NOTE 10: FAIR VALUE MEASUREMENTS

In accordance with FASB ASC 820-10, our assets and liabilities discussed below are classified in one of the following three categories based on the inputs used to develop their fair values:


•	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

Recurring Fair Value Measurements

The tables below present our financial assets (liabilities) that were measured at fair value on a recurring basis as of December 31, 2015 and 2014 and September 30, 2015:



	December 31, 2015			Fair Value Measurements Using
Financial assets (liabilities)	December 31, 2015			Level 1		Level 2			Level 3

	(in thousands)
Foreign currency forwards	$	9,499		$	—	$	9,499		$	—
Cash Convertible Notes Hedges	7,777			—		7,777			—
Cash Convertible Notes Embedded Derivative	(7,777		)	—		(7,777		)	—
Phantom share-based awards	(2,099		)	—		—			(2,099		)
Contingent consideration	(2,601		)	—		—			(2,601		)
Net financial assets (liabilities)	$	4,799		$	—	$	9,499		$	(4,700	)

	December 31, 2014			Fair Value Measurements Using
Financial assets (liabilities)	December 31, 2014			Level 1		Level 2			Level 3

	(in thousands)
Foreign currency forwards	$	9,987		$	—	$	9,987		$	—
Cash Convertible Notes Hedges	45,163			—		45,163			—
Cash Convertible Notes Embedded Derivative	(45,163		)	—		(45,163		)	—
Contingent consideration	(3,440		)	—		—			(3,440		)
Net financial assets (liabilities)	$	6,547		$	—	$	9,987		$	(3,440	)

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

	(in thousands)
Foreign currency forwards	$	14,169		$	—	$	14,169		$	—
Holding Period Adjustment	4			—		4			—
Cash Convertible Notes Hedges	10,505			—		10,505			—
Cash Convertible Notes Embedded Derivative	(10,505		)	—		(10,505		)	—
Phantom share-based awards	(3,932		)	—		—			(3,932		)
Contingent consideration	(2,601		)	—		—			(2,601		)
Net financial assets (liabilities)	$	7,640		$	—	$	14,173		$	(6,533	)

Grupo Finmart measured the value of the forward currency forwards using Level 2 inputs such as 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.”

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 conversion price of underlying shares, current share price, 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" and had no value as of December 31, 2015.

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 conversion price of underlying shares, current share price, 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.”

On April 26, 2013, Grupo Finmart purchased 100% of the outstanding shares of Fondo ACH, S.A. de C.V., a specialty consumer finance company. The total purchase price was performance-based and will be determined over a period of four years from the date of purchase. Total contingent consideration due on January 2, 2017 is based on interest income generated by the acquired portfolios and new loans made through Fondo ACH's contractual relationships. We used an income approach to measure the fair value of the contingent consideration using a probability-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 "Deferred gains and other long-term liabilities." Significant increases or decreases in the underlying assumptions used to value the contingent consideration could significantly increase or decrease the fair value estimates recorded in the condensed consolidated balance sheets. During the three-month period ended December 31, 2015, we recorded no valuation adjustment to the $2.6 million balance of the contingent consideration liability.

During fiscal 2015, we granted awards to employees based upon underlying shares that were not issued, and therefore we accounted for these as phantom share-based awards under FASB ASC 718-30. These awards are recorded in the condensed consolidated balance sheets under “Accounts payable and other accrued expenses” for unvested share-based payment awards. The fair value of fiscal 2015 phantom share-based awards that were estimated using the Monte Carlo simulation model incorporated the closing share price of our Class A Common Stock on the date of grant (considered, for this purpose, to be October 1, 2014), as well as the following assumptions, which we consider to be Level 3 inputs under the fair value hierarchy:



Expected volatility of EZCORP, Inc. Class A Common Stock	49.7	%
Risk-free interest rate	1.9	%
Expected term in years	6
Cost of equity	11.5	%
Dividend yield	—

During the three-month period ended December 31, 2015, we settled and released $0.1 million of phantom share-based awards, expensed an additional $0.2 million of phantom share-based awards and reclassified $1.9 million of phantom share-based awards from liability awards to equity awards recorded in the condensed consolidated balance sheets under "Additional paid-in capital," leaving a $2.1 million balance in phantom share-based awards as of December 31, 2015.

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 Financial Liabilities Not Measured at Fair Value

Our financial assets, temporary equity and financial liabilities as of December 31, 2015 and 2014 and September 30, 2015 that are not measured at fair value in our condensed consolidated balance sheets are as follows:



	Carrying Value			Estimated Fair Value
	December 31, 2015			December 31, 2015		Fair Value Measurement Using
	December 31, 2015			December 31, 2015		Level 1		Level 2		Level 3

	(in thousands)
Financial assets:
Cash and cash equivalents	$	22,781		$	22,781	$	22,781	$	—	$	—
Restricted cash	16,157			16,157		16,157		—		—
Pawn loans	157,905			157,905		—		—		157,905
Consumer loans, net	32,175			32,715		—		—		32,715
Pawn service charges receivable, net	31,342			31,342		—		—		31,342
Consumer loan fees and interest receivable, net	12,827			12,827		—		—		12,827
Investment in unconsolidated affiliate	53,404			58,773		58,773		—		—
Restricted cash, non-current	2,667			2,667		2,667		—		—
Non-current consumer loans, net	71,502			72,789		—		—		72,789
	$	400,760		$	407,956	$	100,378	$	—	$	307,578

Temporary equity:
Common Stock, subject to possible redemption	$	11,696		$	11,639	$	—	$	—	$	11,639
Redeemable noncontrolling interest	2,379			5,467		—		—		5,467
	$	14,075		$	17,106	$	—	$	—	$	17,106

Financial liabilities:
Cash Convertible Notes	$	190,089		$	156,400	$	—	$	156,400	$	—
Foreign currency debt	17,802		*	18,720		—		18,720		—
Consumer loans facility due 2019	40,080			39,694		—		39,694		—
Foreign currency unsecured notes	19,893		*	20,521		—		20,521		—
Foreign currency secured notes	20,034		*	21,814		—		21,814		—
Secured notes consolidated from VIEs	61,456		*	55,090		—		55,090		—
	$	349,354		$	312,239	$	—	$	312,239	$	—



	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	61,347			61,936		—		—		61,936
Pawn service charges receivable, net	30,241			30,241		—		—		30,241
Consumer loan fees and interest receivable, net	13,199			13,199		—		—		13,199
Investment in unconsolidated affiliate	99,219			123,932		123,932		—		—
Restricted cash, non-current	4,310			4,310		4,310		—		—
Non-current consumer loans, net	78,362			79,615		—		—		79,615
	$	575,425		$	601,980	$	266,059	$	—	$	335,921

Temporary equity:
Redeemable noncontrolling interest	$	18,550		$	44,771	$	—	$	—	$	44,771

Financial liabilities:
Cash Convertible Notes	$	179,796		$	185,461	$	—	$	185,461	$	—
Foreign currency debt	23,199		*	23,952		—		23,952		—
Consumer loans facility due 2019	46,110			49,604		—		49,604		—
Foreign currency unsecured notes	18,461		*	18,787		—		18,787		—
Foreign currency secured notes	23,535		*	23,957		—		23,957		—
Secured notes consolidated from VIEs	113,168		*	111,523		—		111,523		—
	$	404,269		$	413,284	$	—	$	413,284	$	—



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

	(in thousands)
Financial assets:
Cash and cash equivalents	$	59,124		$	59,124	$	59,124	$	—	$	—
Restricted cash	15,137			15,137		15,137		—		—
Pawn loans	159,964			159,964		—		—		159,964
Consumer loans, net	36,533			37,559		—		—		37,559
Pawn service charges receivable, net	30,852			30,852		—		—		30,852
Consumer loan fees and interest receivable, net	19,802			19,802		—		—		19,802
Investment in unconsolidated affiliate	56,182			56,182		56,182		—		—
Restricted cash, non-current	2,883			2,883		2,883		—		—
Non-current consumer loans, net	75,824			77,644		—		—		77,644
	$	456,301		$	459,147	$	133,326	$	—	$	325,821

Temporary equity:
Common stock, subject to possible redemption	$	11,696		$	11,438	$	—	$	—	$	11,438
Redeemable noncontrolling interest	3,235			5,467		—		—		5,467
	$	14,931		$	16,905	$	—	$	—	$	16,905

Financial liabilities:
Cash Convertible Notes	$	187,471		$	169,050	$	—	$	169,050	$	—
Foreign currency debt	18,505		*	19,851		—		19,851		—
Consumer loans facility due 2019	40,493			40,774		—		40,774		—
Foreign currency unsecured notes	20,987		*	20,477		—		20,477		—
Foreign currency secured notes	20,286		*	22,476		—		22,476		—
Secured notes consolidated from VIEs	73,264		*	68,685		—		68,685		—
	$	361,006		$	341,313	$	—	$	341,313	$	—

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

Based on the short-term nature of cash and cash equivalents, restricted cash, pawn loans, pawn service charges receivable and consumer loan fees and interest receivable, we estimate that their carrying value approximates fair value. Significant increases or decreases in the underlying assumptions used to value the pawn loans, pawn service charges receivable and consumer loan fees and interest receivable could significantly increase or decrease the fair value estimates disclosed above.

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 contractual 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.

The inputs used to generate the fair value of our investment in unconsolidated affiliate Cash Converters International were considered Level 1 inputs. These inputs are comprised of (a) the quoted stock price on the Australian Stock Exchange multiplied by (b) the number of shares we owned multiplied by (c) the applicable foreign currency exchange rate as of the end of our reporting period. We included no control premium for owning a large percentage of outstanding shares.

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 up to 25%, representing discount 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%, 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 Cash Convertible Notes using quoted price inputs from Bloomberg. The Cash Convertible Notes are not actively traded and thus the price inputs represent a Level 2 measurement. As the Cash Convertible Notes are not actively traded, the quoted price inputs obtained from Bloomberg are highly variable from day to day and thus the fair value estimates disclosed above could significantly increase or decrease.

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.