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EX-32.1 - EXHIBIT 32.1 - EZCORP INCa2015q3-10qxex321_06302015.htm
EX-31.1 - EXHIBIT 31.1 - EZCORP INCa2015q3-10qxex311_06302015.htm
EX-31.2 - EXHIBIT 31.2 - EZCORP INCa2015q3-10qxex312_06302015.htm

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 EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
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.)
 
 
2500 Bee Cave Road, Building 1, Suite 200
Rollingwood, 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, 2015, 51,849,933 shares of the registrant’s Class A Non-voting Common Stock including redeemable common stock, par value $.01 per share, and 2,970,171 shares of the registrant’s Class B Voting Common Stock, par value $.01 per share, were outstanding.



EZCORP, Inc.
INDEX TO FORM 10-Q


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



EXPLANATORY NOTE
Delayed Filing
We delayed the filing of this Quarterly Report on Form 10-Q for the third quarter of fiscal 2015 (ended June 30, 2015) pending the completion of a review and analysis of certain accounting issues relating to our Grupo Finmart loan portfolio. As a result of that review, we have restated our financial statements for the fiscal years ended September 30, 2014, 2013 and 2012 (including the quarterly periods within those years, other than the first quarter of fiscal 2012) and for the first quarter of fiscal 2015 in order to correct certain accounting errors related to our Grupo Finmart loan portfolio.
For discussion of the Grupo Finmart portfolio review, the accounting errors identified and the restatement adjustments applicable to fiscal 2014 and periods prior to September 30, 2014, see “Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Grupo Finmart Portfolio Review and Restatement” and Notes 2 and 19 of Notes to Consolidated Financial Statements included in "Part II, Item 8 — Financial Statements and Supplementary Data” in our Amended Annual Report on Form 10-K/A for the fiscal year ended September 30, 2014 (the "Amended FY14 Annual Report").
For a description of the restatement adjustments applicable to the first quarter of fiscal 2015, see "Part I, Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Grupo Finmart Portfolio Review and Restatement" and Note 2 of Notes to Interim Condensed Consolidated Financial Statements included in "Part I, Item 1 — Financial Statements" in our Amended Quarterly Report on Form 10-Q/A for the quarter ended December 31, 2014 (the "Amended Q115 Quarterly Report").
Internal Control over Financial Reporting
Management reassessed its evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2014, and concluded that a number of deficiencies in the design and operating effectiveness of our internal controls, collectively, represent material weaknesses in our internal control over financial reporting and, therefore, that we did not maintain effective internal control over financial reporting as of September 30, 2014, September 30, 2013 and September 30, 2012. For a description of the material weaknesses identified by management and management’s plan to remediate those material weaknesses, see “Part II, Item 9A — Controls and Procedures” in the Amended FY14 Annual Report.
The information in this Report pertaining to the third quarter and first nine months of fiscal 2014 (ended June 30, 2014) and as of September 30, 2014 reflects the restated financial statements for such periods, as set forth in the Amended FY14 Annual Report. The information in this Report pertaining to the first nine months of fiscal 2015 reflects the restated financial statements for the first quarter of fiscal 2015, as set forth in the Amended Q115 Quarterly Report.




PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
EZCORP, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(Unaudited)
 
 
Assets:
 
 
 
 
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
114,387

 
$
49,434

 
$
55,325

Restricted cash
28,015

 
49,129

 
63,495

Pawn loans
144,377

 
157,491

 
162,444

Consumer loans, net
57,737

 
64,787

 
63,995

Pawn service charges receivable, net
26,989

 
29,307

 
31,044

Consumer loan fees and interest receivable, net
18,180

 
15,032

 
12,647

Inventory, net
115,283

 
130,839

 
138,175

Deferred tax asset
24,428

 
15,302

 
17,572

Prepaid income taxes
44,986

 
43,677

 
57,069

Receivables, prepaid expenses and other current assets
33,947

 
75,161

 
33,097

Total current assets
608,329

 
630,159

 
634,863

Investment in unconsolidated affiliate
90,423

 
90,730

 
91,781

Property and equipment, net
101,135

 
109,458

 
105,900

Restricted cash, non-current
2,978

 
4,578

 
5,070

Goodwill
331,849

 
436,765

 
346,577

Intangible assets, net
60,575

 
78,745

 
66,086

Non-current consumer loans, net
82,739

 
84,630

 
85,004

Deferred tax asset
10,984

 
9,331

 
12,142

Other assets, net
54,246

 
76,137

 
63,121

Total assets (1)(3)
$
1,343,258

 
$
1,520,533

 
$
1,410,544

 
 
 
 
 
 
Liabilities, temporary equity and stockholders’ equity:
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Current maturities of long-term debt
$
69,054

 
$
41,125

 
$
36,111

Current capital lease obligations

 
520

 
418

Accounts payable and other accrued expenses
84,036

 
89,217

 
94,993

Other current liabilities
6,124

 
8,716

 
8,595

Customer layaway deposits
9,635

 
8,206

 
8,097

Total current liabilities
168,849

 
147,784

 
148,214

Long-term debt, less current maturities
340,822

 
387,217

 
392,054

Deferred gains and other long-term liabilities
7,668

 
21,235

 
15,172

Total liabilities (2)(4)
517,339

 
556,236

 
555,440

Commitments and contingencies


 


 


Temporary equity:
 
 
 
 
 
Class A Non-voting Common Stock, subject to possible redemption at $10.06 per share; 1,168,456 shares issued and outstanding at redemption value as of June 30, 2015; and none as of June 30, 2014 and September 30, 2014
11,696

 

 

Redeemable noncontrolling interest
16,361

 
25,662

 
22,800

Total temporary equity
28,057

 
25,662

 
22,800

Stockholders’ equity:
 
 
 
 
 
Class A Non-voting Common Stock, par value $.01 per share; shares authorized: 100 million as of June 30, 2015 and 2014 and September 30, 2014; issued and outstanding: 50,681,477 as of June 30, 2015; 51,612,246 as of June 30, 2014; and 50,614,767 as of September 30, 2014
506

 
519

 
506

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
327,018

 
339,869

 
332,264

Retained earnings
512,694

 
610,050

 
509,586

Accumulated other comprehensive (loss) income
(42,386
)
 
68

 
(10,082
)
Treasury stock, at cost; none at June 30, 2015 and September 30, 2014 and 1 million shares at June 30, 2014

 
(11,901
)
 

EZCORP, Inc. stockholders’ equity
797,862

 
938,635

 
832,304

Total liabilities, temporary equity and stockholders’ equity
$
1,343,258

 
$
1,520,533

 
$
1,410,544

See accompanying notes to interim condensed consolidated financial statements.

1


Assets and Liabilities of Consolidated Variable Interest Entities (See Note 17)
(1) Our consolidated assets as of June 30, 2015 and 2014 and September 30, 2014 include the following assets of our consolidated variable interest entities:

June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(Unaudited)
 
 

(in thousands)
Restricted cash
$
1,617

 
$
17,422

 
$
1,921

Consumer loans, net
13,207

 
11,180

 
16,465

Consumer loan fees and interest receivable, net
4,979

 
2,458

 
3,058

Non-current consumer loans, net
30,238

 
25,043

 
35,780

Total assets
$
50,041

 
$
56,103

 
$
57,224

(2) Our consolidated liabilities as of June 30, 2015 and 2014 and September 30, 2014 include the following liabilities of our consolidated variable interest entities:
 
June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(Unaudited)
 
 
 
(in thousands)
Accounts payable and other accrued expenses
$
3,988

 
$
1,090

 
$
2,105

Current maturities of long-term debt
46,039

 
20,095

 
25,438

Long-term debt, less current maturities
40,744

 
26,589

 
35,624

Total liabilities
$
90,771

 
$
47,774

 
$
63,167

Assets and Liabilities of Grupo Finmart Securitization Trust
(3) Our consolidated assets as of June 30, 2015 and 2014 and September 30, 2014 include the following assets of Grupo Finmart’s Securitization trust that can only be used to settle its liabilities:
 
June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(Unaudited)
 
 
 
 
 
(in thousands)
 
 
Restricted cash
$
17,398

 
$
5,873

 
$
23,592

Consumer loans, net
37,288

 
42,936

 
41,588

Consumer loan fees and interest receivable, net
5,614

 
6,553

 
5,489

Restricted cash, non-current
117

 
16,660

 
133

Other assets, net
2,102

 
2,868

 
2,847

Total assets
$
62,519

 
$
74,890

 
73,649

(4) Our consolidated liabilities as of June 30, 2015 and 2014 and September 30, 2014 include the following liabilities for which the creditors of Grupo Finmart’s securitization trust do not have recourse to the general credit of EZCORP, Inc.:
 
June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(Unaudited)
 
 
 
 
 
(in thousands)
 
 
Long-term debt, less current maturities
$
44,450

 
$
56,076

 
$
54,045

See accompanying notes to interim condensed consolidated financial statements.

2


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(Unaudited)
 
(in thousands, except per share amounts)
Revenues:
 
 
 
 
 
 
 
Merchandise sales
$
93,137

 
$
89,170

 
$
310,628

 
$
298,211

Jewelry scrapping sales
10,588

 
20,273

 
47,521

 
74,169

Pawn service charges
57,599

 
59,917

 
181,996

 
183,212

Consumer loan fees and interest
50,796

 
52,734

 
164,084

 
162,715

Other revenues
870

 
1,040

 
2,936

 
3,714

Total revenues
212,990

 
223,134

 
707,165

 
722,021

Merchandise cost of goods sold
61,460

 
56,014

 
206,430

 
184,378

Jewelry scrapping cost of goods sold
8,580

 
15,131

 
37,609

 
55,262

Consumer loan bad debt
13,664

 
16,401

 
47,820

 
45,465

Net revenues
129,286

 
135,588

 
415,306

 
436,916

Operating expenses (income):
 
 
 
 
 
 
 
Operations
103,030

 
103,198

 
307,014

 
309,666

Administrative
12,602

 
14,205

 
31,803

 
49,925

Depreciation
7,551

 
7,460

 
22,823

 
22,214

Amortization
1,380

 
1,306

 
4,205

 
4,064

(Gain) loss on sale or disposal of assets
(6
)
 
134

 
879

 
(6,069
)
Restructuring
37

 

 
763

 

Total operating expenses
124,594


126,303


367,487


379,800

Operating income
4,692

 
9,285

 
47,819

 
57,116

Interest expense
9,659

 
7,439

 
32,989

 
18,604

Interest income
(347
)
 
(377
)
 
(1,393
)
 
(729
)
Equity in net income of unconsolidated affiliates
(1,822
)
 
(2,117
)
 
(338
)
 
(3,880
)
Impairment of goodwill
10,550

 

 
10,550

 

Impairment of investments

 

 

 
7,940

Other expense
750

 
265

 
3,368

 
539

(Loss) income from continuing operations before income taxes
(14,098
)
 
4,075

 
2,643

 
34,642

Income tax (benefit) expense
(4,131
)
 
406

 
774

 
6,081

(Loss) income from continuing operations, net of tax
(9,967
)
 
3,669

 
1,869

 
28,561

Loss from discontinued operations, net of tax
(270
)
 
(2,076
)
 
(1,991
)
 
(5,445
)
Net (loss) income
(10,237
)
 
1,593

 
(122
)
 
23,116

Net loss from continuing operations attributable to redeemable noncontrolling interest
(390
)
 
(2,337
)
 
(3,230
)
 
(5,686
)
Net (loss) income attributable to EZCORP, Inc.
$
(9,847
)

$
3,930


$
3,108


$
28,802

 
 
 
 
 
 
 
 
Basic (loss) earnings per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
Continuing operations
$
(0.17
)
 
$
0.11

 
$
0.09

 
$
0.63

Discontinued operations

 
(0.04
)
 
(0.04
)
 
(0.10
)
Basic (loss) earnings per share
$
(0.17
)
 
$
0.07

 
$
0.05

 
$
0.53

 
 
 
 
 
 
 
 
Diluted (loss) earnings per share attributable to EZCORP, Inc.:
 
 
 
 
 
 
 
Continuing operations
$
(0.17
)
 
$
0.11

 
$
0.09

 
$
0.63

Discontinued operations

 
(0.04
)
 
(0.04
)
 
(0.10
)
Diluted (loss) earnings per share
$
(0.17
)
 
$
0.07

 
$
0.05

 
$
0.53

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
54,820

 
54,308

 
54,216

 
54,338

Diluted
54,866

 
54,395

 
54,280

 
54,529

 
 
 
 
 
 
 
 
Net (loss) income from continuing operations attributable to EZCORP, Inc.
$
(9,577
)
 
$
6,006

 
$
5,099

 
$
34,247

Loss from discontinued operations attributable to EZCORP, Inc.
(270
)
 
(2,076
)
 
(1,991
)
 
(5,445
)
Net (loss) income attributable to EZCORP, Inc.
$
(9,847
)
 
$
3,930

 
$
3,108

 
$
28,802

See accompanying notes to interim condensed consolidated financial statements.

3


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(Unaudited)
 
(in thousands)
Net (loss) income
$
(10,237
)
 
$
1,593

 
$
(122
)
 
$
23,116

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation (loss) gain
(9,847
)
 
5,344

 
(38,066
)
 
7,767

Foreign currency translation reclassification adjustment realized upon impairment

 

 

 
375

Cash flow hedges:
 
 
 
 
 
 
 
Unrealized loss before reclassifications

 
(497
)
 

 
(1,169
)
Amounts reclassified from accumulated other comprehensive loss
35

 
272

 
422

 
814

Unrealized holding (loss) gain on available-for-sale arising during period

 
(77
)
 

 
540

Income tax benefit (expense)
1,370

 
(818
)
 
1,590

 
(1,201
)
Other comprehensive (loss) income, net of tax
(8,442
)
 
4,224

 
(36,054
)
 
7,126

Comprehensive (loss) income
$
(18,679
)
 
$
5,817

 
$
(36,176
)
 
$
30,242

Attributable to redeemable noncontrolling interest:
 
 
 
 
 
 
 
Net loss
(390
)
 
(2,337
)
 
(3,230
)
 
(5,686
)
Foreign currency translation (loss) gain
(626
)
 
477

 
(3,853
)
 
755

Amounts reclassified from accumulated other comprehensive loss (income)
9

 
(90
)
 
103

 
(142
)
Comprehensive loss attributable to redeemable noncontrolling interest
(1,007
)

(1,950
)
 
(6,980
)

(5,073
)
Comprehensive (loss) income attributable to EZCORP, Inc.
$
(17,672
)
 
$
7,767

 
$
(29,196
)
 
$
35,315

See accompanying notes to interim condensed consolidated financial statements.

4


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended June 30,
 
2015
 
2014
 
 
 
 
 
(Unaudited)
 
(in thousands)
Operating activities:
 
 
 
Net (loss) income
$
(122
)
 
$
23,116

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
27,024

 
28,083

Amortization (accretion) of debt discount (premium) and consumer loan premium (discount), net
6,512

 
(68
)
Consumer loan loss provision
23,465

 
28,901

Deferred income taxes
(5,742
)
 
(1,280
)
Impairment of goodwill
10,550

 

Restructuring
763

 

Amortization of deferred financing costs
3,423

 
4,166

Amortization of prepaid commissions
9,878

 
10,039

Other adjustments
1,215

 
(753
)
Loss (gain) on sale or disposal of assets
956

 
(6,137
)
Stock compensation (benefit) expense
(1,319
)
 
9,487

Income from investments in unconsolidated affiliates
(338
)
 
(3,880
)
Impairment of investments

 
7,940

Changes in operating assets and liabilities, net of business acquisitions:
 
 
 
Service charges and fees receivable
(5,360
)
 
1,577

Inventory
926

 
2,243

Receivables, prepaid expenses, other current assets and other assets
(39,237
)
 
(35,349
)
Accounts payable and other accrued expenses and deferred gains and other long-term liabilities
3,942

 
(9,476
)
Customer layaway deposits
1,127

 
(433
)
Restricted cash
(214
)
 

Prepaid income taxes
11,885

 
(20,048
)
Payments of restructuring charges
(3,668
)
 

Dividends from unconsolidated affiliates
4,842

 
5,129

Net cash provided by operating activities
50,508

 
43,257

Investing activities:
 
 
 
Loans made
(640,278
)
 
(705,181
)
Loans repaid
474,074

 
498,222

Recovery of pawn loan principal through sale of forfeited collateral
191,170

 
182,004

Additions to property and equipment
(22,849
)
 
(15,930
)
Acquisitions, net of cash acquired
(4,120
)
 
(12,990
)
Investments in unconsolidated affiliates
(12,140
)
 

Proceeds from sale of assets

 
10,631

Other investing activities

 
143

Net cash used in investing activities
(14,143
)
 
(43,101
)

5


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Financing activities:
 
 
 
Taxes paid related to net share settlement of equity awards
(196
)
 
(1,990
)
Debt issuance costs

 
(12,686
)
Payout of deferred and contingent consideration
(6,000
)
 
(23,000
)
Proceeds from issuance of convertible notes

 
200,000

Purchase of convertible notes hedges

 
(40,395
)
Proceeds from issuance of warrants

 
21,824

Purchase of subsidiary shares from noncontrolling interest
(2,774
)
 
(21,139
)
Proceeds from settlement of forward currency contracts
2,313

 

Change in restricted cash
30,335

 
(40,761
)
Proceeds from revolving line of credit

 
389,900

Payments on revolving line of credit

 
(530,800
)
Proceeds from borrowings
69,296

 
154,406

Payments on borrowings and capital lease obligations
(64,586
)
 
(63,162
)
Repurchase of common stock

 
(11,901
)
Net cash provided by financing activities
28,388

 
20,296

Effect of exchange rate changes on cash and cash equivalents
(5,691
)
 
(118
)
Net increase in cash and cash equivalents
59,062

 
20,334

Cash and cash equivalents at beginning of period
55,325

 
29,100

Cash and cash equivalents at end of period
$
114,387

 
$
49,434

 
 
 
 
Non-cash investing and financing activities:
 
 
 
Pawn loans forfeited and transferred to inventory
$
170,185

 
$
171,288

Issuance of common stock, subject to possible redemption, due to acquisition
11,696

 

Deferred consideration
124

 
2,692

Issuance of common stock to 401(k) plan

 
557

Equity adjustment due to noncontrolling interest purchase

 
6,588

Receivable from issuance of convertible notes

 
30,000

Payable to purchase convertible notes hedges

 
6,059

Warrants receivable related to issuance of convertible notes

 
3,282

Deferred finance cost payable related to convertible notes

 
2,400

Payable to purchase additional shares of noncontrolling interest
322

 
8,636

See accompanying notes to interim condensed consolidated financial statements.

6


EZCORP, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive (Loss) Income
 
Treasury Stock
 
EZCORP, Inc.
Stockholders’
Equity
 
Shares
 
Par Value
 
Shares
 
Par Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(Unaudited, except balances as of September 30, 2014 and 2013)
 
(in thousands)
Balances as of September 30, 2013
54,240

 
$
543

 
$
320,537

 
$
581,248

 
$
(6,445
)
 

 
$

 
$
895,883

Issuance of common stock related to 401(k) match
45

 
1

 
557

 

 

 

 

 
558

Stock compensation

 

 
9,487

 

 

 

 

 
9,487

Purchase of subsidiary shares from noncontrolling interest

 

 
(13,259
)
 

 
(15
)
 

 

 
(13,274
)
Release of restricted stock
297

 
5

 

 

 

 

 

 
5

Tax deficiency of stock compensation

 

 
(569
)
 

 

 

 

 
(569
)
Taxes paid related to net share settlement of equity awards

 

 
(1,990
)
 

 

 

 
(1
)
 
(1,991
)
Effective portion of cash flow hedge

 

 

 

 
(213
)
 

 

 
(213
)
Net proceeds from sale of warrants

 

 
25,106

 

 

 

 

 
25,106

Unrealized loss on available-for-sale securities

 

 

 

 
351

 

 

 
351

Foreign currency translation adjustment

 

 

 

 
6,015

 

 

 
6,015

Foreign currency translation reclassification adjustment realized upon impairment

 

 

 

 
375

 

 

 
375

Purchase of treasury stock

 

 

 

 

 
1,000

 
(11,900
)
 
(11,900
)
Net income attributable to EZCORP, Inc.

 

 

 
28,802

 

 

 

 
28,802

Balances as of June 30, 2014
54,582

 
$
549

 
$
339,869

 
$
610,050

 
$
68

 
1,000

 
$
(11,901
)
 
$
938,635

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances as of September 30, 2014
53,585

 
$
536

 
$
332,264

 
$
509,586

 
$
(10,082
)
 

 
$

 
$
832,304

Issuance of common stock related to 401(k) match
1

 

 

 

 

 

 

 

Stock compensation

 

 
(1,319
)
 

 

 

 

 
(1,319
)
Purchase of subsidiary shares from noncontrolling interest




(3,564
)



(72
)




 
(3,636
)
Release of restricted stock
66

 

 

 

 

 

 

 

Tax deficiency of stock compensation

 

 
(167
)
 

 

 

 

 
(167
)
Taxes paid related to net share settlement of equity awards

 

 
(196
)
 

 

 

 

 
(196
)
Amounts reclassified from accumulated other comprehensive loss

 

 

 

 
319

 

 

 
319

Foreign currency translation adjustment

 

 

 

 
(32,551
)
 

 

 
(32,551
)
Net income attributable to EZCORP, Inc.

 

 

 
3,108

 

 

 

 
3,108

Balances as of June 30, 2015
53,652

 
$
536

 
$
327,018

 
$
512,694

 
$
(42,386
)
 

 
$

 
$
797,862

See accompanying notes to interim condensed consolidated financial statements.

7


EZCORP, Inc.
Notes to Interim Condensed Consolidated Financial Statements (Unaudited)
June 30, 2015
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
We are a leading provider of specialty consumer financial services. With approximately 7,100 teammates and 1,350 locations and branches, we provide collateralized, non-recourse loans, commonly known as pawn loans, and a variety of short-term and long-term consumer loans including single-payment and multiple-payment unsecured loans and single-payment and multiple-payment auto title loans, or fee-based credit services to customers seeking loans in the United States, Mexico and Canada. Subsequent to June 30, 2015, we discontinued our consumer loan operations in the United States.
We also own approximately 32% of Cash Converters International Limited ("Cash Converters International"), which is based in Australia and franchises and operates a worldwide network of over 750 locations that provide financial services and buy and sell second-hand goods.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Our management has included all adjustments it considers necessary for a fair presentation. These adjustments are of a normal, recurring nature except for those related to discontinued operations (described in Note 2). Furthermore, certain reclassifications of prior period amounts have been made to conform to the current period presentation. We have reclassified unamortized debt issuance costs of $16.0 million as of June 30, 2014 from "Other assets, net" to "Intangible assets, net" to conform to current period presentation.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes included in our Amended Annual Report on Form 10-K/A for the year ended September 30, 2014 the "Amended FY14 Annual Report"). The balance sheet as of September 30, 2014 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-months ended June 30, 2015 (the "current quarter" and "current nine-month period") are not necessarily indicative of the results of operations for the full fiscal year.
These condensed consolidated financial statements include the accounts of EZCORP, Inc. ("EZCORP") and its consolidated subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. As of June 30, 2015, we owned 76% of the outstanding equity interests in Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart"), doing business under the brands "Crediamigo" and "Adex," and therefore, include its results in our condensed consolidated financial statements.
To determine if we hold a controlling financial interest in an entity, we first evaluate if we are required to apply the variable interest entity (“VIE”) model to the entity; otherwise, the entity is evaluated under the voting interest model. Where we hold current or potential rights that give us the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance combined with a variable interest that gives us the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, we have a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. Grupo Finmart has completed several transfers of consumer loans to various securitization trusts. We consolidate those securitization entities under the VIE model. See Note 17.
We account for our investment in Cash Converters International using the equity method.
Use of Estimates and Assumptions
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

8


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.
There have been no changes in significant accounting policies as described in our Amended FY14 Annual Report, other than those described below.
Recently Adopted Accounting Policies
Common Stock, Subject to Possible Redemption
We account for shares subject to possible redemption in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 480 Distinguishing Liabilities from Equity. Under this standard, shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value and conditionally redeemable common shares (including shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, shares are classified as stockholders’ equity. The EZCORP common stock subject to possible redemption features certain redemption rights that are considered by the Company to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly as of March 31, 2015, the shares subject to possible redemption are presented as temporary equity, outside of the stockholders’ equity section of the Company’s condensed consolidated balance sheets.
Recently Issued Accounting Pronouncements
In September 2015, the FASB issued Accounting Standards Update ("ASU") 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This ASU requires reporting entities to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Measurement period adjustments were previously required to be retrospectively adjusted as of the acquisition date. The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity should apply the amendment prospectively. We do not anticipate that the adoption of ASU 2015-16 will have a material effect on our financial position, results of operations or cash flows.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU requires reporting entities measuring inventories under the first-in, first-out or average cost methods to measure inventory at the lower of cost or net realizable value, where net realizable value is "estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation." Inventory was previously required to be measured at the lower of cost or market value, where the measurement of market value had several potential outcomes. The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted provided that presentation is applied to the beginning of the fiscal year of adoption. A reporting entity may apply the amendment prospectively. We have not completed the process of evaluating the impact that will result from adopting ASU 2015-11. Therefore we are unable to disclose the impact that adopting ASU 2015-11 will have on our financial position, results of operations and cash flows when such statement is adopted.
In April 2015, the FASB issued ASU 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires reporting entities to record costs paid to third parties that are directly related to issuing debt, and that otherwise would not be incurred, as a deduction to the corresponding debt for presentation purposes. In addition, in August 2015, FASB issued ASU 2015-15, Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 states the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The provisions of each ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted for each. A reporting entity may apply each amendment retrospectively and the adoption represents a change in accounting principle. The impact of adopting ASU 2015-15 would result in the election to continue to present debt issuance costs related to our revolving credit facilities as an asset. The impact of ASU 2015-03 on our consolidated financial statements as of June 30, 2015, June 30, 2014 and September 30, 2014 would include an estimated reclassification of unamortized debt issuance costs of $7.1 million, $11.0 million and $10.3 million, respectively, from "Intangible assets, net" to "Long-term debt, less current maturities" and $3.0 million, $4.0 million and $4.0 million, respectively, from "Intangible assets, net" to "Current maturities of long-term debt" within the

9


condensed consolidated balance sheets. Other than these reclassification, the adoption of ASU 2015-03 is not expected to have an impact on our financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU 2015-05, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. A reporting entity may apply the amendment prospectively or retrospectively. We do not anticipate that the adoption of ASU 2015-05 will have a material effect on our financial position, results of operations or cash flows.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This ASU provides guidance for reporting entities that are required to evaluate whether they should consolidate certain legal entities. The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, provided that presentation is applied to the beginning of the fiscal year of adoption. A reporting entity may apply the amendment retrospectively or using a modified retrospective approach. We do not anticipate that the adoption of ASU 2015-02 will have a material effect on our financial position, results of operations or cash flows.
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether a Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. This ASU requires reporting entities to determine the nature of a hybrid financial instrument host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. The provisions of this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, provided that presentation is applied to the beginning of the fiscal year of adoption. We do not anticipate that the adoption of ASU 2014-16 will have a material effect on our financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). On August 12, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) to defer the effective date to December 15, 2017 for annual reporting periods beginning after that date. The FASB also permitted early adoption of the standard, but not before the original effective date of December 15, 2016. We have not completed the process of evaluating the impact that will result from adopting ASU 2014-09. Therefore we are unable to disclose the impact that adopting ASU 2014-09 will have on our financial position, results of operations and cash flows when such statement is adopted.
NOTE 2: DISCONTINUED OPERATIONS AND RESTRUCTURING
Discontinued Operations
During the fourth quarter of fiscal 2014, we implemented a plan to exit our online lending businesses in the United States and the United Kingdom. As a result of this plan, our online lending operations in the United States (EZOnline) and in the United Kingdom (Cash Genie) have been included as discontinued operations.
During the third quarter of fiscal 2013, we implemented a plan to close 107 legacy stores (57 in Mexico, 29 in Canada and 21 in the U.S.). These stores were generally older, smaller stores that did not fit our future growth profile.
See Note 18 for discussion of discontinued operations and restructuring actions subsequent to June 30, 2015.

10


Accrued lease termination costs, severance costs and other costs related to discontinued operations are included under "Accounts payable and other accrued expenses" in our condensed consolidated balance sheets. Changes in these amounts during the three and nine-month periods ended June 30, 2015 and 2014 are summarized as follows:
 
Three Months Ended June 30, 2015
 
Nine Months Ended June 30, 2015
 
 
 
 
 
(in millions)
Beginning balance
$
10.2

 
$
8.9

Charged to expense*

 
4.0

Cash payments
(0.1
)
 
(1.5
)
Other**

 
(1.3
)
Balance as of June 30, 2015
$
10.1

 
$
10.1

* We recorded additional one-time charges of $3.3 million related to Cash Genie regulatory compliance and $0.7 million related to severance costs during the nine-month period ended June 30, 2015.
** This balance consists of adjustments due to foreign currency effects and other individually immaterial adjustments.
 
Three Months Ended June 30, 2014
 
Nine Months Ended June 30, 2014
 
 
 
 
 
(in millions)
Beginning balance
$
2.2

 
$
7.1

Charged to expense

 

Cash payments
(0.5
)
 
(3.4
)
Other*
(0.8
)
 
(2.8
)
Balance as of June 30, 2014
$
0.9

 
$
0.9

* This balance consists of adjustments due to foreign currency effects and other individually immaterial adjustments related to negotiated lease termination amounts being lower than the initial lease buyout estimates recorded during fiscal 2013.
Discontinued operations for the three-month periods ended June 30, 2015 and 2014 include $0.1 million and $0.1 million of total revenues, respectively. Discontinued operations for the nine-month periods ended June 30, 2015 and 2014 include $1.7 million and $2.9 million of total revenues, respectively.
All revenue, expense and income reported in these condensed consolidated financial statements have been adjusted to reflect reclassification of all discontinued operations.
Restructuring
During the fourth quarter of fiscal 2014, we conducted a company-wide operational review to realign our organization to streamline operations and create synergies and efficiencies. The operational review resulted in the reduction of non-customer-facing overhead. Changes in the balance of restructuring costs during the three and nine-month periods ended June 30, 2015 resulting from this initiative are summarized as follows:
 
Three Months Ended June 30, 2015
 
Nine Months Ended June 30, 2015
 
 
 
 
 
(in thousands)
Beginning balance
$
3,885

 
$
6,121

Charged to expense
37

 
763

Cash payments
(706
)
 
(3,668
)
Balance as of June 30, 2015
$
3,216

 
$
3,216

The accrual for restructuring costs as of June 30, 2015 represents the amounts to be paid related to severance for employees that have been terminated or identified for termination as a result of the initiatives described above. We estimate we will make a portion of the remaining payments during fiscal 2015, at which time this initiative will be substantially complete. We continue to review the impact of these actions and will determine if, based on future operating results, additional actions to reduce operating expenses are necessary. The amount of any potential future charges for such actions will depend upon the nature, timing and extent of those actions.

11


NOTE 3: ACQUISITIONS
On February 19, 2015, we completed the acquisition of 12 pawn stores in Central Texas doing business under the "Cash Pawn" brand. The aggregate purchase price for the acquisition was $16.5 million, comprised of $5.0 million cash and 1,168,456 shares of our Class A Non-voting Common Stock (the "Shares"), valued at $10.01 per share less a $0.2 million Holding Period Adjustment discussed below. The Shares were issued in an unregistered private placement transaction pursuant to Section 4(a)(2) of the Securities Act of 1933 to a small number of related individuals and entities (the "Sellers") who were either "accredited investors" or "sophisticated investors." We have concluded that this acquisition was immaterial to our overall consolidated financial results and, therefore, have omitted the information required by ASC 805-10-50-2(h).
On the first anniversary of the closing date, the Sellers have the right to require us to repurchase the Shares for an aggregate price of $11.8 million (the "Put Option"). The Sellers may terminate the Put Option, in whole or in part, at any time. The Sellers are required to hold the Shares for a period of six months following the termination of the Put Option or such later date when we are in compliance with Rule 144(c) (the "Holding Period"). If the trading price of the Class A Non-voting Common Stock at the end of the Holding Period is less than $10.06 per share (the average closing sales price of the stock on The Nasdaq Stock Market for the five trading days immediately preceding the closing), then we will make an additional cash payment to the Sellers equal to the aggregate deficit, but such payment will not exceed $1.0 million. If the trading price of the Class A Non-voting Common Stock at the end of the Holding Period is more than $10.06 per share, then we will receive from the Sellers (either in cash or by returning a portion of the Shares) an amount equal to 50% of the aggregate excess, but such payment will not exceed $1.0 million (the "Holding Period Adjustment"). As of June 30, 2015, the Sellers had not terminated the Put Option in whole or in part.
The Put Option is not accounted for separately from the Shares and does not require bifurcation. The Shares are accounted for as common stock, subject to possible redemption under FASB ASC 480 Distinguishing Liabilities from Equity and are included in temporary equity in our condensed consolidated balance sheet as of June 30, 2015. The Holding Period Adjustment is accounted for as a contingent consideration asset under FASB ASC 805 Business Combinations, will be adjusted to fair value in subsequent reporting periods, and is recorded in our condensed consolidated balance sheet at its estimated fair value under "Other assets, net" as of June 30, 2015. See Note 14 for additional information regarding the Holding Period Adjustment.
See Note 18 for discussion of acquisitions subsequent to June 30, 2015.
NOTE 4: EARNINGS PER SHARE
The two-class method is utilized for the computation of earnings per share. The two-class method requires a portion of net income to be allocated to participating securities, which are unvested awards of share-based payments with non-forfeitable rights to receive dividends or dividend equivalents, if declared. Income allocated to these participating securities is excluded from net earnings allocated to common shares. There were no participating securities outstanding during the three and nine-month periods ended June 30, 2015 and 2014.
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 restricted stock awards and warrants.
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.

12


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,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
Net (loss) income from continuing operations attributable to EZCORP (A)
$
(9,577
)
 
$
6,006

 
$
5,099

 
$
34,247

Loss from discontinued operations, net of tax (B)
(270
)
 
(2,076
)
 
(1,991
)
 
(5,445
)
Net (loss) income attributable to EZCORP (C)
$
(9,847
)
 
$
3,930

 
$
3,108

 
$
28,802

 
 
 
 
 
 
 
 
Weighted-average outstanding shares of common stock (D)
54,820

 
54,308

 
54,216

 
54,338

Dilutive effect of restricted stock
46

 
87

 
64

 
191

Weighted-average common stock and common stock equivalents (E)
54,866


54,395


54,280


54,529

 
 
 
 
 
 
 
 
Basic (loss) earnings per share attributable to EZCORP:
 
 
 
 
 
 
 
Continuing operations (A / D)
$
(0.17
)
 
$
0.11

 
$
0.09

 
$
0.63

Discontinued operations (B / D)

 
(0.04
)
 
(0.04
)
 
(0.10
)
Basic (loss) earnings per share (C / D)
$
(0.17
)
 
$
0.07

 
$
0.05

 
$
0.53

 
 
 
 
 
 
 
 
Diluted (loss) earnings per share attributable to EZCORP:
 
 
 
 
 
 
 
Continuing operations (A / E)
$
(0.17
)
 
$
0.11

 
$
0.09

 
$
0.63

Discontinued operations (B / E)

 
(0.04
)
 
(0.04
)
 
(0.10
)
Diluted (loss) earnings per share (C / E)
$
(0.17
)
 
$
0.07

 
$
0.05

 
$
0.53

 
 
 
 
 
 
 
 
Potential common shares excluded from the calculation of diluted (loss) earnings per share:
 
 
 
 
 
 
 
Restricted stock
233

 
214

 

 
213

Warrants
14,317

 
14,317

 
14,317

 
14,317

Total potential common shares excluded
14,550

 
14,531

 
14,317

 
14,530

NOTE 5: STRATEGIC INVESTMENTS
Cash Converters International Limited
As of June 30, 2015, we owned 151,948,000 shares, or approximately 32%, of Cash Converters International, a company headquartered in Perth, Australia and publicly traded on the Australian Stock Exchange. Cash Converters International franchises and operates a worldwide network of over 750 specialty financial services and retail stores, with significant store concentrations in Australia and the United Kingdom, that buy and sell second-hand goods and provide pawn loans, short-term unsecured loans and other consumer finance products. Our initial total investment in Cash Converters International was acquired between November 2009 and November 2012 for approximately $68.8 million. An additional 15,100,000 shares were acquired in December 2014 for approximately $12.1 million in connection with a non-underwritten placement of 47,400,000 shares by Cash Converters International.
We account for our investment in Cash Converters International using the equity method. Since Cash Converters International’s fiscal year ends three-months prior to ours, we report the income from this investment on a three-month lag. Cash Converters International files semi-annual financial reports with the Australian Securities & Investments Commission for its fiscal periods ending December 31 and June 30. Due to the three-month lag, income reported for our nine-month periods ended June 30, 2015 and 2014 represents our percentage interest in the results of Cash Converters International’s operations from July 1, 2014 to March 31, 2015 and July 1, 2013 to March 31, 2014, respectively.

13


During the three and nine-month periods ended June 30, 2015, our equity in Cash Converters International’s net loss was $1.8 million and $0.3 million, respectively. During the three and nine-month periods ended June 30, 2014 our equity in Cash Converters International’s net income was $2.1 million and $5.1 million, respectively.
Additionally, during the three and nine-month periods ended June 30, 2015, we received dividends of $2.4 million and $4.8 million, respectively. During the three and nine-month periods ended June 30, 2014, we received dividends of $2.5 million and $5.1 million, respectively.
The following table presents summary financial information for Cash Converters International’s most recently reported results as of June 30, 2015 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):
 
December 31,
2014
 
December 31,
2013
 
 
 
 
 
(in thousands)
Current assets
$
200,682

 
$
202,735

Non-current assets
157,737

 
148,011

Total assets
$
358,419

 
$
350,746

 
 
 
 
Current liabilities
$
75,700

 
$
77,263

Non-current liabilities
54,256

 
52,522

Shareholders’ equity:
 
 
 
Equity attributable to owners of the parent
228,462

 
224,026

Noncontrolling interest
1

 
(3,065
)
Total liabilities and shareholders’ equity
$
358,419

 
$
350,746

 
Six Months Ended December 31,
 
2014
 
2013
 
 
 
 
 
(in thousands)
Gross revenues
$
167,206

 
$
143,517

Gross profit
104,852

 
91,605

(Loss) profit for the period attributable to:
 
 
 
Owners of the parent
$
(4,717
)
 
$
9,103

Noncontrolling interest
(179
)
 
(2,417
)
(Loss) profit for the year — net (loss) income
$
(4,896
)

$
6,686

Cash Converters International’s total assets increased 2% from December 31, 2013 to December 31, 2014. Cash Converters International's (loss) profit for the period attributable to the owners of the parent decreased from a $9.1 million profit in the six-month period ended December 31, 2013 to a loss of $4.7 million loss in the six-month period ended December 31, 2014. The loss is due to a charge that Cash Converters International incurred in December 2014 in connection with the termination of agency agreements with certain development agents. See Note 18 for further discussion of events impacting Cash Converters International's financial information subsequent to June 30, 2015.
Albemarle & Bond Holdings, PLC
Prior to the quarter ended March 31, 2014, we held an investment in Albemarle & Bond Holdings, PLC ("Albemarle & Bond"). Albemarle & Bond was primarily engaged in pawnbroking, retail jewelry sales, check cashing and lending in the United Kingdom. We accounted for this investment using the equity method.
In March 2014, Albemarle & Bond entered into bankruptcy reorganization in the United Kingdom, and on April 15, 2014 Albemarle & Bond announced that the majority of its business and assets had been sold. As a result, we recognized an other-than-temporary impairment of $7.9 million ($5.4 million, net of taxes) during the quarter ended March 31, 2014, which brought our carrying value of this investment to zero.

14


Fair Value Measurements
The fair value for Cash Converters International as of June 30, 2015 and 2014 and September 30, 2014 was considered a Level 1 estimate within the fair value hierarchy of FASB ASC 820-10-50, and was calculated as (a) the quoted stock price on the Australian Stock Exchange as of June 30, 2015 and 2014 and September 30, 2014 multiplied by (b) the number of shares we owned as of June 30, 2015 and 2014 and September 30, 2014 multiplied by (c) the applicable foreign currency exchange rate as of June 30, 2015 and 2014 and September 30, 2014. We included no control premium for owning a large percentage of outstanding shares.
The table below summarizes the carrying amount and fair value of Cash Converters International as of the dates indicated:
 
June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(in thousands of U.S. dollars)
Recorded value
$
90,423

 
$
90,730

 
$
91,781

Fair value
81,426

 
139,213

 
128,956

The fair value of our investment in Cash Converters International was below the carrying value as of June 30, 2015. Given the decline in fair value began in the third quarter of fiscal 2015, we considered the guidance in ASC 320-10-S99-1 and ASC 323-10-35 and determined that the impairment was temporary as of June 30, 2015. See Note 18 for further discussion of the subsequent fair value of our investment in Cash Converters International.

15


NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the balance of goodwill and each major class of intangible assets as of the specified dates:
 
June 30,
2015
 
June 30,
2014
 
September 30,
2014
 
 
 
 
 
 
 
(in thousands)
Goodwill
$
331,849

 
$
436,765

 
$
346,577

 
 
 
 
 
 
Indefinite-lived intangible assets, net:
 
 
 
 
 
Pawn licenses
$
8,836

 
$
8,836

 
$
8,836

Trade names
6,697

 
8,281

 
6,990

Domain name

 
228

 
13

Total indefinite-lived intangible assets, net
$
15,533

 
$
17,345

 
$
15,839

 
 
 
 
 
 
Definite-lived intangible assets, net:
 
 
 
 
 
Real estate finders’ fees
$
1,025

 
$
841

 
$
787

Non-compete agreements
303

 
431

 
391

Favorable lease
452

 
541

 
517

Franchise rights
1,062

 
1,294

 
1,222

Contractual relationship
10,364

 
14,164

 
13,222

Internally developed software
21,257

 
27,914

 
18,759

Deferred financing costs
10,434

 
16,003

 
15,143

Other
145

 
212

 
206

Total definite-lived intangible assets, net
$
45,042

 
$
61,400

 
$
50,247

 
 
 
 
 
 
Intangible assets, net
$
60,575

 
$
78,745

 
$
66,086

The following tables present the changes in the carrying value of goodwill during the periods presented:
 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
 
 
 
 
 
 
 
 
(in thousands)
Balances as of September 30, 2014
$
239,179

 
$
107,398

 
$

 
$
346,577

Acquisitions
10,710

 

 

 
10,710

Impairment
(10,550
)
 

 

 
(10,550
)
Effect of foreign currency translation changes

 
(14,888
)
 

 
(14,888
)
Balances as of June 30, 2015
$
239,339

 
$
92,510

 
$

 
$
331,849

 
U.S. &
Canada
 
Latin
America
 
Other
International
 
Consolidated
 
 
 
 
 
 
 
 
 
(in thousands)
Balances as of September 30, 2013
$
283,199

 
$
110,209

 
$
39,892

 
$
433,300

Effect of foreign currency translation changes

 
1,228

 
2,237

 
3,465

Balances as of June 30, 2014
$
283,199

 
$
111,437

 
$
42,129

 
$
436,765

On February 19, 2015, we completed the acquisition of 12 pawn stores in Central Texas doing business under the "Cash Pawn" brand. We recorded $10.7 million in goodwill pertaining to this acquisition. The acquisition was made as part of our continuing strategy to enhance our earnings over the long-term. The factors contributing to the recognition of goodwill were based on several strategic and synergistic benefits we expect to realize from the acquisitions. These benefits include a greater presence in the Central Texas market, as well as the ability to further leverage our expense structure through increased scale. See Note 3 for additional information regarding the acquisition. See Note 18 for discussion of an additional acquisition completed subsequent to June 30, 2015.

16


In accordance with ASC 350-20-35, Goodwill Subsequent Measurement, we test goodwill and intangible assets with an indefinite useful life for potential impairment annually, or more frequently when there are events or circumstances that indicate that it is more likely than not that an impairment exists. During the nine-month period ended June 30, 2015, we evaluated such events and circumstances and concluded that there were indicators of impairment under ASC 350-20-35-3C. These indicators of impairment primarily include a continued decline in our stock price in addition to Consumer Financial Protection Bureau proposals issued in March 2015, whose impact was subsequently evaluated by management. We performed a quantitative Step 1 analysis under ASC 350-20-35 and determined that the fair value of each of our reporting units exceeded the carrying value, with the exception of our U.S. Financial Services reporting unit. The fair values of each reporting unit were determined based upon a discounted cash flow approach. We further measured the impairment of goodwill associated with the U.S. Financial Services reporting unit under Step 2 and determined that $10.6 million, the entire amount of goodwill associated with the U.S. Financial Services reporting unit, should be written-off during the three-month period ended June 30, 2015. The impairment was recorded under "Impairment of goodwill" on the condensed consolidated statements of operations under the U.S. and Canada segment. No other long-term assets were determined to be impaired as of June 30, 2015. We will further perform our required annual impairment test in the fourth quarter of our fiscal 2015. See Note 18 for discussion of goodwill and other long-term asset impairment that occurred subsequent to June 30, 2015, including impairments associated with our discontinuance of the U.S. Financial Services business announced in July 2015.
The amortization of most definite-lived intangible assets is recorded as amortization expense. The favorable lease asset and other intangibles are amortized to operations expense (rent expense) over the related lease terms. The deferred financing costs are amortized to interest expense over the life of the related debt instrument.
The following table presents the amount and classification of amortization recognized as expense in each of the periods presented, without regard for any subsequent impairments of intangible assets:
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
 
(in thousands)
Amortization expense in continuing operations
$
1,380

 
$
1,306

 
$
4,205

 
$
4,064

Amortization expense in discontinued operations

 
334

 

 
1,491

Operations expense
25

 
30

 
77

 
91

Interest expense
798

 
1,616

 
3,423

 
4,166

Total expense from the amortization of definite-lived intangible assets
$
2,203

 
$
3,286

 
$
7,705

 
$
9,812

The following table presents our estimate of the amount and classification of future amortization expense for definite-lived intangible assets, without regard for any subsequent impairments of intangible assets:
Fiscal Years Ended September 30,
 
Amortization 
Expense
 
Operations
Expense
 
Interest Expense
 
 
 
 
 
 
 
 
 
(in thousands)
2015
 
$
1,893

 
$
27

 
$
438

2016
 
6,762

 
106

 
1,754

2017
 
6,527

 
106

 
1,754

2018
 
5,556

 
106

 
1,754

2019
 
4,826

 
78

 
1,325

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

17


NOTE 7: LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The following table presents our long-term debt instruments and balances under capital lease obligations outstanding as of June 30, 2015 and 2014 and September 30, 2014. The non-recourse debt matures at various months in the years so indicated in the table below:
 
June 30, 2015
 
June 30, 2014
 
September 30, 2014
 
Carrying
Amount
 
Debt (Discount) Premium
 
Carrying
Amount
 
Debt (Discount) Premium
 
Carrying
Amount
 
Debt (Discount) Premium
 
 
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
Recourse to EZCORP:
 
 
 
 
 
 
 
 
 
 
 
2.125% cash convertible senior notes due 2019
$
191,792

 
$
(38,208
)
 
$
183,694

 
$
(46,306
)
 
$
185,693

 
$
(44,307
)
Cash convertible senior notes due 2019 embedded derivative
23,160

 

 
46,454

 

 
36,994

 

Capital lease obligations

 

 
520

 

 
418

 

Non-recourse to EZCORP: