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Strategic Investments and Fair Value of Financial Instruments
 3 Months Ended
Mar. 31, 2012
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 March 31, 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 March 31, 2012 represents our percentage interest in the results of Albemarle & Bond’s operations from July 1, 2011 to December 31, 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 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 March 31, 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 March 31, 2012 represents our percentage interest in the results of Cash Converters’ operations from July 1, 2011 to December 31, 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 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.

 

 

                         
    March 31,     September 30,  
    2012     2011     2011  
    (In thousands of U.S. dollars)  

Albemarle & Bond:

                        

Recorded value

   $ 49,175     $ 44,784     $ 48,361  

Fair value

     92,868       81,655       91,741  
       

Cash Converters:

                        

Recorded value

   $ 70,881     $ 67,580     $ 71,958  

Fair value

     85,277       102,610       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 March 31, 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.