EZPW 10-Q Quarterly Report June 30, 2012 | Alphaminr
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EZPW 10-Q Quarter ended June 30, 2012

Balance Sheet
Cash Flow
Income Statement
Debt
EZCORP INC
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PROXIES
DEF 14A
Filed on Feb. 12, 2014
10-Q 1 ezpw-6302012x10q.htm EZPW-6/30/2012-10Q
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 June 30, 2012
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 June 30, 2012 , 48,223,698 shares of the registrant’s Class A Non-voting Common Stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.
EZCORP, I NC .
INDEX TO FORM 10-Q



I TEM 1. F INANCIAL S TATEMENTS AND S UPPLEMENTARY D ATA

Condensed Consolidated Balance Sheets
June 30,
2012
June 30,
2011
September 30,
2011
(Unaudited)
(Unaudited)
(In thousands)
Assets:
Current assets:
Cash and cash equivalents
$
50,774

$
27,492

$
23,969

Cash, restricted
1,051

—

—

Pawn loans
147,503

134,633

145,318

Consumer loans, net
28,487

14,437

14,611

Pawn service charges receivable, net
26,092

24,372

26,455

Consumer loan fees receivable, net
25,729

6,884

6,775

Inventory, net
94,421

79,031

90,373

Deferred tax asset
18,226

16,150

18,125

Income tax receivable
9,898

3,099

—

Prepaid expenses and other assets
40,268

21,932

30,611

Total current assets
442,449

328,030

356,237

Investments in unconsolidated affiliates
125,309

114,777

120,319

Property and equipment, net
100,196

75,049

78,498

Goodwill
321,423

167,017

173,206

Intangible assets, net
78,666

20,192

19,790

Non-current consumer loans, net
50,587

—

—

Other assets, net
19,443

8,556

8,400

Total assets
$
1,138,073

$
713,621

$
756,450

Liabilities and stockholders’ equity:
Current liabilities:
Current maturities of long-term debt
$
31,126

$
—

$
—

Current capital lease obligations
395

—

—

Accounts payable and other accrued expenses
70,696

53,242

57,400

Customer layaway deposits
6,740

6,131

6,176

Income taxes payable
—

—

693

Total current liabilities
108,957

59,373

64,269

Long-term debt, less current maturities
175,740

26,500

17,500

Long-term capital lease obligations
764

—

—

Deferred tax liability
7,788

1,237

8,331

Deferred gains and other long-term liabilities
14,187

2,209

2,102

Total liabilities
307,436

89,319

92,202

Commitments and contingencies
Temporary equity:
Redeemable noncontrolling interest
44,864

—

—

Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share; authorized 54 million shares; issued and outstanding: 48,223,698 at June 30, 2012; 46,971,535 at June 30, 2011; and 47,228,610 at September 30, 2011
482

469

471

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
266,653

233,056

242,398

Retained earnings
527,231

385,730

422,095

Accumulated other comprehensive income (loss)
(8,623
)
5,017

(746
)
EZCORP, Inc. stockholders’ equity
785,773

624,302

664,248

Total liabilities and stockholders’ equity
$
1,138,073

$
713,621

$
756,450

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

1

Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2012
2011
2012
2011
(In thousands, except per share amounts)
Revenues:
Sales
$
117,932

$
115,345

$
409,401

$
363,658

Pawn service charges
56,163

48,365

172,399

144,944

Consumer loan fees
53,504

38,870

148,911

125,652

Other revenues
1,365

572

3,404

978

Total revenues
228,964

203,152

734,115

635,232

Cost of goods sold
72,453

69,128

244,463

219,258

Consumer loan bad debt
11,251

11,027

28,742

27,795

Net revenues
145,260

122,997

460,910

388,179

Operating expenses:
Operations
75,709

66,753

227,479

197,302

Administrative
22,697

14,379

63,761

56,250

Depreciation
6,215

4,458

16,805

12,670

Amortization
1,162

221

3,086

654

(Gain) loss on sale or disposal of assets
312

169

138

(2
)
Total operating expenses
106,095

85,980

311,269

266,874

Operating income
39,165

37,017

149,641

121,305

Interest income
(133
)
(21
)
(486
)
(35
)
Interest expense
1,030

586

4,180

1,186

Equity in net income of unconsolidated affiliates
(4,197
)
(4,099
)
(12,935
)
(12,157
)
Other
160

(103
)
(157
)
(160
)
Income before income taxes
42,305

40,654

159,039

132,471

Income tax expense
12,594

14,127

52,603

46,677

Net income
29,711

26,527

106,436

85,794

Net income attributable to redeemable noncontrolling interest
1,188

—

1,300

—

Net income attributable to EZCORP, Inc.
$
28,523

$
26,527

$
105,136

$
85,794

Net income per common share:
Basic
$
0.56

$
0.53

$
2.07

$
1.72

Diluted
$
0.56

$
0.53

$
2.06

$
1.71

Weighted average shares outstanding:
Basic
51,162

49,926

50,769

49,849

Diluted
51,340

50,385

51,042

50,292

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

2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2012
2011
2012
2011
(In thousands)
(In thousands)
Net income
$
29,711

$
26,527

$
106,436

$
85,794

Other comprehensive income (loss):
Foreign currency translation gain (loss)
(8,513
)
2,445

(10,887
)
15,333

Unrealized holding gains (loss) arising during period
(108
)
748

(846
)
986

Income tax benefit (provision)
(948
)
(1,000
)
1,563

(4,927
)
Other comprehensive income (loss), net of tax
(9,569
)
2,193

(10,170
)
11,392

Comprehensive income
$
20,142

$
28,720

$
96,266

$
97,186

Attributable to redeemable noncontrolling interest:
Net income
1,188

—

1,300

—

Foreign currency translation gain (loss)
(2,789
)
—

(2,293
)
—

Comprehensive income (loss)
(1,601
)
—

(993
)
—

Comprehensive income attributable to EZCORP, Inc.
$
21,743

$
28,720

$
97,259

$
97,186

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


3

Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
June 30,
2012
2011
(In thousands)
Operating Activities:
Net income
$
106,436

$
85,794

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
19,891

13,324

Consumer loan loss provision
12,136

11,255

Deferred income taxes
(644
)
8,571

(Gain) loss on sale or disposal of assets
138

(2
)
Stock compensation
5,191

11,536

Income from investments in unconsolidated affiliates
(12,935
)
(12,157
)
Changes in operating assets and liabilities, net of business acquisitions:


Service charges and fees receivable, net
1,150

(984
)
Inventory, net
(874
)
(1,206
)
Prepaid expenses, other current assets, and other assets, net
(4,845
)
(4,845
)
Accounts payable and accrued expenses
(12,100
)
3,068

Customer layaway deposits
(182
)
(162
)
Deferred gains and other long-term liabilities
722

(275
)
Excess tax benefit from stock compensation
(1,582
)
(3,166
)
Income taxes receivable/payable
(8,370
)
(3,453
)
Net cash provided by operating activities
104,132

107,298

Investing Activities:
Loans made
(571,683
)
(466,137
)
Loans repaid
382,854

297,016

Recovery of pawn loan principal through sale of forfeited collateral
179,681

149,954

Additions to property and equipment
(33,193
)
(24,324
)
Acquisitions, net of cash acquired
(125,249
)
(64,823
)
Dividends from unconsolidated affiliates
5,560

7,274

Net cash used in investing activities
(162,030
)
(101,040
)
Financing Activities:
Proceeds from exercise of stock options
647

395

Excess tax benefit from stock compensation
1,582

3,166

Debt issuance cost
—

(2,397
)
Taxes paid related to net share settlement of equity awards
(1,153
)
(7,409
)
Change in restricted cash
(1,085
)
—

Proceeds from revolving line of credit
594,809

70,000

Payments on revolving line of credit
(502,575
)
(43,500
)
Proceeds from bank borrowings
343

—

Payments on bank borrowings and capital lease obligations
(8,164
)
(25,004
)
Net cash provided by (used) in financing activities
84,404

(4,749
)
Effect of exchange rate changes on cash and cash equivalents
299

129

Net increase in cash and cash equivalents
26,805

1,638

Cash and cash equivalents at beginning of period
23,969

25,854

Cash and cash equivalents at end of period
$
50,774

$
27,492

Non-cash Investing and Financing Activities:
Pawn loans forfeited and transferred to inventory
$
177,490

$
152,415

Issuance of common stock due to acquisitions
$
17,984

$
—

Contingent consideration
$
23,000

$
—

Deferred consideration
$
916

$
—

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

4

Consolidated Statements of Stockholders’ Equity (Unaudited)
Common Stock
Additional
Paid In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive Income
Total
Shareholders’
Equity
Redeemable
Noncontrolling
Interest
Shares
Par Value
(In thousands)
Balances at September 30, 2010
49,226

$
493

$
225,374

$
299,936

$
(6,375
)
$
519,428

—

Stock compensation
—

—

11,536

—

—

11,536

—

Stock options exercised
41

1

394

—

—

395

—

Release of restricted stock
675

—

—

—

—

—

—

Excess tax benefit from stock compensation
—

5

3,161

—

—

3,166

—

Taxes paid related to net share settlement of equity awards
—

—

(7,409
)
—

—

(7,409
)
—

Unrealized gain on available-for-sale securities
—

—

—

—

642

642

—

Foreign currency translation adjustment
—

—

—

—

10,750

10,750

—

Net income attributable to EZCORP, Inc.
—

—

—

85,794

—

85,794

—

Balances at June 30, 2011
49,942

$
499

$
233,056

$
385,730

$
5,017

$
624,302

$
—

Balances at September 30, 2011
50,199

$
501

$
242,398

$
422,095

$
(746
)
$
664,248

—

Stock compensation
—

—

5,191

—

—

5,191

—

Stock options exercised
201

2

645

—

—

647

—

Issuance of common stock due to acquisitions
635

7

17,992

—

—

17,999

—

Acquisition of redeemable noncontrolling interest
—

—

—

—

—

—

45,857

Release of restricted stock
159

—

—

—

—

—

—

Excess tax benefit from stock compensation
—

2

1,580

—

—

1,582

—

Taxes paid related to net share settlement of equity awards
—

—

(1,153
)
—

—

(1,153
)
—

Unrealized (loss) on available-for-sale securities
—

—

—

—

(550
)
(550
)
—

Foreign currency translation adjustment
—

—

—

—

(7,327
)
(7,327
)
(2,293
)
Net income attributable to EZCORP, Inc.
—

—

—

105,136

—

105,136

—

Net income attributable to redeemable noncontrolling interest
—

—

—

—

—

—

1,300

Balances at June 30, 2012
51,194

$
512

$
266,653

$
527,231

$
(8,623
)
$
785,773

$
44,864

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


5

EZCORP, I NC . AND S UBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 2012

Note A: 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 of the information and footnotes required by generally accepted accounting principles for complete financial statements. Our management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to acquired businesses (described in Note B). The accompanying financial statements should be read with the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended September 30, 2011 . The balance sheet at September 30, 2011 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 nine-month periods ended June 30, 2012 (the “current quarter” and “current nine-month period”) are not necessarily indicative of the results of operations for the full fiscal year.
The consolidated financial statements include the accounts of EZCORP, Inc. and its consolidated subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. We own 60% of the outstanding equity interests in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. (“Crediamigo”) and 72% of Ariste Holding Limited and its affiliates ("Cash Genie"), 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 in the section 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, 2011 .
Consumer Loans
We provide a variety of short-term consumer loans including payday loans, installment loans and auto title loans, and in Texas only, fee-based credit services to customers seeking loans. In Mexico, Crediamigo enters into agreements with employers that permit it to market long-term consumer loans to employees. Payments are withheld by the employers through payroll deductions and remitted to Crediamigo. With the exception of the consolidation of Crediamigo, there have been no changes to our consumer loans policy.
Revenue Recognition
We recognize consumer loan fees related to loans we directly originate based on the percentage of consumer loans made that we believe to be collectible. We earn credit service fees when we assist customers in obtaining consumer loans from unaffiliated lenders, and we recognize the fee revenue ratably over the life of the related loans. We reserve the percentage of interest and credit service fees we expect not to collect. Accrued fees related to defaulted loans reduce fee revenue upon loan default and increase fee revenue upon collection.
Allowance for Losses and Bad Debt Expense
See note K “Allowance for Losses and Credit Quality of Financing Receivables” for a discussion of the Company’s allowance for losses and bad debt expense on consumer loans.
Derivative Instruments and Hedging Activities
We record all derivative instruments according to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815-20-25, “Derivatives and Hedging – Recognition.” Accounting for changes in the fair value of derivatives is determined by the intended use of the derivative, whether it is designated as a hedge and whether the hedging relationship is effective in achieving offsetting changes for the risk being hedged. Derivatives designated to hedge the changes in the fair value of an asset, liability or firm commitment due to an identified risk in the hedged item, such as interest rate risk or foreign currency exchange rate risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though

6

hedge accounting does not apply or we elect not to apply hedge accounting.
We acquire significant amounts of gold either through purchases or from forfeited pawn loan collateral and sell it to refiners. In our first fiscal quarter of 2012 , we began using derivate financial instruments in order to manage our commodity price risk associated with the forecasted sales of gold scrap. From time to time, we purchase put options related to the future market price of gold, and simultaneously, we sell a call option for the same future period for a premium to offset the cost of the put. The combined put and call options, or collar, has the effect of providing us protection from the future downward gold price movement but also limits the extent we can participate in future upward price movement. These collars are not designated as hedges as they do not meet the hedge accounting requirements FASB ASC 851-20-25. The fair value of the derivative instruments is recognized in “Prepaid expenses and other assets” in the consolidated balance sheets and changes in fair value are recognized in “Other” in our consolidated statements of operations.
Reclassifications
Previously, we reported segment information based primarily on product offerings. Beginning with the second quarter of fiscal 2012 , we redefined our reportable operating segments based on geography as our company is increasingly being organized and managed along geographic lines, with product offerings and channels based on local custom and regulation. For this reason, we concluded that segment reporting based on geography more closely aligns with our management organization and strategic direction. In connection with the new segment structure, we have changed the accountability for, and reporting of, certain items including administrative expenses, depreciation and amortization, interest and our equity in the net income of unconsolidated affiliates. When practical, these items are allocated to segments. Interest is also allocated to operating segments when debt is incurred at the local country level and is non-recourse to EZCORP, Inc. These items are now included in the segment’s measure of profit or loss (“segment contribution”). Expenses that cannot be allocated are included as corporate expenses.
In our second fiscal quarter of 2011 , we reclassified fees from our Product Protection Plan and Jewelry VIP Program as well as layaway fees from “Other” revenue to “Sales,” as fees from these products are incidental to sales of merchandise. Prior year figures have been reclassified to conform to this presentation and margins have been recalculated accordingly throughout management’s discussion and analysis.
Recently Issued Accounting Pronouncements
In July 2012, the FASB issued Accounting Standards Updates ("ASU") 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. This update amends FASB ASC 350 (Intangibles – Goodwill and Other) by allowing entities to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning on or after September 15, 2012 . We do not anticipate the adoption of ASU 2012-02 will have a material effect on our financial position, results of operations or cash flows.
In December 2011 , the FASB issued 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 we do not anticipate that the adoption of ASU 2011-11 will have a material effect on our financial position, results of operations or cash flows.
In September 2011 , the FASB issued ASU 2011-08, Testing Goodwill for Impairment. This update amends FASB ASC 350 (Intangibles – Goodwill and Other) by allowing entities to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning on or after December 15, 2011 . We do not anticipate the adoption of ASU 2011-08 will have a material effect on our financial position, results of operations or cash flows.
Recently Adopted Accounting Pronouncements
In May 2011 , the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). This update amends FASB ASC 820 (Fair Value Measurement) by providing common principles and requirements for measuring fair value, as well as similar disclosure requirements between U.S. GAAP and IFRS. It changes certain fair value measurement principles, clarifies the application of existing fair value concepts, and expands disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning on or after

7

December 15, 2011 . We adopted ASU 2011-04 in our interim period beginning January 1, 2012 with no material effect on our financial position, results of operations or cash flows.

In December 2011 , the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05. This update supersedes certain content in ASU 2011-05 Presentation of Comprehensive Income that requires entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 . All other requirements in ASU 2011-05, including the requirement to report comprehensive income in either a single continuous financial statement or in two separate but consecutive financial statements, were not affected by ASU 2011-12. This update is effective for fiscal years beginning on or after December 15, 2011 . We early adopted this amended standard in our fiscal year beginning October 1, 2011 with no effect on our financial position, results of operations or cash flows.
In December 2010 , the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations . The amendments in this update specify that, when presenting comparative financial statements, entities should disclose revenue and earnings of the combined entity as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for material (on an individual or an aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010 . We adopted this amended standard on October 1, 2011 , resulting in no effect on our financial position, operations or cash flows.

Note B: Acquisitions
Crediamigo
On January 30, 2012 , we acquired a 60% interest in Crediamigo, 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 dollars, each year, for a total amount of $24.0 million dollars. The purchase price above includes a fair value amount of $23.0 million attributable to the contingent consideration payments. This amount was calculated 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, and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy.
Pursuant to the Master Transaction Agreement, the sellers have a put option with respect to their remaining shares of Crediamigo. Each seller has the right to sell their Crediamigo shares to EZCORP, Inc., during the exercise period commencing on the second anniversary of the acquisition closing date and ending on the fifth anniversary of the acquisition closing date, with no more than 50% of the seller’s shares being sold within a consecutive twelve -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 Crediamigo in temporary equity.
The fair value of the redeemable noncontrolling interest in Crediamigo was estimated by applying an income approach and a 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 ranging from 10% to 18% , representing discounts for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of Crediamigo was determined using a multiple of future earnings.
The nine-month period ended June 30, 2012 , includes $18.2 million in revenues and $1.9 million in income related to the Crediamigo acquisition. The purchase price allocation is preliminary as we continue to receive information regarding the acquired assets. We have recorded provisional amounts for certain assets and liabilities for which we have not yet received all information necessary to finalize our assessment.
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.

8

Pursuant to the acquisition agreement, the seller has a put option with respect to his remaining shares of Cash Genie. The seller has the right to sell his Cash Genie shares to EZCORP, Inc, during the exercise period commencing on the second anniversary of the acquisition closing date and ending on the fourth anniversary of the acquisition closing date, with no more than 50% of the seller's shares being 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 Cash Genie in temporary equity.

The fair value of the Cash Genie 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 ranging from 10% to 18% , representing discounts for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest. The fair market value of Cash Genie was determined using a multiple of future earnings.
Other
The nine-month period ended June 30, 2012 , includes the acquisition of 48 locations in the U.S. and one in Canada. As these acquisitions, were individually immaterial, we present their related information on a combined basis.
The following tables provide information related to the acquisitions of domestic and foreign retail and financial services locations during the nine months ended June 30, 2012 and 2011 :

Nine Months Ended June 30,
2012
2011
Crediamigo
Other  Acquisitions
Number of asset purchase acquisitions
0
6
7
Number of stock purchase acquisitions
1
4
3
U.S. stores acquired
0
48
32
Foreign stores acquired
45
1
0
Total stores acquired
45
49
32


Nine Months Ended June 30,
2012
2011
(In thousands)
Crediamigo
Other  Acquisitions
Consideration:
Cash
$
45,001

$
91,843

$
65,844

Equity instruments
—

17,984

—

Deferred consideration
5,785

—

—

Contingent consideration
23,000

—

—

Fair value of total consideration transferred
73,786

109,827

65,844

Cash acquired
(13,641
)
(2,823
)
(1,051
)
Total purchase price
$
60,145

$
107,004

$
64,793


9

Nine Months Ended June 30,
(In thousands)
2012
2011
Crediamigo
Other  Acquisitions
Current assets:
Pawn loans, net
$
—

$
6,351

$
6,865

Consumer loans, net
8,658

3,640

710

Service charges and fees receivable, net
18,844

1,839

1,136

Inventory, net
—

5,596

4,396

Deferred tax asset
—

217

449

Prepaid expenses and other assets
3,543

204

200

Total current assets
31,045

17,847

13,756

Property and equipment, net
2,326

3,965

861

Goodwill
54,765

96,946

49,231

Non-current consumer loans, net
52,228

—

—

Intangible assets
57,900

3,960

2,367

Other assets
16,833

291

82

Total assets
$
215,097

$
123,009

$
66,297

Current liabilities:
Accounts payable and other accrued expenses
$
6,852

$
5,335

$
1,038

Customer layaway deposits
—

764

167

Current maturities of long-term debt
22,810

—

4

Other current liabilities
1,010

257

22

Total current liabilities
30,672

6,356

1,231

Deferred gains and other long-term liabilities
937

—

—

Long-term debt, less current maturities
86,872

—

—

Deferred tax liability
171

92

273

Total liabilities
118,652

6,448

1,504

Redeemable noncontrolling interest
36,300

9,557

—

Net assets acquired
$
60,145

$
107,004

$
64,793

Goodwill deductible for tax purposes
$
—

$
45,786

$
26,935

Indefinite lived intangible assets acquired:
Trade name
$
2,200

$
2,706

$
—

Definite lived intangible assets acquired:
Favorable lease asset
$
—

$
404

$
111

Non-compete agreements
$
300

$
400

$
658

Contractual relationship
$
55,400

$
450

$
—

Franchise license rights
$
—

$
—

$
1,598

All acquisitions were made as part of our continuing strategy to enhance and diversify our earnings. 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 months is preliminary as we continue to receive information regarding the acquired assets. Transaction related expenses for the nine-month periods ended June 30, 2012 and 2011 of approximately $2.1 million and $0.8 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.

10

The amounts above for the nine months ended June 30, 2012 include the acquisition of a decision science model for the underwriting of consumer loans, a contractual relationship with an income tax return preparer to facilitate refund anticipation loans, an online lending business in the U.K. and 15 financial services stores in Hawaii and Texas, from FS Management, 1 st Money Centers, Inc. and 1429 Funding, Inc., companies owned partially by Brent Turner, the former President of our eCommerce and Card Services division and a former executive officer, for total consideration of $3.0 million in cash and 387,924 shares of our Class A Non-Voting common stock. Mr. Turner received $2.0 million in cash and 167,811 shares of stock in connection with these acquisitions. The basic terms of the acquisitions were agreed prior to the commencement of Mr. Turner’s employment (and, thus, prior to Mr. Turner’s becoming an executive officer), subject to our completion of appropriate due diligence and the execution of appropriate definitive documentation. Even though the terms of the acquisitions were agreed to prior to Mr. Turner’s becoming an executive officer, we treated the transactions as related party transactions. Consequently, pursuant to our Policy for Review and Evaluation of Related Party Transactions, the Audit Committee reviewed and evaluated the terms of the acquisitions and concluded that the transactions were fair to, and in the best interest of the company and its stockholders.

Note C: Earnings per Share
We compute basic earnings per share on the basis of the weighted average number of shares of common stock outstanding during the period. We compute diluted earnings per share on the basis of the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include outstanding stock options and restricted stock awards.

Potential common shares are required to be excluded from the computation of diluted earnings per share if the assumed proceeds upon exercise or vest, as defined by FASB ASC 718-10-25, are greater than the cost to re-acquire the same number of shares at the average market price, and therefore the effect would be anti-dilutive.
Components of basic and diluted earnings per share and excluded anti-dilutive potential common shares are as follows:
Three Months Ended
June 30,
Nine Months Ended
June 30,
2012
2011
2012
2011
(In thousands, except per share amounts)
Net income attributable to EZCORP, Inc. (A)
$
28,523

$
26,527

$
105,136

$
85,794

Weighted average outstanding shares of common stock (B)
51,162

49,926

50,769

49,849

Dilutive effect of stock options and restricted stock
178

459

273

443

Weighted average common stock and common stock equivalents (C)
51,340

50,385

51,042

50,292

Basic earnings per share (A/B)
$
0.56

$
0.53

$
2.07

$
1.72

Diluted earnings per share (A/C)
$
0.56

$
0.53

$
2.06

$
1.71

Potential common shares excluded from the calculation of diluted earnings per share
117

—

36

6


Note D: Strategic Investments and Fair Value of Financial Instruments
At June 30, 2012 , we owned 16,644,640 ordinary shares of Albemarle & Bond Holdings, PLC, representing almost 30% of its total outstanding shares. Our total cost for those shares was approximately $27.6 million . Albemarle & Bond is primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. We account for the investment using the equity method. Since Albemarle & Bond’s fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag . Albemarle & Bond files semi-annual financial reports for its fiscal periods ending December 31 and June 30 . The income reported for our year-to-date period ended June 30, 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2011 to March 31, 2012.
Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.

11

In its functional currency of British pounds, Albemarle & Bond’s total assets increased 12% from December 31, 2010 to December 31, 2011 and its net income for the six months ended December 31, 2011 improved 16% . Below is summarized financial information for Albemarle & Bond’s most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
As of December 31,
2011
2010
(In thousands)
Current assets
$
134,387

$
121,519

Non-current assets
65,354

56,755

Total assets
$
199,741

$
178,274

Current liabilities
$
21,021

$
25,801

Non-current liabilities
62,169

53,497

Shareholders’ equity
116,551

98,976

Total liabilities and shareholders’ equity
$
199,741

$
178,274


Six Months Ended December 31,
2011
2010
(In thousands)
Gross revenues
$
99,804

$
76,424

Gross profit
58,165

46,745

Profit for the year (net income)
14,208

12,088


At June 30, 2012 , we owned 124,418,000 shares, or approximately 33% of the total ordinary shares of Cash Converters International Limited, which is a publicly traded company headquartered in Perth, Australia. We acquired the shares between November 2009 and May 2010 for approximately $57.8 million . Cash Converters franchises and operates a worldwide network of over 600 specialty financial services and retail stores that provide pawn loans, short-term unsecured loans and other consumer finance products, and buy and sell second-hand goods. Cash Converters has significant store concentrations in Australia and the United Kingdom.
We account for our investment in Cash Converters using the equity method. Since Cash Converters’ fiscal year ends three months prior to ours, we report the income from this investment on a three-month lag . Cash Converters files semi-annual financial reports for its fiscal periods ending December 31 and June 30 . Due to the three-month lag , income reported for our year-to-date period ended June 30, 2012 represents our percentage interest in the results of Cash Converters’ operations from July 1, 2011 to March 31, 2012.
Conversion of Cash Converters’ financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.

12

In its functional currency of Australian dollars, Cash Converters’ total assets increased 17% from December 31, 2010 to December 31, 2011 and its net income decreased 7% for the six months ended December 31, 2011 . Below is summarized financial information for Cash Converters’ most recently reported results after translation to U.S. dollars (using the exchange rate as of December 31 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):
As of December 31,
2011
2010
(In thousands)
Current assets
$
128,289

$
104,408

Non-current assets
121,835

109,336

Total assets
$
250,124

$
213,744

Current liabilities
$
33,290

$
30,844

Non-current liabilities
37,797

11,970

Shareholders’ equity
179,037

170,930

Total liabilities and shareholders’ equity
$
250,124

$
213,744

Six Months Ended December 31,
2011
2010
(In thousands)
Gross revenues
$
115,256

$
82,343

Gross profit
76,405

57,038

Profit for the year (net income)
13,668

13,528


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. We included no control premium for owning a large percentage of outstanding shares.
June 30,
September 30,
2012
2011
2011
(In thousands of U.S. dollars)
Albemarle & Bond:
Recorded value
$
51,156

$
46,457

$
48,361

Fair value
63,677

99,180

91,741

Cash Converters:
Recorded value
$
74,153

$
68,320

$
71,958

Fair value
80,894

94,911

53,600


In August 2011 , legislation was proposed in Australia that would, among other things, limit the interest charged on certain consumer loans and prohibit loan extensions and refinancing. That legislation, as proposed, could have adversely affected, Cash Converters’ consumer loan business in Australia, which could have the effect of decreasing Cash Converters’ revenues and earnings. As of September 30, 2011 , the fair value of our investment in Cash Converters (based on the market price of Cash Converters’ stock as of that date) was below our recorded value. In light of Cash Converters’ statements at that time regarding its ability to mitigate the potential impact of the proposed legislation, we considered this loss in value to be temporary. The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was passed by the Australian House of Representatives in June 2012. The Bill incorporates amendments that increase permitted fees and charges for microlending. The Bill is expected to be approved by the Australian Senate in September and to go into effect on July 1, 2013. As of June 30, 2012 , the fair value of our investment in Cash Converters was above our recorded value, further supporting our assessment of the loss in value of its stock to be temporary.

13


Note E: Goodwill and Other Intangible Assets
The following table presents the balance of each major class of indefinite-lived intangible asset at the specified dates:
June 30,
September 30,
2012
2011
2011
(In thousands)
Pawn licenses
$
8,836

$
8,836

$
8,836

Trade name
9,621

4,870

4,870

Goodwill
321,423

167,017

173,206

Total
$
339,880

$
180,723

$
186,912


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)
Balance at September 30, 2011
$
163,897

$
9,309

$
—

$
173,206

Acquisitions
57,653

54,765

39,293

151,711

Effect of foreign currency translation changes
(1
)
(2,752
)
(741
)
(3,494
)
Balance at June 30, 2012
$
221,549

$
61,322

$
38,552

$
321,423


U.S. &
Canada
Latin
America
Other
International
Consolidated
(In thousands)
Balance at September 30, 2010
$
110,255

$
7,050

$
—

$
117,305

Acquisitions
49,317

—

—

49,317

Effect of foreign currency translation changes
—

395

—

395

Balance at June 30, 2011
$
159,572

$
7,445

$
—

$
167,017


The following table presents the gross carrying amount and accumulated amortization for each major class of definite-lived intangible asset at the specified dates:
June 30,
September 30,
2012
2011
2011
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
$
1,373

$
(553
)
$
820

$
1,147

$
(465
)
$
682

$
1,157

$
(479
)
$
678

Non-compete agreements
4,356

(2,993
)
1,363

3,837

(2,472
)
1,365

3,722

(2,459
)
1,263

Favorable lease
1,159

(409
)
750

755

(289
)
466

755

(322
)
433

Franchise rights
1,559

(82
)
1,477

1,636

(17
)
1,619

1,547

(32
)
1,515

Deferred financing costs
7,512

(2,945
)
4,567

2,413

(113
)
2,300

2,411

(262
)
2,149

Contractual relationship
53,226

(2,299
)
50,927

—

—

—

—

—

—

Other
333

(28
)
305

66

(11
)
55

58

(12
)
46

Total
$
69,518

$
(9,309
)
$
60,209

$
9,854

$
(3,367
)
$
6,487

$
9,650

$
(3,566
)
$
6,084


The amortization of most definite-lived intangible assets is recorded as amortization expense. The favorable lease asset and

14

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 our credit agreement. The following table presents the amount and classification of amortization recognized as expense in each of the periods presented:
Three Months Ended
June 30,
Nine Months Ended
June 30,
2012
2011
2012
2011
(In thousands)
Amortization expense
$
1,162

$
221

$
3,086

$
654

Operations expense
49

28

103

76

Interest expense
569

252

1,164

464

Total expense from the amortization of definite-lived intangible assets
$
1,780

$
501

$
4,353

$
1,194

The following table presents our estimate of amortization expense for definite-lived intangible assets:
Fiscal Years Ended September 30,
Amortization expense
Operations expense
Interest expense
(In thousands)
2012
$
2,321

$
138

$
1,017

2013
6,063

136

2,112

2014
5,825

125

1,383

2015
5,558

113

442

2016
5,500

111

—


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



15

Note F: Long-term Debt
The table presents our long-term debt instruments and balances under capital lease obligations outstanding at June 30, 2012 and 2011 and September 30, 2011 (in thousands):
June 30, 2012
June 30,
September 30,
Carrying
Amount
Debt Premium
2011
2011
Recourse to EZCORP:
Domestic line of credit up to $175,000 due 2015
$
114,700

$
—

$
26,500

$
17,500

Capital lease obligations
1,159

—

—

—

Non-recourse to EZCORP:
Secured foreign currency line of credit up to $3,700 due 2014
2,803

210

—

—

Secured foreign currency line of credit up to $71,800 due 2015
58,455

9,004

—

—

Secured foreign currency line of credit up to $21,975 due 2017
6,903

—

—

—

10% unsecured notes due 2013
1,570

—

—

—

16% unsecured notes due 2013
5,013

174

—

—

20% unsecured notes due 2013
11,725

1,511

—

—

10% unsecured notes due 2014
906

—

—

—

10% unsecured notes due 2015
402

—

—

—

18% secured notes due 2015
4,273

611

—

—

10% unsecured notes due 2016
116

—

—

—

Total long-term obligations
$
208,025

$
11,510

$
26,500

$
17,500

Less current portion
31,521
—

—

—

Total long-term and capital lease obligations
$
176,504

$
11,510

$
26,500

$
17,500


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. At June 30, 2012 , 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 3 estimate within the fair value hierarchy.
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 Crediamigo, a specialty consumer finance company headquartered in Mexico City. Non-recourse debt amounts in the table above represent Crediamigo’s third party debt. All lines of credit are guaranteed by the Crediamigo loan portfolio. Interest on lines of credit due 2014 and 2015 is charged at the Mexican Interbank Equilibrium ("TIIE") plus a margin varying from 9% to 20% . 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 $0.8 million increasing to $1.9 million on November 30, 2012, with the remaining principal due at maturity. Beginning September 30, 2012 , the 18% secured notes require monthly payments of $0.1 million with remaining principal due at maturity. The debt premium on Crediamigo’s debt was recorded at acquisition and is being amortized as a reduction of interest expense over the life of the debt. 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 June 29, 2012 Crediamigo renegotiated their revolving line of credit originally due 2016. The interest rate was decreased

16

from 20% to 14.5% and the term was extended 6 months , now being due at the end of April 2017. The maximum borrowing capacity was also raised from $14.6 million to $22.0 million . Due to the substantial improvement in the renegotiated terms, the remaining unamortized premium of $2.8 million , valued at acquisition, was accelerated and recognized as a reduction to interest expense in the current quarter.
Included in the amounts above are notes due to Crediamigo’s shareholders, which are presented in the table below (in thousands):
June 30, 2012
16% unsecured notes due 2013
$
5,013

10% unsecured notes due 2014
906

Secured foreign currency line of credit due 2015
10,284

Total debt to stockholders
$
16,203


Note G: Stock Compensation
Our net income includes the following compensation costs related to our stock compensation arrangements:
Three Months Ended
June 30,
Nine Months Ended
June 30,
2012
2011
2012
2011
(In thousands)
Gross compensation costs
$
1,953

$
1,508

$
5,191

$
11,536

Income tax benefits
(650
)
(499
)
(1,666
)
(3,952
)
Net compensation expense
$
1,303

$
1,009

$
3,525

$
7,584


Included in the compensation cost for the nine months ended June 30, 2011 is $7.3 million for the accelerated vesting of restricted stock upon the retirement of our former Chief Executive Officer on October 31, 2010 , and a related $2.5 million income tax benefit. In the current quarter, stock option exercises resulted in the issuance of 5,400 shares for immaterial proceeds. In the nine-month period ended June 30, 2012, stock option exercises resulted in the issuance of 201,298 shares for total proceeds of $0.6 million . All options and restricted stock relate to our Class A Non-voting Common Stock.

Note H: 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 the Company's 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 29.8% of pretax income compared to 34.7% for the prior year quarter. For the current nine-month period , the effective tax rate is 33.1% compared to 35.2% in the prior nine-month period . The decrease in the effective tax rates is primarily due to the determination that the undistributed earnings of non-U.S. subsidiaries on which income taxes were previously recorded will not be repatriated in the foreseeable future, as well as the recognition of state net operating losses.

Note I: Contingencies
Currently and from time to time, we are defendants in various legal and regulatory actions. While we cannot determine the ultimate outcome of these actions, we believe their resolution will not have a material adverse effect on our financial condition, results of operations or liquidity. However, we cannot give any assurance as to their ultimate outcome.




17

Note J: Operating Segment Information
Segment information is prepared on the same basis that our management reviews financial information for operational decision-making purposes. Previously, we reported segment information based primarily on product offerings. Beginning with the second quarter of fiscal 2012 , we redefined our reportable operating segments based on geography as our company is increasingly being organized and managed along geographic lines, with product offerings and channels based on local custom and regulation. As a result, we concluded that segment reporting based on geography more closely aligns with our management organization and strategic direction.
For periods ending after January 1, 2012 , we will report segments as follows:
•
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)
Concurrent with the change in reportable operating segments, we revised our prior period financial information to reflect comparable financial information for the new segment structure.
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 nine-month period s ending June 30, 2012 and 2011 , including the reclassifications discussed in Note A “Significant Accounting Policies.”


18

Three Months Ended June 30, 2012
U.S. &
Canada
Latin
America
Other
International
Consolidated
(In thousands)
Revenues:
Merchandise sales
$
65,799

$
10,159

$
—

$
75,958

Jewelry scrapping sales
37,456

4,518

—

41,974

Pawn service charges
49,979

6,184

—

56,163

Consumer loan fees
39,243

10,381

3,880

53,504

Other revenues
649

558

158

1,365

Total revenues
193,126

31,800

4,038

228,964

Merchandise cost of goods sold
38,519

5,735

—

44,254

Jewelry scrapping cost of goods sold
24,415

3,784

—

28,199

Consumer loan bad debt
9,368

632

1,251

11,251

Net revenues
120,824

21,649

2,787

145,260

Operating expenses:
Store operations
65,975

8,792

942

75,709

Administrative
5,970

4,335

1,870

12,175

Depreciation
3,622

1,054

73

4,749

Amortization
142

999

21

1,162

(Gain) loss on sale or disposal of assets
93

(4
)
223

312

Interest, net
(1
)
22

(1
)
20

Equity in net income of unconsolidated affiliates
—

—

(4,197
)
(4,197
)
Other
614

(13
)
(441
)
160

Segment contribution
$
44,409

$
6,464

$
4,297

$
55,170

Corporate expenses:
Administrative
10,522

Depreciation
1,466

Interest, net
877

Income before taxes
42,305

Income tax expense
12,594

Net income
29,711

Net income attributable to redeemable noncontrolling interest
1,188

Net income attributable to EZCORP, Inc.
$
28,523



19

Three Months Ended June 30, 2011
U.S. &
Canada
Latin
America
Other
International
Consolidated
(In thousands)
Revenues:
Merchandise sales
$
58,173

$
6,401

$
—

$
64,574

Jewelry scrapping sales
46,514

4,257

—

50,771

Pawn service charges
43,846

4,519

—

48,365

Consumer loan fees
38,870

—

—

38,870

Other revenues
566

6

—

572

Total revenues
187,969

15,183

—

203,152

Merchandise cost of goods sold
32,924

3,767

—

36,691

Jewelry scrapping cost of goods sold
28,951

3,486

—

32,437

Consumer loan bad debt
11,027

—

—

11,027

Net revenues
115,067

7,930

—

122,997

Operating expenses:
Store operations
61,347

5,406

—

66,753

Administrative
4,293

1,014

506

5,813

Depreciation
2,828

639

—

3,467

Amortization
117

104

—

221

Loss on sale or disposal of assets
157

12

—

169

Interest, net
20

2

—

22

Equity in net income of unconsolidated affiliates
—

—

(4,099
)
(4,099
)
Other
2

2

(107
)
(103
)
Segment contribution
$
46,303

$
751

$
3,700

$
50,754

Corporate expenses:
Administrative
8,566

Depreciation
991

Interest, net
543

Income before taxes
40,654

Income tax expense
14,127

Net income
26,527

Net income attributable to redeemable noncontrolling interest
—

Net income attributable to EZCORP, Inc.
$
26,527



20

Nine Months Ended June 30, 2012
U.S. &
Canada
Latin
America
Other
International
Consolidated
(In thousands)
Revenues:
Merchandise sales
$
227,849

$
30,000

$
—

$
257,849

Jewelry scrapping sales
139,736

11,816

—

151,552

Pawn service charges
154,854

17,545

—

172,399

Consumer loan fees
127,061

17,764

4,086

148,911

Other revenues
2,444

802

158

3,404

Total revenues
651,944

77,927

4,244

734,115

Merchandise cost of goods sold
132,469

16,061

—

148,530

Jewelry scrapping cost of goods sold
87,102

8,831

—

95,933

Consumer loan bad debt
26,136

1,140

1,466

28,742

Net revenues
406,237

51,895

2,778

460,910

Operating expenses:
Store operations
203,190

23,001

1,288

227,479

Administrative
17,841

9,964

2,292

30,097

Depreciation
10,121

2,576

109

12,806

Amortization
414

2,651

21

3,086

(Gain) loss on sale or disposal of assets
(82
)
(3
)
223

138

Interest, net
3

1,755

(1
)
1,757

Equity in net income of unconsolidated affiliates
—

—

(12,935
)
(12,935
)
Other
345

3

(505
)
(157
)
Segment contribution
$
174,405

$
11,948

$
12,286

$
198,639

Corporate expenses:
Administrative
33,664

Depreciation
3,999

Interest, net
1,937

Income before taxes
159,039

Income tax expense
52,603

Net income
106,436

Net income attributable to redeemable noncontrolling interest
1,300

Net income attributable to EZCORP, Inc.
$
105,136



21

Nine Months Ended June 30, 2011
U.S. &
Canada
Latin
America
Other
International
Consolidated
(In thousands)
Revenues:
Merchandise sales
$
196,898

$
17,329

$
—

$
214,227

Jewelry scrapping sales
138,068

11,363

—

149,431

Pawn service charges
133,355

11,589

—

144,944

Consumer loan fees
125,652

—

—

125,652

Other revenues
944

34

—

978

Total revenues
594,917

40,315

—

635,232

Merchandise cost of goods sold
112,605

10,036

—

122,641

Jewelry scrapping cost of goods sold
87,416

9,201

—

96,617

Consumer loan bad debt
27,795

—

—

27,795

Net revenues
367,101

21,078

—

388,179

Operating expenses:
Store operations
182,769

14,533

—

197,302

Administrative
14,103

3,030

558

17,691

Depreciation
8,194

1,723

—

9,917

Amortization
353

301

—

654

(Gain) loss on sale or disposal of assets
(15
)
13

—

(2
)
Interest, net
20

4

—

24

Equity in net income of unconsolidated affiliates
—

—

(12,157
)
(12,157
)
Other
5

3

(168
)
(160
)
Segment contribution
$
161,672

$
1,471

$
11,767

$
174,910

Corporate expenses:
Administrative
38,559

Depreciation
2,753

Interest, net
1,127

Income before taxes
132,471

Income tax expense
46,677

Net income
85,794

Net income attributable to redeemable noncontrolling interest
—

Net income attributable to EZCORP, Inc.
$
85,794


22

The following table presents separately identified segment assets:

U.S. &
Canada
Latin
America
Other
International
Consolidated
(In thousands)
Assets at June 30, 2012:
Cash and cash equivalents
$
18,789

$
17,708

$
1,638

$
38,135

Pawn loans, net
134,064

13,439

—

147,503

Consumer loans, net
17,247

59,989

1,838

79,074

Service charges and fees receivable, net
30,555

20,721

545

51,821

Inventory, net
82,631

11,790

—

94,421

Property and equipment, net
57,532

20,338

1,400

79,270

Goodwill, net
221,549

61,322

38,552

321,423

Intangibles, net
17,597

56,541

2,830

76,968

Total separately identified recorded segment assets
$
579,964

$
261,848

$
46,803

$
888,615

Consumer loans outstanding from unaffiliated lenders
$
23,466

$
—

$
—

$
23,466

Assets at June 30, 2011:
Cash and cash equivalents
$
6,198

$
2,873

$
—

$
9,071

Pawn loans, net
124,810

9,823

—

134,633

Consumer loans, net
14,437

—

—

14,437

Service charges and fees receivable, net
29,732

1,524

—

31,256

Inventory, net
70,631

8,400

—

79,031

Property and equipment, net
49,366

12,939

—

62,305

Goodwill, net
159,572

7,445

—

167,017

Intangibles, net
16,953

942

—

17,895

Total separately identified recorded segment assets
$
471,699

$
43,946

$
—

$
515,645

Consumer loans outstanding from unaffiliated lenders
$
26,299

$
—

$
—

$
26,299

Assets at September 30, 2011:
Cash and cash equivalents
$
10,040

$
1,496

$
—

$
11,536

Pawn loans, net
134,457

10,861

—

145,318

Consumer loans, net
14,611

—

—

14,611

Service charges and fees receivable, net
31,567

1,663

—

33,230

Inventory, net
81,859

8,514

—

90,373

Property and equipment, net
51,469

12,769

—

64,238

Goodwill, net
163,897

9,309

—

173,206

Intangibles, net
16,775

867

—

17,642

Total separately identified recorded segment assets
$
504,675

$
45,479

$
—

$
550,154

Consumer loans outstanding from unaffiliated lenders
$
27,040

$
—

$
—

$
27,040


The following table reconciles separately identified recorded segment assets, as shown above, to our consolidated total assets:

June 30,
September 30,
2012
2011
2011
(In thousands)
Total separately identified recorded segment assets
$
888,615

$
515,645

$
550,154

Corporate assets
249,458

197,976

206,296

Total assets
$
1,138,073

$
713,621

$
756,450



23

The following tables provide geographic information required by ASC 280-10-50-41:

Three Months Ended
June 30,
Nine Months Ended
June 30,
2012
2011
2012
2011
(In thousands)
Revenues:
U.S.
$
188,573

$
184,903

$
639,778

$
587,845

Mexico
31,800

15,183

77,927

40,315

Canada
4,553

3,066

12,166

7,072

U.K
4,038

—

4,244

—

Total
228,964

203,152

734,115

635,232


June 30,
September 30,
2012
2011
2011
(In thousands)
Long-lived assets:
U.S.
$
309,168

$
233,637

$
240,661

Mexico
138,202

21,326

7,888

Canada
10,133

7,295

22,945

U.K
42,782

—

—

Total
$
500,285

$
262,258

$
271,494




24

Note K: 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.
We consider consumer loans made by our wholly owned subsidiaries defaulted if they have not been repaid or renewed by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. Although defaulted loans may be collected later, we charge the loan principal to 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.
The Crediamigo acquisition marked our initial entry into unsecured consumer lending in Mexico. Crediamigo consumer loans are considered defaulted once the customer is no longer employed, and therefore we are no longer entitled to payments via payroll withholdings. Once we receive notice that the customer’s employment has been terminated, we charge the loan principal to consumer loan bad debt, leaving only active loans in the reported balance. Accrued fees related to defaulted loans reduce fee revenue upon default, and increase fee revenue upon collection.
The accuracy of our allowance estimates is dependent upon several factors, including our ability to predict future default rates based on historical trends and expected future events. We base our estimates on observable trends and various other assumptions that we believe to be reasonable under the circumstances.
The following table presents changes in the allowance for credit losses as well as the recorded investment in our financing receivables by portfolio segment for the periods presented:
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 June 30, 2012
$
2,118

$
(8,900
)
$
3,974

$
5,047

$
(12
)
$
2,227

$
17,640

Three Months Ended June 30, 2011
$
1,110

$
(4,747
)
$
1,505

$
3,796

$
—

$
1,664

$
13,753

Nine Months Ended June 30, 2012
$
2,404

$
(17,853
)
$
7,676

$
10,012

$
(12
)
$
2,227

$
17,640

Nine Months Ended June 30, 2011
$
750

$
(12,992
)
$
4,575

$
9,331

$
—

$
1,664

$
13,753

Secured short-term consumer loans:
Three Months Ended June 30, 2012
$
708

$
(5,410
)
$
4,836

$
462

$
—

$
596

$
4,267

Three Months Ended June 30, 2011
$
810

$
(2,800
)
$
2,074

$
489

$
—

$
573

$
2,921

Nine Months Ended June 30, 2012
$
538

$
(13,177
)
$
11,478

$
1,757

$
—

$
596

$
4,267

Nine Months Ended June 30, 2011
$
1,137

$
(9,682
)
$
7,646

$
1,472

$
—

$
573

$
2,921

Unsecured long-term consumer loans:
Three Months Ended June 30, 2012
$
166

$
(780
)
$
288

$
603

$
(10
)
$
267

$
60,256

Nine Months Ended June 30, 2012
$
—

$
(1,351
)
$
519

$
1,111

$
(12
)
$
267

$
60,256



The provisions presented in the table above include only principal and excludes 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

25

other accrued expenses” on our balance sheets.
Auto title loans are our only consumer loans (other than those made by Crediamigo) that 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 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.
Consumer loans made by Crediamigo 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)
Secured short-term consumer loans
June 30, 2012
Consumer loans
$
838

$
360

$
239

$
246

$
1,683

$
2,584

$
—

$
4,267

$
596

$
—

June 30, 2011
Consumer loans
$
575

$
382

$
245

$
285

$
1,487

$
1,434

$
—

$
2,921

$
573

$
—

September 30, 2011
Consumer loans
$
840

$
479

$
283

$
219

$
1,821

$
1,939

$
—

$
3,760

$
538

$
—

Unsecured long-term consumer loans: *
June 30, 2012
Consumer loans
$
2,645

$
23,532

$
403

$
4,282

$
30,862

$
36,555

$
(7,161
)
$
60,256

$
267

$
3,987

* Unsecured long-term consumer loans amounts only existed in periods after the acquisition of Crediamigo.

Note L: 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.

26

The tables below present our financial assets that are measured at fair value on a recurring basis as of June 30, 2012 and 2011 and September 30, 2011 :
June 30, 2012
Fair Value Measurements Using
Financial assets:
Level 1
Level 2
Level 3
(In thousands)
Marketable equity securities
$
4,520

$
4,520

$
—

$
—

June 30, 2011
Fair Value Measurements Using
Financial assets:
Level 1
Level 2
Level 3
(In thousands)
Marketable equity securities
$
5,422

$
5,422

$
—

$
—

September 30, 2011
Fair Value Measurements Using
Financial assets:
Level 1
Level 2
Level 3
(In thousands)
Marketable equity securities
$
5,366

$
5,366

$
—

$
—


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 fair value measurements in the periods presented.

Note M: Derivative Instruments and Hedging Activities
Our earnings and financial position are affected by changes in gold values. In fiscal year 2012 , we began using derivative financial instruments in order to manage our commodity price risk associated with the forecasted sales of gold scrap. These derivatives are not designated as hedges, and according to FASB ASC 815-20-25, “Derivatives and Hedging – Recognition,” changes in their fair value are recorded directly in earnings. As of June 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 three months and nine months ended June 30, 2012 and 2011 :
(Gains) Losses Recognized in Income
Three Months Ended June 30,
Nine Months Ended June 30,
Derivative Instrument
Location of (Gain) or Loss
2012
2011
2012
2011
(In thousands)
Non-designated derivatives:
Gold Collar
Other (income) expense
$
—

$
—

$
(151
)
$
—


Note N: 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 domestic subsidiaries will fully and unconditionally guarantee on a joint and several basis our payment obligations under such debt securities.
In accordance with Rule 3-10(d) of Regulation S-X, the following presents condensed consolidating financial information as of June 30, 2012 and 2011 and for the current and prior three and nine-month period s then ended and as of September 30, 2011 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 combine the groups of entities.


27

Condens ed Consolidating Balance Sheets
June 30, 2012
(Unaudited)
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Eliminations
Consolidated
Assets:
Current assets:
Cash and cash equivalents
$
703

$
28,674

$
21,397

$
—

$
50,774

Cash, restricted
—

—

1,051

—

1,051

Pawn loans, net
—

134,064

13,439

—

147,503

Consumer loans, net
—

14,928

13,559

—

28,487

Pawn service charges receivable, net
—

24,041

2,051

—

26,092

Consumer loan fees receivable, net
—

6,026

19,703

—

25,729

Inventory, net
—

81,355

13,066

—

94,421

Deferred tax asset
12,747

5,479

—

—

18,226

Receivable from affiliates
202,619

83,050

—

(285,669
)
—

Federal income tax receivable
9,732

506

(340
)
—

9,898

Prepaid expenses and other assets
42

35,840

4,386

—

40,268

Total current assets
225,843

413,963

88,312

(285,669
)
442,449

Investments in unconsolidated affiliates
51,156

74,153

—

—

125,309

Investments in subsidiaries
135,412

72,946

—

(208,358
)
—

Property and equipment, net
—

69,911

30,285

—

100,196

Goodwill
—

221,519

99,904

—

321,423

Intangible assets, net
1,698

15,998

60,970

—

78,666

Non-current consumer loans, net
—

—

50,587

—

50,587

Other assets, net
—

8,633

10,810

—

19,443

Total assets
$
414,109

$
877,123

$
340,868

$
(494,027
)
$
1,138,073

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

$
—

$
31,126

$
—

$
31,126

Current capital lease obligations
—

395

—

—

395

Accounts payable and other accrued expenses
95

46,495

24,106

—

70,696

Customer layaway deposits
—

5,884

856

—

6,740

Intercompany payables
(170,788
)
371,474

84,983

(285,669
)
—

Federal income taxes payable
9,875

(6,168
)
(3,707
)
—

—

Total current liabilities
(160,818
)
418,080

137,364

(285,669
)
108,957

Long-term debt, less current maturities
114,700

—

61,040

—

175,740

Long-term capital lease obligations
—

764

—

—

764

Deferred tax liability
6,522

1,266

—

—

7,788

Deferred gains and other long-term liabilities
—

1,880

12,307

—

14,187

Total liabilities
(39,596
)
421,990

210,711

(285,669
)
307,436

Commitments and contingencies
Temporary equity:
Redeemable noncontrolling interest
—

—

44,864

—

44,864

Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share;
470

12

—

—

482

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

—

—

—

30

Additional paid-in capital
294,135

78,688

102,188

(208,358
)
266,653

Retained earnings
154,454

377,229

(4,452
)
—

527,231

Accumulated other comprehensive income (loss)
4,616

(796
)
(12,443
)
—

(8,623
)
EZCORP, Inc. stockholders’ equity
453,705

455,133

85,293

(208,358
)
785,773

Total liabilities and stockholders’ equity
$
414,109

$
877,123

$
340,868

$
(494,027
)
$
1,138,073


28


June 30, 2011
(Unaudited)
(In thousands)
Parent

Subsidiary
Guarantors

Other
Subsidiaries

Eliminations

Consolidated
Assets:
Current assets:
Cash and cash equivalents
$
—

$
23,377

$
4,115

$
—

$
27,492

Pawn loans, net
—

124,810

9,823

—

134,633

Consumer loans, net
—

12,423

2,014

—

14,437

Pawn service charges receivable, net
—

22,848

1,524

—

24,372

Consumer loan fees receivable, net
—

6,754

130

—

6,884

Inventory, net
—

70,326

8,705

—

79,031

Deferred tax asset
10,560

5,385

205

—

16,150

Receivable from affiliates
46,658

(46,658
)
—

—

—

Income taxes receivable
3,099

—

—

—

3,099

Prepaid expenses and other assets
42

17,757

4,133

—

21,932

Total current assets
60,359

237,022

30,649

—

328,030

Investments in unconsolidated affiliates
68,321

46,456

—

—

114,777

Investments in subsidiaries
76,999

9,145

—

(86,144
)
—

Property and equipment, net
—

56,522

18,527

—

75,049

Goodwill
—

159,572

7,445

—

167,017

Intangible assets, net
2,296

15,247

2,649

—

20,192

Other assets, net
—

7,207

1,349

—

8,556

Total assets
$
207,975

$
531,171

$
60,619

$
(86,144
)
$
713,621

Liabilities and stockholders’ equity:
Current liabilities:
Accounts payable and other accrued expenses
16

47,531

5,695

—

53,242

Customer layaway deposits
—

5,703

428

—

6,131

Intercompany payables
(216,982
)
169,742

47,240

—

—

Income taxes payable
8,879

(5,157
)
(3,722
)
—

—

Total current liabilities
(208,087
)
217,819

49,641

—

59,373

Long-term debt, less current maturities
26,500

—

—

—

26,500

Deferred tax liability
(345
)
1,571

11

—

1,237

Deferred gains and other long-term liabilities
(446
)
2,208

447

—

2,209

Total liabilities
(182,378
)
221,598

50,099

—

89,319

Commitments and contingencies
Temporary equity:
Redeemable noncontrolling interest
—

—

—

—

—

Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share;
458

11

—

—

469

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

(1
)
1

—

30

Additional paid-in capital
214,231

89,629

15,340

(86,144
)
233,056

Retained earnings
170,202

220,039

(4,511
)
—

385,730

Accumulated other comprehensive income (loss)
5,432

(105
)
(310
)
—

5,017

EZCorp, Inc. stockholders’ equity
390,353

309,573

10,520

(86,144
)
624,302

Total liabilities and stockholders’ equity
$
207,975

$
531,171

$
60,619

$
(86,144
)
$
713,621


29


September 30, 2011
(Unaudited)
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Eliminations
Consolidated
Assets:
Current assets:
Cash and cash equivalents
$
—

$
20,860

$
3,109

$
—

$
23,969

Pawn loans, net
—

134,457

10,861

—

145,318

Consumer loans, net
—

12,526

2,085

—

14,611

Pawn service charges receivable, net
—

24,792

1,663

—

26,455

Consumer loan fees receivable, net
—

6,642

133

—

6,775

Inventory, net
—

81,277

9,096

—

90,373

Deferred tax asset
12,728

5,397

—

—

18,125

Receivable from affiliates
66,450

(66,450
)
—

—

—

Income taxes receivable
—

—

—

—

—

Prepaid expenses and other assets
29

25,976

4,606

—

30,611

Total current assets
79,207

245,477

31,553

—

356,237

Investments in unconsolidated affiliates
71,958

48,361

—

—

120,319

Investments in subsidiaries
84,303

44,323

—

(128,626
)
—

Property and equipment, net
—

59,434

19,064

—

78,498

Deferred tax asset, non-current
—

—

—

—

—

Goodwill
—

163,897

9,309

—

173,206

Intangible assets, net
2,147

15,183

2,460

—

19,790

Other assets, net
—

7,036

1,362

2

8,400

Total assets
$
237,615

$
583,711

$
63,748

$
(128,624
)
$
756,450

Current liabilities:
Accounts payable and other accrued expenses
$
13

$
50,871

$
6,516

$
—

$
57,400

Customer layaway deposits
—

5,711

465

—

6,176

Intercompany payables
(199,190
)
178,375

20,761

54

—

Income taxes payable
9,552

(5,150
)
(3,709
)
—

693

Total current liabilities
(189,625
)
229,807

24,033

54

64,269

Long-term debt, less current maturities
17,500

—

—

—

17,500

Deferred tax liability
5,940

1,563

828

—

8,331

Deferred gains and other long-term liabilities
—

2,102

—

—

2,102

Total liabilities
(166,185
)
233,472

24,861

54

92,202

Commitments and contingencies
Temporary equity:
Redeemable noncontrolling interest
—

—

—

—

—

Stockholders’ equity:
Class A Non-voting Common Stock, par value $.01 per share;
461

12

—

(2
)
471

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

(1
)
1

—

30

Additional paid-in capital
221,526

98,980

50,568

(128,676
)
242,398

Retained earnings
174,860

251,418

(4,183
)
—

422,095

Accumulated other comprehensive income (loss)
6,923

(170
)
(7,499
)
—

(746
)
EZCorp, Inc. stockholders’ equity
403,800

350,239

38,887

(128,678
)
664,248

Total liabilities and stockholders’ equity
$
237,615

$
583,711

$
63,748

$
(128,624
)
$
756,450



30

Condensed Consolidating Statements of Operations
Three Months Ended June 30, 2012
(Unaudited)
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Eliminations
Consolidated
Revenues:
Sales
$
—

$
102,008

$
15,924

$
—

$
117,932

Pawn service charges
—

49,979

6,184

—

56,163

Consumer loan fees
—

36,171

17,333

—

53,504

Other revenues
—

2,006

952

(1,593
)
1,365

Total revenues
—

190,164

40,393

(1,593
)
228,964

Cost of goods sold
—

62,198

10,255

—

72,453

Consumer loan bad debt
—

8,710

2,541

—

11,251

Net revenues
—

119,256

27,597

(1,593
)
145,260

Operating expenses:
Operations
—

62,612

13,097

—

75,709

Administrative
—

16,200

8,090

(1,593
)
22,697

Depreciation
—

4,660

1,555

—

6,215

Amortization
—

118

1,044

—

1,162

Loss on sale or disposal of assets
—

93

219

—

312

Total operating expenses
—

83,683

24,005

(1,593
)
106,095

Operating income
—

35,573

3,592

—

39,165

Interest income
—

(287
)
(117
)
271

(133
)
Interest expense
877

15

409

(271
)
1,030

Equity in net income of unconsolidated affiliates
(2,247
)
(1,950
)
—

—

(4,197
)
Other
—

500

(340
)
—

160

Income before income taxes
1,370

37,295

3,640

—

42,305

Income tax expense
10,938

2

1,654

—

12,594

Net income
(9,568
)
37,293

1,986

—

29,711

Net income attributable to redeemable noncontrolling interest
—

—

1,188

—

1,188

Net income attributable to EZCORP, Inc.
$
(9,568
)
$
37,293

$
798

$
—

$
28,523



31

Three Months Ended June 30, 2011
(Unaudited)
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Eliminations
Consolidated
Revenues:
Sales
$
—

$
104,342

$
11,003

$
—

$
115,345

Pawn service charges
—

43,846

4,519

—

48,365

Consumer loan fees
—

36,390

2,480

—

38,870

Other revenues
14,121

327

245

(14,121
)
572

Total revenues
14,121

184,905

18,247

(14,121
)
203,152

Cost of goods sold
—

61,677

7,451

—

69,128

Consumer loan bad debt
—

10,311

716

—

11,027

Net revenues
14,121

112,917

10,080

(14,121
)
122,997

Operating expenses:
Operations
—

58,869

7,884

—

66,753

Administrative
—

13,109

1,270

—

14,379

Depreciation
—

3,641

817

—

4,458

Amortization
—

93

128

—

221

Loss on sale or disposal of assets
—

157

12

—

169

Total operating expenses
—

75,869

10,111

—

85,980

Operating income
14,121

37,048

(31
)
(14,121
)
37,017

Interest income
5,008

(65
)
(1
)
(4,963
)
(21
)
Interest expense
(7,108
)
2,668

63

4,963

586

Equity in net income of unconsolidated affiliates
(2,365
)
(1,734
)
—

—

(4,099
)
Other
—

(107
)
4

—

(103
)
Income before income taxes
18,586

36,286

(97
)
(14,121
)
40,654

Income tax expense
13,877

14,127

244

(14,121
)
14,127

Net income
4,709

22,159

(341
)
—

26,527

Net income attributable to redeemable noncontrolling interest
—

—

—

—

—

Net income attributable to EZCORP, Inc.
$
4,709

$
22,159

$
(341
)
$
—

$
26,527



32

Nine Months Ended June 30, 2012
(Unaudited)
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Eliminations
Consolidated
Revenues:
Sales
$
—

$
364,326

$
45,075

$
—

$
409,401

Pawn service charges
—

154,854

17,545

—

172,399

Consumer loan fees
—

118,821

30,090

—

148,911

Other revenues
20,139

3,841

1,628

(22,204
)
3,404

Total revenues
20,139

641,842

94,338

(22,204
)
734,115

Cost of goods sold
—

217,709

26,754

—

244,463

Consumer loan bad debt
—

24,211

4,531

—

28,742

Net revenues
20,139

399,922

63,053

(22,204
)
460,910

Operating expenses:
Operations
—

192,880

34,599

—

227,479

Administrative
—

51,021

14,805

(2,065
)
63,761

Depreciation
—

13,027

3,778

—

16,805

Amortization
—

345

2,741

—

3,086

(Gain) loss on sale or disposal of assets
—

(129
)
267

—

138

Total operating expenses
—

257,144

56,190

(2,065
)
311,269

Operating income
20,139

142,778

6,863

(20,139
)
149,641

Interest income
(3,525
)
(672
)
(274
)
3,985

(486
)
Interest expense
2,133

3,542

2,490

(3,985
)
4,180

Equity in net income of unconsolidated affiliates
(6,725
)
(6,210
)
—

—

(12,935
)
Other
—

166

(323
)
—

(157
)
Income before income taxes
28,256

145,952

4,970

(20,139
)
159,039

Income tax expense
48,662

20,141

3,939

(20,139
)
52,603

Net income
(20,406
)
125,811

1,031

—

106,436

Net income attributable to redeemable noncontrolling interest
—

—

1,300

—

1,300

Net income attributable to EZCORP, Inc.
$
(20,406
)
$
125,811

$
(269
)
$
—

$
105,136



33

Nine Months Ended June 30, 2011
(Unaudited)
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Eliminations
Consolidated
Revenues:
Sales
$
—

$
334,209

$
29,449

$
—

$
363,658

Pawn service charges
—

133,355

11,589

—

144,944

Consumer loan fees
—

119,600

6,052

—

125,652

Other revenues
46,658

681

297

(46,658
)
978

Total revenues
46,658

587,845

47,387

(46,658
)
635,232

Cost of goods sold
—

199,625

19,633

—

219,258

Consumer loan bad debt
—

25,875

1,920

—

27,795

Net revenues
46,658

362,345

25,834

(46,658
)
388,179

Operating expenses:
Operations
—

176,145

21,157

—

197,302

Administrative
—

52,827

3,423

—

56,250

Depreciation
—

10,462

2,208

—

12,670

Amortization
—

320

334

—

654

(Gain) loss on sale or disposal of assets
—

(132
)
130

—

(2
)
Total operating expenses
—

239,622

27,252

—

266,874

Operating income
46,658

122,723

(1,418
)
(46,658
)
121,305

Interest income
(15
)
(202
)
(1
)
183

(35
)
Interest expense
(6,511
)
7,691

189

(183
)
1,186

Equity in net income of unconsolidated affiliates
(6,797
)
(5,360
)
—

—

(12,157
)
Other
—

(168
)
8

—

(160
)
Income before income taxes
59,981

120,762

(1,614
)
(46,658
)
132,471

Income tax expense
46,108

46,677

550

(46,658
)
46,677

Net income
13,873

74,085

(2,164
)
—

85,794

Net income attributable to redeemable noncontrolling interest
—

—

—

—

—

Net income attributable to EZCORP, Inc.
$
13,873

$
74,085

$
(2,164
)
$
—

$
85,794



34

Condensed Consolidating Statement of Comprehensive Income
Three Months Ended
June 30, 2012
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Consolidated
(In thousands)
Net income (loss)
$
(9,568
)
$
37,293

$
1,986

$
29,711

Other comprehensive income (loss):
Foreign currency translation gain (loss)
1,578

1,235

(11,326
)
(8,513
)
Unrealized holding loss arising during period
—

(108
)
—

(108
)
Income tax benefit (provision)
(553
)
(395
)
—

(948
)
Other comprehensive income (loss), net of tax
1,025

732

(11,326
)
(9,569
)
Comprehensive income (loss)
$
(8,543
)
$
38,025

$
(9,340
)
$
20,142

Attributable to redeemable noncontrolling interest:
Net income
—

—

1,188

1,188

Foreign currency translation gain (loss)
—

—

(2,789
)
(2,789
)
Comprehensive income (loss)
—

—

(1,601
)
(1,601
)
Comprehensive income (loss) attributable to EZCORP, Inc.
$
(8,543
)
$
38,025

$
(7,739
)
$
21,743

Three Months Ended
June 30, 2011
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Consolidated
(In thousands)
Net income (loss)
$
4,709

$
22,159

$
(341
)
$
26,527

Other comprehensive income (loss):
Foreign currency translation gain (loss)
1,045

1,063

337

2,445

Unrealized holding loss arising during period
—

748

—

748

Income tax provision
(366
)
(634
)
—

(1,000
)
Other comprehensive income (loss), net of tax
679

1,177

337

2,193

Comprehensive income (loss)
$
5,388

$
23,336

$
(4
)
$
28,720

Attributable to redeemable noncontrolling interest:
Net income
—

—

—

—

Foreign currency translation gain (loss)
—

—

—

—

Comprehensive income
—

—

—

—

Comprehensive income (loss) attributable to EZCORP, Inc.
$
5,388

$
23,336

$
(4
)
$
28,720


Nine Months Ended
June 30, 2012
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Consolidated
(In thousands)
Net income (loss)
$
(20,406
)
$
125,811

$
1,031

$
106,436

Other comprehensive income (loss):
Foreign currency translation adjustments
(3,551
)
(102
)
(7,234
)
(10,887
)
Unrealized holding loss arising during period
—

(846
)
—

(846
)
Income tax benefit
1,242

321

—

1,563

Other comprehensive income (loss), net of tax
(2,309
)
(627
)
(7,234
)
(10,170
)
Comprehensive income (loss)
$
(22,715
)
$
125,184

$
(6,203
)
$
96,266

Attributable to redeemable noncontrolling interest:
Net income
—

—

1,300

1,300

Foreign currency translation adjustments
—

—

(2,293
)
(2,293
)
Comprehensive income
—

—

(993
)
(993
)
Comprehensive income (loss) attributable to EZCORP, Inc.
$
(22,715
)
$
125,184

$
(5,210
)
$
97,259


35

Nine Months Ended
June 30, 2011
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Consolidated
(In thousands)
Net Income (loss)
$
13,873

$
74,085

$
(2,164
)
$
85,794

Other comprehensive income (loss):
Foreign currency translation adjustments
11,354

1,736

2,243

15,333

Unrealized holding gains arising during period
—

986

—

986

Income tax provision
(3,974
)
(953
)
—

(4,927
)
Other comprehensive income, net of tax
7,380

1,769

2,243

11,392

Comprehensive income
$
21,253

$
75,854

$
79

$
97,186

Attributable to redeemable noncontrolling interest:
Net income
—

—

—

—

Foreign currency translation adjustments
—

—

—

—

Comprehensive income
—

—

—

—

Comprehensive income attributable to EZCORP, Inc.
$
21,253

$
75,854

$
79

$
97,186



36

Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2012
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Consolidated
Operating Activities:
Net income (loss)
$
(20,406
)
$
125,811

$
1,031

$
106,436

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
—

13,372

6,519

19,891

Consumer loan loss provisions
—

7,609

4,527

12,136

Deferred income taxes
563

(379
)
(828
)
(644
)
Net (gain) loss on sale or disposal of assets
—

(129
)
267

138

Stock compensation
—

5,191

—

5,191

Income from investments in unconsolidated affiliates
(6,725
)
(6,210
)
—

(12,935
)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net
—

2,651

(1,501
)
1,150

Inventory, net
—

761

(1,635
)
(874
)
Prepaid expenses, other current assets, and other assets, net
(13
)
(11,377
)
6,545

(4,845
)
Accounts payable and accrued expenses
(65,383
)
(48,709
)
101,992

(12,100
)
Customer layaway deposits
—

(582
)
400

(182
)
Deferred gains and other long-term liabilities
—

650

72

722

Excess tax benefit from stock compensation
(1,582
)
—

—

(1,582
)
Income taxes receivable/payable
(6,249
)
(3,102
)
981

(8,370
)
Net cash provided by (used in) operating activities
$
(99,795
)
$
85,557

$
118,370

$
104,132

Investing Activities:
Loans made
—

(461,023
)
(110,660
)
(571,683
)
Loans repaid
—

304,028

78,826

382,854

Recovery of pawn loan principal through sale of forfeited collateral
—

159,913

19,768

179,681

Additions to property and equipment
—

(21,427
)
(11,766
)
(33,193
)
Acquisitions, net of cash acquired
—

(62,504
)
(62,745
)
(125,249
)
Dividends from unconsolidated affiliates
2,222

3,338

—

5,560

Net cash provided by (used in) investing activities
$
2,222

$
(77,675
)
$
(86,577
)
$
(162,030
)
Financing Activities:
Proceeds from exercise of stock options
647

—

—

647

Excess tax benefit from stock compensation
1,582

—

—

1,582

Taxes paid related to net share settlement of equity awards
(1,153
)
—

—

(1,153
)
Change in restricted cash
—

—

(1,085
)
(1,085
)
Proceeds from revolving line of credit
590,700

—

4,109

594,809

Payments on revolving line of credit
(493,500
)
—

(9,075
)
(502,575
)
Proceeds from bank borrowings
—

—

343

343

Payments on bank borrowings and capital lease obligations
—

(68
)
(8,096
)
(8,164
)
Net cash provided by (used in) financing activities
$
98,276

$
(68
)
$
(13,804
)
$
84,404

Effect of exchange rate changes on cash and cash equivalents
—

—

299

299

Net increase in cash and cash equivalents
703

7,814

18,288

26,805

Cash and cash equivalents at beginning of period
—

20,860

3,109

23,969

Cash and cash equivalents at end of period
$
703

$
28,674

$
21,397

$
50,774



37

Nine Months Ended June 30, 2011
(In thousands)
Parent
Subsidiary
Guarantors
Other
Subsidiaries
Consolidated
Operating Activities:
Net income
$
13,873

$
74,085

$
(2,164
)
85,794

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
—

10,782

2,542

13,324

Consumer loan loss provisions
—

9,296

1,959

11,255

Deferred income taxes
8,341

241

(11
)
8,571

Net (gain) loss on sale or disposal of assets
—

(132
)
130

(2
)
Stock compensation
—

11,536

—

11,536

Income from investments in unconsolidated affiliates
(6,797
)
(5,360
)
—

(12,157
)
Changes in operating assets and liabilities, net of business acquisitions:
Service charges and fees receivable, net
—

(545
)
(439
)
(984
)
Inventory, net
—

(292
)
(914
)
(1,206
)
Prepaid expenses, other current assets, and other assets, net
(2,115
)
713

(3,443
)
(4,845
)
Accounts payable and accrued expenses
(12,558
)
(4,157
)
19,783

3,068

Customer layaway deposits
—

(404
)
242

(162
)
Deferred gains and other long-term liabilities
(446
)
107

64

(275
)
Excess tax benefit from stock compensation
(3,166
)
—

—

(3,166
)
Income taxes receivable/payable
1,100

(3,195
)
(1,358
)
(3,453
)
Net cash provided by (used in) operating activities
$
(1,768
)
$
92,675

$
16,391

$
107,298

Investing Activities:
Loans made
—

(397,416
)
(68,721
)
(466,137
)
Loans repaid
—

251,111

45,905

297,016

Recovery of pawn loan principal through sale of forfeited collateral
—

134,668

15,286

149,954

Additions to property and equipment
—

(17,457
)
(6,867
)
(24,324
)
Acquisitions, net of cash acquired
—

(64,823
)
—

(64,823
)
Dividends from unconsolidated affiliates
4,116

3,158

—

7,274

Net cash provided by (used in) investing activities
$
4,116

$
(90,759
)
$
(14,397
)
$
(101,040
)
Financing Activities:
Proceeds from exercise of stock options
395

—

—

395

Excess tax benefit from stock compensation
3,166

—

—

3,166

Debt issuance cost
—

(2,397
)
—

(2,397
)
Taxes paid related to net share settlement of equity awards
(7,409
)
—

—

(7,409
)
Proceeds on revolving line of credit
70,000

—

—

70,000

Payments on revolving line of credit
(43,500
)
—

—

(43,500
)
Payments on bank borrowings
(25,000
)
(4
)
—

(25,004
)
Net cash used in financing activities
$
(2,348
)
$
(2,401
)
$
—

$
(4,749
)
Effect of exchange rate changes on cash and cash equivalents
—

—

129

129

Net (decrease) increase in cash and cash equivalents
—

(485
)
2,123

1,638

Cash and cash equivalents at beginning of period
—

23,862

1,992

25,854

Cash and cash equivalents at end of period
$
—

$
23,377

$
4,115

$
27,492




38

Note O. Supplemental Consolidated Financial Information
Supplemental Consolidated Statements of Financial Position Information:
The following table provides information on amounts included in pawn service charges receivable, net, consumer loan fees, net, inventories, net and property and equipment, net:
June 30,
September 30,
2012
2011
2011
(In thousands)
Pawn service charges receivable:
Gross pawn service charges receivable
$
37,127

$
34,739

$
37,175

Allowance for uncollectible pawn service charges receivable
(11,035
)
(10,367
)
(10,720
)
Pawn service charges receivable, net
$
26,092

$
24,372

$
26,455

Consumer loan fees receivable:
Gross consumer loan fees receivable
$
30,097

$
7,381

$
7,346

Allowance for uncollectible consumer loan fees receivable
(4,368
)
(497
)
(571
)
Consumer loan fees receivable, net
$
25,729

$
6,884

$
6,775

Inventory:
Inventory, gross
$
100,970

$
87,066

$
99,854

Inventory reserves
(6,549
)
(8,035
)
(9,481
)
Inventory, net
$
94,421

$
79,031

$
90,373

Property and equipment:
Property and equipment, gross
$
245,487

$
200,728

$
207,392

Accumulated depreciation
(145,291
)
(125,679
)
(128,894
)
Property and equipment, net
$
100,196

$
75,049

$
78,498


Property and equipment at June 30, 2012 includes approximately $1.2 million of equipment leased under a capital lease. Amortization of equipment under capital leases is included with depreciation expense and was immaterial for the three and nine-month periods ended June 30, 2012. Future minimum lease payments related to capital leases are $0.5 million , $0.5 million and $0.3 million due within one, two and three years respectively, for a total of $1.3 million , of this amount $0.2 million represents interest, and the present value of net minimum lease payments as of June 30, 2012 was $1.1 million .
Other Supplemental Information:
June 30,
September 30,
2012
2011
2011
(In thousands)
Consumer loans:
Expected LOC losses
$
1,775

$
1,664

$
1,795

Maximum exposure for LOC losses
$
24,842

$
29,589

$
30,268





39

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, 2011.

Overview
We are a leading provider of instant cash solutions. We provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term consumer loans including payday loans, installment loans and auto title loans, and in Texas only, fee-based credit services to customers seeking loans. The acquisition of a 60% interest in Crediamigo marks our initial entry into the unsecured lending market in Mexico. Crediamigo has approximately 170 payroll withholding agreements with Mexican employers, primarily federal, state and local governments and agencies, and provides long-term consumer loans to the agencies’ employees. In the current quarter, we acquired a 72% interest in Cash Genie, which offers short-term consumer loans online in the United Kingdom.
At June 30, 2012 , we operated a total of 1,250 locations, consisting of 464 U.S. pawn stores (operating primarily as EZPAWN or Value Pawn) and seven retail stores (operating as Cash Converters), 223 pawn stores in Mexico (operating as Empeño Fácil or Empeñe su Oro), 443 U.S. financial services stores (operating primarily as EZMONEY), 32 financial services stores in Canada (operating as CASHMAX ), 36 financial and retail services stores in Canada (operating as Cash Converters) and 45 Crediamigo locations in Mexico. In addition, we are the franchisor for 12 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 150 stores, and almost 33% of Cash Converters International Limited, which franchises and operates a worldwide network of over 600 locations that buy and sell second-hand merchandise and offer financial services.
Our business consists of three reportable segments: The U.S. & Canada segment, which includes all business activities in the United States and Canada; Latin America segment, which includes our Empeño Fácil Pawn operations and Crediamigo financial services operations in Mexico; and Other International segment, which currently includes the Cash Genie online business in the U.K. and our equity interests in the net income of Albemarle & Bond and Cash Converters International.
The following tables present stores by segment:
Three Months Ended June 30, 2012
Company-owned Stores
U.S. &
Canada
Latin
America
Other
International
Consolidated
Franchises
Stores in operation:
Beginning of period
970

250

—

1,220

12

De novo
4

19

—

23

—

Acquired
9

—

—

9

—

Sold, combined, or closed
(1
)
(1
)
—

(2
)
—

End of period
982

268

—

1,250

12


Nine Months Ended June 30, 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
12

46

—

58

—

Acquired
49

45

—

94

—

Sold, combined, or closed
(12
)
(1
)
—

(13
)
(1
)
End of period
982

268

—

1,250

12


40

Three Months Ended June 30, 2011
Company-owned Stores
U.S. &
Canada
Latin
America
Other
International
Consolidated
Franchises
Stores in operation:
Beginning of period
910

147

—

1,057

—

De novo
1

8

—

9

—

Acquired
23

—

—

23

13

Sold, combined, or closed
(6
)
—

—

(6
)
(1
)
End of period
928

155

—

1,083

12

Nine Months Ended June 30, 2011
Company-owned Stores
U.S. &
Canada
Latin
America
Other
International
Consolidated
Franchises
Stores in operation:
Beginning of period
891

115

—

1,006

—

De novo
16

40

—

56

—

Acquired
32

—

—

32

13

Sold, combined, or closed
(11
)
—

—

(11
)
(1
)
End of period
928

155

—

1,083

12

Pawn and Retail Activities
We earn pawn service charge revenues on our pawn lending. While allowable service charges vary by state and loan size, a majority of our U.S. pawn loans earn 20% per month. Our average U.S. pawn loan amount typically ranges between $125 and $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 $60 U.S. dollars.
In our pawn stores, retail stores in Pennsylvania and Virginia and certain financial services stores in Canada, 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 June 30, 2012 , our total allowance was 6.5% of gross inventory compared to 9.2% at June 30, 2011 and 9.5% at September 30, 2011 . Changes in the valuation allowance are charged to merchandise cost of goods sold.

Consumer Loan Activities
At June 30, 2012 , 290 of our U.S. financial services stores and 25 of our U.S. 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 signature loans from the unaffiliated lenders. In all stores offering signature loan credit services, customers can obtain payday loans, with principal amounts up to $1,500 but averaging about $505 . 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 payday loans. In the financial services stores offering credit services, customers can obtain longer-term unsecured installment loans from the unaffiliated lenders. There are two types of installment loans offered in connection with our credit

41

services. All installment loans typically carry terms of about five months with ten equal installment payments, including principal amortization, due on customers’ paydays. Traditional installment loan principal amounts range from $1,525 to $3,000 , but average about $2,145 , and with each semi-monthly or bi-weekly installment payment, we earn a fee of 11% of the initial loan amount. Low dollar installment loan principal amounts range from $100 to $1,500 , but average about $695 . With each semi-monthly or bi-weekly installment payment, we earn a fee of 13 - 14% of the initial loan amount. At June 30, 2012 , payday loans comprised 86% of the balance of signature loans brokered through our credit services, and installment loans comprised the remaining 14% .
Outside of Texas, we earn loan fee revenue on our consumer loans. In 20 U.S. pawn stores, 79 U.S. financial services stores and 67 Canadian financial services stores we offer payday loans subject to state or provincial law. The average payday loan amount is approximately $440 and the term is generally less than 30 days, averaging about 17 days. We typically charge a fee of 15% to 22% of the loan amount. In 115 of our U.S. financial services stores and three U.S. pawn stores, we offer installment loans subject to state law. These installment 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. We began offering installment loans rather than payday loans in Wisconsin in January 2011 and in Missouri in June 2011 . Installment loan principal amounts range from $100 to $3,000 , but average approximately $555 .
At June 30, 2012 , 399 of our U.S. financial services stores and 44 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 $825 . We earn a fee of 12.5% to 25% of auto title loan amounts. In the current quarter, in Texas, we began assisting customers in obtaining longer-term auto title installment loans from unaffiliated lenders. Auto installment loans typically carry terms of two to four months with up to four equal installments. Auto installment loan principal amounts range from $150 to $10,000, but average about $850, and with each installment payment, we earn a fee of 5-14% of the initial loan amount.
In Mexico, Crediamigo offers installment consumer loans with typical annual yields of around 70% and collects interest and principal through payroll deductions. The average loan is approximately $1,150 with a term of 32 months.
Acquisitions
In the current quarter, we acquired nine pawn stores located in the state of Minnesota and a 72% interest in Ariste Holding Limited and its affiliates, which provides online loans in the U.K under the name "Cash Genie," for total consideration of $43.7 million, net of cash acquired. In the prior year quarter we acquired 23 stores located in Florida, Iowa, Wisconsin, Utah and the Chicago metropolitan area for approximately $33.3 million, net of cash acquired. The results of all acquired stores have been consolidated with our results since their acquisition.
International Growth
With continued execution of the our geographic and product diversification strategy nearly 20% of our consolidated segment contribution in the quarter was attributable to areas outside the United States, up from 9% a year earlier. Total revenue in the Latin America and Other International segments combined more than doubled, with combined segment contribution increasing 142%. These year-over year increases are the result of continued strength in our Empeño Fácil business in Mexico, the acquisition of controlling interests in Crediamigo and Cash Genie, and our strategic investments in the United Kingdom and Australia.
Other
Included in the results for the nine-month period ended June 30, 2011 is a pre-tax administrative expense charge of $10.9 million related to the October 2010 retirement of our former Chief Executive Officer, including $3.4 million attributable to a cash payment and $7.5 million attributable to the vesting of restricted stock. The prior year quarter income tax expense reflects a $3.8 million tax benefit related to this charge.


42

Critical Accounting Policies
With the exception of the derivative instruments and hedging activities and consumer loan policies as described in the section below, there have been no changes in critical accounting policies as described in our Annual Report on Form 10-K for the year ended September 30, 2011 .
Consumer Loans
We provide a variety of short-term consumer loans including payday loans, installment loans and auto title loans, and in Texas only, fee-based credit services to customers seeking loans. In Mexico, Crediamigo enters into agreements with employers that permit it to market long-term consumer loans to employees. Payments are withheld by the employers through payroll deductions and remitted to Crediamigo. With the exception of the incorporation of Crediamigo, there have been no changes to our consumer loans revenue recognition, allowance for losses and bad debt expense policies.
Revenue Recognition
We recognize consumer loan fees related to loans we directly originate based on the percentage of consumer loans made that we believe to be collectible. We earn credit service fees when we assist customers in obtaining consumer loans from unaffiliated lenders, and we recognize the fee revenue ratably over the life of the related loans. We reserve the percentage of interest and credit service fees we expect not to collect. Accrued fees related to defaulted loans reduce fee revenue upon loan default and increase fee revenue upon collection.
Bad Debt Expense
We consider a consumer loan defaulted if it has not been repaid or renewed, when applicable, by the maturity date. If one payment of an installment loan is delinquent, that one payment is considered defaulted. If more than one installment payment is delinquent at any time, the entire installment loan is considered defaulted. We charge loan principal of loans we directly originate to consumer loan bad debt. In Texas, we issue letters of credit to enhance the creditworthiness of our customers, which assure the lenders that if borrowers default on the loans, we will pay the lenders, upon demand, the principal and accrued interest owed to the lenders by the borrowers plus any insufficient fund fees. We charge amounts paid under letters of credit to consumer loan bad debt. In Mexico, we consider consumer loans made by Crediamigo defaulted if the customer is no longer employed and therefore we are no longer entitled to receive payments via payroll withholdings. Once we receive notice that the customer’s employment has been terminated, we charge the loan principal to consumer loan bad debt, leaving only active loans in the reported balance. We record recoveries of defaulted loans as a reduction of bad debt at the time of collection. After attempting collection of bad debts internally, we occasionally sell them to an unaffiliated company as another method of recovery, and record the proceeds from such sales as a reduction of bad debt at the time of the sale.
Allowance for Losses
We provide an allowance for losses on consumer loans that have not yet matured and related fees receivable, based on recent loan default experience adjusted for seasonal variations, and if applicable, the age of past-due loans and amounts we expect to receive through the sale of repossessed vehicles. The allowance for losses we expect to incur under letters of credit includes all amounts we expect to pay to the lenders upon loan default, including loan principal, accrued interest and insufficient funds fees. We charge any changes in the principal valuation allowance to consumer loan bad debt. We record changes in the fee receivable valuation allowance to consumer loan fee revenue.
Derivative Instruments and Hedging Activities
We record all derivative instruments according to Financial Accounting Standards Board (“FASB”) ASC 815-20-25, “Derivatives and Hedging – Recognition.” Accounting for changes in the fair value of derivatives is determined by the intended use of the derivative, whether it is designated as a hedge and whether the hedging relationship is effective in achieving offsetting changes for the risk being hedged. Derivatives designated to hedge the changes in the fair value of an asset, liability, or firm commitment due to an identified risk in the hedged item, such as interest rate risk or foreign currency exchange rate risk are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we elect not to apply hedge accounting.


43

We acquire significant amounts of gold either through purchases or from forfeited pawn loan collateral and sell it to refiners. In our first fiscal quarter of 2012 , we began using derivate financial instruments in order to manage our commodity price risk associated with the forecasted sales of gold scrap. From time to time, we purchase put options related to the future market price of gold, and simultaneously, we sell a call option for the same future period for a premium to offset the cost of the put. The combined put and call options, or collar, has the effect of providing us protection from the future downward gold price movement but also limits the extent we can participate in future upward price movement. These collars are not designated as hedges as they do not meet the hedge accounting requirements FASB ASC 851-20-25. The fair value of the derivative instruments is recognized in “Prepaid expenses and other assets” in the consolidated balance sheets and changes in fair value are recognized in “Other” in our consolidated statements of operations.
Reclassifications
Previously, we reported segment information based primarily on product offerings. Beginning with the second quarter of fiscal 2012 , we redefined our reportable operating segments based on geography as our company is increasingly being organized and managed along geographic lines, with product offerings and channels based on local custom and regulation. For this reason, we concluded that segment reporting based on geography more closely aligns with our management organization and strategic direction. In connection with the new segment structure, we have changed the accountability for, and reporting of, certain costs including administrative, depreciation and amortization. When practical, these costs are allocated to segments. Interest is also allocated to operating segments when debt is incurred at the local country level and is non-recourse to EZCORP. Expenses that cannot be allocated are included as corporate expenses.
In our second fiscal quarter of 2011 , we reclassified fees from our Product Protection Plan and Jewelry VIP Program as well as layaway fees from “Other” revenue to “Sales,” as fees from these products are incidental to sales of merchandise. Prior year figures have been reclassified to conform to this presentation and margins have been recalculated accordingly throughout management’s discussion and analysis.
Three Months Ended June 30, 2012 vs. Three Months Ended June 30, 2011
The following table presents selected, unaudited, consolidated financial data for our three-month periods ended June 30, 2012 and 2011 (the “current quarter” and “prior quarter," respectively):
Three Months Ended June 30,
Percentage
Change
2012
2011
(In thousands)
Revenues:
Sales
$
117,932

$
115,345

2.2
%
Pawn service charges
56,163

48,365

16.1
%
Consumer loan fees
53,504

38,870

37.6
%
Other
1,365

572

138.6
%
Total revenues
228,964

203,152

12.7
%
Cost of goods sold
72,453

69,128

4.8
%
Consumer loan bad debt
11,251

11,027

2.0
%
Net revenues
$
145,260

$
122,997

18.1
%
Net income attributable to EZCORP, Inc.
$
28,523

$
26,527

7.5
%


44

Nine Months Ended June 30, 2012 vs. Nine Months Ended June 30, 2011
The following table presents selected, unaudited, consolidated financial data for our nine-month periods ended June 30, 2012 and 2011 (the “current nine-month period ” and “prior nine-month period ,” respectively):
Nine Months Ended June 30,
Percentage
Change
2012
2011
(In thousands)
Revenues:
Sales
$
409,401

$
363,658

12.6
%
Pawn service charges
172,399

144,944

18.9
%
Consumer loan fees
148,911

125,652

18.5
%
Other
3,404

978

248.1
%
Total revenues
734,115

635,232

15.6
%
Cost of goods sold
244,463

219,258

11.5
%
Consumer loan bad debt
28,742

27,795

3.4
%
Net revenues
$
460,910

$
388,179

18.7
%
Net income attributable to EZCORP, Inc.
$
105,136

$
85,794

22.5
%


Segment Results of Operations
Three Months Ended June  30, 2012 vs. Three Months Ended June 30, 2011
The following discussion compares our results of operations for the quarter ended June 30, 2012 to the quarter ended June 30, 2011 . It should be read with the accompanying unaudited financial statements and related notes.
In the current quarter, consolidated total revenues increased 13% , or $25.8 million , to $229.0 million , compared to the prior year quarter. The increase was primarily driven by a 16% increase in pawn service charges, a 38% increase in consumer loan fees, which includes consumer loan fees of $17.8 million and $3.9 million from Crediamigo and Cash Genie, respectively, and an 18% increase in merchandise sales, partially offset by a 17% decrease in jewelry scrapping sales. Net revenues of $145.3 million , increased $22.3 million , or 18% , and store operations increased $9.0 million or 13% . Administrative expenses of $22.7 million increased $8.3 million , $4.9 million of which result from the consolidation of Crediamigo and Cash Genie, neither of which are store-based operations, and therefore, the majority of their cost base is included in administrative expenses. After a $2.7 million increase in depreciation and amortization, a $0.3 million increase in interest, a $1.5 million decrease in income tax expense and the $1.2 million in net income attributable to the noncontrolling interest, net income attributable to EZCORP, Inc. increased 8% to $28.5 million .

45


U.S. & Canada
The following table presents selected financial data for the U.S. & Canada segment:
Three Months Ended June 30,
2012
2011
(In thousands)
Merchandise sales
$
65,799

$
58,173

Jewelry scrapping sales
37,456

46,514

Pawn service charges
49,979

43,846

Consumer loan fees
39,243

38,870

Other revenues
649

566

Total revenues
193,126

187,969

Merchandise cost of goods sold
38,519

32,924

Jewelry scrapping cost of goods sold
24,415

28,951

Consumer loan bad debt
9,368

11,027

Net revenues
120,824

115,067

Operations expense:
Store operations
65,975

61,347

Administrative
5,970

4,293

Depreciation
3,622

2,828

Amortization
142

117

Loss on sale or disposal of assets
93

157

Interest
(1
)
20

Other
614

2

Segment contribution
$
44,409

$
46,303

Other data:
Gross margin on merchandise sales
41.5
%
43.4
%
Gross margin on jewelry scrapping sales
34.8
%
37.8
%
Gross margin on total sales
39.0
%
40.9
%
Average pawn loan balance per pawn store at period end
$
285

$
293

Average yield on pawn loan portfolio (a)
164
%
157
%
Pawn loan redemption rate
83
%
82
%
Consumer loan bad debt as a percentage of consumer loan fees
24
%
28
%
(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 increased $5.2 million , or 3% from the prior year quarter to $193.1 million . Same store total revenues decreased $9.4 million, or 5%, and new and acquired stores net of closed stores contributed $14.6 million. In the current quarter, we acquired 9 pawn stores in the U.S. for $11.3 million. As part of this acquisition, we began operations in the state of Minnesota, bringing the total number of states in which we operate to 24 at June 30, 2012 .
Our current quarter pawn service charge revenue increased 14% , or $6.1 million , from the prior year quarter to $50.0 million . Same store pawn service charges increased $3.2 million, or 7%, with new and acquired stores net of closed stores contributing $2.9 million. The same store improvement was due to a 2% increase in average same store pawn loan balance coupled with a higher yield.
The current quarter merchandise sales gross profit increased $2.0 million , or 8% , from the prior year quarter to $27.3 million .

46

This was due to an increase of $8.1 million in sales from new and acquired stores net of closed stores, partially offset by a 1%, or $0.5 million decrease in same store sales and a 1.9 percentage point decrease in gross margins. The decrease in gross margins is due to a shift in sales mix from jewelry sales to general merchandise. On a same store basis, general merchandise sales were up 9% while jewelry sales were down 19% .
Gross profit on jewelry scrapping sales decreased $4.5 million , or 26% , from the prior year quarter to $13.0 million . Jewelry scrapping revenues decreased $9.1 million , or 19% , due to a 28% decrease in gold volume partially offset by a 10% increase in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $12.0 million, or 26%, and new and acquired stores contributed $3.1 million. Jewelry scrapping sales include the sale of approximately $2.1 million of loose diamonds removed from scrap jewelry in the current quarter and $2.6 million in the prior year quarter. Scrap cost of goods decreased $4.5 million , or 16% , as a result of a 13% increase average cost per gram of jewelry scrapped and the decrease in volume.
Declining volume in both gold purchases and forfeited collateral from pawn loans resulted in the decline in gold scrapping volume in the quarter, continuing a trend that started in the prior year quarter. Although the percentage of our pawn balance represented by jewelry has remained relatively unchanged over time in dollar terms, volumes measured in grams have declined as prices have risen. Redemption rates for pawned jewelry have also risen gradually reaching 86% in the current quarter. Same store purchases of gold jewelry decreased 38% in the current quarter, also continuing a recent trend. As a result of fewer forfeited items and purchases, scrap sales decreased 26% in the quarter on a same store basis.
The current quarter’s consumer loan fees remained relatively constant at $39.2 million , a 1% increase over the prior year quarter; however, net fees increased 7%, reflecting a significant improvement in bad debt performance. Consumer loan bad debt as a percentage of fees is 24% in the current quarter compared to 28% in the prior year quarter. The improvement in bad debt was due to continuing improvements in the store level execution of servicing the customer and the loan, as well as enhanced productivity measurement tools and enhanced use of technology in our collections department.
Total segment operations expense increased to $76.4 million ( 40% of revenues) in the current quarter from $68.8 million ( 37% of revenues) in the prior year quarter. Store operations expense increased $4.6 million , or 8% , due to higher operating costs resulting from new and acquired stores. Administrative expenses increased 39% , or $1.7 million , to $6.0 million mainly due to increased labor, benefits and additional investments made in infrastructure to support our growth. Depreciation and amortization increase d 28% , or $0.8 million , from the prior year quarter to $3.8 million , mainly due to assets placed in service at new and acquired stores.
In the current quarter, U.S. & Canada delivered a segment contribution of $44.4 million , a $1.9 million decrease compared to the prior year quarter driven by the challenges related to jewelry merchandise sales and gold scrap sales; however, other elements of the business continued to show strength, offsetting to a large extent, the challenges in the gold and jewelry environment.

47


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 June 30,
2012
2011
(In thousands)
Merchandise sales
$
10,159

$
6,401

Jewelry scrapping sales
4,518

4,257

Pawn service charges
6,184

4,519

Consumer loan fees
10,381

—

Other revenues
558

6

Total revenues
31,800

15,183

Merchandise cost of goods sold
5,735

3,767

Jewelry scrapping cost of goods sold
3,784

3,486

Consumer loan bad debt
632

—

Net revenues
21,649

7,930

Operations expense:
Store operations
8,792

5,406

Administrative
4,335

1,014

Depreciation
1,054

639

Amortization
999

104

(Gain)/loss on sale or disposal of assets
(4
)
12

Interest, net
22

2

Other
(13
)
2

Segment contribution
$
6,464

$
751

Other data:
Gross margin on merchandise sales
43.5
%
41.1
%
Gross margin on jewelry scrapping sales
16.2
%
18.1
%
Gross margin on total sales
35.1
%
31.9
%
Average pawn loan balance per pawn store at period end
$
60

$
63

Average yield on pawn loan portfolio (a)
187
%
187
%
Pawn loan redemption rate
75
%
73
%
Consumer loan bad debt as a percentage of consumer loan fees
6
%
N/A

(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 13.5 to 1 , 15% weaker than the prior year quarter’s rate of 11.7 to 1 . Total revenues increased 109% in U.S. dollars and 142% in peso terms. Operating expenses increased 112% in U.S. dollars and 135% increase in peso terms. In the current quarter, we opened 19 de novo stores.

The Latin America segment total revenues increased $16.6 million , or 109% , in the current quarter to $31.8 million . Same store total revenues increased 4% to $15.8 million, and new and acquired stores contributed $16.0 million. The overall increase in total revenues was mostly due the inclusion of $10.4 million Crediamigo consumer loan fees, a $4.0 million increase in merchandise and jewelry scrapping sales and $1.7 million increase in pawn service charges.
Latin America’s pawn service charge revenues increased $1.7 million , or 37% , in the current quarter to $6.2 million . Same store pawn service charges increased 7% to $4.8 million and new and acquired stores contributed $1.3 million. The total increase

48

was due to a 37% increase in outstanding pawn loan balance from the prior year quarter. On a same store basis the average pawn loan balance during the period increased 4%.
Merchandise gross profit increased $1.8 million or 68% , from the prior year quarter to $4.4 million . The increase was due to a $1.1 million, or 17%, same store sales increase and $2.7 million in sales from new and acquired stores coupled with a 2.4 percentage point increase in gross margins to 43.5% .
Gross profit on jewelry scrapping sales remained relatively constant at $0.7 million . Jewelry scrapping revenues increased 6% to $4.5 million , as the 5% decrease in gold volume was mostly offset by an 8% increase in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $0.9 million, or 21%, and new and acquired stores contributed $1.1 million. Scrap cost of goods increased $0.3 million or 9% .
The Crediamigo acquisition marks our initial entry into the non-secured loan business in Mexico. In the current quarter, Crediamigo contributed total revenues of $10.8 million and net revenues of $10.2 million after bad debt as a percentage of consumer loan fees of 6% .
Total segment operations expense increased to $15.2 million ( 48% of revenues) in the current quarter from $7.2 million ( 47% of revenues). Stores operations expenses increased $3.4 million , or 63% , due to higher operating costs resulting from the addition of 68 Empeño Fácil stores since the prior year quarter and $1.5 million related to Crediamigo sales commissions. Segment administrative expenses increased $3.3 million from the prior year quarter to $4.3 million mainly due to Crediamigo administrative expenses and other acquisition costs. Depreciation and amortization increased $1.3 million from the prior year quarter to $2.1 million, mainly due to depreciation of assets placed in service at new stores and amortization of acquisition related intangible assets.
In the current quarter, Crediamigo refinanced a portion of its $92.2 million of third party debt at a lower interest rate. This refinancing led to a one-time reduction in interest expense of $2.8 million due to the acceleration of the amortization of the debt premium associated with the refinanced debt. The lower interest rate will result in reduced interest expense going forward. Crediamigo is continuing to refinance other portions of its debt at lower interest rates.
In the current quarter, Latin America's segment contribution increased $5.7 million to $6.5 million . Contribution margin increased 15.4 percentage points to 20.3% from the prior year quarter. For the current quarter Latin America's segment contribution represents 12% of consolidated segment contribution compared to 1% a year ago, this 11 percentage point increase makes Latin America our fastest growing segment.

49


Other International
The following table presents selected financial data for the Other International segment:
Three Months Ended June 30,
2012
2011
(In thousands)
Consumer loan fees
$
3,880

$
—

Other revenues
158

Total revenues
4,038

—

Consumer loan bad debt
1,251

—

Net revenues
2,787

—

Operations expense:
Store operations
942

—

Administrative
1,870

506

Depreciation
73

—

Amortization
21

—

Loss on sale or disposal of assets
223

—

Interest
(1
)
—

Equity in net income of unconsolidated affiliates
(4,197
)
(4,099
)
Other
(441
)
(107
)
Segment contribution
$
4,297

$
3,700

Other data:
Consumer loan bad debt as a percent of consumer loan fees
32
%
N/A

On April 14, 2012, we acquired a 72% interest in Cash Genie, an online lending business in the U.K. Since acquisition, Cash Genie's consumer loan fees were $3.9 million , with bad debt as a percentage of fees at 32% . After operations and administrative expenses, and other smaller items, Cash Genie broke even for the quarter.
Our equity in the net income of unconsolidated affiliates (Albemarle & Bond and Cash Converters International) increased 2% from the prior year quarter to $4.2 million . As we recognize their earnings on a three month lag, our current quarter equity in their net income represents our estimate of their earnings from January 1, 2012 to March 31, 2012.
In the current quarter, segment contribution from the Other International segment increased $0.6 million to $4.3 million . For the current quarter, the segment's contribution represents 8% of total contribution compared to 7% in the prior year quarter.

50

Other Items
The following table reconciles our consolidated store operating income discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:
Three Months Ended June 30,
2012
2011
(In thousands)
Segment contribution
$
55,170

$
50,754

Administrative expenses
10,522

8,566

Depreciation and amortization
1,466

991

Interest, net
877

543

Consolidated income before income taxes
42,305

40,654

Income tax expense
12,594

14,127

Net income
29,711

26,527

Net income attributable to noncontrolling interest
1,188

—

Net income attributable to EZCORP, Inc.
$
28,523

$
26,527

Corporate expenses increased $2.7 million , or 27% , to $12.9 million mainly as a result of a 62% increase in interest expense due to greater utilization of our revolver, a 23% increase in administrative expenses due to continued investment in growth and profitability initiatives and a 48% increase in depreciation due to new assets placed in service as a result of investment in infrastructure to support our globalization strategy.
Consolidated income before taxes increased $1.7 million , or 4% , to $42.3 million due to an $5.7 million and $0.6 million increase in contribution from the Latin America and Other International segments respectively, partially offset by an $1.9 million decrease in contribution from the U.S. & Canada segment and a $2.7 million increase in corporate expenses.
Income tax expense decreased $1.5 million , or 11% , due to a 4.9 percentage points decrease in the quarter's effective tax rate from 35% to 30.1%, as our effective tax rate for the year was reduced from 35% to 33.5%, reflecting the success and growth of our business in areas outside of the United States.
In the current quarter, net income attributable to EZCORP, Inc. increased $2.0 million , or 8% , to $28.5 million , after a $1.2 million of net income attributable to the noncontrolling interest.


Nine Months Ended June 30, 2012 vs. Nine Months Ended June 30, 2011
The following discussion compares our results of operations for the nine-month period ended June 30, 2012 to the nine-month period ended June 30, 2011 . It should be read with the accompanying unaudited financial statements and related notes.
In the current nine-month period , consolidated total revenues increased 16% , or $98.9 million , to $734.1 million , compared to the prior nine-month period . Same store total revenues increased $3.9 million, or 1%, and new and acquired stores contributed $95.0 million. Net income attributable to EZCORP, Inc. increased 23% to $105.1 million .

51

U.S. & Canada
The following table presents selected financial data for the U.S. & Canada segment:
Nine Months Ended June 30,
2012
2011
(In thousands)
Merchandise sales
$
227,849

$
196,898

Jewelry scrapping sales
139,736

138,068

Pawn service charges
154,854

133,355

Consumer loan fees
127,061

125,652

Other revenues
2,444

944

Total revenues
651,944

594,917

Merchandise cost of goods sold
132,469

112,605

Jewelry scrapping cost of goods sold
87,102

87,416

Consumer loan bad debt
26,136

27,795

Net revenues
406,237

367,101

Operations expense:
Store operations
203,190

182,769

Administrative
17,841

14,103

Depreciation
10,121

8,194

Amortization
414

353

Gain on sale or disposal of assets
(82
)
(15
)
Interest, net
3

20

Other
345

5

Segment contribution
$
174,405

$
161,672

Other data:
Gross margin on merchandise sales
41.9
%
42.8
%
Gross margin on jewelry scrapping sales
37.7
%
36.7
%
Gross margin on total sales
40.3
%
40.3
%
Average pawn loan balance per pawn store at period end
$
285

$
293

Average yield on pawn loan portfolio (a)
160
%
159
%
Pawn loan redemption rate
83
%
82
%
Consumer loan bad debt as a percentage of consumer loan fees
21
%
22
%
(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 increased $57.0 million , or 10% , from the prior nine-month period to $651.9 million . Same store total revenues stayed relatively constant at $592.9 million. New and acquired stores total revenue for the nine-month period was $59.0 million. In the current nine-month period , we acquired 26 pawn stores, seven retail stores, 15 financial services stores in the U.S. and one retail store in Canada for $73.4 million. As part of these acquisitions, we began operations in the states of Pennsylvania, Virginia, Hawaii and Minnesota, bringing the total number of states in which we operate at June 30, 2012 to 24.
Our current nine-month period pawn service charge revenue increased 16% , or $21.5 million , from the prior nine-month period to $154.9 million . Same store pawn service charges increased 10.3 million, or 8%, with new and acquired stores net of closed stores contributing $11.2 million. The same store improvement was due to a 6% increase in average same store pawn loan balance.
The current nine-month period merchandise sales gross profit increased $11.1 million , or 13% , from the prior nine-month

52

period to $95.4 million . This was due to $30.1 million in sales from new and acquired stores net of closed stores, a $0.9 million increase in same store sales, partially offset by a 0.9 percentage point decrease in gross margins. The decrease in gross margins is primarily due to a shift in sales mix from jewelry sales to general merchandise. On a same store basis, general merchandise sales were up 8% while jewelry sales were down 15% .
Gross profit on jewelry scrapping sales increased $2.0 million , or 4% , from the prior nine-month period to $52.6 million . Jewelry scrapping revenues increased $1.7 million , or 1% , due to an 18% increase in proceeds realized per gram of gold jewelry scrapped mostly offset by a 17% decrease in gold volume. Same store jewelry scrapping sales decreased $11.6 million, or 8%, and new and acquired stores contributed $13.1 million. Jewelry scrapping sales include the sale of approximately $7.8 million of loose diamonds removed from scrap jewelry in the current period and $4.0 million in the prior year period. The increase in cost per gram was mostly offset by the decrease in volume, and as a result scrap cost of goods remained relatively constant at $87.1 million .
The current nine-month period consumer loan fees increased $1.4 million , or 1% . Same store consumer loan fees remained relatively constant at $122.5 million, and consumer loan fees from new and acquired stores were $4.6 million. Consumer loan bad debt as a percentage of fees decreased 1.6 percentage points to 21% .
Total segment operations expense increased to $231.8 million ( 36% of revenues) in the current nine-month period from $205.4 million ( 35% of revenues) in the prior nine-month period . The dollar increase was due to an 11% , or $20.4 million , increase in store operations expenses due to operating costs resulting from new and acquired stores, a 27% , or $3.7 million increase in administrative expenses from the prior year period to $17.8 million mainly due to increased labor, benefits and additional investments made in infrastructure to support our growth, a 23% , or $2.0 million increase in depreciation and amortization from the prior year period to $10.5 million , mainly due to assets placed in service at new and acquired stores, and $0.3 million increase in other expenses.
In the current nine-month period U.S. & Canada delivered a segment contribution of $174.4 million , a $12.7 million increase compared to the prior nine-month period . While have experienced some challenges related to jewelry merchandise sales and gold scrap sales, other elements of the business have continued to show strength, offsetting to a large extent, the challenges in the gold and jewelry environment.

53



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:
Nine Months Ended June 30,
2012
2011
(In thousands)
Merchandise sales
$
30,000

$
17,329

Jewelry scrapping sales
11,816

11,363

Pawn service charges
17,545

11,589

Consumer loan fees
17,764

—

Other revenues
802

34

Total revenues
77,927

40,315

Merchandise cost of goods sold
16,061

10,036

Jewelry scrapping cost of goods sold
8,831

9,201

Consumer loan bad debt
1,140

—

Net revenues
51,895

21,078

Operations expense:
Store operations
23,001

14,533

Administrative
9,964

3,030

Depreciation
2,576

1,723

Amortization
2,651

301

(Gain)/loss on sale or disposal of assets
(3
)
13

Interest, net
1,755

4

Other
3

3

Segment contribution
$
11,948

$
1,471

Other data:
Gross margin on merchandise sales
46.5
%
42.1
%
Gross margin on jewelry scrapping sales
25.3
%
19.0
%
Gross margin on total sales
40.5
%
33.0
%
Average pawn loan balance per pawn store at period end
$
60

$
63

Average yield on pawn loan portfolio (a)
195
%
184
%
Pawn loan redemption rate
76
%
73
%
Consumer loan bad debt as a percentage of consumer loan fees
6
%
N/A

(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 results from Mexican pesos to U.S. dollars was 13.4 to 1 , 10% higher than the prior year’s rate of 12.1 to 1 . Total revenues increased 93% in U.S. dollars and 111% in peso terms. Operating expenses increased 104% in U.S. dollars and 120% increase in peso terms. In the current nine-month period , we opened 46 de novo stores and on January 30, 2012 acquired 60% interest in Crediamigo, a specialty consumer finance company headquartered in Mexico City, with 45 loan servicing locations throughout the country. Crediamigo is included in our results for five months of the nine-month period .
The Latin America segment total revenues increased $37.6 million , or 93% , in the current nine-month period to $77.9 million . Same store total revenues increased $3.6 million, or 9%, and new and acquired stores contributed $34.0 million. The overall increase in total revenues was mostly due to the $17.8 million Crediamigo consumer loan fees, $13.1 million

54

increase in merchandise and jewelry scrapping sales and a $6.0 million increase in pawn service charges.

Latin America’s pawn service charge revenues increased $6.0 million , or 51% , in the current nine-month period to $17.5 million . Same store pawn service charges increased approximately $1.8 million, or 15%, and new and acquired stores contributed $4.2 million. The total increase was due to a 37% increase in outstanding pawn loan balance coupled with a 11 percentage point increase in the pawn yield. The yield increased primarily due to a 3 percentage point increase in the loan redemption rate as we continued to focus on loan values.
Merchandise gross profit increased $6.6 million , or 91% , from the prior nine-month period to $13.9 million . The increase was due to a $4.1 million, or 24%, same store sales increase and $8.6 million in sales from new and acquired stores coupled with a 4.4 percentage point increase in gross margins to 46.5% .
Gross profit on jewelry scrapping sales increased $0.8 million , or 38% , from the prior nine-month period to $3.0 million . Jewelry scrapping revenues increased 4% to $11.8 million , as the 15% decrease in gold volume was offset by a 17% increase in proceeds realized per gram of gold jewelry scrapped. Same store jewelry scrapping sales decreased $2.4 million, or 21%, and new and acquired stores contributed $2.9 million. Scrap cost of goods decreased $0.4 million or 4.0% , as the the decrease in volume, was partially offset by a 7% increase in cost per gram.
The Crediamigo acquisition marks our initial entry into the non-secured loan business in Mexico. In the current nine-month period Crediamigo contributed total revenues of $18.2 million and net revenues of $17.0 million after bad debt as a percentage of consumer loan fees of 6% .
Total operations expense increased to $39.9 million ( 51% of revenues) in the current nine-month period from $19.6 million ( 49% of revenues). The dollar increase was due to a 58% , or $8.5 million , increase in store operations expenses due to higher operating costs resulting from the addition of 68 Empeño Fácil stores since the end of the prior nine-month period and $2.8 million related to Crediamigo commissions, a $6.9 million increase in administrative expenses from the prior nine-month period to $10.0 million , mainly due to Crediamigo administrative expenses and other acquisition costs, a $3.2 million increase in depreciation and amortization from the prior nine-month period to $5.3 million, mainly due to depreciation of assets placed in service at new stores and amortization of acquisition related intangible assets, as well as a $1.8 million increase in net interest expense related to Crediamigo’s debt.
In June 2012, Crediamigo refinanced a portion of its $92.2 million of third party debt at a lower interest rate. This refinancing led to a one-time reduction in interest expense of $2.8 million due to the acceleration of the amortization of the debt premium associated with the refinanced debt. The lower interest rate will result in reduced interest expense going forward. Crediamigo is continuing to refinance other portions of its debt at lower interest rates.
In the current nine-month period , the $30.8 million greater net revenues were significantly offset by the $20.3 million higher operations expense, resulting in a $10.5 million increase in contribution for the Latin America segment. Contribution margin increased 11.7 percentage points to 15.3% . For the current nine-month period Latin America's segment contribution represents 6% of consolidated segment contribution compared to 1% a year ago, this 5.0 percentage point increase makes Latin America our fastest growing segment.

55


Other International
The following table presents selected financial data for the Other International segment:
Nine Months Ended June 30,
2012
2011
(In thousands)
Consumer loan fees
$
4,086

$
—

Other
158

—

Total revenues
4,244

—

Consumer loan bad debt
1,466

—

Net revenues
2,778

—

Operations expense:
Store operations
1,288

—

Administrative
2,292

558

Depreciation
109

—

Amortization
21

—

Loss on sale or disposal of assets
223

—

Interest, net
(1
)
—

Equity in net income of unconsolidated affiliates
(12,935
)
(12,157
)
Other
(505
)
(168
)
Segment contribution
$
12,286

$
11,767

Other data:
Consumer loan bad debt as a percent of consumer loan fees
36
%
N/A


In the first quarter of fiscal 2012 we began offering consumer loans online in the U.K. On April 14, we acquired a 72% interest in Cash Genie, an online lending business in the U.K. and consolidated with our existing U.K. operations. For the current nine-month period consumer loan fees were $4.1 million with bad debt as a percentage of fees at 36% .
Our equity in the net income of unconsolidated affiliates increased $0.8 million , or 6% , from the prior nine-month period to $12.9 million . The increase is due to a strong performance from Albermarle & Bond offset by a slight decrease by Cash Converters International due to a series of one-time costs.
In the current nine-month period , operations expenses were $3.4 million, which include $2.9 million of Cash Genie expenses.

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Other Items
The following table reconciles our consolidated store operating income discussed above to net income, including items that affect our consolidated financial results but are not allocated among segments:
Nine Months Ended June 30,
2012
2011
(In thousands)
Segment contribution
$
198,639

$
174,910

Administrative expenses
33,664

38,559

Depreciation
3,999

2,753

Interest, net
1,937

1,127

Consolidated income before income taxes
159,039

132,471

Income tax expense
52,603

46,677

Net income
106,436

85,794

Net income attributable to noncontrolling interest
1,300

—

Net income attributable to EZCORP, Inc.
$
105,136

$
85,794

Corporate expenses decreased $2.8 million , or 7% , to $39.6 million as a result of a $4.9 million decrease in administrative expenses to $33.7 million . This decrease is primarily due to a pre-tax charge of $10.9 million related to the retirement of our former Chief Executive officer in the prior nine-month period . This charge included $3.4 million attributable to a cash payment and $7.5 million attributable to the accelerated vesting of restricted stock. Excluding this charge, administrative expenses increased $6.0 million , mostly related to an increase in professional fees associated with our continued investment in growth and profitability initiatives. In the current nine-month period interest expense increased 72% due to greater utilization of our revolver and depreciation increased 45% due to assets placed in service as we continue to invest in the infrastructure to support our growth.
Consolidated income before taxes increased $26.6 million , or 20% , to $159.0 million mostly due to a $12.7 million , $10.5 million and $0.5 million increase in contribution from the U.S. & Canada, Latin America and Other International segments respectively, partially offset by a $2.8 million decrease in corporate expenses .
In the current nine-month period , income tax expense increased $5.9 million , or 13% , to $52.6 million . The current nine-month period effective tax rate is 33.1% compared to 35.2% in the prior nine-month period . The decrease is primarily due to the determination that the undistributed earnings of non-U.S. subsidiaries on which income taxes were previously recorded will not be repatriated in the foreseeable future, as well as the recognition of state net operating losses.
In the current nine-month period , net income attributable to EZCORP, Inc. increased $19.3 million , or 23% , to $105.1 million , after $1.3 million of net income attributable to the noncontrolling interest.


Liquidity and Capital Resources
In the current nine-month period, our $104.1 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $130.2 million, net of (ii) $26.1 million of normal, recurring changes in operating assets and liabilities. In the prior nine-month period, our $107.3 million cash flow from operations consisted of (i) net income plus several non-cash items, aggregating to $118.3 million, net of (ii) $11.0 million of normal, recurring changes in operating assets and liabilities. The primary differences in cash flow from operations between the current and prior years were the contributions from acquisitions, organic growth throughout our other operations and revenue streams, and the decrease in stock compensation expense from the prior year which was primarily attributable to the retirement of our former CEO, net of higher taxes paid.
The $162.0 million of net cash used in investing activities during the current nine-month period was funded by cash flow from operations, cash on hand and borrowings on our line of credit facility. We received $5.6 million in dividends from our unconsolidated affiliates. We invested $125.2 million in cash to acquire 48 stores in the U.S., one store in Canada, a 60% interest in Crediamigo, a decision science model for the underwriting of consumer loans and a 72% interest in Cash Genie. Other significant investments in the period were the $33.2 million in additions of property and equipment. Partially offsetting these investments was the $9.1 million of loans made in excess of customer loan repayments and the recovery of principal through the sale of forfeited pawn loan collateral. We also paid $1.2 million of withholding tax upon the net share settlement of restricted stock vesting, net of related tax benefits.

57


The net effect of these and other smaller cash flows was a $27.9 million increase in cash on hand, providing a $51.9 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*
$
195,356

$
17,974

$
157,541

$
19,841

$
—

Interest on long-term debt obligations
42,925

19,197

20,909

2,819

—

Operating lease obligations
201,136

51,747

78,976

42,020

28,393

Capital lease obligations
1,284

451

833

—

—

Total
$
440,701

$
89,369

$
258,259

$
64,680

$
28,393

* Excludes debt premium related to Crediamigo
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 June 30, 2012 , our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none was collected, was $24.8 million . Of that total, $4.7 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, 2011 , these collectively amounted to $17.4 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 443 U.S. EZMONEY financial services stores, 159 adjoin an EZPAWN store. The lease agreements at approximately 94% of the remaining 284 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 three months of the fiscal year ending September 30, 2012 , we plan to open approximately 36 new stores for an aggregate investment of $6.2 million of capital expenditures plus the funding of working capital and start-up losses related to these store openings. We believe new stores will create a drag on earnings and liquidity until their second year of operations.
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 June 30, 2012 and expect to remain in compliance based on our expected future performance. At June 30, 2012 , we had borrowed $114.7 million , leaving $60.3 available on the facility.
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.
We have 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 acquisitions of businesses, assets or securities. We have issued an aggregate of approximately 843,000 shares of Class A Common Stock in connection with acquisitions of several pawn stores and the acquisition of a 72% interest in Cash Genie, leaving approximately 1.2 million shares covered by the registration statement and available for issuance in future acquisitions.
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

58

unconditionally guarantee on a joint and several basis our payment obligations under such debt securities. As of June 30, 2012, 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 June 30, 2012 , the allowance for Expected LOC Losses was $1.8 million . At that date, our maximum exposure for losses on letters of credit, if all brokered loans defaulted and none were collected, was $24.8 million . This amount includes principal, interest and insufficient funds fees.
We have no other off-balance sheet arrangements.

Seasonality
Historically, pawn service charges are highest in our fourth fiscal quarter (July through September) due to a higher average loan balance during the summer lending season. Merchandise sales are highest in the first and second fiscal quarters (October through March) due to the holiday season, jewelry sales surrounding Valentine’s Day and the impact of tax refunds in the United States. Jewelry scrapping sales are heavily influenced by the timing of decisions to scrap excess jewelry inventory. Jewelry scrapping sales generally are greatest during our fourth fiscal quarter (July through September). This results from relatively low jewelry merchandise sales in that quarter and the higher loan balance, leading to a higher dollar amount of loan forfeitures in the summer lending season providing more inventory available for sale.
Consumer loan fees are generally highest in our third and fourth fiscal quarters (April through September) due to a higher average loan balance during the summer lending season. Consumer loan bad debt, both in dollar terms and as a percentage of related fees, is highest in the third and fourth fiscal quarters and lowest in the second fiscal quarter due primarily to the impact of tax refunds.
The net effect of these factors is that net revenues and net income typically are strongest in the fourth fiscal quarter and weakest in the third fiscal quarter. Our cash flow typically is greatest in the second fiscal quarter due to a high level of loan redemptions and sales in the U.S. income tax refund season.

Use of Estimates and Assumptions
Management’s Discussion and Analysis of Financial Condition and Results of Operations 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.


59

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 our debt has a variable rate. If interest rates average 50 basis points more than our current rate in the remaining three months of the fiscal year ending September 30, 2012, our interest expense during that period would increase by approximately $143,000. This amount is determined by considering the impact of the hypothetical interest rate change on our variable-rate debt at June 30, 2012 .
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. In the first quarter of fiscal 2012, we began using derivative financial instruments, in order to manage our commodity price risk associated with the forecasted sales of gold scrap. These derivatives are not designated as hedges as they do not meet the hedge accounting requirements of the Derivatives and Hedging topic of the FASB codification, and changes in their fair value are recorded directly in earnings. For further discussion, you should read “Part I, Item 1A—Risk Factors” of our Annual Report on Form 10-K for the year ended September 30, 2011.
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 and Crediamigo 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 Crediamigo’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 March 31, 2012 (included in our June 30, 2012 results on a three-month lag) was a $0.8 million decrease to stockholders’ equity. The translation adjustment from Cash Genie also represents the weakening in the British pound, was a $0.6 million decrease to stockholders' equity. On June 30, 2012, the British pound weakened to £1.00 to $1.5615 U.S. from $1.5987 at March 31, 2012.
The translation adjustment from Cash Converters International representing the strengthening in the Australian dollar during the quarter ended December 31, 2011 (included in our June 30, 2012 results on a three-month lag) was a $1.0 million increase to stockholders’ equity. On June 30, 2012 , the Australian dollar weakened to $1.00 Australian dollar to $1.0159 U.S. from $1.0385 at March 31, 2012.
The translation adjustment from Latin America representing the weakening of the Mexican peso during the quarter ended June 30, 2012 was a $6.4 million decrease 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 June 30, 2012 , the peso weakened to $1.00 Mexican peso to $0.0732 U.S. from $0.0778 at March 31, 2012.
The translation adjustment from our Canadian operations representing the weakening of the Canadian dollar during the quarter ended June 30, 2012 was immaterial. On June 30, 2012 , the Canadian dollar weakened to $1.00 Canadian dollar to $.9758 U.S. from $1.0027 at March 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.
Forward-Looking Information
This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that all forward-looking statements be subject to the safe harbors created by these laws. All statements, other than statements of historical facts, regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans and objectives are forward-looking statements. These statements are often, but not always, made with words or phrases like “may,” “should,” “could,” “will,” “predict,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “projection” and similar expressions. Such statements are only predictions of the outcome and timing of future events based on our current expectations and currently available information and, accordingly, are subject to substantial risks, uncertainties and assumptions. Actual results could differ materially from those expressed in the forward-looking statements due to a number of risks and uncertainties, many of which are beyond our control. In addition, we

60

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, 2011.
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.


61

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 June 30, 2012 . Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2012 .
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the third quarter of fiscal 2012 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.


62

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, 2011. 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, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On April 2, 2012, we issued 108,402 of our Class A Non-voting common stock, par value of $0.01 per share, valued at $3.6 million to the Halbert Group, LLC. as partial compensation for a multi-year consulting arrangement involving our information technology systems. The shares are subject to transfer and vesting restrictions. The shares will vest, and those restrictions will lapse, pro rata on the first, second and third anniversaries of the date of grant, subject to the achievement of performance goals consistent with the IT multi-year plan. These securities were issued in an exempt private placement pursing to regulation D (Rule 506) under the Securities Act of 1933, as well as pursuant to Section 4(5) of such Act.


63


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 Stephen A. Stamp, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1

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

XBRL Instance Document
101.SCH*

XBRL Taxonomy Extension Schema Document
101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*

XBRL Taxonomy Label Linkbase Document
101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document
101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document
*
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at June 30, 2012, June 30, 2011 and September 30, 2011; (ii) Consolidated Statements of Income for the three and nine months ended June 30, 2012 and June 30, 2011; (iii) Consolidated Statements of Comprehensive Income for three and nine months ended June 30, 2012 and June 30, 2011 (iv) Consolidated Statements of Cash Flows for the nine months ended June 30, 2012 and June 30, 2011; and (v) Notes to Consolidated Financial Statements.

64

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:
August 8, 2012
/s/ Stephen A. Stamp
Stephen A. Stamp
Senior Vice President and
Chief Financial Officer

65

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 Stephen A. Stamp, Chief Financial Officer, pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certifications of Paul E. Rothamel, Chief Executive Officer, and Stephen A. Stamp, Chief Financial Officer , pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
XBRL Taxonomy Label Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at June 30, 2012, June 30, 2011 and September 30, 2011; (ii) Consolidated Statements of Income for the three and nine months ended June 30, 2012 and June 30, 2011; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2012 and June 30, 2011 (iv) Consolidated Statements of Cash Flows for the nine months ended June 30, 2012 and June 30, 2011; and (v) Notes to Consolidated Financial Statements.

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