NOTE 13: 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 December 31, 2014 and 2013, and September 30, 2014:



	December 31, 2014			Fair Value Measurements Using
Financial assets (liabilities)	December 31, 2014			Level 1		Level 2			Level 3
	(in thousands)
Foreign currency forwards — assets	$	9,987		$	—	$	9,987		$	—
Convertible notes hedges	45,163			—		45,163			—
Convertible notes embedded derivative	(45,163		)	—		(45,163		)	—
Foreign currency forwards — liabilities	(4,653		)	—		(4,653		)	—
Contingent consideration	(1,853		)	—		—			(1,853		)
Net financial assets (liabilities)	$	3,481		$	—	$	5,334		$	(1,853	)

	December 31, 2013			Fair Value Measurements Using
Financial assets (liabilities)	December 31, 2013			Level 1		Level 2			Level 3
	(in thousands)
Marketable equity securities	$	2,092		$	2,092	$	—		$	—
Foreign currency forwards — assets	1,952			—		1,952			—
Contingent consideration	(16,120		)	—		—			(16,120		)
Net financial assets (liabilities)	$	(12,076	)	$	2,092	$	1,952		$	(16,120	)

	September 30, 2014			Fair Value Measurements Using
Financial assets (liabilities)	September 30, 2014			Level 1		Level 2			Level 3
	(in thousands)
Foreign currency forwards — assets	$	3,572		$	—	$	3,572		$	—
Convertible notes hedges	36,994			—		36,994			—
Convertible notes embedded derivative	(36,994		)	—		(36,994		)	—
Foreign currency forwards — liabilities	1,308			—		1,308			—
Contingent consideration	(2,025		)	—		—			(2,025		)
Net financial assets (liabilities)	$	2,855		$	—	$	4,880		$	(2,025	)

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. Marketable equity securities are recorded in the condensed consolidated balance sheets under "Other assets, net." We sold all marketable equity securities during fiscal 2014.

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). Forward contracts are recorded in the condensed consolidated balance sheets under "Other assets, net" and "Deferred gains and other long-term liabilities."

The fair value of the Convertible Notes Hedges and the Convertible Notes Embedded Derivative are determined 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 Convertible Notes Hedges are recorded in the condensed consolidated balance sheets under "Other assets, net." The 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 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. 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.

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

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



	Carrying Value			Estimated Fair Value
	December 31, 2014			December 31, 2014		Fair Value Measurement Using
	December 31, 2014			December 31, 2014		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	77,599		$	77,599	$	77,599	$	—	$	—
Restricted cash	60,218			60,218		60,218		—		—
Pawn loans	150,930			150,930		—		—		150,930
Consumer loans, net	62,380			63,465		—		—		63,465
Pawn service charges receivable, net	30,241			30,241		—		—		30,241
Consumer loan fees and interest receivable, net	28,355			28,355		—		—		28,355
Restricted cash, non-current	3,454			3,454		3,454		—		—
Non-current consumer loans, net	36,449			37,494		—		—		37,494
Total	$	449,626		$	451,756	$	141,271	$	—	$	310,485

Temporary equity:
Redeemable noncontrolling interest	$	31,868		$	52,050	$	—	$	—	$	52,050

Financial liabilities:
2.125% Cash convertible senior notes due 2019	$	187,727		$	185,461	$	—	$	185,461	$	—
Cash convertible senior notes due 2019 embedded derivative	45,163			45,163		—		45,163		—
Foreign currency debt	23,791		*	23,952		—		23,952		—
Consumer loans facility due 2019	49,475			49,604		—		49,604		—
Foreign currency unsecured notes	18,727		*	18,787		—		18,787		—
Foreign currency secured notes	23,935		*	23,957		—		23,957		—
Total	$	348,818		$	346,924	$	—	$	346,924	$	—



	Carrying Value			Estimated Fair Value
	December 31, 2013			December 31, 2013		Fair Value Measurement Using
	December 31, 2013			December 31, 2013		Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Cash and cash equivalents	$	38,486		$	38,486	$	38,486	$	—	$	—
Restricted cash	4,019			4,019		4,019		—		—
Pawn loans	153,421			153,421		—		—		153,421
Consumer loans, net	82,807			90,377		—		—		90,377
Pawn service charges receivable, net	30,842			30,842		—		—		30,842
Consumer loan fees and interest receivable, net	40,181			40,181		—		—		40,181
Restricted cash, non-current	2,742			2,742		2,742		—		—
Non-current consumer loans, net	60,750			69,309		—		—		69,309
Total	$	413,248		$	429,377	$	45,247	$	—	$	384,130

Temporary equity:
Redeemable noncontrolling interest	$	57,578		$	55,557	$	—	$	—	$	55,557

Financial liabilities:
Domestic line of credit	$	146,500		$	146,500	$	—	$	146,500	$	—
Foreign currency debt	32,838		*	33,801		—		33,801		—
Consumer loans facility due 2017	32,147			32,225		32,225		—		—
Foreign currency unsecured notes	36,381		*	36,673		16,523		20,150		—
Foreign currency secured notes	4,160		*	4,001		—		4,001		—
Total	$	252,026		$	253,200	$	48,748	$	204,452	$	—



	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	$	56,329		$	56,329	$	56,329	$	—	$	—
Restricted cash	62,406			62,406		62,406		—		—
Pawn loans	162,444			162,444		—		—		162,444
Consumer loans, net	67,594			68,699		—		—		68,699
Pawn service charges receivable, net	31,044			31,044		—		—		31,044
Consumer loan fees and interest receivable, net	30,653			30,653		—		—		30,653
Restricted cash, non-current	4,257			4,257		4,257		—		—
Non-current consumer loans, net	40,442			41,472		—		—		41,472
Total	$	455,169		$	457,304	$	122,992	$	—	$	334,312

Temporary equity:
Redeemable noncontrolling interest	$	35,498		$	55,680	$	—	$	—	$	55,680

Financial liabilities:
2.125% Cash convertible senior notes due 2019	$	185,693		$	185,738	$	—	$	185,738	$	—
Cash convertible senior notes due 2019 embedded derivative	36,994			36,994		—		36,994		—
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		*	53,487		—		53,487		—
Total	$	367,103		$	394,419	$	54,178	$	340,241	$	—

* 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.

The maximum U.S. pawn loan term ranges between 30 and 120 days, consisting of the primary term and grace period. The maximum Mexico pawn loan term is 30 days, consisting of the primary term and grace period. 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.

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 12 months; therefore, we estimate that their carrying value approximates fair value. Consumer loans made by Grupo Finmart have an average 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. 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 in the condensed consolidated balance sheets 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 inputs that are not observable in the market and thus represents a Level 3 measurement. 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.

We measure the fair value of our financial liabilities using an income approach. The total carrying value of the 2.125% cash convertible senior notes due 2019 and the embedded derivative as of December 31, 2014 is accreting to the $230.0 million redemption value using a discount rate of approximately 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 represents a Level 2 measurement.

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. For financial liability 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.

See Note 4 for discussion of the fair value of our investments in unconsolidated affiliates.