Fair Value Measurements

12 Months Ended

Sep. 30, 2019

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. We have elected not to measure at fair value any eligible items for which fair value measurement is optional.

Recurring Fair Value Measurements

The table below presents our financial assets (liabilities) that were carried and measured at fair value on a recurring basis:



		September 30, 2019		September 30, 2018
Financial Assets (Liabilities):	Balance Sheet Location	September 30, 2019		September 30, 2018

		(in thousands)
2019 Convertible Notes Hedges — Level 2	Prepaid expenses and other current assets	$	—	$	2,552
2019 Convertible Notes Embedded Derivative — Level 2	Current maturities of long-term debt, net	—		(2,552		)

We repaid our outstanding 2.125% Cash Convertible Senior Notes Due 2019 in June 2019 with expiration of the associated cash-settled call options (the “2019 Convertible Notes Hedges”) and the 2019 Convertible Notes derivative instrument (the “2019 Convertible Notes Embedded Derivative”).

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 (including those discussed below the following tables) on a recurring basis:



	Carrying Value		Estimated Fair Value
	September 30, 2019		September 30, 2019		Fair Value Measurement Using
	September 30, 2019		September 30, 2019		Level 1		Level 2		Level 3

	(in thousands)
Financial assets:
Notes receivable from Grupo Finmart, net	$	7,182	$	7,582	$	—	$	—	$	7,582
2.89% promissory note receivable due April 2024	1,117		1,117		—		—		1,117
Investments in unconsolidated affiliates	34,516		28,308		20,252		—		8,056

Financial liabilities:
2024 Convertible Notes	$	111,311	$	139,969	$	—	$	139,969	$	—
2025 Convertible Notes	126,210		138,345		—		138,345		—
8.5% unsecured debt due 2024	1,092		1,092		—		—		1,092
CASHMAX secured borrowing facility	634		634		—		—		634



	Carrying Value		Estimated Fair Value
	September 30, 2018		September 30, 2018		Fair Value Measurement Using
	September 30, 2018		September 30, 2018		Level 1		Level 2		Level 3

	(in thousands)
Financial assets:
Notes receivable from Grupo Finmart, net	$	37,425	$	41,153	$	—	$	—	$	41,153
Investments 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 debt 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.

For background information regarding the notes receivable, see “Notes Receivable from Grupo Finmart Divestiture” below. We measured the fair value of the notes receivable 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% as of September 30, 2019. Certain of the significant inputs used for the valuation were not observable in the market. Significant increases or decreases in the underlying assumptions used to value the notes receivable 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 and prior to RDC’s third-party capital raise in August 2019, we held 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 had not received a qualified third party investment. These interests were recorded at a combined fair value of $2.8 million and included in "Investments in unconsolidated affiliates" in our consolidated balance sheets.


•	A $9.1 million non-interest bearing convertible promissory note due January 2021, which was automatically convertible into a 10% equity interest when RDC received a qualified third party investment. This note was recorded at its fair value of $6.8 million.

In conjunction with the deconsolidation and recording of the above amounts, we recognized a loss of $0.3 million, included in "Other income" in our consolidated statements of operations included in our "Other International" segment and in "Other adjustments" in our consolidated statements of cash flows for fiscal 2019. In August 2019, RDC received a qualified third party investment causing recognition of a loss of $1.9 million on expiration of the call option, included in "Other expense (income)" in our consolidated statements of operations included in our "Other International" segment and in "Other adjustments" in our consolidated statements of cash flows. Additionally, the carrying value of the convertible promissory note due January 2021 of $7.4 million was converted into a 10% equity interest which together with the previous 5% equity interest is accounted for under the equity method and yielding a resulting interest of 13% after dilution. The RDC equity interest approximated its carrying value as of September 30, 2019. The equity method of accounting is followed based on our 13% ownership, combined with board representation. The net investment value is included in “Investment in unconsolidated affiliates” on our balance sheet at September 30, 2019.

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. In April 2019, 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. The note approximated its carrying value as of September 30, 2019.

The inputs used to generate 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 2024 and 2025 Convertible Notes using quoted price inputs. The 2024 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.

Notes Receivable from Grupo Finmart Divestiture in Fiscal 2016

Subsequent to the sale of Grupo Finmart in September 2016, we determined that we retained a variable interest in Grupo Finmart, including notes receivable and a guarantee liability of the future cash outflows of certain Grupo Finmart foreign exchange forward contracts with a backup guarantee provided by AlphaCredit for any payments we make under the guarantee. 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.

During fiscal 2019 and 2018, we collected $34.1 million and $32.4 million, respectively, in principal and deferred compensation on these notes receivable. As of September 30, 2017, all of the notes receivable (other than the Parent Loan Notes discussed below) had been repaid and the guarantee liability had been extinguished.

As of September 30, 2017, only two promissory notes (referred to as the “Parent Loan Notes”), one of which was denominated in Mexican pesos, remained outstanding from the Grupo Finmart sale, with a total aggregate principal amount of $60.9 million. In September 2017, we and AlphaCredit amended the Parent Loan Notes as follows:


•	The outstanding principal amount (including the $18.3 million that would otherwise have been payable on September 27, 2017) was payable on a monthly basis over the remaining two years, commencing October 27, 2017.


•	The per annum interest rate was increased from 4% to 10% for the dollar-denominated note and from 7.5% to 14.5% for the peso-denominated note. Accrued interest was also payable monthly, commencing October 27, 2017.


•	An additional deferred compensation fee totaling $14.0 million, payable $6.0 million on September 27, 2019, $4.0 million on March 27, 2020 and $4.0 million on September 27, 2020. The first $6.0 million installment of the deferred compensation fee was received in September 2019. The actual amount was slightly less than $6.0 million due to changes in the foreign currency translation rate.

•

The Parent Loan Notes could be prepaid in full voluntarily at any time and are subject to mandatory prepayment in certain circumstances. Upon any prepayment, whether voluntary or mandatory, Grupo Finmart must pay all outstanding principal, all accrued but unpaid interest and an amount equal to the sum of (1) all remaining interest payments that would otherwise be due through the end of the term and (2) the remaining unpaid balance of the

deferred compensation fee. If a prepayment had occurred on or before June 30, 2019, the deferred compensation fee would have been reduced to $10.0 million.


•	The Parent Loan Notes, as amended, are fully guaranteed by AlphaCredit.

As further consideration for these amendments, AlphaCredit agreed to terminate our indemnification obligations with respect to representations and warranties and certain other matters under the Purchase Agreement, dated as of July 1, 2016, that the parties entered into in connection with the sale of Grupo Finmart (the “Purchase Agreement”). Those representations and warranties were originally scheduled to survive until March 27, 2018. AlphaCredit also agreed to terminate all indemnity claims existing at the time of the amendment and to release to us the outstanding balance ($4.1 million) held in escrow pending resolution of indemnification claims. We accounted for this amendment as an extinguishment of the original Parent Loan Notes, recognizing $3.0 million of remaining discount as a gain included in “Interest income” in our consolidated statements of operations.

We remain obligated to indemnify AlphaCredit for any tax obligations arising from the Grupo Finmart business that are attributable to periods prior to the completion of the sale in September 2016, referred to as “pre-closing taxes.” Those obligations continue until the expiration of the statute of limitations applicable to the pre-closing periods. In August 2019, AlphaCredit notified us of a potential indemnity claim for certain pre-closing taxes, but the nature, extent and validity of such claim has yet to be determined.

We review the financial statements of Grupo Finmart and AlphaCredit including the calculation of synthetic credit spreads as described above in making our determination that the Parent Loan Notes are collectible on an ongoing basis. As of September 30, 2019, Grupo Finmart had repaid all amounts due to date in accordance with the amortization schedule, including all principal amounts and the initial $6.0 million installment of the deferred compensation fee, along with interest through September 27, 2019. The only amount remaining due is the final $8.0 million of the deferred compensation fee due in fiscal 2020 and interest that will continue to accrue on that amount.