Fair Value Measurements

6 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 5: FAIR VALUE MEASUREMENTS

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; and 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 carried and measured at fair value on a recurring basis:

Financial Assets (Liabilities)	Balance Sheet Location	March 31, 2019		March 31, 2018			September 30, 2018
		(in thousands)
2019 Convertible Notes Hedges — Level 2	Prepaid expenses and other current assets	$	—	$	—		$	2,552
2019 Convertible Notes Hedges — Level 2	Other assets	—		16,042			—
2019 Convertible Notes Embedded Derivative — Level 2	Current maturities of long-term debt, net	—		—			(2,552		)
2019 Convertible Notes Embedded Derivative — Level 2	Long-term debt, net	—		(16,042		)	—

We measured the fair value of the cash-settled call options pertaining to the 2.125% Cash Convertible Senior Notes Due 2019 (the “2019 Convertible Notes Hedges”) and the 2019 Convertible Notes derivative instrument (the “2019 Convertible Notes Embedded Derivative”) using the Black-Scholes-Merton 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 volatility input used as of March 31, 2019 was 36% based on historically observed market inputs.

There were no transfers in or out of Level 1, Level 2 or Level 3 for financial assets or liabilities measured at fair value on a recurring basis during the periods presented.

Financial Assets and Liabilities Not Measured at Fair Value

The tables below present our financial assets and liabilities that were not measured at fair value on a recurring basis:

	Carrying Value		Estimated Fair Value
	March 31, 2019		March 31, 2019		Fair Value Measurement Using
					Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Notes receivable from Grupo Finmart, net	$	25,166	$	26,601	$	—	$	—	$	26,601
Zero-coupon convertible promissory note due January 2021	6,793		6,793		—		—		6,793
Investment in unconsolidated affiliates	29,387		29,387		26,611		—		2,776
Financial liabilities:
2019 Convertible Notes	$	192,688	$	193,440	$	—	$	193,440	$	—
2024 Convertible Notes	108,533		159,994		—		159,994		—
2025 Convertible Notes	122,918		151,179		—		151,179		—
8.5% unsecured notes due 2024	1,191		1,191		—		—		1,191
CASHMAX secured borrowing facility	304		1,105		—		—		1,105

	Carrying Value		Estimated Fair Value
	March 31, 2018		March 31, 2018		Fair Value Measurement Using
					Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Notes receivable from Grupo Finmart, net	$	56,751	$	65,091	$	—	$	—	$	65,091
Investment in unconsolidated affiliates	46,509		46,926		46,926		—		—
Financial liabilities:
2019 Convertible Notes	$	182,296	$	206,856	$	—	$	206,856	$	—
2024 Convertible Notes	103,287		212,060		—		212,060

	Carrying Value		Estimated Fair Value
	September 30, 2018		September 30, 2018		Fair Value Measurement Using
					Level 1		Level 2		Level 3
	(in thousands)
Financial assets:
Notes receivable from Grupo Finmart, net	$	37,425	$	41,153	$	—	$	—	$	41,153
Investment in unconsolidated affiliates	49,500		49,500		49,500		—		—
Financial liabilities:
2019 Convertible Notes	$	187,433	$	189,150	$	—	$	189,150	$	—
2024 Convertible Notes	105,858		180,399		—		180,399		—
2025 Convertible Notes	119,736		161,253		—		161,253		—
8.5% unsecured notes due 2024	1,304		1,304		—		—		1,304

Based primarily on the short-term nature of cash and cash equivalents, pawn loans, pawn service charges receivable, current consumer loans, fees and interest receivable and other debt, we estimate that their carrying value approximates fair value. We consider our cash and cash equivalents to be measured using Level 1 inputs and our pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt to be measured using Level 3 inputs. Significant increases or decreases in the underlying assumptions used to value pawn loans, pawn service charges receivable, consumer loans, fees and interest receivable and other debt could significantly increase or decrease these fair value estimates.

In March 2019, we deconsolidated a previously consolidated variable interest entity ("RDC") over which we no longer have the power to direct the activities that most significantly affect its economic performance. After the deconsolidation, we continue to hold the following interests in RDC:

• A 5% equity interest and a call option to repurchase an additional 43% equity interest for $1 in September 2019 in the event that RDC has not received a qualified third party investment. These interests were recorded at a combined fair value of $2.8 million and included in "Investment in unconsolidated affiliates" in our condensed consolidated balance sheets.

• A $9.1 million non-interest bearing convertible promissory note due January 2021, which is automatically convertible into a 10% equity interest when RDC has received a qualified third party investment. This note was recorded at its fair value of $6.8 million in "Notes receivable, net" in our condensed consolidated balance sheets.

In conjunction with the deconsolidation and recording of the above amounts, we recognized a loss of $0.3 million, included in "Other expense (income)" in our condensed consolidated statements of operations included in our "Other International" segment and in "Other adjustments" in our condensed consolidated statements of cash flows. The retained equity interest, call option and convertible promissory note were valued using a weighted discounted cash flow and market approach using Level 3 inputs. Significant increases or decreases in the underlying assumptions used to value these interests could significantly increase or decrease the fair value estimate.

In March 2019, we received $1.1 million in previously escrowed seller funds as a result of settling certain indemnification claims with the seller of GPMX. Subsequent to quarter end, we loaned the $1.1 million back to the seller of GPMX in exchange

for a promissory note. The note bears interest at the rate of 2.89% per annum and is secured by certain marketable securities owned by the seller and held in a U.S. brokerage account. All principal and accrued interest is due and payable in April 2024.

Subsequent to the sale of Prestaciones Finmart, S.A.P.I. de C.V., SOFOM, E.N.R. ("Grupo Finmart") to Alpha Holding, S.A. de C.V. (“AlphaCredit”) in September 2016, we determined that we retained a variable interest in Grupo Finmart including notes receivable. We determined that we are not the primary beneficiary of Grupo Finmart subsequent to its disposition as we lack a controlling financial interest in Grupo Finmart. We measured the fair value of the notes receivable as of March 31, 2019 under a discounted cash flow approach considering the estimated credit ratings for Grupo Finmart and AlphaCredit and as determined with external consultation, with discount rates of primarily 7%. Certain of the significant inputs used for the valuation were not observable in the market. Included in the fair value of the notes receivable is the estimated fair value of the deferred compensation fee negotiated in September 2017, of which the ultimate amount to be received is dependent upon the timing of payment of the notes receivable. Significant increases or decreases in the underlying assumptions used to value the notes receivable could significantly increase or decrease these fair value estimates.

The inputs used to measure the fair value of the 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.

We measured the fair value of the 2019 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes using quoted price inputs. The 2019 Convertible Notes, 2024 Convertible Notes and 2025 Convertible Notes are not actively traded, and thus the price inputs represent a Level 2 measurement. As the quoted price inputs are highly variable from day to day, the fair value estimates disclosed above could significantly increase or decrease.