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.

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.

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.