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 inputs other than quoted market prices.

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 as of March 31, 2014, March 31, 2013 and September 30, 2013:



	March 31, 2014			Fair Value Measurements Using
Financial assets (liabilities):	March 31, 2014			Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	2,727		$	2,727	$	—	$	—
Forward contracts	1,621			—		1,621		—
Contingent consideration	(7,159		)	—		—		(7,159		)
Net financial assets (liabilities)	$	(2,811	)	$	2,727	$	1,621	$	(7,159	)

	March 31, 2013			Fair Value Measurements Using
Financial assets (liabilities):	March 31, 2013			Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	4,367		$	4,367	$	—	$	—
Contingent consideration	(28,470		)	—		—		(28,470		)
Net financial assets (liabilities)	$	(24,103	)	$	4,367	$	—	$	(28,470	)

	September 30, 2013			Fair Value Measurements Using
Financial assets (liabilities):	September 30, 2013			Level 1		Level 2		Level 3
	(in thousands)
Marketable equity securities	$	2,339		$	2,339	$	—	$	—
Forward contracts	1,813			—		1,813		—
Contingent consideration	(18,197		)	—		—		(18,197		)
Net financial assets (liabilities)	$	(14,045	)	$	2,339	$	1,813	$	(18,197	)

We measure the value of our marketable equity securities under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily available. There were no transfers of assets in or out of Level 1 or Level 2 fair value measurements in the periods presented.

Grupo Finmart measures the value of the forward contracts under a Level 2 input. To measure the fair value of the forward contracts, Grupo Finmart used estimations of expected cash flows, appropriately risk-adjusted discount rates and 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).

We used an income approach to measure the fair value of the contingent consideration using a probability-weighted discounted cash flow approach. The significant inputs used for the valuation are not observable in the market, and thus this fair value measurement represents a Level 3 measurement within the fair value hierarchy.

During the three and six month periods ended March 31, 2014, we recorded accretion expense of $0.1 million and foreign currency exchange loss on earn out payments of $1.0 million. In addition, during the three month period ended March 31, 2014, we made a $12.1 million earn out payment related to the Grupo Finmart acquisition, bringing the contingent consideration liability to $7.2 million at March, 31, 2014. During the three and six month periods ended March 31, 2013, we recorded accretion expense of $0.1 million and $0.3 million, respectively. In addition, during the three month period ended December 31, 2012, we recorded $4.8 million of additional contingent consideration, attributable to the Go Cash acquisition, bringing the contingent consideration liability to $28.5 million at March 31, 2013. The accretion expense and foreign currency exchange loss amounts are included in administrative expenses and other expense (income), respectively, in our condensed consolidated statement of operations.

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

Our financial assets, temporary equity, and liabilities as of March 31, 2014, March 31, 2013 and September 30, 2013, that are not measured at fair value in the condensed consolidated balance sheets, are as follows:



	Carrying Value		Estimated Fair Value
	March 31, 2014		March 31, 2014		Fair Value Measurement Using
	March 31, 2014		March 31, 2014		Level 1		Level 2		Level 3
Financial assets:	(in thousands)
Cash and cash equivalents	$	32,198	$	32,198	$	32,198	$	—	$	—
Restricted cash	21,104		21,104		21,104		—		—
Pawn loans	128,683		128,683		—		—		128,683
Consumer loans, net	75,501		78,783		—		—		78,783
Pawn service charges receivable, net	24,733		24,733		—		—		24,733
Consumer loan fees and interest receivable, net	40,033		40,033		—		—		40,033
Restricted cash, non-current	9,575		9,575		9,575		—		—
Non-current consumer loans, net	61,724		64,271		—		—		64,271
Total	$	393,551	$	399,380	$	62,877	$	—	$	336,503

Temporary equity:
Redeemable noncontrolling interest	$	58,107	$	59,912	$	—	$	—	$	59,912

Financial liabilities:
Domestic line of credit	$	83,000	$	83,000	$	—	$	83,000	$	—
Foreign currency lines of credit	30,013		29,794		—		29,794		—
Consumer loans facility due 2019	55,715		55,842		55,842		—		—
Unsecured Notes	38,072		36,603		28,474		8,129		—
Secured Notes	21,682		22,182		—		22,182		—
Total	$	228,482	$	227,421	$	84,316	$	143,105	$	—

	Carrying Value		Estimated Fair Value
	March 31, 2013		March 31, 2013		Fair Value Measurement Using
	March 31, 2013		March 31, 2013		Level 1		Level 2		Level 3
Financial assets:	(in thousands)
Cash and cash equivalents	$	41,443	$	41,443	$	41,443	$	—	$	—
Restricted cash	1,204		1,204		1,204		—		—
Pawn loans	138,380		138,380		—		—		138,380
Consumer loans, net	36,596		38,293		—		—		38,293
Pawn service charges receivable, net	25,388		25,388		—		—		25,388
Consumer loan fees and interest receivable, net	33,507		33,507		—		—		33,507
Restricted cash, non-current	2,197		2,197		2,197		—		—
Non-current consumer loans, net	77,414		86,793		—		—		86,793
Total	$	356,129	$	367,205	$	44,844	$	—	$	322,361

Temporary equity:
Redeemable noncontrolling interest	$	52,982	$	52,982	$	—	$	—	$	52,982

Financial liabilities:
Domestic line of credit	$	74,000	$	74,000	$	—	$	74,000	$	—
Foreign currency lines of credit	36,503		36,193		—		36,193		—
Consumer loans facility due 2017	33,995		34,046		34,046		—		—
Unsecured Notes	23,229		22,407		—		22,407		—
Secured Notes	4,561		4,047		—		4,047		—
Total	$	172,288	$	170,693	$	34,046	$	136,647	$	—



	Carrying Value		Estimated Fair Value
	September 30, 2013		September 30, 2013		Fair Value Measurement Using
	September 30, 2013		September 30, 2013		Level 1		Level 2		Level 3
Financial assets:	(in thousands)
Cash and cash equivalents	$	36,317	$	36,317	$	36,317	$	—	$	—
Restricted cash	3,312		3,312		3,312		—		—
Pawn loans	156,637		156,637		—		—		156,637
Consumer loans, net	64,683		74,979		—		—		74,979
Pawn service charges receivable, net	30,362		30,362		—		—		30,362
Consumer loan fees and interest receivable, net	36,292		36,292		—		—		36,292
Restricted cash, non-current	2,156		2,156		2,156		—		—
Non-current consumer loans, net	70,294		89,693		—		—		89,693
Total	$	400,053	$	429,748	$	41,785	$	—	$	387,963

Temporary equity:
Redeemable noncontrolling interest	$	55,393	$	55,557	$	—	$	—	$	55,557

Financial liabilities:
Domestic line of credit	$	140,900	$	140,900	$	—	$	140,900	$	—
Foreign currency lines of credit	30,310		31,832		—		31,832		—
Consumer loans facility due 2017	31,951		32,027		32,027		—		—
Unsecured Notes	39,029		38,734		15,686		23,048		—
Secured Notes	4,185		4,026		—		4,026		—
Total	$	246,375	$	247,519	$	47,713	$	199,806	$	—

Cash and cash equivalents and restricted cash bear interest at market rates and have maturities of less than 90 days.

The total U.S. pawn loan term ranges between 60 and 120 days, consisting of the primary term and grace period. The total Mexico pawn loan term is 40 days, consisting of the primary term and grace period.

We record pawn service charges 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.

Consumer loan fees and interest receivable are carried in the consolidated balance sheet 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 the assets discussed above 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 consolidated balance sheet 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 one year; therefore, we estimate that their carrying value approximates fair value. Consumer loans made by Grupo Finmart have an average term of approximately 32 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.

The fair value of the redeemable noncontrolling interest was estimated by applying an income approach. This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Key assumptions include discount rates ranging from 10% to 18%, representing discounts for lack of control and lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest.

We measure the fair value of our financial liabilities using an income approach. 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 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. For fair value measurements that are classified as Level 1, we utilize quoted price and yield inputs from Bloomberg and a price vendor authorized by the Comisión Nacional Bancaria y de Valores.