NOTE 14: FAIR VALUE MEASUREMENTS

Recurring 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 market-based inputs or unobservable inputs that are corroborated by market data

Level 3 — Unobservable inputs that are not corroborated by market data

The tables below present our financial assets (liabilities) that are measured at fair value on a recurring basis in our condensed consolidated balance sheets as of June 30, 2015 and 2014 and September 30, 2014:



	June 30, 2015			Fair Value Measurements Using
Financial assets (liabilities)	June 30, 2015			Level 1		Level 2			Level 3

	(in thousands)
Foreign currency forwards	$	8,440		$	—	$	8,440		$	—
Holding period adjustment	47			—		47			—
Cash Convertible Notes hedges	23,160			—		23,160			—
Contingent consideration	(2,836		)	—		—			(2,836		)
Cash Convertible Notes embedded derivative	(23,160		)	—		(23,160		)	—
Net financial assets (liabilities)	$	5,651		$	—	$	8,487		$	(2,836	)

	June 30, 2014			Fair Value Measurements Using
Financial (liabilities) assets	June 30, 2014			Level 1		Level 2			Level 3

	(in thousands)
Marketable equity securities	$	2,641		$	2,641	$	—		$	—
Cash Convertible Notes hedges	46,454			—		46,454			—
Contingent consideration	(4,383		)	—		—			(4,383		)
Cash Convertible Notes embedded derivative	(46,454		)	—		(46,454		)	—
Net financial (liabilities) assets	$	(1,742	)	$	2,641	$	—		$	(4,383	)

	September 30, 2014			Fair Value Measurements Using
Financial (liabilities) assets	September 30, 2014			Level 1		Level 2			Level 3

	(in thousands)
Foreign currency forwards	$	1,152		$	—	$	1,152		$	—
Cash Convertible Notes hedges	36,994			—		36,994			—
Contingent consideration	(3,758		)	—		—			(3,758		)
Cash Convertible Notes embedded derivative	(36,994		)	—		(36,994		)	—
Net financial (liabilities) assets	$	(2,606	)	$	—	$	1,152		$	(3,758	)

Grupo Finmart measured the value of the foreign currency forwards using Level 2 inputs such as estimations of expected cash flows, appropriately risk-adjusted discount rates and other available observable inputs (term of the forward, notional amount, discount rates based on local and foreign rate curves and a credit value adjustment to consider the likelihood of nonperformance). Forward contracts are recorded in the condensed consolidated balance sheets under "Other assets, net" and "Deferred gains and other long-term liabilities."

We measured the fair value of the Holding Period Adjustment using an option pricing model based on observable Level 1 and Level 2 inputs such as implied volatility, risk free interest rate and other factors. The Holding Period Adjustment is recorded in the condensed consolidated balance sheets under "Other assets, net."

We measured the fair value of the Cash Convertible Notes Hedges and the Cash Convertible Notes Embedded Derivative using an option pricing model based on observable Level 1 and Level 2 inputs such as implied volatility, risk free interest rate and other factors. The Cash Convertible Notes Hedges are recorded in the condensed consolidated balance sheets under "Other assets, net." The Cash Convertible Notes Embedded Derivative is recorded in the condensed consolidated balance sheets under "Long-term debt, less current maturities."

We used an income approach to measure the fair value of the contingent consideration using a risk-weighted discounted cash flow approach. Some of the significant inputs used for the valuation are not observable in the market and are thus Level 3 inputs. Contingent consideration is recorded in the condensed consolidated balance sheets under "Other current liabilities" and "Deferred gains and other long-term liabilities." Significant increases or decreases in the underlying assumptions used to value the contingent consideration could significantly increases or decrease the fair value estimates recorded in the condensed consolidated balance sheets.

We measured the fair value of our marketable equity securities using Level 1 inputs. These assets were publicly traded equity securities for which market prices were readily available. Marketable equity securities are recorded in the condensed consolidated balance sheets under "Other assets, net." We sold all marketable equity securities during fiscal 2014.

There were no transfers in or out of Level 1 or Level 2 for financial assets or liabilities measured at fair value on a recurring basis during the periods presented.

Financial Assets, Temporary Equity and Liabilities Not Measured at Fair Value

The tables below present our financial assets, temporary equity and liabilities that are not measured at fair value on a recurring basis in our condensed consolidated balance sheets as of June 30, 2015 and 2014 and September 30, 2014:



	Carrying Value			Estimated Fair Value
	June 30, 2015			June 30, 2015		Fair Value Measurement Using
	June 30, 2015			June 30, 2015		Level 1		Level 2		Level 3

	(in thousands)
Financial assets:
Cash and cash equivalents	$	114,387		$	114,387	$	114,387	$	—	$	—
Restricted cash	28,015			28,015		28,015		—		—
Pawn loans	144,377			144,377		—		—		144,377
Consumer loans, net	57,737			58,875		—		—		58,875
Pawn service charges receivable, net	26,989			26,989		—		—		26,989
Consumer loan fees and interest receivable, net	18,180			18,180		—		—		18,180
Restricted cash, non-current	2,978			2,978		2,978		—		—
Non-current consumer loans, net	82,739			85,304		—		—		85,304
Total	$	475,402		$	479,105	$	145,380	$	—	$	333,725

Temporary equity:
Common Stock, subject to possible redemption	$	11,696		$	11,241	$	—	$	—	$	11,241
Redeemable noncontrolling interest	16,361			33,297		—		—		33,297
Total	$	28,057		$	44,538	$	—	$	—	$	44,538

Financial liabilities:
2.125% cash convertible senior notes due 2019	$	191,792		$	181,746	$	—	$	181,746	$	—
Foreign currency debt	20,924		*	23,667		—		23,667		—
Consumer loans facility due 2019	46,552			45,843		—		45,843		—
Foreign currency unsecured notes	17,557		*	18,536		—		18,536		—
Foreign currency secured notes	23,076		*	25,639		—		25,639		—
Secured notes consolidated from VIEs	86,805		*	83,640		$	—	$	83,640	$	—
Total	$	386,706		$	379,071	$	—	$	379,071	$	—

* Portions of these amounts are included under "Current maturities of long-term debt" and "Long-term debt, less current maturities" in our condensed consolidated balance sheets.



	Carrying Value			Estimated Fair Value
	June 30, 2014			June 30, 2014		Fair Value Measurement Using
	June 30, 2014			June 30, 2014		Level 1		Level 2		Level 3

	(in thousands)
Financial assets:
Cash and cash equivalents	$	49,434		$	49,434	$	49,434	$	—	$	—
Restricted cash	49,129			49,129		49,129		—		—
Pawn loans	157,491			157,491		—		—		157,491
Consumer loans, net	64,787			65,396		—		—		65,396
Pawn service charges receivable, net	29,307			29,307		—		—		29,307
Consumer loan fees and interest receivable, net	15,032			15,032		—		—		15,032
Restricted cash, non-current	4,578			4,578		4,578		—		—
Non-current consumer loans, net	84,630			85,304		—		—		85,304
Total	$	454,388		$	455,671	$	103,141	$	—	$	352,530

Temporary equity:
Redeemable noncontrolling interest	$	25,662		$	25,015	$	—	$	—	$	25,015

Financial liabilities:
2.125% cash convertible senior notes due 2019	$	183,694		$	183,694	$	—	$	183,694	$	—
Foreign currency debt	30,809		*	30,623		—		30,623		—
Consumer loans facility due 2019	56,075			56,216		56,216		—		—
Foreign currency unsecured notes	37,394		*	37,478		30,008		7,470		—
Foreign currency secured notes	27,231		*	26,617		—		26,617		—
Secured notes consolidated from VIEs	$	46,685	*	45,896		—		$	45,896	—
Total	$	381,888		$	380,524	$	86,224	$	294,300	$	—

* Portions of these amounts are included under "Current maturities of long-term debt" and "Long-term debt, less current maturities" in our condensed consolidated balance sheets.



	Carrying Value			Estimated Fair Value
	September 30, 2014			September 30, 2014		Fair Value Measurement Using
	September 30, 2014			September 30, 2014		Level 1		Level 2		Level 3

	(in thousands)
Financial assets:
Cash and cash equivalents	$	55,325		$	55,325	$	55,325	$	—	$	—
Restricted cash	63,495			63,495		63,495		—		—
Pawn loans	162,444			162,444		—		—		162,444
Consumer loans, net	63,995			64,631		—		—		64,631
Pawn service charges receivable, net	31,044			31,044		—		—		31,044
Consumer loan fees and interest receivable, net	12,647			12,647		—		—		12,647
Restricted cash, non-current	5,070			5,070		5,070		—		—
Non-current consumer loans, net	85,004			86,364		—		—		86,364
Total	$	479,024		$	481,020	$	123,890	$	—	$	357,130

Temporary equity:
Redeemable noncontrolling interest	$	22,800		$	49,021	$	—	$	—	$	49,021

Financial liabilities:
2.125% cash convertible senior notes due 2019	$	185,693		$	185,738	$	—	$	185,738	$	—
Foreign currency debt	27,185		*	27,185		—		27,185		—
Consumer loans facility due 2019	54,045			54,178		54,178		—		—
Foreign currency unsecured notes	36,991		*	36,837		—		36,837		—
Foreign currency secured notes	26,195		*	26,144		—		26,144		—
Secured notes consolidated from VIEs	61,062		*	59,906		—		59,906		—
Total	$	391,171		$	389,988	$	54,178	$	335,810	$	—

* Portions of these amounts are included under "Current maturities of long-term debt" and "Long-term debt, less current maturities" in our condensed consolidated balance sheets.

Cash and cash equivalents and restricted cash bear interest at market rates and have maturities of less than 90 days, as applicable. Based on the short-term nature of these assets we estimate that their carrying value approximates fair value.

The maximum U.S. pawn loan term ranges between 30 and 120 days, with an additional grace period between 0 and 90 days. The maximum Mexico pawn loan term is 30 days, with an additional grace period up to 10 days. Significant increases or decreases in the underlying assumptions used to value the pawn loans could significantly increase or decrease the fair value estimates disclosed above. Based on the short-term collateralized nature of these assets we estimate that their carrying value approximates fair value.

Consumer loans, including long-term unsecured consumer loans made by Grupo Finmart, are carried in the condensed consolidated balance sheets net of the allowance for estimated loan losses, which is based on recent loan default experience adjusted for seasonal variations. Consumer loans, other than those made by Grupo Finmart, have relatively short maturity periods that are generally less than 12 months; therefore, we estimate that their carrying value approximates fair value. Consumer loans made by Grupo Finmart have an average stated term of approximately 30 months. We estimated the fair value of the Grupo Finmart consumer loans by applying an income approach (the present value of future cash flows). Key assumptions include an annualized probability of default as well as a discount rate based on the funding rate plus the portfolio liquidity risk. Significant increases or decreases in the underlying assumptions used to value the consumer loans could significantly increase or decrease the fair value estimates disclosed above.

We record pawn service charges receivable using the interest method for all pawn loans we believe to be collectible. We base our estimate of collectible loans on several unobservable inputs, including recent redemption rates, historical trends in redemption rates and the amount of loans due in the following two months. Based on the short-term nature of these assets we estimate that their carrying value approximates fair value. Significant increases or decreases in the underlying assumptions used to value the pawn service charges receivable could significantly increase or decrease the fair value estimates disclosed above.

Consumer loan fees and interest receivable are carried net of the allowance for uncollectible consumer loan fees and interest receivable, which is based on recent loan default experience adjusted for seasonal variations and collection percentages. Based on the short-term nature of these assets we estimate that their carrying value approximates fair value. Significant increases or decreases in the underlying assumptions used to value the consumer loan fees and interest receivable could significantly increase or decrease the fair value estimates disclosed above.

The fair value of the redeemable noncontrolling interest was estimated by applying an income approach. This fair value measurement is based on significant Level 3 inputs that are not observable in the market. Key assumptions include discount rates ranging from 5% to 10%, representing discounts for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest. Significant increases or decreases in the underlying assumptions used to value the redeemable noncontrolling interest could significantly increase or decrease the fair value estimates disclosed above.

The fair value of the Common Stock, subject to possible redemption was estimated by applying an income approach. This fair value measurement is based on significant Level 3 inputs that are not observable in the market. Key assumptions include a discount rate of 7.2%, which approximated the Company’s incremental borrowing rate. Significant increases or decreases in the underlying assumptions used to value the Common Stock, subject to possible redemption could significantly increase or decrease the fair value estimates disclosed above.

We measured the fair value of our 2.125% cash convertible senior notes due 2019 and the embedded derivative as of June 30, 2015 using quoted price inputs from Bloomberg. The 2.125% cash convertible senior notes due 2019 and the embedded derivative are not actively traded and thus the price inputs represent a Level 2 measurement. There was a change in the valuation technique we used to measure our 2.125% cash convertible senior notes due 2019 and the embedded derivative during the quarter ended March 31, 2015 as we believe the quoted price inputs obtained from Bloomberg more accurately represent the fair value of our 2.125% cash convertible senior notes due 2019 and the embedded derivative. As the 2.125% cash convertible senior notes due 2019 and the embedded derivative are not actively traded, the quoted price inputs obtained from Bloomberg are highly variable from day to day and thus could significantly increase or decrease the fair value estimates disclosed above.

We measured the fair value of our 2.125% cash convertible senior notes due 2019 and the embedded derivative using an income approach as of September 30, 2014. The fair value was based on the carrying value of the Cash Convertible Notes accreting to the $230.0 million redemption value using a discount rate of 7%, which approximated the Company’s incremental borrowing rate for a similar debt instrument (without the cash conversion feature) as of the date of issuance and thus utilizes Level 2 inputs.

Fair value measurements for our domestic line of credit were calculated using discount rates based on an estimated senior secured spread plus term matched risk-free rates as of the valuation dates.

We utilize credit quality-related zero rate curves, quoted price and yield inputs for Mexican Pesos built by a price vendor authorized by the Comisión Nacional Bancaria y de Valores to determine the fair value measurements of the remaining financial liabilities that are classified as Level 2 measurements. For financial liability fair value measurements that are classified as Level 1 measurements, we utilized quoted price and yield inputs from Bloomberg and a price vendor authorized by the Comisión Nacional Bancaria y de Valores.

See Note 5 for discussion of the fair value of our investment in unconsolidated affiliate.