Activities:
 
 
 
Net income
$
67,035

 
$
76,725

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
16,415

 
12,514

Consumer loan loss provision
12,900

 
6,761

Deferred income taxes
1,400

 
465

(Gain) loss on sale or disposal of assets
42

 
(174
)
Stock compensation
3,054

 
3,238

Income from investments in unconsolidated affiliates
(9,163
)
 
(8,738
)
Changes in operating assets and liabilities, net of business acquisitions:
 
 
 
Service charges and fees receivable, net
2,366

 
6,551

Inventory, net
(3,034
)
 
1,446

Prepaid expenses, other current assets, and other assets, net
(7,072
)
 
2,644

Accounts payable and accrued expenses
(2,743
)
 
(18,718
)
Customer layaway deposits
812

 
206

Deferred gains and other long-term liabilities
350

 
10,856

Excess tax benefit from stock compensation
(342
)
 
(1,521
)
Income taxes receivable/payable
7,320

 
(1,949
)
Dividends from unconsolidated affiliates
4,828

 
4,788

Net cash provided by operating activities
94,168

 
95,094

Investing Activities:
 
 
 
Loans made
(440,917
)
 
(360,354
)
Loans repaid
307,930

 
260,289

Recovery of pawn loan principal through sale of forfeited collateral
129,965

 
129,518

Additions to property and equipment
(23,506
)
 
(20,842
)
Acquisitions, net of cash acquired
(12,279
)
 
(83,057
)
Investments in unconsolidated affiliates
(11,018
)
 

Net cash used in investing activities
(49,825
)
 
(74,446
)
Financing Activities:
 
 
 
Proceeds from exercise of stock options
6

 
634

Excess tax benefit from stock compensation
342

 
1,521

Debt issuance cost
(259
)
 

Taxes paid related to net share settlement of equity awards
(3,596
)
 
(1,071
)
Change in restricted cash
2,303

 
(935
)
Proceeds from revolving line of credit
148,265

 
321,617

Payments on revolving line of credit
(194,805
)
 
(318,227
)
Proceeds from bank borrowings
1,172

 

Payments on bank borrowings and capital lease obligations
(5,170
)
 
(1,056
)
Net cash provided by (used in) financing activities
(51,742
)
 
2,483

Effect of exchange rate changes on cash and cash equivalents
365

 
(426
)
Net increase (decrease) in cash and cash equivalents
(7,034
)
 
22,705

Cash and cash equivalents at beginning of quarter
48,477

 
23,969

Cash and cash equivalents at end of quarter
$
41,443

 
$
46,674

Non-cash Investing and Financing Activities:
 
 
 
Pawn loans forfeited and transferred to inventory
$
130,675

 
$
123,587

Issuance of common stock due to acquisitions
$
38,705

 
$
11,615

Deferred consideration
$
24,000

 
$
5,785

Contingent consideration
$

 
$
23,000

Accrued additions to property and equipment
$

 
$
1,404

See accompanying notes to interim condensed consolidated financial statements.

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EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income (Loss)
 
EZCORP, Inc.
Stockholders’
Equity
 
Shares
 
Par Value
 
 
(in thousands)
Balances at September 30, 2011
50,199

 
$
501

 
$
242,398

 
$
422,095

 
$
(746
)
 
$
664,248

Stock compensation

 

 
3,238

 

 

 
3,238

Stock options exercised
196

 
2

 
632

 

 

 
634

Issuance of common stock due to acquisitions
427

 
5

 
11,625

 

 

 
11,630

Release of restricted stock
150

 
2

 

 

 

 
2

Excess tax benefit from stock compensation

 

 
1,521

 

 

 
1,521

Taxes paid related to net share settlement of equity awards

 

 
(1,071
)
 

 

 
(1,071
)
Unrealized loss on available-for-sale securities

 

 

 

 
(480
)
 
(480
)
Foreign currency translation adjustment

 

 

 

 
(617
)
 
(617
)
Net income attributable to EZCORP, Inc.

 

 

 
76,613

 

 
76,613

Balances at March 31, 2012
50,972

 
$
510

 
$
258,343

 
$
498,708

 
$
(1,843
)
 
$
755,718

 
 
 
 
 
 
 
 
 
 
 
 
Balances at September 30, 2012
51,226

 
$
512

 
$
268,626

 
$
565,803

 
$
(113
)
 
$
834,828

Stock compensation

 

 
3,054

 

 

 
3,054

Stock options exercised
3

 

 
6

 

 

 
6

Issuance of common stock due to acquisitions
1,965

 
20

 
38,685

 

 

 
38,705

Issuance of common stock due to purchase of subsidiary shares from noncontrolling interest
592

 
6

 
10,398

 

 

 
10,404

Purchase of subsidiary shares from noncontrolling interest

 

 
(2,423
)
 

 
85

 
(2,338
)
Release of restricted stock
392

 

 

 

 

 

Excess tax benefit from stock compensation

 

 
342

 

 

 
342

Taxes paid related to net share settlement of equity awards

 

 
(3,596
)
 

 

 
(3,596
)
Unrealized loss on available-for-sale securities

 

 

 

 
(172
)
 
(172
)
Foreign currency translation adjustment

 

 

 

 
9,256

 
9,256

Net income attributable to EZCORP, Inc.

 

 

 
64,698

 

 
64,698

Balances at March 31, 2013
54,178

 
$
538

 
$
315,092

 
$
630,501

 
$
9,056

 
$
955,187

See accompanying notes to interim condensed consolidated financial statements.


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EZCORP, INC. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
March 31, 2013

NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all 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 2). The accompanying financial statements should be read with the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2012. The balance sheet at September 30, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Our business is subject to seasonal variations, and operating results for the three and six months ended March 31, 2013 (the “current quarter” and "current six-month period") are not necessarily indicative of the results of operations for the full fiscal year. Certain prior period balances have been reclassified to conform to the current presentation and to reflect adjustments to purchase price allocations that were updated as additional information became available.
The consolidated financial statements include the accounts of EZCORP, Inc. ("EZCORP") and its consolidated subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. As of March 31, 2013, we own 60% of the outstanding equity interests in Prestaciones Finmart, S.A. de C.V., SOFOM, E.N.R. (“Grupo Finmart"), doing business under the brands "Crediamigo” and "Adex," 95% of Ariste Holding Limited and its affiliates ("Cash Genie"), and 51% of Renueva Comercial S.A. de C.V. ("TUYO"), and therefore, include their results in our consolidated financial statements. We account for our investments in Albemarle & Bond Holdings, PLC and Cash Converters International Limited using the equity method.
With the exception of the policies described below, there have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2012.
On November 20, 2012, we entered into a definitive agreement with Go Cash, LLC and certain of its affiliates ("Go Cash") to acquire substantially all the assets of Go Cash's online lending business. This acquisition was completed on December 20, 2012 and accounted for as an asset purchase. Since the acquisition, Go Cash (now EZCORP Online) has modified the following consumer loan policies:
Unsecured Consumer Loan Revenue and Bad DebtConsumer loans made by EZCORP Online are considered delinquent if they are not repaid or renewed by the maturity date.   We do not accrue additional revenues on delinquent loans. All outstanding principal balances and fee receivables greater than 60 days past due are considered defaulted. Upon default, we charge consumer loan principal to consumer loan bad debt and reverse accrued unsecured consumer loan fee revenue.
Recently Adopted Accounting Pronouncements
In December 2011, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-11, Disclosures about Offsetting Assets and Liabilities. This update, which amends FASB ASC 210 (Balance Sheet), requires entities to disclose information about offsetting and related arrangements and the effect of those arrangements on its financial position. The amendments in ASU 2011-11 enhance disclosures required by FASB ASC 210 by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with FASB ASC 210-20-45 or 815-10-45 or are subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013. Disclosures are required retrospectively for all comparative periods presented. Currently, we do not enter into any right of offset arrangements and the adoption of ASU 2011-11 did not have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This update addresses implementation issues about the scope of ASU 2011-11. The amendments in this ASU clarify that the scope of the disclosures under U.S. GAAP is limited to derivatives, including bifurcated embedded derivatives, repurchase agreements, reverse purchase agreements, securities borrowing and securities lending transactions that are offset in accordance with FASB ASC 210-20-45 Balance Sheet—Offsetting—Other Presentation

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Matters, or FASB ASC 815-10-45 Derivatives and Hedging — Overall — Other Presentation Matters, or subject to a master netting arrangement or similar agreement. Entities with other types of financial assets and financial liabilities subject to a master netting arrangement or similar agreement are no longer subject to the disclosure requirements in ASU 2011-11. This update requires entities to apply the amendments for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods and to provide the required disclosures retrospectively for all comparative periods presented. Currently, we do not enter into any right of offset arrangements and the adoption of ASU 2013-01 did not have a material effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In October 2012, the FASB issued ASU 2012-04, Technical Corrections and Improvements. This update clarifies the Codification or corrects unintended application of guidance and includes amendments identifying when the use of fair value should be linked to the definition of fair value in Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance for both public and nonpublic entities. For public entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. We do not anticipate that the adoption of ASU 2012-04 will have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-02, Comprehensive income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update, requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This update requires entities to apply the amendments for periods beginning after December 15, 2012 and interim periods within those annual periods and to provide the required disclosures for all reporting periods presented. We do not anticipate the adoption of ASU 2013-03 to have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405)—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This update provides guidance for the recognition, measurement and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date (except for obligations addressed within existing guidance in U.S. GAAP). Examples of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations and settled litigation and judicial rulings. ASU 2013-04 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate that the adoption of ASU 2013-04 will have a material effect on our financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) — Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This update applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate that the adoption of ASU 2013-05 will have a material effect on our financial position, results of operations or cash flows.
NOTE 2: ACQUISITIONS
Go Cash
On November 20, 2012, we entered into a definitive agreement with Go Cash, LLC and certain of its affiliates ("Go Cash") to acquire substantially all the assets of Go Cash's online lending business. This acquisition was completed on December 20, 2012 and accounted for as an asset purchase. No liabilities were assumed other than trade payables and accounts payable incurred prior to closing in the ordinary course of business, which were less than $0.2 million.
The assets acquired include a proprietary software platform, including a loan management system and a lending decision science engine, that will enable geographic expansion both within the U.S. and internationally; an internal customer service and collections call center; a portion of the existing Go Cash multi-state loan portfolio; and related assets, including customer lists, customer data and customer transaction information. We hired substantially all of Go Cash's employees, including the management team, an internal underwriting and customer experience analytics team, and an experienced customer service and collections call center team.

7

Table of Contents

The total purchase price is performance-based and will be determined over a period of four years following the closing. A minimum of $50.8 million will be paid, of which $27.8 million was paid at closing, $11.0 million will be paid on November 10, 2013, $6.0 million will be paid on November 10, 2014, and $6.0 million will be paid on November 10, 2015. The performance consideration element will be based on the net income generated by the "Post-Closing Business Unit" (which will include all of EZCORP's online consumer lending business). Within a specified period after the end of each of the first four years following the closing, EZCORP will make a contingent supplemental payment equal to the difference between (a) the adjusted net income for such year, multiplied by 6.0, and (b) all consideration payments previously paid. Each payment may be made, in EZCORP's sole discretion, in cash or in the form of shares of EZCORP Class A Non-Voting Common Stock. The initial payment was made in the form of 1,400,198 shares of EZCORP Class A Non-Voting Common Stock.
The contingent consideration element of the purchase price, which is the amount in excess of the guaranteed $50.8 million, has not yet been valued as of March 31, 2013 and therefore has not been included in the purchase price allocation or the financial statements of EZCORP as of March 31, 2013. The three and six month periods ended March 31, 2013 include $1.4 million and $1.5 million in total revenues and $2.8 million and $3.1 million in losses related to EZCORP online.
TUYO
On November 1, 2012, we acquired a 51% interest in Renueva Comercial S.A. de C.V., a company headquartered in Mexico City and doing business under the name “TUYO.” TUYO owns and operates 20 stores in Mexico City and the surrounding metropolitan area. In these stores, TUYO buys quality used merchandise from customers and then resells that merchandise to other customers. TUYO also sells refurbished or other merchandise acquired in bulk from wholesalers. As this acquisition was individually immaterial, we present its related information, other than information related to the redeemable noncontrolling interest, on a combined basis.
Pursuant to the acquisition agreement, the sellers have a put option with respect to their remaining shares of TUYO. The sellers have the right to sell their TUYO shares to EZCORP during a specified exercise period, with specified limitations on the number of shares that may be sold within a consecutive 12-month period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to TUYO in temporary equity.

The fair value of the TUYO redeemable noncontrolling interest was estimated by applying an income and market approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include discount rates of 10% and 18% representing discounts for lack of control and lack of marketability respectively that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of TUYO was determined using a multiple of future earnings. We expect the recorded values related to the noncontrolling interest at March 31, 2013 to approximate fair value.
Other
The six-month period ended March 31, 2013, includes the December 2012 acquisition of 12 pawn locations in Arizona. Arizona is a new state of operation for EZCORP. As this acquisition was individually immaterial, we present its related information on a consolidated basis.
The following tables provide information related to the acquisitions of domestic and foreign retail and financial services locations during the six months ended March 31, 2013:

 
Six Months Ended March 31, 2013
 
Go Cash
 
Other Acquisitions
Number of asset purchase acquisitions
1

 

Number of stock purchase acquisitions

 
2

 
 
 
 
U.S. stores acquired

 
12

Foreign stores acquired

 
20

Total stores acquired

 
32




8

Table of Contents

 
Six Months Ended March 31, 2013
 
Go Cash
 
Other Acquisitions
 
(in thousands)
Consideration:
 
 
 
Cash
$

 
$
15,318

Equity instruments
27,776

 
10,929

Deferred consideration
23,000

 
1,000

Fair value of total consideration transferred
50,776

 
27,247

Cash acquired

 
(3,040
)
Total purchase price
$
50,776

 
$
24,207

 
Six Months Ended March 31, 2013
 
Go Cash

Other Acquisitions
 
(in thousands)
Current assets:
 
 
 
Pawn loans
$

 
$
5,714

Service charges and fees receivable, net
23

 
400

Inventory, net

 
2,441

Prepaid expenses and other assets
120

 
508

Total current assets
143

 
9,063

Property and equipment, net
268

 
1,064

Goodwill
38,128

 
17,126

Intangible assets
12,315

 
96

Other assets
124

 
314

Total assets
$
50,978

 
$
27,663

Current liabilities:
 
 
 
Accounts payable and other accrued expenses
$
202

 
$
517

Customer layaway deposits

 
103

Total current liabilities
202

 
620

Total liabilities
202

 
620

Redeemable noncontrolling interest

 
2,836

Net assets acquired
$
50,776

 
$
24,207

 
 
 
 
Goodwill deductible for tax purposes
$
38,128

 
$

 
 
 
 
Indefinite-lived intangible assets acquired:
 
 
 
Domain name
$
215

 
$

Definite-lived intangible assets acquired (1):
 
 
 
Non-compete agreements
$

 
$
30

Internally developed software
$
12,100

 
$
66

(1) The weighted average useful life of definite-lived intangible assets acquired is five years.
All acquisitions were made as part of our continuing strategy to enhance and diversify our earnings over the long-term. The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include our initial entry into several markets and a greater presence in others, as well as the ability to further leverage our expense structure through increased scale. The purchase price allocation of assets acquired in the most recent twelve month period is preliminary as we continue to receive information regarding the acquired assets. Transaction related expenses for the six-month periods ended March 31, 2013 and 2012 of approximately $0.5 million and $1.7 million, respectively, were expensed as incurred and recorded as administrative expenses. These amounts exclude costs related to transactions that did not close and future acquisitions. The results of all acquisitions have been consolidated with our results since their respective closing. Pro forma results of operations have not been presented because it is impracticable to do so, as historical audited financial statements in U.S. GAAP are not readily available.

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Table of Contents

Grupo Finmart
On January 30, 2012, we acquired a 60% interest in Grupo Finmart, now doing business under the brands of Crediamigo and Adex, a specialty consumer finance company headquartered in Mexico City, with 45 loan servicing locations throughout the country, for total consideration of $60.1 million, net of cash acquired. This amount includes contingent consideration related to two earn out payments. If certain financial performance targets are achieved, during calendar years 2012 and 2013, we will make a payment to the sellers of $12.0 million, each year, for a total amount of $24.0 million. The Grupo Finmart purchase price allocation presented below includes a fair value amount of $23.0 million attributable to the contingent consideration payments. The first contingent consideration payment of $12.0 million was paid in April 2013.
Pursuant to the Master Transaction Agreement, the sellers have a put option with respect to their remaining shares of Grupo Finmart. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to Grupo Finmart in temporary equity. The fair value of the Grupo Finmart redeemable noncontrolling interest was estimated by applying an income and market approach. This fair value measurement at acquisition was based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. We expect the recorded values related to the noncontrolling interest at March 31, 2013 to approximate fair value.
Cash Genie
On April 14, 2012, we acquired a 72% interest in Ariste Holding Limited and its affiliates, which provides online loans in the U.K. under the name "Cash Genie." As this acquisition was individually immaterial, we present its related information, other than information related to the redeemable noncontrolling interest, on a combined basis.
Pursuant to the acquisition agreement, the sellers have a put option with respect to their remaining shares of Cash Genie. The seller has the right to sell their Cash Genie shares to EZCORP during the exercise period. Under the guidance in ASC 480-10-S99, securities that are redeemable for cash or other assets are to be classified outside of permanent equity; therefore, we have included the redeemable noncontrolling interest related to Cash Genie in temporary equity.
On November 14, 2012, a seller exercised his option with respect to his remaining shares. This transaction increased our ownership percentage to 95%, and was treated as an equity transaction and not an adjustment to the purchase price of the Company's initial controlling interest acquisition of Cash Genie. The details of the transaction are described further in Note 8. We expect the remaining recorded values related to the noncontrolling interest at March 31, 2013 to approximate fair value.
Other
In fiscal 2012, we acquired 50 locations in the U.S. and one in Canada. As these acquisitions, were individually immaterial, we present their related information on a consolidated basis.


10

Table of Contents

The following table provides information related to the acquisitions of domestic and foreign retail and financial services locations in fiscal 2012:
 
Fiscal Year Ended September 30, 2012
 
Grupo Finmart

Other Acquisitions
 
(in thousands)
Current assets:
 
 
 
Pawn loans
$

 
$
6,781

Consumer loans, net
8,935

 
3,641

Service charges and fees receivable, net
18,844

 
1,940

Inventory, net

 
5,911

Deferred tax asset

 
238

Prepaid expenses and other assets
3,543

 
204

Total current assets
31,322

 
18,715

Property and equipment, net
2,326

 
4,061

Goodwill
99,486

 
99,747

Non-current consumer loans, net
56,120

 

Intangible assets
16,400

 
3,980

Other assets
7,497

 
294

Total assets
$
213,151

 
$
126,797

Current liabilities:
 
 
 
Accounts payable and other accrued expenses
$
6,853

 
$
5,496

Customer layaway deposits

 
808

Current maturities of long-term debt
22,810

 

Other current liabilities

 
257

Total current liabilities
29,663

 
6,561

Long-term debt, less current maturities
86,872

 

Deferred tax liability
171

 
113

Total liabilities
116,706

 
6,674

Redeemable noncontrolling interest
36,300

 
9,557

Net assets acquired
$
60,145

 
$
110,566


As per FASB ASC 805-10-25 adjustments to provisional purchase price allocation amounts made during the measurement period, shall be recorded as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements. The amounts above and our consolidated balance sheet as of March 31, 2012 reflect all measurement period adjustments recorded since the acquisition date. These adjustments resulted in a $0.1 million decrease in the purchase price and include a $0.3 million increase in current assets, a $5.5 million decrease in other assets, a $1.4 million decrease in current liabilities $3.0 million decrease in long-term liabilities and a $2.8 million increase in the redeemable noncontrolling interest, for a net change in goodwill of $3.6 million.
NOTE 3: 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.

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Table of Contents

Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows: 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands, except per share amounts)
Net income attributable to EZCORP (A)
$
33,981

 
$
37,261

 
$
64,698

 
$
76,613

Weighted average outstanding shares of common stock (B)
54,172

 
50,794

 
53,099

 
50,573

Dilutive effect of stock options and restricted stock
80

 
275

 
73

 
314

Weighted average common stock and common stock equivalents (C)
54,252

 
51,069

 
53,172

 
50,887

Basic earnings per share (A/B)
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

Diluted earnings per share (A/C)
$
0.63

 
$
0.73

 
$
1.22

 
$
1.51

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

 

 
7

 

NOTE 4: STRATEGIC INVESTMENTS
At March 31, 2013, we owned 16,644,640 ordinary shares of Albemarle & Bond Holdings, PLC ("Albermarle & Bond"), 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. Due to the three-month lag, income reported for our six-month period ended March 31, 2013 and 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2012 to December 31, 2012 and July 1, 2011 to December 31, 2011, respectively.
Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.
In its functional currency of British pounds, Albemarle & Bond’s total assets increased 13% from December 31, 2011 to December 31, 2012 and its net income decreased 31% for the six months ended December 31, 2012. The following table presents summary 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,
 
2012
 
2011
 
(in thousands)
Current assets
$
162,078

 
$
134,387

Non-current assets
74,711

 
65,354

Total assets
$
236,789

 
$
199,741

Current liabilities
$
22,267

 
$
21,021

Non-current liabilities
83,332

 
62,169

Shareholders’ equity
131,190

 
116,551

Total liabilities and shareholders’ equity
$
236,789

 
$
199,741


 
Six Months Ended December 31,
 
2012
 
2011
 
(in thousands)
Gross revenues
$
93,793

 
$
99,804

Gross profit
53,612

 
58,165

Profit for the year (net income)
9,796

 
14,208



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Table of Contents

At March 31, 2013, we owned 136,848,000 shares, or approximately 33% of Cash Converters International Limited ("Cash Converters International"), a publicly traded company headquartered in Perth, Australia. Cash Converters International franchises and operates a worldwide network of over 700 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, with significant store concentrations in Australia and the United Kingdom. Those shares include 12,430,000 shares that we acquired in November 2012 for approximately $11.0 million in cash as part of a share placement. Our total investment in Cash Converters International was acquired between November 2009 and November 2012 for approximately $68.8 million.
We account for our investment in Cash Converters International using the equity method. Since Cash Converters International’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag. Cash Converters International files semi-annual financial reports for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our six-month period ended March 31, 2013 and 2012 represents our percentage interest in the results of Cash Converters International’s operations from July 1, 2012 to December 31, 2012 and July 1, 2011 to December 31, 2011, respectively.
Conversion of Cash Converters International’s financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.
In its functional currency of Australian dollars, Cash Converters International’s total assets increased 22% from December 31, 2011 to December 31, 2012 and its net income improved 39% for the six months ended December 31, 2012. The following table presents summary financial information for Cash Converters International’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,
 
2012
 
2011
 
(in thousands)
Current assets
$
169,739

 
$
128,289

Non-current assets
141,258

 
121,835

Total assets
$
310,997

 
$
250,124

Current liabilities
$
38,735

 
$
33,290

Non-current liabilities
31,591

 
37,797

Shareholders’ equity
240,671

 
179,037

Total liabilities and shareholders’ equity
$
310,997

 
$
250,124

 
 
Six Months Ended December 31,
 
2012
 
2011
 
(in thousands)
Gross revenues
$
140,123

 
$
115,256

Gross profit
95,149

 
76,405

Profit for the year (net income)
19,143

 
13,668



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Table of Contents

The table below summarizes the recorded value and fair value of each of these strategic investments at the dates indicated. These fair values are considered Level 1 estimates within the fair value hierarchy of FASB ASC 820-10-50, and were calculated as (a) the quoted stock price on each company’s principal market multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate at the dates indicated.
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands of U.S. dollars)
Albemarle & Bond:
 
 
 
 
 
Recorded value
$
53,053

 
$
49,175

 
$
51,812

Fair value
54,103

 
92,868

 
65,109

Cash Converters International:
 
 
 
 
 
Recorded value
$
94,179

 
$
70,881

 
$
74,254

Fair value
208,110

 
85,277

 
100,705

NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Pawn licenses
$
8,836

 
$
8,836

 
$
8,836

Trade name
9,772

 
7,097

 
9,845

Domain name
215

 

 

Goodwill
432,124

 
324,281

 
374,663

Total
$
450,947

 
$
340,214

 
$
393,344


The following tables present the changes in the carrying value of goodwill, by segment, over the periods presented:
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Balances at September 30, 2012
$
224,306

 
$
110,401

 
$
39,956

 
$
374,663

Acquisitions
53,033

 
2,221

 

 
55,254

Effect of foreign currency translation changes
(1
)
 
4,578

 
(2,370
)
 
2,207

Balances at March 31, 2013
$
277,338

 
$
117,200

 
$
37,586

 
$
432,124


 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Balances at September 30, 2011
$
163,897

 
$
9,309

 
$

 
$
173,206

Acquisitions
50,001

 
99,486

 

 
149,487

Effect of foreign currency translation changes
(1
)
 
1,589

 

 
1,588

Balances at March 31, 2012
$
213,897

 
$
110,384

 
$

 
$
324,281



14

Table of Contents

The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
Carrying
Amount
 
Accumulated
Amortization
 
Net Book
Value
 
(in thousands)
Real estate finders’ fees
$
1,741

 
$
(662
)
 
$
1,079

 
$
1,327

 
$
(533
)
 
$
794

 
$
1,457

 
$
(590
)
 
$
867

Non-compete agreements
4,600

 
(3,666
)
 
934

 
4,301

 
(2,877
)
 
1,424

 
4,504

 
(3,290
)
 
1,214

Favorable lease
1,159

 
(491
)
 
668

 
985

 
(381
)
 
604

 
1,159

 
(436
)
 
723

Franchise rights
1,571

 
(132
)
 
1,439

 
1,602

 
(67
)
 
1,535

 
1,625

 
(102
)
 
1,523

Deferred financing costs
11,182

 
(5,207
)
 
5,975

 
7,607

 
(2,493
)
 
5,114

 
10,584

 
(3,459
)
 
7,125

Contractual relationship
15,082

 
(1,920
)
 
13,162

 
14,504

 
(1,407
)
 
13,097

 
14,517

 
(1,075
)
 
13,442

Internally developed software
20,028

 
(895
)
 
19,133

 

 

 

 
1,344

 
(19
)
 
1,325

Other
325

 
(51
)
 
274

 
323

 
(20
)
 
303

 
321

 
(36
)
 
285

Total
$
55,688

 
$
(13,024
)
 
$
42,664

 
$
30,649

 
$
(7,778
)
 
$
22,871

 
$
35,511

 
$
(9,007
)
 
$
26,504


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 deferred financing costs are amortized to interest expense over the life of the related debt instruments. The following table presents the amount and classification of amortization recognized as expense in each of the periods presented:
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
 
 
 
 
Amortization expense
$
1,322

 
$
1,697

 
$
2,045

 
$
1,924

Operations expense
32

 
23

 
67

 
49

Interest expense
760

 
444

 
1,524

 
595

Total expense from the amortization of definite-lived intangible assets
$
2,114

 
$
2,164

 
$
3,636

 
$
2,568

The following table presents our estimate of future amortization expense for definite-lived intangible assets:
 
Fiscal Years Ended September 30,
 
Amortization expense
 
Operations expense
 
Interest expense
 
 
(in thousands)
2013
 
$
2,676

 
$
67

 
$
1,636

2014
 
5,740

 
126

 
2,164

2015
 
5,452

 
113

 
1,108

2016
 
5,392

 
111

 
580

2017
 
5,304

 
111

 
487

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


15

Table of Contents

NOTE 6: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The following table presents our long-term debt instruments and balances under capital lease obligations outstanding at March 31, 2013 and 2012 and September 30, 2012:
 
 
March 31, 2013
 
March 31, 2012
 
September 30, 2012
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
Carrying
Amount
 
Debt Premium
 
(in thousands)
 
 
Recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
Domestic line of credit up to $175,000 due 2015
$
74,000

 
$

 
$
30,000

 
$

 
$
130,000

 
$

Capital lease obligations
1,181

 

 

 

 
1,589

 

Non-recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
Secured foreign currency line of credit up to $4,000 due 2014
2,009

 
156

 
3,327

 
264

 
2,629

 
199

Secured foreign currency line of credit up to $20,000 due 2015
12,142

 

 
21,799

 
5,243

 
16,073

 

Secured foreign currency line of credit up to $23,000 due 2017
22,352

 

 
10,495

 
3,285

 
11,263

 

Consumer loans facility due 2017
33,995

 

 

 

 
32,679

 

10% unsecured notes due 2013
664

 

 
1,820

 

 
1,766

 

15% unsecured notes due 2013
14,273

 
825

 

 

 
14,262

 
1,334

16% unsecured notes due 2013

 

 
5,404

 
315

 
5,248

 
108

20% unsecured notes due 2013

 

 
12,730

 
2,057

 

 

10% unsecured notes due 2014
2,373

 

 

 

 
963

 

11% unsecured notes due 2014
5,347

 

 

 

 

 

17% secured notes due 2014

 

 
32,850

 
4,297

 

 

10% unsecured notes due 2015
444

 

 

 

 
427

 

15% secured notes due 2015
4,561

 
513

 

 

 
4,488

 
597

18% secured notes due 2015

 

 
4,592

 
736

 

 

25% secured notes due 2015

 

 
6,402

 
1,362

 

 

10% unsecured notes due 2016
128
 

 
1,514

 

 
123

 

Total long-term obligations
173,469
 
1,494

 
130,933

 
17,559

 
221,510

 
2,238

Less current portion
35,445
 
1,141

 
22,849

 
5,625

 
21,679

 
1,497

Total long-term and capital lease obligations
$
138,024

 
$
353

 
$
108,084

 
$
11,934

 
$
199,831

 
$
741


On May 10, 2011, we entered into a new senior secured credit agreement with a syndicate of five banks, replacing our previous credit agreement. Among other things, the new credit agreement provides for a four-year $175 million revolving credit facility that we may, under the terms of the agreement, request to be increased to a total of $225 million. Upon entering the new credit agreement, we repaid and retired our $17.5 million outstanding debt. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally.
Pursuant to the credit agreement, we may choose to pay interest to the lenders for outstanding borrowings at LIBOR plus 200 to 275 basis points or the bank's base rate plus 100 to 175 basis points, depending on our leverage ratio computed at the end of each calendar quarter. On the unused amount of the credit facility, we pay a commitment fee of 37.5 to 50 basis points depending on our leverage ratio calculated at the end of each quarter. Terms of the credit agreement require, among other things, that we meet certain financial covenants, restrict dividend payments and limit other and non-recourse debt. At March 31, 2013, we were in compliance with all covenants. We expect the recorded value of our debt to approximate its fair value, as it is all variable rate debt and carries no pre-payment penalty, and would be considered a Level 2 estimate within the fair value hierarchy.


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Table of Contents

At March 31, 2013, $74.0 million was outstanding under our revolving credit agreement. We also issued a $1.7 million letter of credit, leaving $99.3 million available on our revolving credit facility. The outstanding bank letter of credit was required under our workers' compensation insurance program.
Deferred financing costs related to our credit agreement are included in intangible assets, net on the balance sheet and are being amortized to interest expense over the term of the agreement.
On January 30, 2012, we acquired a 60% ownership interest in Grupo Finmart, a specialty consumer finance company headquartered in Mexico City. Non-recourse debt amounts in the table above represent Grupo Finmart’s third party debt. All lines of credit are guaranteed by Grupo Finmart's loan portfolio. Interest on lines of credit due 2014 and 2015 is charged at the Mexican Interbank Equilibrium ("TIIE") plus a margin varying from 6% to 9%. The line of credit due 2014 requires monthly payments of $0.1 million with remaining principal due at maturity. The line of credit due 2015 requires monthly payments of $0.9 million with the remaining principal due at maturity. The 15% secured notes require monthly payments of $0.1 million with remaining principal due at maturity.
At acquisition, we performed a valuation to determine the fair value of Grupo Finmart's debt. As a result, we recorded a debt premium on Grupo Finmart’s debt. This debt premium is being amortized as a reduction of interest expense over the life of the debt. The fair value was determined by using an income approach, specifically the discounted cash flows method based on the contractual terms of the debt and risk adjusted discount rates. The significant inputs used for the valuation are not observable in the market and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy. We expect the recorded value of our debt to approximate its fair value and would be considered Level 3 estimates within the fair value hierarchy.
On July 10, 2012, Grupo Finmart entered into a securitization transaction to transfer the collection rights of certain eligible consumer loans to a bankruptcy remote trust in exchange for cash on a non-recourse basis. The trust received financing as a result of the issuance of debt securities and delivered the proceeds of the financing to Grupo Finmart. The securitization agreement calls for a two-year revolving period in which the trust will use principal collections of the consumer loan portfolio to acquire additional collection rights up to $121.4 million in eligible loans from Grupo Finmart. Upon the termination of the revolving period, the collection received by the trust will be used to repay the debt. Grupo Finmart will continue to service the underlying loans in the trust.
Grupo Finmart is the primary beneficiary of the securitization trust because Grupo Finmart has the power to direct the most significant activities of the trust through its role as servicer of all the receivables held by the trust and through its obligation to absorb losses or receive benefits that could potentially be significant to the trust. Consequently, we consolidate the trust.
As of March 31, 2013, borrowings under the securitization borrowing facility amounted to $34.0 million. Interest is charged at TIIE plus a 2.5% margin, or a total of 7.3% as of March 31, 2013. The debt issued by the trust will be paid solely from the collections of the consumer loans transferred to the trust, and therefore there is no recourse to Grupo Finmart or EZCORP.
NOTE 7: COMMON STOCK, OPTIONS AND STOCK COMPENSATION
Our net income includes the following compensation costs related to our stock compensation arrangements:
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Gross compensation costs
$
2,129

 
$
1,725

 
$
3,054

 
$
3,238

Income tax benefits
(720
)
 
(570
)
 
(1,019
)
 
(1,016
)
Net compensation expense
$
1,409

 
$
1,155

 
$
2,035

 
$
2,222

In the current three and six month periods ended March 31, 2013, stock option exercises resulted in the issuance of 3,000 shares for nominal proceeds. In the prior year three and six-month periods ended March 31, 2012, stock option exercises resulted in the issuance of 195,898 shares for total proceeds of $0.6 million. All options and restricted stock related to our Class A Non-voting Common Stock.

17

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NOTE 8: REDEEMABLE NONCONTROLLING INTEREST
The following table provides a summary of the activities in our redeemable noncontrolling interests as of March 31, 2013 and 2012:
 
Redeemable Noncontrolling Interests
 
(in thousands)
Balance as of September 30, 2011
$

Acquisition of redeemable noncontrolling interest
36,300

Net income attributable to redeemable noncontrolling interests
112

Foreign currency translation adjustment attributable to noncontrolling interests
496

Balance as of March 31, 2012
$
36,908

 
 
Balance as of September 30, 2012
$
53,681

Acquisition of redeemable noncontrolling interest
2,836

Sale of additional shares to parent
(7,981
)
Net income attributable to redeemable noncontrolling interests
2,337

Foreign currency translation adjustment attributable to noncontrolling interests
2,109

Balance as of March 31, 2013
$
52,982


On November 1, 2012, we acquired a 51% interest in TUYO (See Note 2 for details).

On November 14, 2012, we acquired an additional 23% of the ordinary shares outstanding of Cash Genie, our U.K. online lending business, for $10.4 million, increasing our ownership percentage from 72% to 95%, with the remaining 5% held by local management. The consideration paid to the selling shareholder was paid in the form of 592,461 shares of EZCORP Class A Non-Voting Common Stock. This transaction was treated as an equity transaction and not an adjustment to the purchase price of the our initial controlling interest acquisition of Cash Genie.
NOTE 9: INCOME TAXES
Income tax expense is provided at the U.S. tax rate on financial statement earnings, adjusted for the difference between the U.S. tax rate and the rate of tax in effect for non-U.S. earnings deemed to be permanently reinvested in our non-U.S. operations.  Deferred income taxes have not been provided for the potential remittance of non-U.S. undistributed earnings to the extent those earnings are deemed to be permanently reinvested, or to the extent such recognition would result in a deferred tax asset.
The current quarter’s effective tax rate is 31.6% of pretax income compared to 34.7% for the prior year quarter. For the current six-month period, the effective tax rate is 32.7% compared to 34.3% in the prior year six-month period. The effective tax rate for the three month period ended March 31, 2013 was lowered by a one-time recognition of a tax benefit from foreign net operating losses. The effective tax rate for the six-month period ended March 31, 2013 was lowered by a one-time recognition of a tax benefit from state and foreign net operating losses. 
NOTE 10: 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.
NOTE 11: OPERATING SEGMENT INFORMATION
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Our business consists of three reportable segments:
U.S. & Canada – Includes all business activities in the United States and Canada
Latin America – Includes all business activities in Mexico and other parts of Latin America

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Table of Contents

Other International – Includes all business activities in the rest of the world (currently consisting of consumer loans online in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International)
In connection with our decentralization strategy, we have changed the accountability for, and reporting of, certain items in administrative expenses, depreciation and amortization. When directly related to a segment, these items have been included in segment contribution.When shared by multiple segments, these items are being allocated to the segment and included in their segment contribution. Prior year figures have been reclassified to conform to this presentation.
There are no inter-segment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements. The following tables present operating segment information for the three and six-month periods ending March 31, 2013 and 2012:
 
Three Months Ended March 31, 2013
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
87,048

 
$
13,858

 
$

 
$
100,906

Jewelry scrapping sales
40,671

 
2,897

 

 
43,568

Pawn service charges
54,512

 
8,082

 

 
62,594

Consumer loan fees
43,825

 
11,842

 
6,643

 
62,310

Other revenues
1,620

 
217

 
859

 
2,696

Total revenues
227,676

 
36,896

 
7,502

 
272,074

Merchandise cost of goods sold
51,167

 
8,010

 

 
59,177

Jewelry scrapping cost of goods sold
27,663

 
2,429

 

 
30,092

Consumer loan bad debt
6,864

 
(661
)
 
2,677

 
8,880

Net revenues
141,982

 
27,118

 
4,825

 
173,925

Segment expenses:
 
 
 
 
 
 
 
Operations
85,477

 
16,401

 
3,669

 
105,547

Depreciation and amortization
4,909

 
1,771

 
143

 
6,823

(Gain) loss on sale or disposal of assets
(1
)
 
14

 

 
13

Interest (income) expense, net
15

 
2,802

 
(1
)
 
2,816

Equity in net income of unconsolidated affiliates

 

 
(4,125
)
 
(4,125
)
Other income
(1
)
 
(315
)
 

 
(316
)
Segment contribution
$
51,583

 
$
6,445

 
$
5,139

 
$
63,167

Corporate expenses:
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
8,603

Depreciation and amortization
 
 
 
 
 
 
1,940

Interest expense, net
 
 
 
 
 
 
937

Other expense
 
 
 
 
 
 
721

Income before taxes
 
 
50,966

Income tax expense
 
 
 
 
 
 
16,086

Net income
 
 
 
 
 
 
34,880

Net income attributable to noncontrolling interest
 
 
 
 
 
 
899

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
33,981


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Table of Contents

 
Three Months Ended March 31, 2012
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
85,498

 
$
9,499

 
$

 
$
94,997

Jewelry scrapping sales
49,414

 
3,761

 

 
53,175

Pawn service charges
50,505

 
5,939

 

 
56,444

Consumer loan fees
42,806

 
7,383

 
130

 
50,319

Other revenues
1,219

 
124

 

 
1,343

Total revenues
229,442

 
26,706

 
130

 
256,278

Merchandise cost of goods sold
50,499

 
5,381

 

 
55,880

Jewelry scrapping cost of goods sold
29,537

 
2,773

 

 
32,310

Consumer loan bad debt
5,878

 
508

 
80

 
6,466

Net revenues
143,528

 
18,044

 
50

 
161,622

Segment expenses:
 
 
 
 
 
 
 
Operations
75,364

 
11,090

 
170

 
86,624

Depreciation and amortization
3,390

 
2,404

 
14

 
5,808

Loss on sale or disposal of assets
25

 
2

 

 
27

Interest expense, net

 
1,769

 

 
1,769

Equity in net income of unconsolidated affiliates

 

 
(4,577
)
 
(4,577
)
Other expense
909

 
13

 

 
922

Segment contribution
$
63,840

 
$
2,766

 
$
4,443

 
$
71,049

Corporate expenses:
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
11,998

Depreciation and amortization
 
 
 
 
 
 
1,451

Interest expense, net
 
 
 
 
 
 
477

Other income
 
 
 
 
 
 
(120
)
Income before taxes
 
 
57,243

Income tax expense
 
 
 
 
 
 
19,870

Net income
 
 
 
 
 
 
37,373

Net income attributable to noncontrolling interest
 
 
 
 
 
 
112

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
37,261







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Table of Contents

 
Six Months Ended March 31, 2013
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
167,513

 
$
28,975

 
$

 
$
196,488

Jewelry scrapping sales
82,813

 
6,680

 

 
89,493

Pawn service charges
112,722

 
15,896

 

 
128,618

Consumer loan fees
89,784

 
23,719

 
13,572

 
127,075

Other revenues
4,414

 
1,871

 
1,241

 
7,526

Total revenues
457,246

 
77,141

 
14,813

 
549,200

Merchandise cost of goods sold
97,899

 
16,779

 

 
114,678

Jewelry scrapping cost of goods sold
56,820

 
5,471

 

 
62,291

Consumer loan bad debt
18,345

 
(1,709
)
 
6,318

 
22,954

Net revenues
284,182

 
56,600

 
8,495

 
349,277

Segment expenses:
 
 
 
 
 
 
 
Operations
172,920

 
32,142

 
7,747

 
212,809

Depreciation and amortization
9,011

 
3,446

 
219

 
12,676

Loss on sale or disposal of assets
28

 
14

 

 
42

Interest (income) expense, net
32

 
5,415

 
(1
)
 
5,446

Equity in net income of unconsolidated affiliates

 

 
(9,163
)
 
(9,163
)
Other income
(5
)
 
(295
)
 
(69
)
 
(369
)
Segment contribution
$
102,196

 
$
15,878

 
$
9,762

 
$
127,836

Corporate expenses:
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
22,274

Depreciation and amortization
 
 
 
 
 
 
3,739

Interest expense, net
 
 
 
 
 
 
1,944

Other expense
 
 
 
 
 
 
273

Income before taxes
 
 
99,606

Income tax expense
 
 
 
 
 
 
32,571

Net income
 
 
 
 
 
 
67,035

Net income attributable to noncontrolling interest
 
 
 
 
 
 
2,337

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
64,698




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Table of Contents

 
Six Months Ended March 31, 2012
  
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
162,050

 
$
19,841

 
$

 
$
181,891

Jewelry scrapping sales
102,280

 
7,298

 

 
109,578

Pawn service charges
104,875

 
11,361

 

 
116,236

Consumer loan fees
87,818

 
7,383

 
206

 
95,407

Other revenues
1,795

 
244

 

 
2,039

Total revenues
458,818

 
46,127

 
206

 
505,151

Merchandise cost of goods sold
93,950

 
10,326

 

 
104,276

Jewelry scrapping cost of goods sold
62,687

 
5,047

 

 
67,734

Consumer loan bad debt
16,768

 
508

 
215

 
17,491

Net (losses) revenues
285,413

 
30,246

 
(9
)
 
315,650

Segment expenses:
 
 
 
 
 
 
 
Operations
150,358

 
18,056

 
768

 
169,182

Depreciation and amortization
6,613

 
3,174

 
36

 
9,823

(Gain) loss on sale or disposal of assets
(175
)
 
1

 

 
(174
)
Interest expense, net
4

 
1,733

 

 
1,737

Equity in net income of unconsolidated affiliates

 

 
(8,738
)
 
(8,738
)
Other (income) expense
(151
)
 
16

 
(64
)
 
(199
)
Segment contribution
$
128,764

 
$
7,266

 
$
7,989

 
$
144,019

Corporate expenses:
 
 
 
 
 
 
 
Administrative
 
 
 
 
 
 
23,652

Depreciation and amortization
 
 
 
 
 
 
2,691

Interest expense, net
 
 
 
 
 
 
1,060

Other income
 
 
 
 
 
 
(118
)
Income before taxes
 
 
116,734

Income tax expense
 
 
 
 
 
 
40,009

Net income
 
 
 
 
 
 
76,725

Net income attributable to noncontrolling interest
 
 
 
 
 
 
112

Net income attributable to EZCORP, Inc.
 
 
 
 
 
 
$
76,613



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Table of Contents

The following table presents separately identified segment assets: 

 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
(in thousands)
Assets at March 31, 2013
 
 
 
 
 
 
 
Cash and cash equivalents
$
11,721

 
$
14,602

 
$
2,765

 
$
29,088

Restricted cash

 
1,204

 

 
1,204

Pawn loans
119,681

 
18,699

 

 
138,380

Consumer loans, net
17,736

 
91,418

 
4,856

 
114,010

Service charges and fees receivable, net
28,968

 
28,673

 
1,254

 
58,895

Inventory, net
95,307

 
21,210

 

 
116,517

Property and equipment, net
68,725

 
29,388

 
1,499

 
99,612

Restricted cash, non-current

 
2,197

 

 
2,197

Goodwill
277,338

 
117,200

 
37,586

 
432,124

Intangibles, net
28,853

 
21,018

 
2,726

 
52,597

Total separately identified recorded segment assets
$
648,329

 
$
345,609

 
$
50,686

 
$
1,044,624

Consumer loans outstanding from unaffiliated lenders
$
19,879

 
$

 
$

 
$
19,879

Assets at March 31, 2012
 
 
 
 
 
 
 
Cash and cash equivalents
$
17,266

 
$
15,220

 
$
258

 
$
32,744

Restricted cash

 
930

 

 
930

Pawn loans
108,804

 
13,501

 

 
122,305

Consumer loans, net
14,074

 
66,747

 
86

 
80,907

Service charges and fees receivable, net
25,886

 
20,933

 
28

 
46,847

Inventory, net
77,132

 
10,702

 

 
87,834

Property and equipment, net
56,544

 
18,948

 
223

 
75,715

Goodwill
213,897

 
110,384

 

 
324,281

Intangibles, net
17,651

 
19,305

 
42

 
36,998

Total separately identified recorded segment assets
$
531,254

 
$
276,670

 
$
637

 
$
808,561

Consumer loans outstanding from unaffiliated lenders
$
19,130

 
$

 
$

 
$
19,130

Assets at September 30, 2012
 
 
 
 
 
 
 
Cash and cash equivalents
$
14,820

 
$
16,365

 
$
1,789

 
$
32,974

Restricted cash

 
1,145

 

 
1,145

Pawn loans
140,885

 
16,763

 

 
157,648

Consumer loans, net
18,960

 
73,422

 
3,767

 
96,149

Service charges and fees receivable, net
34,066

 
24,637

 
1,114

 
59,817

Inventory, net
94,449

 
14,765

 

 
109,214

Property and equipment, net
60,476

 
23,005

 
1,503

 
84,984

Restricted cash, non-current

 
4,337

 

 
4,337

Goodwill
224,306

 
110,401

 
39,956

 
374,663

Intangibles, net
17,498

 
21,867

 
2,946

 
42,311

Total separately identified recorded segment assets
$
605,460

 
$
306,707

 
$
51,075

 
$
963,242

Consumer loans outstanding from unaffiliated lenders
$
24,773

 
$

 
$

 
$
24,773



23

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The following table reconciles separately identified recorded segment assets, as shown above, to our consolidated total assets:
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Total separately identified recorded segment assets
$
1,044,624

 
$
808,561

 
$
963,242

Corporate assets
269,783

 
218,966

 
254,765

 Total assets
$
1,314,407

 
$
1,027,527

 
$
1,218,007



The following tables provide geographic information required by ASC 280-10-50-41:
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
U.S.
$
222,947

 
$
225,490


$
447,703

 
$
451,205

Mexico
36,896

 
26,706


77,141

 
46,127

Canada
4,729

 
3,952


9,543

 
7,613

U.K
7,502

 
130


14,813

 
206

Total
272,074

 
256,278


549,200

 
505,151


 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Long-lived assets:
 
 
 
 
 
U.S.
$
393,698

 
$
298,031

 
$
317,887

Mexico
167,904

 
148,812

 
155,488

Canada
9,177

 
11,021

 
10,199

U.K.
41,769

 
223

 
44,363

Other
42

 
42

 
42

Total
$
612,590

 
$
458,129

 
$
527,979

NOTE 12: 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 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.
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. We review and analyze our loan portfolios based on aggregation of loans by type and duration of the loan products. Loan repayment trends and default rates are evaluated each month based on each loan portfolio and adjustments to loss allowance are made accordingly. A documented and systematic process is followed.
We consider consumer loans made at our storefronts by our wholly owned subsidiaries defaulted if they have not been repaid or renewed by the maturity date. If one payment of a multiple-payment loan is delinquent, that one payment is considered defaulted. If more than one payment is delinquent at any time, the entire loan is considered defaulted. Although defaulted loans

24

Table of Contents

may be collected later, we charge the loan principal to consumer 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.
Consumer loans made by EZCORP Online are considered delinquent if they are not repaid or renewed by the maturity date. We do not accrue revenues on delinquent loans. All outstanding principal balances and fee receivables greater than 60 days past due are considered defaulted. Upon default, we charge consumer loan principal to consumer loan bad debt and reverse accrued unsecured consumer loan fee revenue. Subsequent collections of these amounts are recorded as a reduction to consumer loan bad debt expense and consumer loan fee revenue.
The Grupo Finmart acquisition marked our initial entry into unsecured consumer lending in Mexico. Grupo Finmart's consumer loans are considered in current status as long as the customer is employed and Grupo Finmart receives payments via payroll withholdings. Loans made to customers no longer employed are considered current if payments are made by the due date. If one payment of a loan is delinquent, that one payment is considered defaulted. If two or more payments are delinquent at any time, the entire loan is considered defaulted. Although defaulted loans may be collected later, Grupo Finmart charges the loan principal to consumer loan bad debt upon default, leaving only active loans in the reported balance. Subsequent collections of principal are recorded as a reduction of consumer loan bad debt when collected. Accrued fees related to defaulted loans reduce fee revenue upon default, and increase fee revenue upon collection.
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: 
Description
Allowance
Balance at
Beginning
of Period
 
Charge-offs
 
Recoveries
 
Provision
 
Translation Adjustment
 
Allowance
Balance at
End of
Period
 
Financing
Receivable
at End of
Period
 
(in thousands)
Unsecured short-term consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
$
2,553

 
$
(10,875
)
 
$
5,480

 
$
5,076

 
$

 
$
2,234

 
$
20,022

Three Months Ended March 31, 2012
$
1,730

 
$
(4,274
)
 
$
2,245

 
$
1,741

 
$

 
$
1,442

 
$
12,892

Six Months Ended March 31, 2013
$
2,390

 
$
(22,924
)
 
$
10,281

 
$
12,487

 
$

 
$
2,234

 
$
20,022

Six Months Ended March 31, 2012
$
1,727

 
$
(8,953
)
 
$
3,703

 
$
4,965

 
$

 
$
1,442

 
$
12,892

Secured short-term consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
$
1,473

 
$
(10,597
)
 
$
9,840

 
$
642

 
$

 
$
1,358

 
$
6,163

Three Months Ended March 31, 2012
$
982

 
$
(4,427
)
 
$
3,823

 
$
330

 
$

 
$
708

 
$
3,418

Six Months Ended March 31, 2013
$
942

 
$
(19,271
)
 
$
17,800

 
$
1,887

 
$

 
$
1,358

 
$
6,163

Six Months Ended March 31, 2012
$
538

 
$
(7,767
)
 
$
6,642

 
$
1,295

 
$

 
$
708

 
$
3,418

*Unsecured long-term consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
$
624

 
$
(791
)
 
$
1,136

 
$
(663
)
**
$
24

 
$
330

 
$
91,747

Three Months Ended March 31, 2012
$

 
$
(572
)
 
$
232

 
$
508

 
$
(2
)
 
$
166

 
$
66,913

Six Months Ended March 31, 2013
$
623

 
$
(952
)
 
$
2,357

 
$
(1,716
)
**
$
18

 
$
330

 
$
91,747

Six Months Ended March 31, 2012
$

 
$
(572
)
 
$
232

 
$
508

 
$
(2
)
 
$
166

 
$
66,913

*Comparative information includes activity since Grupo Finmart's January 30, 2012 acquisition.
** Benefit in unsecured long-term consumer loan provision is due to the sale of past due loans and recoveries of loans previously written-off.

The provisions presented in the table above include only principal and exclude items such as non-sufficient funds 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 sheets. Expected losses on credit services are accrued and reported in “Accounts payable and other accrued expenses” on our balance sheets.
Auto title loans remain as recorded investments when in delinquent or 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

25

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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.
Short-term unsecured consumer loans made online by EZCORP Online remain as recorded investments when in delinquent or nonaccrual status. We consider these loans past due if they have not been repaid or renewed by the maturity date. Valuation reserves are based on days past due and respective historical collection rates. We reserve 100% of loans once they are more than 60 days past due. No fees are accrued on short-term consumer loans more than 60 days past due.
Consumer loans made by Grupo Finmart remain on the balance sheet as recorded investments when in delinquent status. We consider a consumer loan past due if it has not been repaid or renewed by the maturity date; however, it is not unusual to have a lag in payments due to the time it takes the government agencies to setup the initial payroll withholding. Only those consumer loans made to customers that are no longer employed are considered in nonaccrual status. We establish a reserve on all consumer loans, based on historical experience. No fees are accrued on any consumer loans made to customers that are no longer employed.

The following table presents an aging analysis of past due financing receivables by portfolio segment: 
 
Days Past Due
 
Total
 
Current
 
Fair Value
 
Total
Financing
 
Allowance
 
Recorded
Investment
> 90 Days
 
1-30
 
31-60
 
61-90
 
>90
 
Past Due
 
Receivable
 
Adjustment
 
Receivable
 
Balance
 
Accruing
 
(in thousands)
Unsecured short-term consumer loans:*
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$
13

 
$
13

 
$

 
$

 
$
26

 
$
119

 
$

 
$
145

 
$
30

 
$

Secured short-term consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$
1,299

 
$
747

 
$
506

 
$
825

 
$
3,377

 
$
2,786

 
$

 
$
6,163

 
$
1,358

 
$

March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$
530

 
$
285

 
$
252

 
$
433

 
$
1,500

 
$
1,918

 
$

 
$
3,418

 
$
708

 
$

September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$
1,246

 
$
708

 
$
466

 
$
391

 
$
2,811

 
$
3,140

 
$

 
$
5,951

 
$
942

 
$

Unsecured long-term consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$1,545
 
$
5,519

 
$
3,856

 
$
27,479

 
$
38,399

 
$
54,447

 
$
(1,099
)
 
$
91,747

 
$
330

 
$
27,479

March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$8,847
 
$
15,636

 
$
574

 
$
6,009

 
$
31,066

 
$
40,181

 
$
(4,334
)
 
$
66,913

 
$
166

 
$
6,009

September 30, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consumer loans
$
2,465

 
$
28,783

 
$
949

 
$
7,507

 
$
39,704

 
$
37,120

 
$
(2,779
)
 
$
74,045

 
$
623

 
$
7,507

* Unsecured short-term consumer loans amounts are included for periods after the acquisition of Go Cash.
NOTE 13: FAIR VALUE MEASUREMENTS
In accordance with FASB ASC 820-10, Fair Value Measurements and Disclosures, our assets and liabilities, which are carried at fair value, are classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Other observable inputs other than quoted market prices.
Level 3: Unobservable inputs that are not corroborated by market data.

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Table of Contents

The tables below present our financial assets that are measured at fair value on a recurring basis as of March 31, 2013 and 2012 and September 30, 2012:
 
 
 
March 31, 2013
 
Fair Value Measurements Using
Financial assets (liabilities):
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Marketable equity securities
 
$
4,367

 
$
4,367

 
$

 
$

Contingent consideration
 
(23,678
)
 

 

 
(23,678
)
Net financial assets (liabilities)
 
$
(19,311
)
 
$
4,367

 
$

 
$
(23,678
)
 
 
 
 
 
 
 
 
 
 
 
March 31, 2012
 
Fair Value Measurements Using
Financial assets (liabilities):
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Marketable equity securities
 
$
4,628

 
$
4,628

 
$

 
$

Contingent consideration
 
(23,000
)
 

 

 
(23,000
)
Net financial assets (liabilities)
 
$
(18,372
)
 
$
4,628

 
$

 
$
(23,000
)
 
 
 
 
 
 
 
 
 
 
 
September 30, 2012
 
Fair Value Measurements Using
Financial assets (liabilities):
Level 1
 
Level 2
 
Level 3
 
 
(in thousands)
Marketable equity securities
 
$
4,631

 
$
4,631

 
$

 
$

Contingent consideration
 
(23,432
)
 

 

 
(23,432
)
Net financial assets (liabilities)
 
$
(18,801
)
 
$
4,631

 
$

 
$
(23,432
)

We measure the value of our marketable equity securities under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily available. There were no transfers of assets in or out of Level 1 or Level 2 fair value measurements in the periods presented. At March 31, 2013 our marketable equity securities were in an unrealized loss position. The aggregate amount of unrealized losses at March 31, 2013 was less than $0.1 million and we currently believe that the fair value decline is temporary.

We used an income approach to measure the fair value of the contingent consideration using a probability-weighted discounted cash flow approach, in which all outcomes were successful. The significant inputs used for the valuation are not observable in the market, as they are specifically related to Grupo Finmart, and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy. During three and six month periods ended March 31, 2013 we recorded accretion expense of $0.1 million and $0.3 million respectively to bring the contingent consideration liability to $23.7 million at March 31, 2013. These amounts are included in administrative expenses in our consolidated statement of operations.
NOTE 14: DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our earnings and financial position are affected by changes in gold values. In fiscal year 2012, we used derivative financial instruments in order to manage our commodity price risk associated with the forecasted sales of gold scrap. These derivatives were not designated as hedges, and according to FASB ASC 815-20-25, “Derivatives and Hedging – Recognition,” changes in their fair value were recorded directly in earnings. As of March 31, 2013 and 2012 and as of September 30, 2012 , we had no balance outstanding recorded on our balance sheet.
The table below presents the effect of our derivative financial instruments on the Condensed Consolidated Statements of Operations for the three and six-month periods ended March 31, 2013 and 2012:
 
 
 
 
Losses (Gains) Recognized in Income
  
 
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
Derivative Instrument
 
Location of Loss (Gain)
 
2013
 
2012
 
2013
 
2012
 
 
 
 
(in thousands)
Non-designated derivatives:
 
 
 
 
 
 
 
 
 
 
Gold Collar
 
Other (income) expense
 
$

 
$
922

 
$

 
$
(151
)

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Table of Contents

NOTE 15: CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On February 3, 2012, we filed with the United States Securities and Exchange Commission a “shelf” registration statement on Form S-3 registering the offer and sale of an indeterminate amount of a variety of securities, including debt securities. Unless otherwise indicated in connection with a particular offering of debt securities, each of our wholly-owned domestic subsidiaries will fully and unconditionally guarantee on a joint and several basis our payment obligations under such debt securities issued by the parent.
In accordance with Rule 3-10(f) of Regulation S-X, the following presents condensed consolidating financial information as of March 31, 2013 and 2012 and for the current and prior three and six month periods then ended and as of September 30, 2012 for EZCORP, Inc. (the “Parent”), each of the Parent’s domestic subsidiaries (the “Subsidiary Guarantors”) on a combined basis and each of the Parent’s other subsidiaries (the “Other Subsidiaries”) on a combined basis. Eliminating entries presented are necessary to consolidate the groups of entities. Subsequent to the issuance of our consolidated financial statements for the year ended September 30, 2012, we identified certain errors in the presentation of the consolidating financial statements contained in this footnote as of September 30, 2012, March 31, 2012 and for the three and six months ended March 31, 2012.  The condensed consolidating financial information presented on the following pages has been corrected for these errors.  These adjustments did not have an impact on the consolidated financial statements as of September 30, 2012, March 31, 2012, or for the three and six months ended March 31, 2012.



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Table of Contents

Condensed Consolidating Balance Sheets
 
March 31, 2013
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
  
(in thousands)
Assets:
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
703

 
$
21,521

 
$
19,219

 
$

 
$
41,443

Restricted cash

 

 
1,204

 

 
1,204

Pawn loans

 
119,681

 
18,699

 

 
138,380

Consumer loans, net

 
14,912

 
21,684

 

 
36,596

Pawn service charges receivable, net

 
22,475

 
2,913

 

 
25,388

Consumer loan fees receivable, net

 
5,899

 
27,608

 

 
33,507

Inventory, net

 
93,760

 
22,757

 

 
116,517

Deferred tax asset
9,484

 
6,232

 

 

 
15,716

Intercompany receivables
351,557

 
96,938

 

 
(448,495
)
 

Income tax receivable
3,028

 
51

 

 

 
3,079

Prepaid expenses and other assets
4

 
35,823

 
6,594

 

 
42,421

Total current assets
364,776

 
417,292

 
120,678

 
(448,495
)
 
454,251

Investments in unconsolidated affiliates
94,179

 
53,053

 

 

 
147,232

Investments in subsidiaries
675,350

 
99,942

 

 
(775,292
)
 

Property and equipment, net

 
80,143

 
38,836

 

 
118,979

Restricted cash, non-current

 

 
2,197

 

 
2,197

Goodwill

 
277,307

 
154,817

 

 
432,124

Intangible assets, net
1,248

 
34,999

 
25,240

 

 
61,487

Non-current consumer loans, net

 

 
77,414

 

 
77,414

Other assets, net

 
8,561

 
12,162

 

 
20,723

Total assets
$
1,135,553

 
$
971,297

 
$
431,344

 
$
(1,223,787
)
 
$
1,314,407

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

 
$

 
$
34,912

 
$

 
$
34,912

Current capital lease obligations

 
533

 

 

 
533

Accounts payable and other accrued expenses
57

 
49,143

 
14,098

 

 
63,298

Other current liabilities
12,000

 
425

 
23,671

 

 
36,096

Customer layaway deposits

 
7,107

 
1,084

 

 
8,191

Intercompany payables
73,327

 
245,909

 
114,672

 
(433,908
)
 

Total current liabilities
85,384

 
303,117

 
188,437

 
(433,908
)
 
143,030

Long-term debt, less current maturities
74,000

 

 
77,963

 
(14,587
)
 
137,376

Long-term capital lease obligations

 
648

 

 

 
648

Deferred tax liability
8,982

 
1,122

 

 

 
10,104

Deferred gains and other long-term liabilities
12,000

 
2,233

 
847

 

 
15,080

Total liabilities
180,366

 
307,120

 
267,247

 
(448,495
)
 
306,238

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Temporary equity:
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest

 

 
52,982

 

 
52,982

Stockholders’ equity:
 
 
 
 
 
 
 
 

Class A Non-voting Common Stock, par value $.01 per share;
508

 
12

 

 
(12
)
 
508

Class B Voting Common Stock, convertible, par value $.01 per share;
30

 

 
1

 
(1
)
 
30

Additional paid-in capital
315,092

 
155,527

 
103,763

 
(259,290
)
 
315,092

Retained earnings
630,501

 
509,249

 
6,334

 
(515,583
)
 
630,501

Accumulated other comprehensive income (loss)
9,056

 
(611
)
 
1,017

 
(406
)
 
9,056

EZCORP, Inc. stockholders' equity
955,187

 
664,177

 
111,115

 
(775,292
)
 
955,187

Total liabilities and stockholders’ equity
$
1,135,553

 
$
971,297

 
$
431,344

 
$
(1,223,787
)
 
$
1,314,407


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Table of Contents


 
March 31, 2012
  
Parent

Subsidiary
Guarantors

Other
Subsidiaries

Eliminations

Consolidated
  
(in thousands)
Assets:
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
703

 
$
29,020

 
$
16,951

 
$

 
$
46,674

Restricted cash

 

 
930

 

 
930

Pawn loans

 
108,804

 
13,501

 

 
122,305

Consumer loans, net

 
11,910

 
12,365

 

 
24,275

Pawn service charges receivable, net

 
20,210

 
2,086

 

 
22,296

Consumer loan fees receivable, net

 
5,523

 
19,028

 

 
24,551

Inventory, net

 
75,815

 
12,019

 

 
87,834

Deferred tax asset
12,298

 
5,478

 
452

 

 
18,228

Intercompany receivables
286,603

 
83,648

 

 
(370,251
)
 

Income tax receivable
2,351

 

 

 

 
2,351

Prepaid expenses and other assets
4

 
29,440

 
5,030

 

 
34,474

Total current assets
301,959

 
369,848

 
82,362

 
(370,251
)
 
383,918

Investments in unconsolidated affiliates
70,881

 
49,175

 

 

 
120,056

Investments in subsidiaries
465,383

 
89,574

 

 
(554,957
)
 

Property and equipment, net

 
66,331

 
28,713

 

 
95,044

Goodwill
42

 
213,824

 
110,415

 

 
324,281

Intangible assets, net
1,848

 
16,028

 
20,928

 

 
38,804

Non-current consumer loans, net

 

 
56,632

 

 
56,632

Other assets, net

 
6,821

 
1,971

 

 
8,792

Total assets
$
840,113

 
$
811,601

 
$
301,021

 
$
(925,208
)
 
$
1,027,527

Liabilities and stockholders’ equity:
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt

 

 
22,849

 

 
22,849

Accounts payable and other accrued expenses
46

 
45,443

 
12,621

 

 
58,110

Other current liabilities

 
5,123

 
11,600

 

 
16,723

Customer layaway deposits

 
6,551

 
642

 

 
7,193

Intercompany payables
47,389

 
282,342

 
30,251

 
(359,982
)
 

Total current liabilities
47,435

 
339,459

 
77,963

 
(359,982
)
 
104,875

Long-term debt, less current maturities
30,000

 

 
88,353

 
(10,269
)
 
108,084

Deferred tax liability
6,960

 
1,304

 
191

 

 
8,455

Deferred gains and other long-term liabilities

 
1,989

 
11,498

 

 
13,487

Total liabilities
84,395

 
342,752

 
178,005

 
(370,251
)
 
234,901

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Temporary equity:
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest

 

 
36,908

 

 
36,908

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share;
480

 
12

 

 
(12
)
 
480

Class B Voting Common Stock, convertible, par value $.01 per share;
30

 

 
1

 
(1
)
 
30

Additional paid-in capital
258,343

 
129,871

 
95,820

 
(225,691
)
 
258,343

Retained earnings
498,708

 
340,494

 
(5,808
)
 
(334,686
)
 
498,708

Accumulated other comprehensive income (loss)
(1,843
)
 
(1,528
)
 
(3,905
)
 
5,433

 
(1,843
)
EZCORP, Inc. stockholders' equity
755,718

 
468,849

 
86,108

 
(554,957
)
 
755,718

Total liabilities and stockholders’ equity
$
840,113

 
$
811,601

 
$
301,021

 
$
(925,208
)
 
$
1,027,527





30

Table of Contents


  
September 30, 2012
  
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
  
(in thousands)
Assets:
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
703

 
$
27,686

 
$
20,088

 
$

 
$
48,477

Restricted cash

 

 
1,145

 

 
1,145

Pawn loans

 
140,885

 
16,763

 

 
157,648

Consumer loans, net

 
16,562

 
17,590

 

 
34,152

Pawn service charges receivable, net

 
26,663

 
2,738

 

 
29,401

Consumer loan fees receivable, net

 
6,899

 
23,517

 

 
30,416

Inventory, net

 
93,165

 
16,049

 

 
109,214

Deferred tax asset
9,484

 
5,500

 

 

 
14,984

Intercompany receivables
363,065

 

 

 
(363,065
)
 

Income taxes receivable
10,209

 

 
302

 

 
10,511

Prepaid expenses and other assets
2,243

 
38,629

 
4,579

 

 
45,451

Total current assets
385,704

 
355,989

 
102,771

 
(363,065
)
 
481,399

Investments in unconsolidated affiliates
74,254

 
51,812

 

 

 
126,066

Investments in subsidiaries
510,045

 
95,942

 

 
(605,987
)
 

Property and equipment, net

 
74,837

 
33,294

 

 
108,131

Restricted cash, non-current

 

 
4,337

 

 
4,337

Goodwill

 
224,275

 
150,388

 

 
374,663

Intangible assets, net
1,548

 
17,228

 
26,409

 

 
45,185

Non-current consumer loans, net

 

 
61,997

 

 
61,997

Other assets, net

 
8,585

 
7,644

 

 
16,229

Total assets
$
971,551

 
$
828,668

 
$
386,840

 
$
(969,052
)
 
$
1,218,007

Current liabilities:
 
 
 
 
 
 
 
 
 
Current maturities of long-term debt
$

 
$

 
$
21,085

 
$

 
$
21,085

Current capital lease obligations

 
594

 

 

 
594

Accounts payable and other accrued expenses
128

 
53,169

 
10,807

 

 
64,104

Other current liabilities

 
2,925

 
11,896

 

 
14,821

Customer layaway deposits

 
6,251

 
987

 

 
7,238

Intercompany payables

 
257,571

 
84,850

 
(342,421
)
 

Total current liabilities
128

 
320,510

 
129,625

 
(342,421
)
 
107,842

Long-term debt, less current maturities
130,000

 

 
89,480

 
(20,644
)
 
198,836

Long-term capital lease obligations

 
995

 

 

 
995

Deferred tax liability
6,595

 
1,327

 

 

 
7,922

Deferred gains and other long-term liabilities

 
1,898

 
12,005

 

 
13,903

Total liabilities
136,723

 
324,730

 
231,110

 
(363,065
)
 
329,498

Commitments and contingencies
 
 
 
 
 
 
 
 
 
Temporary equity:
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interest

 

 
53,681

 

 
53,681

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share;
482

 
12

 

 
(12
)
 
482

Class B Voting Common Stock, convertible, par value $.01 per share;
30

 
1

 

 
(1
)
 
30

Additional paid-in capital
268,626

 
80,210

 
102,188

 
(182,398
)
 
268,626

Retained earnings
565,803

 
425,024

 
2,373

 
(427,397
)
 
565,803

Accumulated other comprehensive income (loss)
(113
)
 
(1,309
)
 
(2,512
)
 
3,821

 
(113
)
EZCORP, Inc. stockholders' equity
834,828

 
503,938

 
102,049

 
(605,987
)
 
834,828

Total liabilities and stockholders’ equity
$
971,551

 
$
828,668

 
$
386,840

 
$
(969,052
)
 
$
1,218,007


31

Table of Contents

Condensed Consolidating Statements of Operations
 
Three Months Ended March 31, 2013
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
Merchandise sales
$

 
$
85,964

 
$
14,942

 
$

 
$
100,906

Jewelry scrapping sales

 
40,384

 
3,184

 

 
43,568

Pawn service charges

 
54,512

 
8,082

 

 
62,594

Consumer loan fees

 
40,725

 
21,585

 

 
62,310

Other revenues

 
1,362

 
1,334

 

 
2,696

Total revenues

 
222,947

 
49,127

 

 
272,074

Merchandise cost of goods sold

 
50,581

 
8,596

 

 
59,177

Jewelry scrapping cost of goods sold

 
27,501

 
2,591

 

 
30,092

Consumer loan bad debt

 
6,045

 
2,835

 

 
8,880

Net revenues

 
138,820

 
35,105

 

 
173,925

Operating expenses:
 
 
 
 
 
 
 
 
 
Operations

 
81,355

 
24,192

 

 
105,547

Administrative

 
8,354

 
249

 

 
8,603

Depreciation and amortization

 
6,382

 
2,381

 

 
8,763

(Gain) loss on sale or disposal of assets

 
(1
)
 
14

 

 
13

Total operating expenses

 
96,090

 
26,836

 

 
122,926

Operating income

 
42,730

 
8,269

 

 
50,999

Interest (income) expense
960

 
(362
)
 
3,155

 

 
3,753

Equity in net income of unconsolidated affiliates
(3,058
)
 
(1,067
)
 

 

 
(4,125
)
Equity of net income in subsidiaries
(46,034
)
 

 

 
46,034

 

Other expense

 
272

 
133

 

 
405

Income (loss) before income taxes
48,132

 
43,887

 
4,981

 
(46,034
)
 
50,966

Income tax expense
14,151

 
(2
)
 
1,937

 

 
16,086

Net income (loss)
33,981

 
43,889

 
3,044

 
(46,034
)
 
34,880

Net income attributable to redeemable noncontrolling interest

 

 
899

 

 
899

Net income (loss) attributable to EZCORP, Inc.
$
33,981

 
$
43,889

 
$
2,145

 
$
(46,034
)
 
$
33,981







32

Table of Contents

 
Three Months Ended March 31, 2012
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
Merchandise sales
$

 
$
84,739

 
$
10,258

 
$

 
$
94,997

Jewelry scrapping sales

 
49,033

 
4,142

 

 
53,175

Pawn service charges

 
50,505

 
5,939

 

 
56,444

Consumer loan fees

 
40,233

 
10,086

 

 
50,319

Other revenues

 
985

 
358

 

 
1,343

Total revenues

 
225,495

 
30,783

 

 
256,278

Merchandise cost of goods sold

 
50,063

 
5,817

 

 
55,880

Jewelry scrap cost of goods sold

 
29,327

 
2,983

 

 
32,310

Consumer loan bad debt

 
5,310

 
1,156

 

 
6,466

Net revenues

 
140,795

 
20,827

 

 
161,622

Operating expenses:
 
 
 
 
 
 
 
 
 
Operations

 
71,199

 
15,425

 

 
86,624

Administrative

 
10,918

 
1,080

 

 
11,998

Depreciation and amortization

 
4,447

 
2,812

 

 
7,259

Loss on sale or disposal of assets

 
2

 
25

 

 
27

Total operating expense

 
86,566

 
19,342

 

 
105,908

Operating income

 
54,229

 
1,485

 

 
55,714

Interest (income) expense
(396
)
 
689

 
1,953

 

 
2,246

Equity in net income of unconsolidated affiliates
(2,142
)
 
(2,435
)
 

 

 
(4,577
)
Equity of net income in subsidiaries
(53,538
)
 

 

 
53,538

 

Other (income) expense

 
803

 
(1
)
 

 
802

Income (loss) before income taxes
56,076

 
55,172

 
(467
)
 
(53,538
)
 
57,243

Income tax expense
18,815

 

 
1,055

 

 
19,870

Net income (loss)
37,261

 
55,172

 
(1,522
)
 
(53,538
)
 
37,373

Net income attributable to redeemable noncontrolling interest

 

 
112

 

 
112

Net income (loss) attributable to EZCORP, Inc.
$
37,261

 
$
55,172

 
$
(1,634
)
 
$
(53,538
)
 
$
37,261



33

Table of Contents

 
Six Months Ended March 31, 2013
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
Merchandise sales
$

 
$
165,166

 
$
31,322

 
$

 
$
196,488

Jewelry scrapping sales

 
82,222

 
7,271

 

 
89,493

Pawn service charges

 
112,722

 
15,896

 

 
128,618

Consumer loan fees

 
83,661

 
43,414

 

 
127,075

Other revenues

 
3,931

 
3,595

 

 
7,526

Total revenues

 
447,702

 
101,498

 

 
549,200

Merchandise cost of goods sold

 
96,632

 
18,046

 

 
114,678

Jewelry scrap cost of goods sold

 
56,490

 
5,801

 

 
62,291

Consumer loan bad debt

 
16,692

 
6,262

 

 
22,954

Net revenues

 
277,888

 
71,389

 

 
349,277

Operating expenses:
 
 
 
 
 
 
 
 
 
Operations

 
163,871

 
48,938

 

 
212,809

Administrative
(103
)
 
21,868

 
509

 

 
22,274

Depreciation and amortization

 
11,793

 
4,622

 

 
16,415

Loss on sale or disposal of assets

 
27

 
15

 

 
42

Total operating expense
(103
)
 
197,559

 
54,084

 

 
251,540

Operating income
103

 
80,329

 
17,305

 

 
97,737

Interest (income) expense
1,976

 
(732
)
 
6,146

 

 
7,390

Equity in net income of unconsolidated affiliates
(6,226
)
 
(2,937
)
 

 

 
(9,163
)
Equity of net income in subsidiaries
(88,186
)
 

 

 
88,186

 

Other (income) expense

 
(227
)
 
131

 

 
(96
)
Income (loss) before income taxes
92,539

 
84,225

 
11,028

 
(88,186
)
 
99,606

Income tax expense
27,841

 

 
4,730

 

 
32,571

Net income (loss)
64,698

 
84,225

 
6,298

 
(88,186
)
 
67,035

Net income attributable to redeemable noncontrolling interest

 

 
2,337

 

 
2,337

Net income (loss) attributable to EZCORP, Inc.
$
64,698

 
$
84,225

 
$
3,961

 
$
(88,186
)
 
$
64,698



34

Table of Contents

 
Six Months Ended March 31, 2012
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Revenues:
 
 
 
 
 
 
 
 
 
Merchandise sales
$

 
$
160,711

 
$
21,180

 
$

 
$
181,891

Jewelry scrapping sales

 
101,607

 
7,971

 

 
109,578

Pawn service charges

 
104,875

 
11,361

 

 
116,236

Consumer loan fees

 
82,650

 
12,757

 

 
95,407

Other revenues
20,139

 
1,835

 
676

 
(20,611
)
 
2,039

Total revenues
20,139

 
451,678

 
53,945

 
(20,611
)
 
505,151

Merchandise cost of goods sold

 
93,178

 
11,098

 

 
104,276

Jewelry scrap cost of goods sold

 
62,333

 
5,401

 

 
67,734

Consumer loan bad debt

 
15,501

 
1,990

 

 
17,491

Net revenues
20,139

 
280,666

 
35,456

 
(20,611
)
 
315,650

Operating expenses:
 
 
 
 
 
 
 
 
 
Operations

 
142,796

 
26,386

 

 
169,182

Administrative

 
21,735

 
2,389

 
(472
)
 
23,652

Depreciation and amortization

 
8,594

 
3,920

 

 
12,514

(Gain) loss on sale or disposal of assets

 
(222
)
 
48

 

 
(174
)
Total operating expense

 
172,903

 
32,743

 
(472
)
 
205,174

Operating income
20,139

 
107,763

 
2,713

 
(20,139
)
 
110,476

Interest (income) expense
(2,269
)
 
3,142

 
1,924

 

 
2,797

Equity in net income of unconsolidated affiliates
(4,478
)
 
(4,260
)
 

 

 
(8,738
)
Equity of net income in subsidiaries
(87,451
)
 

 

 
87,451

 

Other (income) expense

 
(334
)
 
17

 

 
(317
)
Income before income taxes
114,337

 
109,215

 
772

 
(107,590
)
 
116,734

Income tax expense
37,724

 
20,139

 
2,285

 
(20,139
)
 
40,009

Net income (loss)
76,613

 
89,076

 
(1,513
)
 
(87,451
)
 
76,725

Net income attributable to redeemable noncontrolling interest

 

 
112

 

 
112

Net income (loss) attributable to EZCORP, Inc.
$
76,613

 
$
89,076

 
$
(1,625
)
 
$
(87,451
)
 
$
76,613



35

Table of Contents

Condensed Consolidating Statements of Comprehensive Income
 
Three Months Ended March 31, 2013
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
33,981

 
$
43,889

 
$
3,044

 
$
(46,034
)
 
$
34,880

Other comprehensive income (loss):
 
 
 
 
 
 
 
 

Foreign currency translation gain (loss)
8,351

 
(12
)
 
7,871

 
(5,099
)
 
11,111

Unrealized holding gains (losses) arising during period
(221
)
 
(221
)
 

 
221

 
(221
)
Income tax benefit (provision)
(1,057
)
 
82

 

 
(82
)
 
(1,057
)
Other comprehensive income (loss), net of tax
7,073

 
(151
)
 
7,871

 
(4,960
)
 
9,833

Comprehensive income (loss)
$
41,054

 
$
43,738

 
$
10,915

 
$
(50,994
)
 
$
44,713

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
 
 
Net income

 

 
899

 

 
899

Foreign currency translation gain

 

 
2,760

 

 
2,760

Comprehensive income attributable to redeemable noncontrolling interest

 

 
3,659

 

 
3,659

Comprehensive income (loss) attributable to EZCORP, Inc.
$
41,054

 
$
43,738

 
$
7,256

 
$
(50,994
)
 
$
41,054

 


 
Three Months Ended March 31, 2012
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
37,261

 
$
55,172

 
$
(1,522
)
 
$
(53,538
)
 
$
37,373

Other comprehensive income (loss):
 
 
 
 
 
 
 
 

Foreign currency translation gain (loss)
5,898

 
(458
)
 
6,029

 
(5,075
)
 
6,394

Unrealized holding gains (losses) arising during period
(179
)
 
(179
)
 

 
179

 
(179
)
Income tax benefit (provision)
(75
)
 
213

 

 
(213
)
 
(75
)
Other comprehensive income (loss), net of tax
5,644

 
(424
)
 
6,029

 
(5,109
)
 
6,140

Comprehensive income (loss)
$
42,905

 
$
54,748

 
$
4,507

 
$
(58,647
)
 
$
43,513

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
 

Net income

 

 
112

 

 
112

Foreign currency translation gain

 

 
496

 

 
496

Comprehensive income attributable to redeemable noncontrolling interest

 

 
608

 

 
608

Comprehensive income (loss) attributable to EZCORP, Inc.
$
42,905

 
$
54,748

 
$
3,899

 
$
(58,647
)
 
$
42,905




36

Table of Contents

 
Six Months Ended March 31, 2013
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
64,698

 
$
84,225

 
$
6,298

 
$
(88,186
)
 
$
67,035

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
12,470

 
1,337

 
5,638

 
(4,866
)
 
14,579

Unrealized holding gains (losses) arising during period
(264
)
 
(264
)
 

 
264

 
(264
)
Income tax benefit (provision)
(3,037
)
 
(375
)
 

 
375

 
(3,037
)
Other comprehensive income (loss), net of tax
9,169

 
698

 
5,638

 
(4,227
)
 
11,278

Comprehensive income (loss)
$
73,867

 
$
84,923

 
$
11,936

 
$
(92,413
)
 
$
78,313

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
 
 
Net income

 

 
2,337

 

 
2,337

Foreign currency translation gain

 

 
2,109

 

 
2,109

Comprehensive income attributable to redeemable noncontrolling interest

 

 
4,446

 

 
4,446

Comprehensive income (loss) attributable to EZCORP, Inc.
$
73,867

 
$
84,923

 
$
7,490

 
$
(92,413
)
 
$
73,867



 
Six Months Ended March 31, 2012
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Net income (loss)
$
76,613

 
$
89,076

 
$
(1,513
)
 
$
(87,451
)
 
$
76,725

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
(2,870
)
 
(1,336
)
 
4,090

 
(2,258
)
 
(2,374
)
Unrealized holding gains (losses) arising during period
(738
)
 
(738
)
 

 
738

 
(738
)
Income tax benefit (provision)
2,511

 
716

 

 
(716
)
 
2,511

Other comprehensive income (loss), net of tax
(1,097
)
 
(1,358
)
 
4,090

 
(2,236
)
 
(601
)
Comprehensive income (loss)
$
75,516

 
$
87,718

 
$
2,577

 
$
(89,687
)
 
$
76,124

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
 
 
Net income

 

 
112

 

 
112

Foreign currency translation gain

 

 
496

 

 
496

Comprehensive income attributable to redeemable noncontrolling interest

 

 
608

 

 
608

Comprehensive income (loss) attributable to EZCORP, Inc.
$
75,516

 
$
87,718

 
$
1,969

 
$
(89,687
)
 
$
75,516



37

Table of Contents

Condensed Consolidating Statements of Cash Flows
 
Six Months Ended March 31, 2013
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Net cash provided by (used in) operating activities
$
70,266

 
$
(11,375
)
 
$
35,277

 
$

 
$
94,168

Investing Activities:
 
 
 
 
 
 
 
 
 
Loans made

 
(324,903
)
 
(116,014
)
 

 
(440,917
)
Loans repaid

 
237,041

 
70,889

 

 
307,930

Recovery of pawn loan principal through sale of forfeited collateral

 
112,660

 
17,305

 

 
129,965

Additions to property and equipment

 
(15,955
)
 
(7,551
)
 

 
(23,506
)
Acquisitions, net of cash acquired

 
(11,162
)
 
(1,117
)
 

 
(12,279
)
Proceeds on advances to subsidiaries

 
7,754

 

 
(7,754
)
 

Investment in unconsolidated affiliates
(11,018
)
 

 

 

 
(11,018
)
Net cash used in investing activities
$
(11,018
)
 
$
5,435

 
$
(36,488
)
 
$
(7,754
)
 
$
(49,825
)
Financing Activities:
 
 
 
 
 
 
 
 
 
Proceeds from exercise of stock options
6

 

 

 

 
6

Excess tax benefit from stock compensation
342

 

 

 

 
342

Debt issuance cost

 

 
(259
)
 

 
(259
)
Taxes paid related to net share settlement of equity awards
(3,596
)
 

 

 

 
(3,596
)
Change in restricted cash

 

 
2,303

 

 
2,303

Proceeds from revolving line of credit
138,000

 

 
10,265

 

 
148,265

Payments on revolving line of credit
(194,000
)
 

 
(805
)
 

 
(194,805
)
Proceeds from bank borrowings

 

 
1,172

 

 
1,172

Payments on bank borrowings and capital lease obligations

 
(225
)
 
(12,699
)
 
7,754

 
(5,170
)
Net cash provided by (used in) financing activities
$
(59,248
)
 
$
(225
)
 
$
(23
)
 
$
7,754

 
$
(51,742
)
Effect of exchange rate changes on cash and cash equivalents

 

 
365

 

 
365

Net decrease in cash and cash equivalents

 
(6,165
)
 
(869
)
 

 
(7,034
)
Cash and cash equivalents at beginning of period
703

 
27,686

 
20,088

 

 
48,477

Cash and cash equivalents at end of period
$
703

 
$
21,521

 
$
19,219

 
$

 
$
41,443



38

Table of Contents

 
Six Months Ended March 31, 2012
 
Parent
 
Subsidiary
Guarantors
 
Other
Subsidiaries
 
Eliminations
 
Consolidated
 
(in thousands)
Net cash provided by (used in) operating activities
$
(12,881
)
 
$
46,249

 
$
61,726

 
$

 
$
95,094

Investing Activities:
 
 
 
 
 
 
 
 
 
Loans made

 
(293,161
)
 
(67,193
)
 

 
(360,354
)
Loans repaid

 
212,065

 
48,224

 

 
260,289

Recovery of pawn loan principal through sale of forfeited collateral

 
117,114

 
12,404

 

 
129,518

Additions to property and equipment

 
(12,584
)
 
(8,258
)
 

 
(20,842
)
Acquisitions, net of cash acquired

 
(51,254
)
 
(31,803
)
 

 
(83,057
)
Proceeds on advances to subsidiaries

 
$
(10,269
)
 
$

 
$
10,269

 
$

Net cash provided by (used in) investing activities
$

 
$
(38,089
)
 
$
(46,626
)
 
$
10,269

 
$
(74,446
)
Financing Activities:
 
 
 
 
 
 
 
 
 
Proceeds from exercise of stock options
634

 

 

 

 
634

Excess tax benefit from stock compensation
1,521

 

 

 

 
1,521

Taxes paid related to net share settlement of equity awards
(1,071
)
 

 

 

 
(1,071
)
Change in restricted cash

 

 
(935
)
 

 
(935
)
Proceeds on revolving line of credit
321,500

 

 
117

 

 
321,617

Payments on revolving line of credit
(309,000
)
 

 
(9,227
)
 

 
(318,227
)
Proceeds from bank borrowings

 

 
10,269

 
(10,269
)
 

Payments on bank borrowings and capital lease obligations

 

 
(1,056
)
 

 
(1,056
)
Net cash provided by (used in) financing activities
$
13,584

 
$

 
$
(832
)
 
$
(10,269
)
 
$
2,483

Effect of exchange rate changes on cash and cash equivalents

 

 
(426
)
 

 
(426
)
Net increase in cash and cash equivalents
703

 
8,160

 
13,842

 

 
22,705

Cash and cash equivalents at beginning of period

 
20,860

 
3,109

 

 
23,969

Cash and cash equivalents at end of period
$
703

 
$
29,020

 
$
16,951

 
$

 
$
46,674


39

Table of Contents

NOTE 16: SUPPLEMENTAL CONSOLIDATED FINANCIAL INFORMATION
Supplemental Consolidated Statements of Financial Position Information:
The following table provides information on net amounts included in pawn service charges receivable, consumer loan fees, inventories and property and equipment:
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Pawn service charges receivable:
 
 
 
 
 
Gross pawn service charges receivable
$
33,944

 
$
30,534

 
$
40,828

Allowance for uncollectible pawn service charges receivable
(8,556
)
 
(8,238
)
 
(11,427
)
Pawn service charges receivable, net
$
25,388

 
$
22,296

 
$
29,401

Consumer loan fees receivable:
 
 
 
 
 
Gross consumer loan fees receivable
$
36,331

 
$
28,376

 
$
34,846

Allowance for uncollectible consumer loan fees receivable
(2,824
)
 
(3,825
)
 
(4,430
)
Consumer loan fees receivable, net
$
33,507

 
$
24,551

 
$
30,416

Inventory:
 
 
 
 
 
Inventory, gross
$
121,893

 
$
93,970

 
$
114,788

Inventory reserves
(5,376
)
 
(6,136
)
 
(5,574
)
Inventory, net
$
116,517

 
$
87,834

 
$
109,214

Property and equipment:
 
 
 
 
 
Property and equipment, gross
$
285,748

 
$
234,844

 
$
260,379

Accumulated depreciation
(166,769
)
 
(139,800
)
 
(152,248
)
Property and equipment, net
$
118,979

 
$
95,044

 
$
108,131


Property and equipment at March 31, 2013 includes approximately $1.3 million of equipment leased under a capital lease. Amortization of equipment under capital leases is included with depreciation expense and was $0.1 million for the three month period ended March 31, 2013 and $0.3 million for the six-month period ended March 31, 2013. Future minimum lease payments related to capital leases are $0.6 million, $0.6 million and $0.1 million due within one, two and three years respectively, for a total of $1.3 million, of this amount $0.1 million represents interest, and the present value of net minimum lease payments as of March 31, 2013 was $1.2 million.
Other Supplemental Information:
 
 
March 31,
 
September 30,
 
2013
 
2012
 
2012
 
(in thousands)
Consumer loans:
 
 
 
 
 
Expected LOC losses
$
1,666

 
$
1,402

 
$
1,776

Maximum exposure for LOC losses
$
22,737

 
$
21,727

 
$
27,373

NOTE 17: SUBSEQUENT EVENTS
On April 1, 2013, Grupo Finmart completed a $15.0 million equity offering to its existing shareholders for the purpose of strengthening its balance sheet as it continues to seek additional debt to fund loan originations. EZCORP invested $9.0 million, which reflected its 60% ownership holding.
On April 19, 2013, Albemarle & Bond Holdings, PLC, our strategic affiliate in the U.K., announced that it expected profits for their full fiscal year (ending June 30, 2013) to be materially below market expectations, citing reduction in gold buying profit and pressures on its pawn loan business due to the challenging gold environment and increased competition. In addition,

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Albemarle and Bond's board announced that their CEO would step down earlier than planned and their former CEO and non-executive Chairman would assume the CEO role until a permanent replacement is found.
Subsequent to March 31, 2013, the fair value of our investment in Albemarle & Bond Holdings, PLC was less than our recorded value. We currently believe that the fair value decline is temporary due to the recent global gold environment challenges and the absence of a permanent CEO.

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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 and "Part I, Item 1A—Risk Factors" of our Annual Report on Form 10-K for the year ended September 30, 2012.
GENERAL
Overview of Operations
We are a leading provider of instant cash solutions for consumers through multiple channels: in store, at home, online, or any combination. We provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans, including single-payment and multiple-payment unsecured loans and single-payment and multiple-payment auto title loans. In Texas, we provide fee-based credit services to customers seeking loans. At our pawn and buy/sell stores, we also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers and vendors.
We own a 60% interest in Grupo Finmart, a leading provider of payroll deduction loans in Mexico; a 51% interest in TUYO, a company headquartered in Mexico City that owns and operates 20 buy/sell stores in Mexico City and the surrounding metropolitan area; and a 95% interest in Cash Genie, which offers short-term consumer loans online in the United Kingdom.
Our vision is to be the global leader in providing customers with instant cash solutions where they want, when they want and how they want, and we are making the investments in both storefronts and technology platforms to achieve that vision. 
At March 31, 2013, we operated a total of 1,403 locations, consisting of:
492 U.S. pawn stores (operating primarily as EZPAWN or Value Pawn);
7 U.S. buy/sell stores (operating as Cash Converters);
277 Mexico pawn stores (operating as Empeño Fácil or Empeñe su Oro;
20 Mexico buy/sell stores (operating as TUYO);
490 U.S. financial services stores (operating primarily as EZMONEY);
33 financial services stores in Canada (operating as CASHMAX );
36 buy/sell and financial services stores in Canada (operating as Cash Converters); and
48 Grupo Finmart locations in Mexico.
In addition, we are the franchisor for 9 franchised Cash Converters stores in Canada. We also own almost 30% of Albemarle & Bond Holdings, PLC, one of the U.K.’s largest pawnbroking businesses with over 230 stores, and almost 33% of Cash Converters International Limited, which franchises and operates a worldwide network of over 700 locations that buy and sell second-hand merchandise and offer financial services.
Our business consists of three reportable segments:
U.S. & Canada – All business activities in the United States and Canada
Latin America – All business activities in Mexico and other parts of Latin America
Other International – All business activities in the rest of the world (currently consisting of consumer loans online in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International)

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The following tables present stores by segment:
 
 
Three Months Ended March 31, 2013
 
Company-owned Stores
 
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
1,050

 
319

 

 
1,369

 
10

De novo
12

 
27

 

 
39

 

Acquired

 

 

 

 

Sold, combined, or closed
(4
)
 
(1
)
 

 
(5
)
 
(1
)
End of period
1,058

 
345

 

 
1,403

 
9


 
Six Months Ended March 31, 2013
 
Company-owned Stores
 
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
987

 
275

 

 
1,262

 
10

De novo
63

 
51

 

 
114

 

Acquired
12

 
20

 

 
32

 

Sold, combined, or closed
(4
)
 
(1
)
 

 
(5
)
 
(1
)
End of period
1,058

 
345

 

 
1,403

 
9


 
Three Months Ended March 31, 2012
 
Company-owned Stores
 
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
950

 
192

 

 
1,142

 
12

De novo
8

 
13

 

 
21

 

Acquired
15

 
45

 

 
60

 

Sold, combined, or closed
(3
)
 

 

 
(3
)
 

End of period
970

 
250

 

 
1,220

 
12


 
Six Months Ended March 31, 2012
 
Company-owned Stores
 
 
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
Franchises
Stores in operation:
 
 
 
 
 
 
 
 
 
Beginning of period
933

 
178

 

 
1,111

 
13

De novo
8

 
27

 

 
35

 

Acquired
40

 
45

 

 
85

 

Sold, combined, or closed
(11
)
 

 

 
(11
)
 
(1
)
End of period
970

 
250

 

 
1,220

 
12



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Pawn and Retail Activities
Our pawn stores make pawn loans, which are typically small, non-recourse loans collateralized by tangible personal property. At March 31, 2013, we had an aggregate pawn loan principal balance of $138.4 million, and the average pawn loan was approximately $125. We earn pawn service charge revenue on our pawn lending. In the current quarter, pawn service charges accounted for approximately 23% of our total revenues and 36% of our net revenues.
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 $140 to $145, 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 average $70 U.S. dollars.
In our pawn and buy/sell stores, we acquire inventory for retail sales through pawn loan forfeitures, purchases of customers’ second hand merchandise or 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. Margins achieved upon sale of inventory are a function of the assessment of value at the time the pawn loan was originated or, in the case of purchased merchandise, the purchase price.
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 generally has greater inherent commodity value. At March 31, 2013, our total allowance was 4.4% of gross inventory compared to 6.5% at March 31, 2012 and 4.9% at September 30, 2012. Changes in the valuation allowance are charged to merchandise cost of goods sold.

Consumer Loan Activities
At March 31, 2013, our financial services stores and certain pawn stores in Texas offered credit services to customers seeking short-term consumer 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 to the unaffiliated lenders. Customers may obtain two types of consumer loans from the unaffiliated lenders. In all stores offering consumer loan credit services, customers can obtain single-payment unsecured consumer loans, with principal amounts up to $1,800 but averaging about $430. 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 22% of the loan amount for our credit services offered in connection with single-payment loans. In the financial services stores offering credit services, customers can obtain longer-term unsecured multiple-payment loans from the unaffiliated lenders. There are two types of multiple-payment loans offered in connection with our credit services. All multiple-payment loans typically carry terms of about five months with ten equal installment payments, including principal amortization, due on customers’ paydays. Traditional multiple-payment loan principal amounts range from $1,525 to $3,000, but average about $2,205, and with each semi-monthly or bi-weekly installment payment, we earn a fee of 11% of the initial loan amount. Low dollar multiple-payment loan principal amounts range from $100 to $1,500, but average about $785. With each semi-monthly or bi-weekly installment payment, we earn a fee of 13-14% of the initial loan amount. At March 31, 2013, single-payment loans comprised 92% of the balance of signature loans brokered through our credit services, and multiple-payment loans comprised the remaining 8%.
Outside of Texas, we earn loan fee revenue on our consumer loans. In our U.S. and Canada financial services stores and certain of our U.S. pawn stores, we offer single-payment loans subject to state or provincial law. The average single-payment loan amount is approximately $485 and the term is generally less than 30 days, averaging about 18 days. We typically charge a fee of 15% to 22% of the loan amount. In many of our U.S. financial services stores, we offer multiple-payment loans subject to state law. These multiple-payment loans carry a term of four to seven months, with a series of equal installment payments including principal amortization, due monthly, semi-monthly or on the customers’ paydays. Total interest and fees on these loans vary in accordance with state law and loan terms, but over the entire loan term, total approximately 45% to 130% of the original principal amount of the loan. Multiple-payment loan principal amounts range from $100 to $3,000, but average approximately $545.
At March 31, 2013, most of our U.S. financial services stores and certain of our U.S. pawn stores offered auto title loans or, in Texas, 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 $10,000, but average about $1,005. We earn a fee of 12.5% to 30% of auto title loan amounts. In Texas, we assist customers in obtaining multiple-payment auto title loans from unaffiliated lenders. These loans typically carry terms of two to five months with up to ten payments. Multiple

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payment auto title loan principal amounts range from $150 to $10,000, but average about $1,060, and we earn a fee of 2% to 41% of the initial loan amount.
EZCORP Online now operates in five states. In Louisiana and Missouri, we offer single-payment loans over the Internet, subject to state or provincial law. The average single-payment loan amount is approximately $300 and the term is generally less than 30 days. Total interest and fees on these loans vary in accordance with state law and loan terms, but over the entire loan term, total approximately 25% to 45% of the original principal amount of the loan. In Texas and Ohio, we offer credit services to customers seeking short-term consumer 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 to the unaffiliated lenders. Customers can obtain single-payment unsecured consumer loans, with principal amounts up to $1,000 but averaging about $400. Starting in April 2013, we also lend in South Dakota.
In Mexico, Grupo Finmart has approximately 70 active payroll withholding agreements with Mexican employers, primarily federal, state and local governments and agencies, and provides multiple-payment consumer loans to the agencies' employees. Interest and principal payments are collected through payroll deductions. The average loan is approximately $1,130 with a term of 32 months and annual rates ranging from 20% to 60%.
In the U.K., Cash Genie offers unsecured single payment loans with a fixed fee of 30% of the loan amount. Loans are generally due within 28 days and can be renewed; the average loan duration is 20 days. Principal loan amounts range from $115 to $760 but average $285.
Acquisitions
In the current quarter, we did not have any acquisitions.
In the current six-month period ended March 31, 2013, we acquired 12 pawn stores in the U.S. for $23.1 million and Go Cash (now EZCORP Online), a U.S. online lender, for $50.8 million. As part of these two acquisitions, we began store operations in the state of Arizona and online operations in four states. EZCORP Online has since started online operations in the state of Ohio, bringing the total number of states in which we operate to 26 at March 31, 2013. In the current six-month period, we acquired a 51% interest in Renueva Comercial S.A. de C.V., a company headquartered in Mexico City and doing business under the name “TUYO.” TUYO owns and operates 20 buy/sell stores in Mexico City and the surrounding metropolitan area. In the current six-month period, we increased our interest in Cash Genie, our online lending subsidiary in the U.K., from 72% to 95%.
International Growth
With continued execution of the our geographic and product diversification strategy, nearly 18% of our consolidated segment contribution in the current quarter was attributable to areas outside the United States, up from 10% in the prior year quarter. Total revenue in the Latin America and Other International segments combined increased 65% in the current quarter from the prior year quarter. These year-over year increases are the result of continued strength in our Empeño Fácil and Grupo Finmart businesses in Mexico, our Cash Genie business in the U.K.,the acquisition of controlling interests in TUYO, and our strategic investments in the United Kingdom and Australia.
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.
Consumer loan fees are generally highest in our fourth and first fiscal quarters (July through December) due to a higher need for cash during the holiday season. Consumer loan bad debt, both in dollar terms and as a percentage of related fees, is highest in the fourth fiscal quarter and lowest in the second fiscal quarter due primarily to the impact of tax refunds in the U.S.
The payroll withholding lending business is less impacted by seasonality, with the exception of the summer months when new loan originations tend to moderate.
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.

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Recent Regulatory Developments

Consumer Financial Protection Bureau

On April 24, 2013, the Consumer Financial Protection Bureau (the “CFPB”), which has regulatory, supervisory and enforcement powers over providers of consumer financial products and services, including banks and other providers of consumer loans such as EZCORP, issued a report entitled “Payday Loans and Deposit Advance Products,” indicating that it has “engaged in an in-depth review of short-term small dollar loans, including payday loans.” The report discusses the initial findings of the CFPB regarding short-term payday loans provided by non-bank financial institutions like EZCORP and deposit account advances offered by depository institutions. While the CFPB acknowledges the clear demand for small dollar credit products, it does express concern regarding the risk of sustained use of these products by some consumers. The report reiterated that the CFPB has authority to adopt rules identifying unfair, deceptive or abusive practices in connection with the offering of consumer financial products and services. The report also indicated that the CFPB’s review suggested that the potential for consumer harm and the data gathered in its review warrant further attention to protect consumers and stated that the CFPB expects to use its authorities to provide such protections. Additionally, the CFPB indicated that the report did not focus on online lending and that the CFPB plans to conduct a similar analysis of online payday loan usage.

Texas

We offer short-term consumer loans in Texas through our CSO program in both storefronts and online. On April 22, 2013, the Texas Senate passed a bill that, if enacted into law, would adversely affect our consumer loan business in Texas, including caps on fees and other restrictions. The bill remains to be considered by the Texas House of Representatives. Currently, we do not know whether any bill will be passed by the Texas legislature, and if so, in what form. If new legislation is enacted in Texas, it could require us to alter or discontinue some or all of our consumer loan business in Texas, which could have a material adverse effect on our operations, prospects, results of operations and financial condition.

UK Office of Fair Trading

Cash Genie, our majority owned subsidiary, offers online in the United Kingdom and is subject to rules, regulations and guidance issued by the Office of Fair Trading (the “OFT”), as well as other applicable laws, rules and regulations. In February 2012, the OFT announced that it had launched a review of the payday lending sector in the United Kingdom to assess the sector’s compliance with the OFT’s guidelines and other relevant guidance and legal obligations. The OFT announced the findings of its review during the first quarter of 2013 and enumerated a number of expectations it has for payday lenders related to affordability assessments, rollovers, advertising, debt collection and consumer disclosures, among other expectations. Cash Genie has been following these published best practices since last year, and therefore, the recent OFT activity is not expected to have an adverse impact on its business.
Certain Accounting Matters
Critical Accounting Policies
With the exception of the policies described below, there have been no changes in significant accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2012.
On November 20, 2012, we entered into a definitive agreement with Go Cash, LLC and certain of its affiliates ("Go Cash") to acquire substantially all the assets of Go Cash's online lending business. This acquisition was completed on December 20, 2012 and accounted for as an asset purchase. Since the acquisition, Go Cash (now EZCORP Online) has modified the following consumer loan policies:
Unsecured Consumer Loan Revenue and Bad DebtConsumer loans made by EZCORP Online are considered delinquent if they are not repaid or renewed by the maturity date.   We do not accrue additional revenues on delinquent loans. All outstanding principal balances and fee receivables greater than 60 days past due are considered defaulted. Upon default, we charge consumer loan principal to consumer loan bad debt and reverse accrued unsecured consumer loan fee revenue.
Recently Adopted Accounting Pronouncements
In December 2011, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-11, Disclosures about Offsetting Assets and Liabilities. This update, which amends FASB ASC 210 (Balance Sheet), requires entities to disclose information about offsetting and related arrangements and the effect of those arrangements on its financial

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position. The amendments in ASU 2011-11 enhance disclosures required by FASB ASC 210 by requiring improved information about financial instruments and derivative instruments that are either offset in accordance with FASB ASC 210-20-45 or 815-10-45 or are subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 is effective for interim and annual periods beginning on or after January 1, 2013. Disclosures are required retrospectively for all comparative periods presented. Currently, we do not enter into any right of offset arrangements and the adoption of ASU 2011-11 did not have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-02, Comprehensive income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update, requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This update requires entities to apply the amendments for periods beginning after December 15, 2012 and interim periods within those annual periods and to provide the required disclosures for all reporting periods presented. We adopted ASU 2013-03 on January 1, 2013, and the adoption did not have a material effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
In October 2012, the FASB issued ASU 2012-04, Technical Corrections and Improvements. This update clarifies the Codification or corrects unintended application of guidance and includes amendments identifying when the use of fair value should be linked to the definition of fair value in Topic 820, Fair Value Measurement. Amendments to the Codification without transition guidance are effective upon issuance for both public and nonpublic entities. For public entities, amendments subject to transition guidance will be effective for fiscal periods beginning after December 15, 2012. We do not anticipate that the adoption of ASU 2012-04 will have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-02, Comprehensive income (Topic 220) — Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update, requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. This update requires entities to apply the amendments for periods beginning after December 15, 2012 and interim periods within those annual periods and to provide the required disclosures for all reporting periods presented. We do not anticipate the adoption of ASU 2013-03 to have a material effect on our financial position, results of operations or cash flows.
In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405)—Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force). This update provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date (except for obligations addressed within existing guidance in U.S. GAAP). Examples of obligations within the scope of ASU 2013-04 include debt arrangements, other contractual obligations, and settled litigation and judicial rulings. ASU 2013-04 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate that the adoption of ASU 2013-04 will have a material effect on our financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) — Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force). This update applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity, or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. We do not anticipate that the adoption of ASU 2013-05 will have a material effect on our financial position, results of operations or cash flows.
Reclassifications
In connection with our decentralization strategy, we have changed the accountability for, and reporting of, certain items in administrative expenses, depreciation and amortization. When directly related to a segment, these items have been included in segment contribution.When shared by multiple segments, these items are being allocated to the segment and included in their segment contribution. Prior year figures have been reclassified to conform to this presentation.

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Use of Estimates and Assumptions
Management’s Discussion and Analysis of Financial Condition and Results of Operations is 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 requires 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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2013 vs. Three Months Ended March 31, 2012
Consolidated Results of Operations
The following table presents selected, unaudited, consolidated financial data for our three-month periods ended March 31, 2013 and 2012 (the “current quarter” and “prior year quarter," respectively). This table, as well as the discussion that follows, should be read with the accompanying unaudited financial statements and related notes.
 
Three Months Ended March 31,
 
Percentage
Change
 
2013
 
2012
 
 
(in thousands)
 
 
Revenues:
 
 
 
 
 
Sales
$
144,474

 
$
148,172

 
(2.5
)%
Pawn service charges
62,594

 
56,444

 
10.9
 %
Consumer loan fees
62,310

 
50,319

 
23.8
 %
Other
2,696

 
1,343

 
100.7
 %
Total revenues
272,074

 
256,278

 
6.2
 %
Cost of goods sold
89,269

 
88,190

 
1.2
 %
Consumer loan bad debt
8,880

 
6,466

 
37.3
 %
Net revenues
$
173,925

 
$
161,622

 
7.6
 %
Net income attributable to EZCORP, Inc.
$
33,981

 
$
37,261

 
(8.8
)%
In the current quarter, consolidated total revenues increased 6%, or $15.8 million, to $272.1 million, compared to the prior year quarter. The increase was primarily driven by an 11% increase in pawn service charges and a 24% increase in consumer loan fees. Total sales (which includes merchandise sales and jewelry scrapping sales) decreased 2.5%, with merchandise sales increasing 6% and jewelry scrapping sales decreasing 18%. Other revenue increased $1.4 million in the current quarter compared to the prior year quarter. Net revenues of $173.9 million, increased $12.3 million, or 8%, and operations expense increased $18.9 million, or 22%. Corporate administrative expenses of $8.6 million decreased $3.4 million, or 28%. After a $1.5 million increase in depreciation and amortization, a $1.5 million increase in net interest expense, a $3.8 million decrease in income tax expense and the $0.8 million increase net income attributable to the noncontrolling interest, net income attributable to EZCORP decreased $3.3 million, or 9%, to $34.0 million.

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Segment Results of Operations
U.S. & Canada
The following table presents selected financial data for the U.S. & Canada segment:
 
 
Three Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Revenues:
 
 
 
Merchandise sales
$
87,048

 
$
85,498

Jewelry scrapping sales
40,671

 
49,414

Pawn service charges
54,512

 
50,505

Consumer loan fees
43,825

 
42,806

Other revenues
1,620

 
1,219

Total revenues
227,676

 
229,442

Merchandise cost of goods sold
51,167

 
50,499

Jewelry scrapping cost of goods sold
27,663

 
29,537

Consumer loan bad debt
6,864

 
5,878

Net revenues
141,982

 
143,528

Segment expenses:
 
 
 
Operations
85,477

 
75,364

Depreciation and amortization
4,909

 
3,390

(Gain) loss on sale or disposal of assets
(1
)
 
25

Interest expense, net
15

 

Other (income) expense
(1
)
 
909

Segment contribution
$
51,583

 
$
63,840

Other data:
 
 
 
Gross margin on merchandise sales
41.2
%
 
40.9
%
Gross margin on jewelry scrapping sales
32.0
%
 
40.2
%
Gross margin on total sales
38.3
%
 
40.7
%
Average pawn loan balance per pawn store at period end
$
240

 
$
236

Average yield on pawn loan portfolio (a)
162
%
 
163
%
Pawn loan redemption rate
84
%
 
83
%
Consumer loan bad debt as a percentage of consumer loan fees
15.7
%
 
13.7
%
(a)
Average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period.

The U.S. & Canada segment total revenues decreased $1.8 million from the prior year quarter to $227.7 million. Same store total revenues decreased $17.4 million, or 8%, and new and acquired stores net of closed stores contributed $15.6 million. In the current quarter we opened 12 de novo locations bringing our total number of stores in the U.S. & Canada segment to 1,058, a 9% increase over the prior year quarter.
Our current quarter pawn service charge revenue increased $4.0 million, or 8%, from the prior year quarter to $54.5 million. The overall increase was due to a higher average loan balance for the period to $136.4 million during the current quarter, a 9% increase in total and 3% increase on a same store basis. Same store pawn service charges increased $1.5 million, or 3%, with new and acquired stores net of closed stores contributing $2.5 million.
The current quarter merchandise sales gross profit increased $0.9 million, or 3%, from the prior year quarter to $35.9 million. Same store merchandise sales decreased $3.7 million and new and acquired stores net of closed stores contributed $5.2 million.

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The slight increase in gross margin was due to a one-time inventory reserve adjustment in the current quarter. We typically evaluate our inventory reserves mid-year and at fiscal year-end.
Gross profit on jewelry scrapping sales decreased $6.9 million, or 35%, from the prior year quarter to $13.0 million. Jewelry scrapping revenues decreased $8.7 million, or 18%, due to an 18% decrease in gold volume and a 2% decrease in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $12.7 million, or 26%, and new and acquired stores contributed $4.0 million. Jewelry scrapping sales include the sale of approximately $3.9 million of loose diamonds removed from scrap jewelry in the current quarter and $4.0 million in the prior year quarter. Scrap cost of goods decreased $1.9 million, or 6%, as a result of the decrease in volume, partially offset by a 13% increase in average cost per gram of jewelry scrapped. The decrease in scrap sales and increase in cost is a function of a very competitive marketplace and our intention to gain market share.
The current quarter’s consumer loan fees increased $1.0 million, or 2%, to $43.8 million, over the prior year quarter. Same store consumer loan fees decreased $1.9 million, or 5%, with new and acquired stores net of closed stores contributing $2.9 million. Consumer loan bad debt as a percentage of fees was 16% in the current quarter compared to 14% in the prior year quarter, mostly due to the higher mix of new stores, new products and online generated loans. In the current quarter, the profitability of the financial services business continued to be negatively impacted as a result of ordinances enacted in Dallas, Austin and San Antonio. On April 22, 2013, the Texas Senate passed a bill that, if enacted into law, would adversely affect our consumer loan business in Texas, including caps on fees and other restrictions. The bill remains to be considered by the Texas House of Representatives. If adverse legislation is enacted in Texas, we may have to alter or discontinue some or all of our consumer loan business in Texas, which could have a material adverse effect on our results of operations and financial condition.
The current quarter's other revenues increased $0.4 million, over the prior year quarter to $1.6 million. The increase is mainly due to fees related to the Western Union agreement. In fiscal 2013 we began offering Western Union money transfer, money order and consumer bill payment services at 633 of our U.S. & Canada locations and expect to expand to all stores in the U.S. and Canada during the remainder of fiscal 2013.
Operations expense increased to $85.5 million (38% of revenues) in the current quarter from $75.4 million (33% of revenues) in the prior year quarter. The increase is due to higher operating costs resulting from new and acquired stores, as well as the costs associated with various business unit growth initiatives, which were recorded as operations expense. Depreciation and amortization increased $1.5 million, or 45%, from the prior year quarter to $4.9 million, mainly due to assets placed in service at new and acquired stores. The $0.9 million improvement in other income is due to a prior year loss on a gold hedging instrument. We did not hold any hedging instruments during the quarter.
In the current quarter, U.S. & Canada delivered a segment contribution of $51.6 million, a $12.3 million decrease compared to the prior year quarter, driven by the challenges related to jewelry merchandise sales and gold scrap sales. In the current quarter, the U.S. & Canada segment's contribution represented 82% of consolidated segment contribution compared to 90% in the prior year. Our expansion outside of the U.S. and Canada, both through de novo and acquisitions, continues to diversify our revenues and earnings composition. While the U.S. & Canada segment has experienced some challenges related to jewelry merchandise sales and gold scrap sales, the core elements of our business have continued to show strength.

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Latin America
The following table presents selected financial data for the Latin America segment after translation to U.S. dollars from its functional currency of the Mexican peso:
 
 
Three Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Revenues:
 
 
 
Merchandise sales
$
13,858

 
$
9,499

Jewelry scrapping sales
2,897

 
3,761

Pawn service charges
8,082

 
5,939

Consumer loan fees
11,842

 
7,383

Other revenues
217

 
124

Total revenues
36,896

 
26,706

Merchandise cost of goods sold
8,010

 
5,381

Jewelry scrapping cost of goods sold
2,429

 
2,773

Consumer loan bad debt
(661
)
 
508

Net revenues
27,118

 
18,044

Segment expenses:
 
 
 
Operations
16,401

 
11,090

Depreciation and amortization
1,771

 
2,404

Loss on sale or disposal of assets
14

 
2

Interest expense, net
2,802

 
1,769

Other (income) expense
(315
)
 
13

Segment contribution
$
6,445

 
$
2,766

Other data:
 
 
 
Gross margin on merchandise sales
42.2
 %
 
43.4
%
Gross margin on jewelry scrapping sales
16.2
 %
 
26.3
%
Gross margin on total sales
37.7
 %
 
38.5
%
Average pawn loan balance per pawn store at period end
$
68

 
$
66

Average yield on pawn loan portfolio (a)
195
 %
 
203
%
Pawn loan redemption rate
76
 %
 
77
%
Consumer loan bad debt as a percentage of consumer loan fees
(5.6
)%
 
6.9
%
(a)
Average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period.
The average exchange rate used to translate Latin America’s current quarter results from Mexican pesos to U.S. dollars was 12.7 to 1, 3% stronger than the prior year quarter’s rate of 13.0 to 1. Total revenues increased 38% in U.S. dollars and 35% in peso terms. Total segment expenses increased 35% in U.S. dollars and 33% in peso terms. In the current quarter, we opened 27 de novo stores and closed one Grupo Finmart location.

The Latin America segment's total revenues increased $10.2 million, or 38%, in the current quarter to $36.9 million. Same store total revenues increased 6%, or $1.6 million, to $28.3 million, and new and acquired stores contributed $8.6 million. The overall increase in total revenues was mostly due to a $3.5 million increase in merchandise and jewelry scrapping sales, a $2.1 million increase in pawn service charges and a $4.5 million increase in consumer loan fees. The increase in consumer loan fees is partially due to the inclusion of a full quarter of Grupo Finmart's fees as opposed to two months in the prior year quarter.
Latin America’s pawn service charge revenues increased $2.1 million, or 36%, in the current quarter to $8.1 million. Same store pawn service charges increased $1.0 million, or 17%, to $6.9 million and new and acquired stores contributed $1.1 million. The increase was due to a 42% total and 21% same store increase in the average outstanding pawn loan balance during the period.

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Merchandise gross profit increased $1.7 million, or 42%, from the prior year quarter to $5.8 million. The increase was due to a $1.2 million, or 12%, same store sales increase and $3.2 million in sales from new and acquired stores, offset by a 1.2 percentage point decrease in gross margin to 42%. The decrease in margin was due to a one-time inventory reserve adjustment and more aggressive pricing in general merchandise.
Gross profit on jewelry scrapping sales decreased $0.5 million, or 53%. Jewelry scrapping revenues decreased $0.9 million, or 23%, due to a 30% decrease in gold volume and a 5% decrease in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $1.4 million, or 36%, and new and acquired stores contributed $0.5 million. Scrap cost of goods decreased $0.3 million, or 12%, as a result of the decrease in volume, partially offset by a 6% increase in average cost per gram of jewelry scrapped. The decrease in scrap sales and increase in cost is a function of a very competitive marketplace and our intention to gain market share.
The Grupo Finmart acquisition in the prior year quarter marked our initial entry into the non-secured loan business in Mexico. In the current quarter, Grupo Finmart contributed consumer loan fees of $11.8 million, with a benefit in bad debt, due to the sale of past due loans and recoveries of loans previously written off to bad debt expense.
Operations expense increased to $16.4 million (44% of revenues) in the current quarter from $11.1 million (42% of revenues) in the prior year quarter. The increase is due to higher operating costs resulting from the addition of 72 Empeño Fácil stores since the prior year quarter, the inclusion Grupo Finmart and TUYO's expenses and other growth initiatives. Depreciation and amortization decreased 26%, or $0.6 million, from the prior year quarter to $1.8 million, mainly due to a change in in the useful life of Grupo Finmart's government contract intangible asset.
The $1.0 million increase in interest expense is due to the inclusion of Grupo Finmart for the entire quarter compared to only two months in the prior year quarter. At March 31, 2013 Grupo Finmart had $98.3 million of third-party debt outstanding, which is non-recourse to EZCORP, at a weighted average interest rate of 13%, compared to $100.9 million of outstanding debt at a 15% weighted average interest rate in the prior year quarter. The decrease in interest rate is due to the refinancing of various debt instruments at lower interest rates.
In the current quarter, the $9.1 million increase in net revenues was partially offset by the $5.4 million higher expenses, resulting in a $3.7 million increase in contribution for the Latin America segment. For the current quarter Latin America's segment contribution represented 10% of consolidated segment contribution compared to 4% a year ago, making Latin America our fastest growing segment.

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Other International
The following table presents selected financial data for the Other International segment:
 
 
Three Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Consumer loan fees
$
6,643

 
$
130

Other revenues
859

 

Total revenues
7,502

 
130

Consumer loan bad debt
2,677

 
80

Net revenues
4,825

 
50

Segment expenses:
 
 
 
Operations expense
3,669

 
170

Depreciation and amortization
143

 
14

Interest income, net
(1
)
 

Equity in net income of unconsolidated affiliates
(4,125
)
 
(4,577
)
Segment contribution
$
5,139

 
$
4,443

Other data:
 
 
 
Consumer loan bad debt as a percent of consumer loan fees
40
%
 
62
%
On April 14, 2012, we acquired a 72% interest in Cash Genie, an online lending business in the U.K., and on November 14, 2012, we acquired an additional 23% interest, increasing our ownership percentage from 72% to 95%, with the remaining 5% held by local management.
In the current quarter, the segment's consumer loan fees were $6.6 million, with bad debt as a percentage of fees at 40%. The segment's $0.9 million in other revenues represent fees from a consulting agreement with Albermarle & Bond. Under the terms of the agreement we were engaged to assess, identify and implement improvements in their gold and diamond supply chains and labor optimization.
Operations expense during the current quarter was $3.7 million with depreciation and amortization at $0.1 million.
Our equity in the net income of unconsolidated affiliates decreased $0.5 million, or 10%, from the prior year to $4.1 million. The decrease is due to a 31% decrease in Albemarle & Bond's net income in the first half of fiscal 2013, partially offset by Cash Converters International's strong performance.
In the current quarter, the $4.8 million increase in net revenues was mostly offset by the $3.5 million increase in operations expense and the $0.5 million decrease in our equity in the net income of unconsolidated affiliates. Segment contribution from the Other International segment increased $0.7 million to $5.1 million. For the current quarter, the segment's contribution represents 8% of total contribution compared to 6% in the prior year quarter.


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Other Consolidated Items
The following table reconciles our consolidated segment contribution discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:
 
 
Three Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Segment contribution
$
63,167

 
$
71,049

Corporate expenses:
 
 
 
Administrative
8,603

 
11,998

Depreciation and amortization
1,940

 
1,451

Interest expense, net
937

 
477

Other (income) expense
721

 
(120
)
Consolidated income before income taxes
50,966

 
57,243

Income tax expense
16,086

 
19,870

Net income
34,880

 
37,373

Net income attributable to noncontrolling interest
899

 
112

Net income attributable to EZCORP, Inc.
$
33,981

 
$
37,261


Administrative expenses decreased $3.4 million, or 28%, due to decreases in compensation related expenses, professional fees and miscellaneous expenses. Interest expense increased $0.5 million, or 96%, due to greater utilization of our revolver. Depreciation and amortization increased $0.5 million, or 34%, due to new assets placed in service as a result of investment in infrastructure to support our globalization strategy. The $0.7 million other expense was due to foreign currency transaction losses.
Consolidated income before taxes decreased $6.3 million, or 11%, to $51.0 million. The $3.7 million and $0.7 million increase in contribution from the Latin America and Other International segments respectively, and the $1.6 million decrease in corporate expenses, were offset by a $12.3 million decrease in contribution from the U.S. & Canada segment. The decrease in contribution from the U.S. & Canada segment was due to a combination of reduced gross profit on jewelry scrapped and an increase in operating costs to support a rapidly growing store base.
Income tax expense was $16.1 million, 31.6% of pre-tax income, compared to $19.9 million, 34.7% of pre-tax income in the prior year quarter. The decrease in the effective tax rate when compared to the prior year quarter was due to a one-time recognition of a tax benefit from foreign net operating losses.
In the current quarter, net income attributable to EZCORP decreased $3.3 million, or 9%, to $34.0 million, after the $0.9 million of net income attributable to the noncontrolling interest.

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Six Months Ended March 31, 2013 vs. Six Months Ended March 31, 2012
The following table presents selected, unaudited, consolidated financial data for our six-month periods ended March 31, 2013 and 2012 (the “current six-month period” and “prior year six-month period," respectively). This table, as well as the discussion that follows, should be read with the accompanying unaudited financial statements and related notes.
 
Six Months Ended March 31,
 
Percentage
Change
 
2013
 
2012
 
 
(in thousands)
 
 
Revenues:
 
 
 
 
 
Sales
$
285,981

 
$
291,469

 
(1.9
)%
Pawn service charges
128,618

 
116,236

 
10.7
 %
Consumer loan fees
127,075

 
95,407

 
33.2
 %
Other
7,526

 
2,039

 
269.1
 %
Total revenues
549,200

 
505,151

 
8.7
 %
Cost of goods sold
176,969

 
172,010

 
2.9
 %
Consumer loan bad debt
22,954

 
17,491

 
31.2
 %
Net revenues
$
349,277

 
$
315,650

 
10.7
 %
Net income attributable to EZCORP, Inc.
$
64,698

 
$
76,613

 
(15.6
)%
In the current six-month period, consolidated total revenues increased 9%, or $44.0 million, to $549.2 million, compared to the prior year six-month period. The increase was primarily driven by an 11% increase in pawn service charges, a 33% increase in consumer loan fees and an 8% increase in merchandise sales, partially offset by an 18% decrease in jewelry scrapping sales. Other revenue increased $5.5 million in the current six-month period compared to the prior year six-month period. Net revenues of $349.3 million, increased $33.6 million, or 11%, and operations expense increased $43.6 million or 26%. Administrative expenses of $22.3 million decreased $1.4 million, or 6%. After a $3.9 million increase in depreciation and amortization, a $4.6 million increase in net interest expense, a $7.4 million decrease in income tax expense and the $2.2 million increase in net income attributable to the noncontrolling interest, net income attributable to EZCORP decreased $11.9 million, or 16%, to $64.7 million.



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Segment Results of Operations
U.S. & Canada
The following table presents selected financial data for the U.S. & Canada segment:
 
 
Six Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Revenues:
 
 
 
Merchandise sales
$
167,513

 
$
162,050

Jewelry scrapping sales
82,813

 
102,280

Pawn service charges
112,722

 
104,875

Consumer loan fees
89,784

 
87,818

Other revenues
4,414

 
1,795

Total revenues
457,246

 
458,818

Merchandise cost of goods sold
97,899

 
93,950

Jewelry scrapping cost of goods sold
56,820

 
62,687

Consumer loan bad debt
18,345

 
16,768

Net revenues
284,182

 
285,413

Segment expenses:
 
 
 
Operations
172,920

 
150,358

Depreciation and amortization
9,011

 
6,613

(Gain) loss on sale or disposal of assets
28

 
(175
)
Interest expense
32

 
4

Other income
(5
)
 
(151
)
Segment contribution
$
102,196

 
$
128,764

Other data:
 
 
 
Gross margin on merchandise sales
41.6
%
 
42.0
%
Gross margin on jewelry scrapping sales
31.4
%
 
38.7
%
Gross margin on total sales
38.2
%
 
40.7
%
Average pawn loan balance per pawn store at period end
$
240

 
$
236

Average yield on pawn loan portfolio (a)
164
%
 
162
%
Pawn loan redemption rate
83
%
 
82
%
Consumer loan bad debt as a percentage of consumer loan fees
20.4
%
 
19.1
%
(a)
Average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period.

The U.S. & Canada segment total revenues stayed relatively constant compared to the prior year six-month period at $457.2 million. Same store total revenues decreased $30.7 million, or 7%, and new and acquired stores net of closed stores contributed $29.1 million. In the current six-month period, we acquired 12 pawn stores in the U.S. for $23.1 million and Go Cash, a U.S. online lender, for $50.8 million. As part of these acquisitions, we began store operations in the state of Arizona and online operations in four states, including the state of Ohio, bringing the total number of states in which we operate to 26 at March 31, 2013. In the current six-month period we opened 63 de novo locations bringing our total number of stores in the U.S. & Canada to 1,058, a 9% increase over the prior year six-month period.
In the current six-month period, pawn service charge revenue increased $7.8 million, or 7%, from the prior year six-month period to $112.7 million. The overall increase was due to a higher average loan balance during the period of $137.8 million, a 6% increase in total and 1% increase on a same store basis. Same store pawn service charges increased $3.6 million, or 3%,

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with new and acquired stores net of closed stores contributing $4.2 million. The same store improvement was due to a 2 percentage point improvement in yield, driven primarily by rate increases in Nevada and operational improvements in Texas.
The current six-month period merchandise sales gross profit increased $1.5 million, or 2%, from the prior year six-month period to $69.6 million. Same store merchandise sales decreased $3.5 million, or 2%, and new and acquired stores net of closed stores contributed $9.0 million. Gross margin on merchandise sales was 41.6%, which was basically flat to the prior year six-month period.
Gross profit on jewelry scrapping sales decreased $13.6 million, or 34%, from the prior year six-month period to $26.0 million. Jewelry scrapping revenues decreased $19.5 million, or 19%, due to a 24% decrease in gold volume partially offset by a 2% increase in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $26.2 million, or 26%, and new and acquired stores contributed $6.7 million. Jewelry scrapping sales include the sale of approximately $7.2 million of loose diamonds removed from scrap jewelry in the current six-month period and $5.6 million in the prior year six-month period. Scrap cost of goods decreased $5.9 million, or 9%, as a result of the decrease in volume, partially offset by a 15% increase average cost per gram of jewelry scrapped. The decrease in scrap sales and increase in cost is a function of a very competitive marketplace and our intention to gain market share.
The current six-month period's consumer loan fees increased $2.0 million, or 2%, to $89.8 million, over the prior year six-month period. Consumer loan bad debt as a percentage of fees was 20% in the current six-month period compared to 19% in the prior year six-month period, mostly due to the higher mix of new stores, new products and online generated loans. In the current six-month period, the profitability of the financial services business was negatively impacted as a result of ordinances enacted in Dallas, Austin and San Antonio. On April 22, 2013, the Texas Senate passed a bill that, if enacted into law, would adversely affect our consumer loan business in Texas, including caps on fees and other restrictions. The bill remains to be considered by the Texas House of Representatives. If adverse legislation is enacted in Texas, we may have to alter or discontinue our consumer loan business in Texas, which could have a material adverse effect on our results of operations and financial condition.
The current six-month period's other revenues increased $2.6 million over the prior year six-month period to $4.4 million. The increase is mainly due to fees related to the Western Union agreement. In fiscal 2013, we began offering Western Union money transfer, money order and consumer bill payment services at 633 of our U.S. & Canada locations and expect to expand to all stores in the U.S. and Canada during the remainder of the year.
Operations expense increased to $172.9 million (38% of revenues) in the current six-month period from $150.4 million (33% of revenues) in the prior year six-month period. The increase is due to higher operating costs resulting from new and acquired stores, as well as the costs associated with various business unit growth initiatives, which were recorded as operations expense. Depreciation and amortization increased 36%, or $2.4 million, from the prior year six-month period to $9.0 million, mainly due to assets placed in service at new and acquired stores. The $0.1 million decrease in other income is due to a prior year gain on a gold hedging instrument.
In the current six-month period, U.S. & Canada delivered a segment contribution of $102.2 million, a 21% decrease compared to the prior year six-month period, driven by the challenges related to jewelry merchandise sales and gold scrap sales. In the current six-month period, the U.S. & Canada segment's contribution represented 80% of consolidated segment contribution compared to 89% in the prior year six-month period. Our expansion outside of the U.S. and Canada, both through de novo and acquisitions, continues to diversify our revenues and earnings composition. While the U.S. & Canada segment has experienced some challenges related to jewelry merchandise sales and gold scrap sales, the core elements of our business have continued to show strength.



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Latin America
The following table presents selected financial data for the Latin America segment after translation to U.S. dollars from its functional currency of the Mexican peso:
 
 
Six Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Revenues:
 
 
 
Merchandise sales
$
28,975

 
$
19,841

Jewelry scrapping sales
6,680

 
7,298

Pawn service charges
15,896

 
11,361

Consumer loan fees
23,719

 
7,383

Other revenues
1,871

 
244

Total revenues
77,141

 
46,127

Merchandise cost of goods sold
16,779

 
10,326

Jewelry scrapping cost of goods sold
5,471

 
5,047

Consumer loan bad debt
(1,709
)
 
508

Net revenues
56,600

 
30,246

Segment expenses:
 
 
 
Operations
32,142

 
18,056

Depreciation and amortization
3,446

 
3,174

Loss on sale or disposal of assets
14

 
1

Interest expense, net
5,415

 
1,733

Other (income) expense
(295
)
 
16

Segment contribution
$
15,878

 
$
7,266

Other data:
 
 
 
Gross margin on merchandise sales
42.1
 %
 
48.0
%
Gross margin on jewelry scrapping sales
18.1
 %
 
30.8
%
Gross margin on total sales
37.6
 %
 
43.4
%
Average pawn loan balance per pawn store at period end
$
68

 
$
66

Average yield on pawn loan portfolio (a)
190
 %
 
198
%
Pawn loan redemption rate
76
 %
 
77
%
Consumer loan bad debt as a percentage of consumer loan fees
(7.2
)%
 
6.9
%
(a)
Average yield on pawn loan portfolio is calculated as pawn service charge revenues for the period divided by the average pawn loan balance during the period.
The average exchange rate used to translate Latin America’s current six-month period results from Mexican pesos to U.S. dollars was 12.8 to 1, 4% stronger than the prior year six-month period's rate of 13.3 to 1. Total revenues increased 67% in U.S. dollars and 62% in peso terms. Total segment operating expenses increased 77% in U.S. dollars and 70% increase in peso terms. In the current six-month period, we opened 51 de novo stores, and on November 1, 2012, we acquired a 51% interest in Renueva Comercial S.A. de C.V., a company headquartered in Mexico City and doing business under the name “TUYO.” TUYO owns and operates 20 buy/sell stores in Mexico City and the surrounding metropolitan area and is included in our current year to date results.

The Latin America segment's total revenues increased $31.0 million, or 67%, in the current six-month period to $77.1 million. Same store total revenues increased 10%, or $4.6 million, to $50.7 million, and new and acquired stores contributed $26.4 million. The overall increase in total revenues was partly due to the inclusion of revenues from our majority owned subsidiaries. Grupo Finmart's $24.7 million in total revenues in the current six-month period compared to $7.4 million in the prior year six-month period. Excluding Grupo Finmart and TUYO, total revenues increased $12.9 million due to an $8.5 million increase in merchandise and jewelry scrapping sales, a $4.5 million increase in pawn service charges and a $0.7 million increase in other revenues.

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Latin America’s pawn service charge revenues increased $4.5 million, or 40%, in the current six-month period to $15.9 million. Same store pawn service charges increased 21%, or $2.4 million, to $13.7 million and new and acquired stores contributed $2.1 million. The increase was due to a 46% total and 23% same store increase in the average outstanding pawn loan balance during the period.
Merchandise gross profit increased $2.7 million, or 28%, from the prior year six-month period to $12.2 million. The increase was due to a $3.2 million, or 16%, same store sales increase and $5.9 million in sales from new and acquired stores offset by a 5.9 percentage point decrease in gross margin to 42%. The decrease in margin was due to a one-time inventory reserve adjustment in the prior year six-month period and more aggressive pricing to move aged merchandise.
Gross profit on jewelry scrapping sales decreased $1.0 million, or 46%, to $1.2 million. Jewelry scrapping revenues decreased $0.6 million, or 8%, due to a 15% decrease in gold volume and a 1% decrease in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $1.8 million, or 25%, and new and acquired stores contributed $1.2 million. Scrap cost of goods increased $0.4 million, or 8%, as the decrease in volume was offset by the 13% increase in cost per gram processed.
The Grupo Finmart acquisition in the second quarter of fiscal 2012 marked our initial entry into the non-secured loan business in Mexico. In the current six-month period, Grupo Finmart contributed consumer loan fees of $23.7 million and other revenues of $1.0 million, with a benefit in bad debt, due to the sale of past due loans and recoveries of loans previously written off to bad debt expense.
Operations expense increased to $32.1 million (42% of revenues) in the current six-month period from $18.1 million (39% of revenues) in the prior year six-month period. The increase is due to higher operating costs resulting from the addition of 72 Empeño Fácil stores since the prior year six-month period, the inclusion Grupo Finmart and TUYO's expenses and other growth initiatives. Depreciation and amortization increased 9%, or $0.3 million from the prior year six-month period to $3.4 million, mainly due to new assets placed in service at new stores and acquisition related assets.
The $3.7 million increase in interest expense is due to debt acquired as part of the Grupo Finmart acquisition. At March 31, 2013 Grupo Finmart had $98.3 million of third-party debt outstanding, which is non-recourse to EZCORP, at a weighted average interest rate of 13%, compared to $100.9 million of outstanding debt at a 15% weighted average interest rate at March 31, 2012. The decrease in interest rate is due to the refinancing of various debt instruments at lower interest rates.
In the current six-month period, the $26.4 million increase in net revenues was partially offset by the $17.8 million higher expenses, resulting in a $8.6 million increase in contribution for the Latin America segment. For the current six-month period, Latin America's segment contribution represented 12% of consolidated segment contribution compared to 5% a year ago, making Latin America our fastest growing segment.



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Other International
The following table presents selected financial data for the Other International segment:
 
 
Six Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Consumer loan fees
$
13,572

 
$
206

Other revenues
1,241

 

Total revenues
14,813

 
206

Consumer loan bad debt
6,318

 
215

Net revenues
8,495

 
(9
)
Segment expenses:
 
 
 
Operations
7,747

 
768

Depreciation and amortization
219

 
36

Interest income, net
(1
)
 

Equity in net income of unconsolidated affiliates
(9,163
)
 
(8,738
)
Other income
(69
)
 
(64
)
Segment contribution
$
9,762

 
$
7,989

Other data:
 
 
 
Consumer loan bad debt as a percent of consumer loan fees
47
%
 
104
%
On April 14, 2012, we acquired a 72% interest in Cash Genie, an online lending business in the U.K., and on November 14, 2012, we acquired an additional 23% interest, increasing our ownership percentage from 72% to 95%, with the remaining 5% held by local management.
In the current six-month period, Cash Genie's consumer loan fees were $13.6 million with bad debt as a percentage of fees at 47%. The segment's $1.2 million in other revenues represent fees from a consulting agreement with Albermarle & Bond. Under the terms of the agreement we were engaged to assess, identify and implement improvements in their gold and diamond supply chains and labor optimization.
Operations expense during the current quarter was $7.7 million with depreciation and amortization at $0.2 million.
Our equity in the net income of unconsolidated affiliates increased $0.4 million, or 5%, from the prior year to $9.2 million. This increase is due to strong performance by Cash Converters International and partially offset by Albemarle & Bond. In the current six-month period, we acquired an additional 12,430,000 ordinary shares of Cash Converters International as part of a share placement, maintaining our ownership percentage of approximately 33%. We expect the new funds to be used to finance expansion and drive future earnings growth.
In the current six-month period, the $8.5 million increase in net revenues and the $0.4 million million increase in our equity in the net income of unconsolidated affiliates were partially offset by a $7.0 million increase in operations expense and a $0.2 million increase in depreciation and amortization. Segment contribution from the Other International segment increased $1.8 million to $9.8 million. For the current six-month period, the segment's contribution represents 8% of total contribution compared to 6% in the prior year six-month period.



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Other Consolidated Items
The following table reconciles our consolidated segment contribution discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:
 
 
Six Months Ended March 31,
 
2013
 
2012
 
(in thousands)
Segment contribution
$
127,836

 
$
144,019

Corporate expenses:
 
 
 
Administrative
22,274

 
23,652

Depreciation and amortization
3,739

 
2,691

Interest expense, net
1,944

 
1,060

Other (income) expense
273

 
(118
)
Consolidated income before income taxes
99,606

 
116,734

Income tax expense
32,571

 
40,009

Net income
67,035

 
76,725

Net income attributable to noncontrolling interest
2,337

 
112

Net income attributable to EZCORP, Inc.
$
64,698

 
$
76,613


Administrative expenses decreased $1.4 million, or 6% mainly due to decreases in compensation related expenses, professional fees and miscellaneous expenses. Interest expense increased $0.9 million, or 83%, due to greater utilization of our revolver. Depreciation and amortization increased $1.0 million, or 39%, due to new assets placed in service as a result of investment in infrastructure to support our globalization strategy. The $0.4 million change in other income or expense was due to due to foreign currency transaction losses in the current six-month period as opposed to gains in the prior year six-month period.
Consolidated income before taxes decreased $17.1 million, or 15%, to $99.6 million due to a $8.6 million and $1.8 million increase in contribution from the Latin America and Other International segments respectively, offset by a $26.6 million decrease in contribution from the U.S. & Canada segment and a $0.9 million increase in corporate expenses. The $26.6 million decrease in contribution from the U.S. & Canada segment was due to a combination of reduced gross profit on jewelry scrapped and an increase in operating costs to support a rapidly growing store base.
Income tax expense was $32.6 million, 32.7% of pre-tax income compared to 34.3% in the prior year six-month period. The effective tax rate for the six-month period ended March 31, 2013 was lowered by a one-time recognition of a tax benefit from state and foreign net operating losses. 
In the current six-month period, net income attributable to EZCORP decreased $11.9 million, or 16%, to $64.7 million, after the $2.3 million of net income attributable to the noncontrolling interest.
LIQUIDITY AND CAPITAL RESOURCES
In the current six-month period, our $94.2 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $91.7 million, $2.5 million in dividends from Albemarle & Bond, $2.3 million in dividends from Cash Converters International, net of (ii) $2.3 million of normal, recurring changes in operating assets and liabilities. In the prior year six-month period, our $95.1 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $90.8 million, $2.6 million in dividends from Albemarle & Bond, $2.2 million in dividends from Cash Converters International, net of (ii) $0.5 million of normal, recurring changes in operating assets and liabilities. The primary differences in cash flows from operations between the current and prior year period are due to the increase in non-cash items partially offset by the decrease in net income, an increase in total inventory, increases in prepaid expenses and internally developed software costs, and a reduction in income taxes payable.
The $49.8 million of net cash used in investing activities during the current six-month period was funded by cash flow from operations, cash on hand and borrowings on our line of credit facility. We invested $11.0 million in Cash Converters International as part of a share placement. We invested $12.3 million in cash to acquire 12 pawn stores in the U.S. and to acquire a 51% interest in TUYO. Other significant investments in the period were the $23.5 million in additions of property

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and equipment and the $3.0 million of loans made in excess of customer loan repayments and the recovery of principal through the sale of forfeited pawn loan collateral. 
The net effect of these and other smaller cash flows was a $7.0 million decrease in cash on hand, providing a $41.4 million ending cash balance.
Below is a summary of our cash needs to meet future aggregate contractual obligations:
 
  
 
 
Payments due by Period
Contractual Obligations
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
 
(in thousands)
Long-term debt obligations*
$
170,794

 
$
27,727

 
$
103,589

 
$
39,478

 
$

Interest on long-term debt obligations**
30,148

 
11,474

 
16,004

 
2,670

 

Operating lease obligations
243,970

 
59,094

 
93,717

 
51,286

 
39,873

Capital lease obligations
1,181

 
525

 
656

 

 

Interest on capital lease obligations
130

 
88

 
42

 

 

Deferred consideration
12,000

 

 
12,000

 

 

Total
$
458,223

 
$
98,908

 
$
226,008

 
$
93,434

 
$
39,873

* Excludes debt premium related to Grupo Finmart
 
 
 
 
 
 
 
 
 
** Future interest on long-term obligations calculated on interest rates effective at the balance sheet date
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, 2013, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none were collected, was $22.7 million. Of that total, $6.2 million was secured by titles to customers’ automobiles. These amounts include principal, interest and insufficient funds 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 fiscal year ended September 30, 2012, these collectively amounted to $17.9 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 490 U.S. EZMONEY financial services stores, 208 adjoin an EZPAWN store. The lease agreements at approximately 94% of the remaining 282 free-standing EZMONEY stores contain provisions that limit our exposure for additional rent to only a few months 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, 2013, we plan to open 2 to 5 pawn stores in the U.S., 23 to 33 pawn stores in Mexico and 12 to 22 financial services stores in the U.S. (most of which will follow our store-within-a-store format). The aggregate investment for this de novo activity is expected to be approximately $7.0 million of capital expenditures plus the funding of working capital and start-up losses. The number of planned new store openings in the remaining six months may change depending on business conditions in each market. We believe new stores will create a drag on earnings and liquidity until their second year of operations.
On May 10, 2011, we entered into a new senior secured credit agreement with a syndication of five banks, replacing our previous credit agreement. Among other things, the new credit agreement provides for a four-year $175 million revolving credit facility that we may, under the terms of the agreement, request to be increased to a total of $225 million. Upon entering the new credit agreement, we repaid and retired all other outstanding debt. The new credit facility increases our available credit and provides greater flexibility to make investments and acquisitions both domestically and internationally. 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, 2013 and expect to remain in compliance based on our expected future performance. At March 31, 2013, we had borrowed $74.0 million. We also issued a $1.7 million letter of credit, leaving $99.3 million available on our revolving credit facility. The outstanding bank letter of credit was required under our workers' compensation insurance program.
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.
At the beginning of the current six-month period, we had an effective “shelf” Registration Statement on Form S-4 covering an aggregate of 2.0 million shares of our Class A Common Stock that we may offer from time to time in connection with future

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acquisitions of businesses, assets or securities, with 1.2 million shares remaining for issuance. During the current six-month period, we issued all the remaining shares in connection with the acquisition of 12 pawn stores in Arizona, and as of the end of the six-month period, have no remaining shares covered by the registration statement.
On February 3, 2012, we filed with the United States Securities and Exchange Commission a “shelf” registration statement on Form S-3 registering the offer and sale of an indeterminate amount of a variety of securities, including debt securities (and related guarantees), equity securities, warrants to purchase debt or equity securities, stock purchase contracts and stock purchase units. The proceeds of any offering and sale under that registration statement will be used for general corporate purposes, including debt reduction or refinancing, acquisitions, capital expenditures and working capital. Unless otherwise indicated in connection with a particular offering of debt securities, each of our domestic subsidiaries will fully and unconditionally guarantee on a joint and several basis our payment obligations under such debt securities. As of March 31, 2013, we had not issued any securities under this 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 fees or late fees. 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, 2013, the allowance for expected LOC losses was $1.7 million. At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none were collected, was $22.7 million. This amount includes principal, interest and insufficient funds fees.
We have no other off-balance sheet arrangements.
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES
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 and described 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, 2012.
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.



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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.
Our earnings are affected by changes in interest rates as some of 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, 2013, our interest expense during that period would increase by approximately $288,000. This amount is determined by considering the impact of the hypothetical interest rate change on our variable-rate debt at March 31, 2013.
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.
Our earnings and financial position are affected by foreign exchange rate fluctuations related to our equity investments in Albemarle & Bond and Cash Converters International, our Empeño Fácil pawn operations, TUYO retail operations and Grupo Finmart operations in Mexico, our operations in Canada and our Cash Genie operations in the U.K. Albemarle & Bond and Cash Genie's functional currency is the British pound, Cash Converters’ International functional currency is the Australian dollar, Empeño Fácil and Grupo Finmart’s functional currency is the Mexican peso and our Canada operations’ 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.
The translation adjustment from Albemarle & Bond representing the weakening in the British pound during the quarter ended December 31, 2012 (included in our March 31, 2013 results on a three-month lag) was an immaterial decrease to stockholders’ equity. The translation adjustment from Cash Genie also represents the weakening in the British pound, resulting in a $2.5 million decrease to stockholders' equity. On March 31, 2013, the British pound weakened to £1.00 to $1.5189 U.S. from $1.6153 at December 31, 2012.
The translation adjustment from Cash Converters International representing the strengthening in the Australian dollar during the quarter ended December 31, 2012 (included in our March 31, 2013 results on a three-month lag) was a $2.1 million increase to stockholders’ equity. On March 31, 2013, the Australian dollar strengthened to $1.00 Australian dollar to $1.0416 U.S. from $1.0371 at December 31, 2012.
The translation adjustment from Latin America representing the strengthening of the Mexican peso during the quarter ended March 31, 2013 was a $8.0 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, 2013, the peso strengthened to $1.00 Mexican peso to $0.0809 U.S. from $0.0770 at December 31, 2012.
The translation adjustment from our Canadian operations representing the weakening of the Canadian dollar during the quarter ended March 31, 2013 was a $0.3 million decrease to stockholders' equity. On March 31, 2013, the Canadian dollar weakened to $1.00 Canadian dollar to $0.9823 U.S. from $1.0031 at December 31, 2012.
We cannot predict the future valuation of foreign currencies or how further movements in them could affect our future earnings or financial position.


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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, 2013. 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, 2013.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the second quarter of fiscal 2013 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.


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PART II

Item 1. Legal Proceedings
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.
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, 2012. 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, 2012, as well as by the following:
Regulation by the U.S. Consumer Financial Protection Bureau — The U.S. Consumer Financial Protection Bureau (the “CFPB”), which has regulatory, supervisory and enforcement powers over providers of consumer financial products and services, such as EZCORP, recently issued a report following an in-depth review of short-term small dollar loans, including payday loans. While the CFPB acknowledges the clear demand for small dollar credit products, it does express concern regarding the risk of sustained use of these products by some consumers. The CFPB reiterated its authority to adopt rules identifying unfair, deceptive or abusive practices in connection with the offering of consumer financial products and services and stated that it expects to use its authority to provide such protections. There can be no assurance that rules ultimately adopted by the CFPB will not adversely affect our ability to continue to offer consumer loans or the profitability of that business.
Proposed Texas Legislation — On April 22, 2013, the Texas Senate passed a bill that, if enacted into law, would adversely affect our consumer loan business in Texas. This bill includes caps on fees, limitations on the amounts that can be loaned, limitations on the number of refinancings, cooling off periods and other restrictions. The bill remains to be considered by the Texas House of Representatives. Currently, we do not know whether any bill will be passed by the Texas legislature, and if so, in what form. If new adverse legislation is enacted in Texas, it could require us to alter or discontinue some or all of our consumer loan business in Texas. Further, if no legislation is enacted at the state level, then various municipalities may consider and enact ordinances that restrict short-term consumer loans (as Dallas, Austin, San Antonio and several other cities have already done). These actions could have a material adverse effect on our operations, prospects, results of operations and financial condition.



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Item 6. Exhibits
 
 
 
 
Exhibit No.

  
Description of Exhibit
 
 
 
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 Mark Kuchenrither, 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 Mark Kuchenrither, 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, 2013, March 31, 2012 and September 30, 2012; (ii) Consolidated Statements of Income for the three and six months ended March 31, 2013 and March 31, 2012; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2013 and March 31, 2012 (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 2013 and March 31, 2012; and (v) Notes to Consolidated Financial Statements.

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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 10, 2013
 
/s/ Jeffrey S. Byal
 
 
 
Jeffrey S. Byal Senior Vice President and
Chief Accounting Officer

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EXHIBIT INDEX
 
Exhibit No.
  
Description of Exhibit
 
 
 
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 Mark Kuchenrither, 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 Mark Kuchenrither, 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, 2013, March 31, 2012 and September 30, 2012; (ii) Consolidated Statements of Income for the three and six months ended March 31, 2013 and March 31, 2012; (iii) Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2013 and March 31, 2012 (iv) Consolidated Statements of Cash Flows for the six months ended March 31, 2013 and March 31, 2012; and (v) Notes to Consolidated Financial Statements.

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