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Strategic Investments and Fair Value of Financial Instruments
 15 Months Ended
Dec. 31, 2011
Strategic Investments and Fair Value of Financial Instruments [Abstract]  
Strategic Investments and Fair Value of Financial Instruments

Note D: Strategic Investments and Fair Value of Financial Instruments

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

Conversion of Albemarle & Bond’s financial statements into U.S. GAAP resulted in no material differences from those reported by Albemarle & Bond following IFRS.

 

In its functional currency of British pounds, Albemarle & Bond’s total assets increased 19% from June 30, 2010 to June 30, 2011 and its net income improved 6% for the year ended June 30, 2011. 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 June 30 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

 

                 
    As of June 30,  
    2011     2010  
    (In thousands)  

Current assets

   $ 125,862     $ 97,476  

Non-current assets

     64,325       52,325  
   

 

 

    

 

 

  

Total assets

   $ 190,187     $ 149,801  
   

 

 

    

 

 

  

Current liabilities

   $ 18,620     $ 17,898  

Non-current liabilities

     57,016       42,078  

Shareholders’ equity

     114,551       89,825  
   

 

 

    

 

 

  

Total liabilities and shareholders’ equity

   $ 190,187     $ 149,801  
   

 

 

    

 

 

  

 

                 
    Years ended June 30,  
    2011     2010  
    (In thousands)  

Gross revenues

   $ 162,002     $ 129,794  

Gross profit

     97,197       84,850  

Profit for the year (net income)

     24,324       22,792  

At December 31, 2011, we owned 124,418,000 shares, or approximately 33% of the total ordinary shares of Cash Converters International Limited, which is a publicly traded company headquartered in Perth, Australia. We acquired the shares between November 2009 and May 2010 for approximately $57.8 million. Cash Converters franchises and operates a worldwide network of 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 quarter ended December 31, 2011 represents our percentage interest in the estimated results of Cash Converters’ operations from July 1, 2011 to September 30, 2011.

Conversion of Cash Converters’ financial statements into U.S. GAAP resulted in no material differences from those reported by Cash Converters following IFRS.

In its functional currency of Australian dollars, Cash Converters’ total assets increased 18% from June 30, 2010 to June 30, 2011 and its net income improved 27% for the year ended June 30, 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 June 30 of each year for balance sheet items and average exchange rates for the income statement items for the periods indicated):

 

                 
    As of June 30,  
    2011     2010  
    (In thousands)  

Current assets

   $ 119,633     $ 96,489  

Non-current assets

     126,811       72,408  
   

 

 

    

 

 

  

Total assets

   $ 246,444     $ 168,897  
   

 

 

    

 

 

  

Current liabilities

   $ 38,235     $ 19,179  

Non-current liabilities

     22,528       10,199  

Shareholders’ equity

     185,681       139,519  
   

 

 

    

 

 

  

Total liabilities and shareholders’ equity

   $ 246,444     $ 168,897  
   

 

 

    

 

 

  

 

 

                 
    Year ended June 30  
    2011     2010  
    (In thousands)  

Gross revenues

   $ 184,011     $ 111,218  

Gross profit

     138,997       84,296  

Profit for the year (net income)

     27,328       19,122  

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

 

                         
    December 31,     September 30,  
    2011     2010     2011  
    (In thousands of U.S. dollars)  

Albemarle & Bond:

                        

Recorded value

   $ 49,616     $ 45,684     $ 48,361  

Fair value

     84,622       81,630       91,741  
       

Cash Converters:

                        

Recorded value

   $ 68,204     $ 63,275     $ 71,958  

Fair value

     68,355       88,512       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. If this legislation is enacted in its currently proposed form, Cash Converters’ consumer loan business in Australia may be adversely affected, 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. Following a series of representations from Cash Converters, its customers and other industry executives, the Australian Parliament, referred the bill to the Senate Economics committee and to the Joint Committee on Corporations and Financial Services for review. The committees concluded that the proposed legislation did not achieve an appropriate balance between consumer protection and industry viability and recommended that the Australian government revisit key aspects of its reform package with further industry consultation. As of December 31, 2011, the fair value of our investment in Cash Converters was slightly above our recorded value, further supporting our assessment of the loss in value of its stock to be temporary.