Extracted Text
Highlighting: “"CFPB"”
EDGAR-pro
WORLD ACCEPTANCE CORP
FORM 10-O
(Quarterly Report)
Filed 08/09/18 for the Period Ending 06/30/18
Address 108 FREDRICK STREET
GREENVILLE, SC, 29607
Telephone
CIK
Symbol WRLD
SIC Code 6141 - Personal Credit Institutions
Industry Consumer Lending
Sector Financials
Fiscal Year 03/31
lowered BY EDGARbnline
http./Avww.edgar.online.com
O Copyright 2018. EDGAR Online, a division of Donnelley Financial Solutions. All Rights Reserved.
Distribution and use of this document restricted under EDGAR Online, a division of Donnelley Financial Solutions. Terms of Use.
EFTA00791821
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form I 0-Q
(Mark One)
riS QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF TIIE SECURITIES EXCHANGE ACT of 1934
For the transition period from to
Commission File Number.
WORLD ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter.)
South Carolina 57-0425114
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
108 Frederick Street
Greenville, South Carolina 29607
(Address of principal executive offices)
(Zip Code)
(864) 298-9800
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (I) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes NI No O
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes II3 No ❑
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of "large accelerated filer," "accelerated filer." "smaller reporting company," and "emerging growth company" in Rule 12b-2
of the Exchange Act. (Check One):
EFTA00791822
Large Accelerated filer ❑ Accelerated filer
Non-accelerated filer O Smaller reporting company O
(Do not check if smaller reporting company)
Emerging growth company O
If an emerging growth company. indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 126-2 of the Exchange Act). Yes O No Ditl
The number of outstanding shares of the issuer's no par value common stock as of August 2, 2018 was 9,143,267 .
EFTA00791823
WORLD ACCEPTANCE CORPORATION
Form 10-Q
Table of Contents
Item No. Ears
PART I - FINANCIAL INFORMATION
Consolidated Financial Statements (unaudited): 4
Consolidated Balance Sheets as of Lune 30. 2018 and March 31. 2018 4
Consolidated Statements of Onerations for the three months ended June 30.2018 and June 30.2017
Condensed Consolidated Statements of Comprehensive Income for the three months ended hate 30 2018 and Tune irk 1
2017
Consolidated Statements of Shareholders' Fruity for the year ended March 31 7018 and the three months ended tun• 30
2018
Consolidated Statements of Cash Flows for the three months ended June 30.2018 and June 30 2017 2
Notes to Consolidated Financial Statements
IdgEggement's Discussion and Analysis of Financial Condition and Results of °petitions 16
3. Quantitative and Qualitative Disclosures about Market Risk 34
4. Controls and Procedures 15
PART II - OTHER INFORMATION
Legal Proceedings 36
IA. Risk Factors 36
2. Unregistered Sales of Equity Securities and Use of Proceeds 36
3. Defaults Upon Senior Securities 36
4. Mine Safety Disclosure*
5. Other Information
6. 3/
EXIIIBIT INDEX al
SIGNATURES 38
Introductory Note: As used herein, the "Company," "we," "our," "us," or similar formulations include World Acceptance Corporation and each of its
subsidiaries, unless otherwise expressly noted or the context otherwise requires that it include only World Acceptance Corporation. All references in this report to
"fiscal 2019 " are to the Company's fiscal year ending March 31,2019; all references in this report to "fiscal 2018 " are to the Company's fiscal year ended March
31, 2018 ; and all references to "fiscal 2017 " are to the Company's fiscal year ended March 31, 2017 .
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PART I. FINANCIAL INFORMATION
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2018 March 31, 2018
ASSETS
Cash and cash equivalents 10,262,901 $ 12,473,833
Gross loans receivable 1,062,673,177 1,004,233,159
Less:
Unearned interest. insurance and fees (280.886,555) (258,991,492)
Allowance for loan losses (68,029,622) (66,088,139)
Loans receivable, net 713.757,000 679.153,528
Property and equipment, net 23,254,500 22,785,951
Deferred income taxes, net 19.807,871 20,175,148
Other assets, net 12,467,496 13,244,416
Goodwill 7.034,463 7,034,463
Intangible assets, net 6,380,849 6,644,301
Assets held for sale (Note 2) 19.012,674 79,475,397
Total assets $ 811,977,754 5 840,987,037
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable $ 239,840,000 S 244.900,000
Income taxes payable 17,846.549 14,097,419
Accounts payable and accrued expenses 30.600.024 33,503,335
Liabilities held for sale (Note 2) 6,418,506 7,378,431
Total liabilities 294,705,079 299,879,185
Commitments and contingencies (Note II)
Shareholders' equity:
Preferred stock, no par value Authorized 5,000,000, no shares issued or outstanding
Common stock, no par value Authorized 95,000,000 shares; issued and outstanding 9,140,273 and
9.119,443 shares at lune 30, 2018 and March 31, 2018, respectively
Additional paid-in capital 178,791,182 175,887,227
Retained earnings 369,772,411 391,275,705
Accumulated other comprehensive loss (31,290,918) (26,055,080)
Total shareholders' equity 517,272,675 541,107,852
Total liabilities and shareholders' equity 811,977,754 S 840,987,037
See accompanying notes to consolidated financial statements.
4
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WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30,
2018 2017
Continuing operations
Revenues:
Interest and fee income 108.444,378 S 103,367,484
Insurance income, net and other income 14.345.607 13,270,882
Total revenues 122,789,985 116,638,366
Expenses:
Provision for loan losses 30,590,619 27,709,627
General and administrative expenses:
Personnel 41,569347 41,043,803
Occupancy and equipment 10,052,103 9,527,884
Advertising 4,850.085 4,637,456
Amortization of intangible assets 263,452 185,822
Other 11,042368 10.813,221
Total general and administrative expenses 67,777,355 66,208,186
Interest expense 4,225,001 4,246,702
Total expenses 102,592,975 98.164,515
Income from continuing operations before income taxes 20,197,010 18,473,851
Income taxes 4,559,345 7,265,3%
Income from continuing operations 15,637,665 11,208,455
Discontinued operations (Note 2)
Income from discontinued operations before impairment loss and income taxes 2,341,825 2,431,723
Impairment loss 39,006,544
Income taxes 476,240 572,492
Income (loss) from discontinued operations (37,140.959) 1.859,231
Net income (loss) (21.501294 s 13(167.686
Net income per common share from continuing operations:
Basic 5 1.73 $ I,N
Diluted 5 1.69 S 1.17
Net income (loss) per common share from discontinued operations:
Basic 5 (4.10) S o.21
Diluted S (4.01) S () 21
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Net income (loss) per common share:
Basic $ (237) $ 1.50
Diluted (232) 1.48
Weighted average common shares outstanding:
Basic 9,054,793 8,687,195
Diluted 9,253,226 8,626,595
See accompanying notes to consolidated financial statements.
6
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WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended June 30,
2018 2017
Net income (loss) $ (21,503,294) 5 13,067,686
Foreign currency translation adjustments (5,235,838) 2,478,619
Comprehensive income (loss) $ (26,739,132) 5 15,546,305
See accompanying notes to consolidated financial statements.
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WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Additional Paid-in Accumulated Other Total Shareholders'
Capital Retained Earnings Comprehensive Loss Equity
Balances at March 31, 2017 5 144,241,105 344,605,347 (27,782,875) 461,063,577
Proceeds from exercise of stock options (389,888 shares) 25,323,531 25,323,531
Common stock repurchases (58,728 shares) (4,614,331) (4,614,331)
Restricted common stock expense under stock option plan, net of
cancellations (51,517,357) 1,564,048 1,564,048
Stock option expense 2,353,214 2,353,214
ASU 2016-09 adoption 2,405,329 (2,405,329)
Other comprehensive income 1,727,795 1,727,795
Net income 53,690,018 53,690,018
Balances at March 31. 2018 5 175,887,227 391,275,705 (26,055,080) 541,107,852
Proceeds from exercise of stock options (20,830 shares) 1,428,938 1.428,938
Restricted common stock expense under stock option plan 950,790 950,790
Stock option expense 524,227 524,227
Other comprehensive loss (5.235,838) (5,235,838)
Net loss (21,503,294) (21,503,294)
Balances at June 30, 2018 S 178.791.182 369.772,411 (31.290,918) 517.272.675
See accompanying notes to consolidated financial statements.
EFTA00791829
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WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended June 30,
2018 2017
Cash flow from operating activities:
Net income (loss) (21,503,294) S 13,067,686
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Impairment of assets held for sale 39,006,544
Amortization of intangible assets 263,452 185,822
Amortization of debt issuance costs 208,921 238,963
Provision for loan losses 32,399,678 30,840,058
Depreciation 1,833,309 1,791,453
Loss on sale of property and equipment 89,673 61,639
Deferred income tax expense (benefit) 413,750 (985,424)
Compensation related to stock option and restricted stock plans, net of taxes and adjustments 1,475.017 1,132,077
Change in accounts:
Other assets, net 739376 2,579,191
Income taxes payable 3,560,469 2,449,633
Accounts payable and accrued expenses (3,033.131) (1,272,161)
Net cash provided by operating activities 55,453,764 50,088,937
Cash flows front investing activities:
Increase in loans receivable, net (64,053,964) (51,779,690)
Net assets acquired from branch acquisitions, primarily loans (2,309,245)
Increase in intangible assets from acquisitions (521,342)
Purchases of property and equipment (2,267,431) (2,015,900)
Proceeds from sale of property and equipment 93,700 70,752
Net cash used in investing activities (66,227,695) (56,555,425)
Cash flow from financing activities:
Borrowings front senior notes payable 55,390,000 61,343,800
Payments on senior notes payable (60,450,000) (55,930,000)
Debt issuance costs associated with senior notes payable (240.000) (420,000)
Proceeds from exercise of stock options 1,428,938 5,334,886
Repurchase of common stock (4,614,331)
Net cash provided by (used in) financing activities (3,871,062) 5,714,355
Effects of foreign currency fluctuations on cash and cash equivalents (765.404) 94,234
Net change in cash and cash equivalents (15,410,397) (657,899)
Cash and cash equivalents at beginning of period, excluding held for sale 12,473,833 11,581,936
Cash and cash equivalents held for sale at beginning of period 19,612,471 3,618,474
Cash and cash equivalents at end of period 16,675,907 14,542,511
Cash and cash equivalents held for sale at end of period 6.413.006 2,397,709
Cash and cash equivalents at end of period, excluding held for sale 10.26...901 12,144,802
Supplemental Disclosures:
Interest paid during the period 3,896,463 3,883,860
Income taxes paid during the period 1.291,884 6,375,281
9
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See accompanying notes to consolidated financial statements.
10
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WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE I — BASIS OF PRESENTATION
The consolidated financial statements of the Company at June 30, 2018 , and for the three months then ended were prepared in accordance with the instructions for
Form 10-Q and are unaudited; however, in the opinion of management all adjustments (consisting only of items of a normal, recurring nature) necessary for a fair
presentation of the financial position at June 30, 2018 , and the results of operations and cash flows for the periods ended June 30, 2018 and 2017 , have been
included. The results for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial
statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The consolidated financial statements do not include all disclosures required by GAAP and should be read in conjunction with the Company's audited consolidated
financial statements and related notes for the fiscal year ended March 31, 2018 , included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 2018 , as filed with the U.S. Securities and Exchange Commission ("SEC").
NOTE 2 — FIELD-FOR-SALE AND DISCONTINUED OPERATIONS
Subsequent to the current period's balance sheet date of June 30, 2018 the Company and its affiliates approved the sale of the Company's Mexico operating
segment in its entirety. The Company completed the sale on August 3, 2018, with a July I, 2018 effective date. Pursuant to the terms of the stock purchase
agreement, the Company will provide limited accounting assistance to the purchasers of the Mexico operating segment, as requested, for a period of 90 days after
the sale's effective date. The Company will have no other involvement with the Mexico operating segment subsequent to the sale's effective date. Refer to Note 12
— Subsequent Events of this Quarterly Report on Form 10-Q for more information surrounding the sale of the Company's Mexico operating segment.
II
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Table of Contents
The following table reconciles the major classes of assets and liabilities held for sale to the amounts presented in the Consolidated Balance Sheets:
June 30, 2018 March 31, 2018
Assets held for sale:
Cash and cash equivalents 6.413,006 S 19,612,471
Loans receivable, net 39,160,944 46,027,200
Property and equipment, net 2,349,870 2,805,467
Deferred income taxes, net 9,146,469 10,064,489
Other assets, net 948.929 965,770
Accumulated impairment losses (39,006,544)
Total assets held for sale 19.012.674 S 79,475,397
Liabilities held for sale:
Income taxes payable 206,045 437,551
Accounts payable and seemed expenses 6,212,461 6,940,880
Total liabilities held for sale S 6,418,506 S 7,378,431
The following table reconciles the major classes of line items constituting pre-tax profit (loss) of discontinued operations to the amounts presented in the
Consolidated Statements of Operations:
Three months ended June 30,
2018 2017
Revenues S 9.693.367 S 12,271,057
Provision for loan losses 1,809,059 3,130,431
Geneml and administrative expenses 5542,483 6.708,903
Income from discontinued operations before impairment loss and income taxes 2,341,825 2,431,723
Impairment loss 39.006,544
Income taxes 476,240 572,492
Income (loss) from discontinued operations S (37.140.959) S 1.859.231
The following table presents operating, investing and financing cash flows for the Company's discontinued operations:
Three months ended June 30,
2018 2017
Cash provided by operating activities: 3,553,854 S 5,356,127
Cash provided by (used in) investing activities: 1,138,084 (6,671,126)
Cash provided by (used in) financing activities: S (17,126,000) S
NOTE 3 —SUMMARY OF SIGNIFICANT POI irws
Nature ofOperations
The Company is a small-loan consumer finance company headquartered in Greenville, South Carolina that offers short-term small loans, medium-term larger
loans, related credit insurance products and ancillary products and services to individuals who have
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limited access to other sources of consumer credit. In U.S. branches, the Company offers income tax return preparation services to its loan customers and other
individuals.
Seasonality
The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand generally occurs from October
through December. its third fiscal quarter. Loan demand is generally lowest and loan repayment highest from January to March, its fourth fiscal quarter. Loan
volume and average balances remain relatively level during the remainder of the year. Consequently, the Company experiences significant seasonal fluctuations in
its operating results and cash needs. Operating results for the Company's third fiscal quarter are generally lower than in other quarters and operating results for its
fourth fiscal quarter are generally higher than in other quarters.
Recently Adopted Accounting Standards
Scope ofModification Accounting
In May 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-09, Scope of Modification Accounting.
The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. According to ASU 2017-09 an entity should account for the effects of a modification unless all the following are met:
I. The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified.
2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is
modified.
3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award
immediately before the original award is modified.
The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15,
2017. The Company adopted ASU 2017-09 on its effective date, April I, 2018. Management has reviewed the provisions of ASU 2017-09 and has determined that
them is no financial statement impact during the period since this is a clarification to current guidance. The Company will apply the clarified guidance on any
future change to terms and conditions of share-based payment awards.
Revenuefrom Contracts with Customers: identifying Performance Obligations and Licensing
In April 2016, the FASO issued ASU 2016-10, Identifying Performance Obligations and Licensing. The amendments clarify the following two aspects of Topic
606: (a) identifying performance obligations; and (b) the licensing implementation guidance. The amendments do not change the corn principle of the guidance in
Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Topic 606. Public
entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company
adopted ASU 2016-10 on its effective date, April 1, 2018. Management has concluded that the new standard did not have a material impact on the Company's
consolidated financial statements.
Recognition and Measurement ofFinancial Assets and Financial Liabilities
In January 2016, the FASB issued ASU 2016-01, which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments.
Public entities should apply the amendments for annual reporting periods beginning after December IS, 2017, including interim reporting periods therein. The
Company adopted ASU 2016-01 on its effective date, April I, 2018. The Company's current disclosures around financial instruments reflect the instruments'
estimated fair market value or exit price. Based on this, management has determined that the provisions of ASU 2016-01 had no financial statement impact during
the period of adoption.
Revenuefrom Contracts with Customers
In May 2014, the FASO issued ASU 2014-09, which supersedes the revenue recognition requirements Topic 605 (Revenue Recognition), and most industry-
specific guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments
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and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended by ASU 2015-14, ASU 2016-20, ASU 2017-13, is effective for
fiscal years, and interim periods, beginning after December 15, 2017. The Company adopted this new guidance on its effective date, April 1, 2018, using the
modified retrospective method where prior periods are not restated. Management has evaluated revenue from contracts with customers and has concluded that the
new standard did not have a material impact on the Company's consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
Simpltfiing the Testfor Goodwill Impairment
In January 2017, the FASD issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment
test. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a
reporting unit with its carrying amount. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the
reporting unit when measuring the goodwill impairment loss. if applicable. ASU 2017-04 also eliminates the requirements for any reporting unit with a zero or
negative canying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the
same impairment assessment applies to all reporting units. The amendments in this Update are effective for public entities who are SEC filers for fiscal years
beginning after December 15, 2018. Early adoption is permitted. We are currently evaluating the impact the adoption of this guidance will have on our consolidated
financial statements.
Measurement ofCredit Lasses on Financial instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendment seeks to provide financial statement users with more
decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each
reporting date. To achieve this objective, the amendments in this ASU replace the incurred loss impairment methodology in current GAAP with a methodology that
reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public
business entities the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early
adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the
impact the adoption of this guidance will have on ow consolidated financial statements. The adoption of this ASU could have a material impact on the provision
for loan losses in the consolidated statements of operations and allowance for loan losses in the consolidated balance sheets.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU 2016-02, as amended by ASU 2018-01, will require lessees to recognize assets
and liabilities on leases with terms greater than 12 months and to disclose information related to the amount, timing and uncertainty of cash flows arising from
leases, including various qualitative and quantitative requirements. The amendments of this ASU become effective for annual periods, and interim periods within
those annual periods, beginning after December 15, 2018. We are currently evaluating the impact the adoption of this guidance will have on our consolidated
financial statements. We expect the standard to have an impact on our assets and liabilities for the addition of right-of-use assets and lease liabilities, but we do not
expect it to have a material impact to our results of operations or liquidity.
We reviewed all other newly issued accounting pronouncements and concluded that they are either not applicable to our business or are not expected to have a
material effect on the consolidated financial statements as a result of future adoption.
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NOTE 4 - FAIR VALUE
Fair Value Disclosures
The Company may carry certain financial instruments and derivative assets and liabilities measured at fair value on a recurring basis. Fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The
Company determines the fair values of its financial instruments based on the fair value hierarchy. which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value.
Financial assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs used to measure the fair value of the assets or
liabilities. These levels are:
• Level I — Quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 — Inputs other than quoted prices that are observable for assets and liabilities, either directly or indirectly. These inputs include quoted prices for
similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in market that are less active.
• Level 3 — Unobservable inputs for assets or liabilities reflecting the reporting entity's own assumptions.
The Company's financial instruments measured at fair value on a recurring basis for the periods reported consist of the following: cash and cash equivalents, loans
receivable, and senior notes payable. Fair value approximates carrying value for all of these instruments. Loans receivable are originated at prevailing market rates
and have an average life of approximately eight months . Given the short-term nature of these loans, they are continually repriced at current market rates. The
Company's revolving credit facility has a variable rate based on a margin over LIBOR and reprices with any changes in LIBOR. The Company also considers its
creditworthiness in its determination of fair value.
The carrying amounts and estimated fair values of amounts the Company measures at fair value on a recurring basis are summarized below.
June 30, 2018 March 31, 2018
Input Level Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
ASSETS
Cash and cash equivalents 10,262,901 10,262,901 S 12,473,833 12,473,833
Loans receivable, net 3 713,757,000 713,757,000 679,153,528 679,153,528
LIABILITIES
Senior notes payable 3 239,840,000 239,840,000 244,900.000 244.900,000
The carrying amounts and estimated fair values of amounts the Company measures at fair value on a non-recurring basis, which are limited to the Company's assets
held for sale, are summarized below.
June 30, 2018 March 31, 2018
Input Level Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
ASSETS
Assets held for sale 19,012,674 19,012,674 S 79,475,397 79,475,397
The Company re-valued its Mexico operating segment as of June 30, 2018 in conjunction with its reclassification of the segment as held for sale. The observable
input the Company used in its revaluation was the agreed-upon price to sell the segment.
There were no other significant assets or liabilities measured at fair value on a non-recurring basis as of June 30, 2018 or March 31, 2018 .
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NOTE 5 — FINANCE RECEIVABLES AND ALLOWANCE FOR LOAN LOSSES
The following is a summary of gross loans receivable as of:
June 30, March 31, June 30,
2018 2018 2017
Small loans 717,248,460 $ 670,189,211 $ 662,873,877
Large loans 345.423.538 334,041,731 318.923,824
Sales finance loans II) 1.179 2,217 26,049
Total gross loans 1.062.673.177 S 1.004.233.159 S 981.823.750
"' The Company decided to wind down the World Class Buying Club program dining the third +outer of fiscal 2015. As. of March 31. 2015. the Compan no longs financing the
purchase of products through the program; however. the Company will continue to service the outstanding mail installment sales contiacb.
The following is a summary of the changes in the allowance for loan losses for the periods indicated:
Three months ended June 30,
2018 2017
Balance at beginning of period S 66,088,139 5 60,644,365
Provision for loan losses 30,590,619 27,709,627
Loan losses (32,441,141) (29,059,037)
Recoveries 3.792,005 4,002,929
Balance at end of period S 68,029,622 5 63,297,884
The following is a summary of loans individually and collectively evaluated for impairment for the period indicated:
Loans individually
evaluated for Loans collectively
June 30.2018
impairment evaluated for
(impaired loans) impairment Total
Gross loans in bankruptcy. excluding contractually delinquent $ 4,472,996 4,472,996
Gross loans contractually delinquent 48,449,681 48.449,681
Loans not contractually delinquent and not in bankruptcy 1,009,750,500 1,009,750,500
Gross loan balance 52,922.677 1,009,750,500 1.062.673,177
Unearned interest and fees (10,714,788) (270,171,767) (280.886,555)
Net loans 42,207.889 739,578.733 781.786,622
Allowance for loan losses (37,924,995) (30,104,627) (68,029,622)
Loans, net of allowance for loan losses S 4.282.894 709.474.106 113.757.000
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Loans individually
evaluated for Loans collectively
March 31, 2018
impairment evaluated for
(impaired loans) impairment Total
Gross loans in bankruptcy, excluding contractually delinquent 4,627,599 4,627,599
Gross loans contractually delinquent 50,019,567 50,019,567
Loans not contractually delinquent and not in bankruptcy 949,585,993 949,585,993
Gross loan balance 54,647,166 949,585,993 1,004,233,159
Unearned interest and fees (11,433,666) (247,557,826) (258,991,492)
Net loans 43,213,500 702,028,167 745,241,667
Allowance for loan losses (38,782,574) (27,305,565) (66,088,139)
Loans, net of allowance for loan losses $ 4.430.926 674.722.602 679.153.528
Loans individually
evaluated for Loans collectively
June 30, 2017
impairment evaluated for
(impaired loans) impairment Total
Gross loans in bankruptcy, excluding contractually delinquent S 4,712,263 4,712,263
Gross loans contractually delinquent 43,699,438 43,699,438
Loans not contractually delinquent and not in bankruptcy 933,412,049 933,412,049
Gross loan balance 48,411,701 933,412,049 981,823,750
Unearned interest and fees (9,823,471) (247,732,958) (257,556,429)
Net loans 38,588,230 685,679,091 724,267,321
Allowance for loan losses (34,076,238) (29,221,646) (63,297,884)
Loans, net of allowance for loan losses 4.511.992 656.457.445 660.969.437
The average net balance of impaired loans was $42.7 million and $38.3 million , respectively, for the three month periods ended June 30, 2018 , and 2017 . It is not
practical to compute the amount of interest earned on impaired loans.
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The following is an assessment of the credit quality for the period indicated:
June 30, March 31, June 30,
2018 2018 2017
Credit risk
Consumer loans- non-bankrupt accounts 1,057,020,248 $ 998,299,051 $ 975,850,471
Consumer loans- bankrupt accounts 5.652.929 5,934,108 5.973,279
Total gross loans 1,062,673,177 $ 1,004,233,159 $ 981,823,750
Consumer credit exposure
Credit risk profile based on payment activity, performing 992,218.267 $ 929,400,862 917,290,053
Contractual non-performing, 60 or more days delinquent III 70,454,910 74,832,297 64,533,697
Total gross loans 1.062,673,177 $ 1,004,233,159 $ 981,823,750
Credit risk profile based on customer type
New borrower 103,601,323 $ 104,762,628 $ 92,858,750
Former borrower 121,695.512 104,281,551 111,937,719
Refinance 819,375,003 778,115,097 759,156,025
Delinquent refinance 18.001339 17,073.883 17.871.256
Total gross loans 1,062,673.177 S 1.004.233.159 S 981.823.750
"' Loans in non-aecnial status.
The following is a summary of the past due receivables as of:
June 30. March 31, June 30,
21)18 2018 2017
Contractual basis:
30-59 days past due 37.0511.516 32,959,151 33,425,769
60-89 days past due 22.005,229 24,812,730 20,834,259
90 days or more past due 48.449.681 50,019,567 43,699,438
Total 107.5115,426 107.791.448 97,959,466
Percentage of period-end gross loans receivable 10.19 I0.7° 10.0%
NOTE 6— AVERAGE SHARE INFORMATION
The following is a summary of the basic and diluted average common shares outstanding:
Three months ended June 30,
2018 2017
Basic:
Weighted average common shares outstanding (denominator) 9.054.793 8.687.195
Diluted:
Weighted average common shares outstanding 9,054.793 8.687.195
Dilutive potential common shares stock options 198,433 139.400
Weighted average diluted shares outstanding (denominator) 9,253.226 8.826.595
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Options to purchase 486,561 and 558,618 shares of common stock at various prices were outstanding during the three months ended June 30, 2018 and 2017
respectively, but were not included in the computation of diluted EPS because the option exercise price was anti-dilutive.
NOTF 7 - STOCK-BASFD COMPFNSATION
Stork Option Mans
The Company has a 2005 Stock Option Plan, a 2008 Stock Option Plan, a 2011 Stock Option Plan and a 2017 Stock Incentive Plan for the benefit of certain non-
employee directors, officers, and key employees. Under these plans, a total of 4,950,000 shares of common stock have been authorized and reserved for issuance
pursuant to grants approved by the Compensation and Stock Option Committee of the Board of Directors. Stock options granted under these plans have a
maximum duration of 10 years , may be subject to certain vesting requirements, which are generally three to five years for officers, non-employee directors, and
key employees, and are priced at the market value of the Company's common stock on the option's grant date. At June 30, 2018 , there were a total of 1,262,765
shares of common stock available for grant under the plans.
Stock-based compensation is recognized as provided under FASB ASC Topic 718-10 and FASB ASC Topic 505-50. FASB ASC Topic 718-10 requires all share-
based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the requisite service period (generally
the vesting period) in the consolidated financial statements based on their grant date fair values. The Company has applied the Black-Scholes valuation model in
determining the grant date fair value of the stock option awards. Compensation expense is recognized only for those options expected to vest.
The weighted-average fair value at the grant date for options issued during the three months ended June 30, 2018 and 2017 was $49.67 and $22.79 , respectively.
Fair value was estimated at grant date using the weighted-average assumptions listed below:
Three months ended June 30,
2018 2017
Dividend Yield —% —%
Expected Volatility 53.02% 50.33%
Average risk-free rate 2.84% 1.85%
Expected Life 5.0 years 5.0 years
The expected stock price volatility is based on the historical volatility of the Company's common stock for a period approximating the expected life. The expected
life represents the period of time that options are expected to be outstanding after the grant date. The risk-free rate reflects the interest rate at grant date on zero
coupon U.S. governmental bonds having a remaining life similar to the expected option term.
Option activity for the three months ended June 30, 2018 was as follows:
Weighted Average Weighted Average
Exercise Remaining Aggregate Intrinsic
Shares Price Contractual Term Value
Options outstanding, beginning of period 497,728 S 70.69
Granted during period 300 102.22
Exercised during period (20,830) 68.60
Forfeited during period (4,638) 72.24
Expired during period
Options outstanding, end of period 70.79 5-? ‘CUIN S N.(O7.061
Options exercisable, end of period ) 78,103 S 72.48 4.4 years S 10.719,071
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The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on June 30, 2018
and the exercise price, multiplied by the number of in-the-money options) that would have been received by option holders had all option holders exercised their
options as of June 30, 2018 . This amount will change as the market price of the common stock changes. The total intrinsic value of options exercised during the
periods ended June 30, 2018 and 2017 was as follows:
June 30, June 30,
2018 2017
Three months ended 941,140 $ 2,224,880
As of June 30, 2018 , total unrecognized stock-based compensation expense related to non-vested stock options amounted to approximately $1.9 million , which is
expected to be recognized over a weighted-average period of approximately 1.9 years.
Restricted Stock
The Company has not granted any shares of restricted stock during fiscal 2019 .
During fiscal 2018, the Company granted 24,456 shares of restricted stock (which are equity classified) to certain executive officers, with a grant date weighted
average fair value of $107.52 per share. One-third of these awards will vest each October I over the next three years.
During fiscal 2017, the Company granted 74,490 shares of restricted stock (which are equity classified) to certain executive officers, with a grant date weighted
average fair value of $51.15 per share. One-third of these awards will vest on each anniversary of the grant date over the next three years.
Compensation expense related to restricted stock is based on the number of shares expected to vest and the fair market value of the common stock on the grant
date. The Company recognized compensation expense of $1.0 million and $0.6 million for the three months ended June 30, 2018 and 2017 , respectively, which is
included as a component of general and administrative expenses in the Company's Consolidated Statements of Operations.
As of June 30, 2018 , there was approximately $2.3 million of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be
recognized over the next 2.0 years based on current estimates.
A summary of the status of the Company's restricted stock as of June 30, 2018 , and changes during the three months ended June 30, 2018 , are presented below:
Weighted Average Fair Value at
Shares Grant Date
Outstanding at March 31, 2018 73,810 $ 65.74
Granted during the period
Vested during the period (2,712) 43.14
Forfeited during the period
Outstanding at June 30, 2018 71,098 $ 66.60
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Total share-based compensation included as a component of net income during the three -month periods ended June 30, 2018 and 2017 was as follows:
Three months ended June 30,
2018 2017
Share-based compensation related to equity classified awards:
Share-based compensation related to stock options 524,227 5 549,311
Share-based compensation related to restricted stock, net of adjustments and exclusive of cancellations 950,790 582,766
Total share-based compensation related to equity classified awards S 1,475,017 5 1,132,077
NOTE 8 - ACOUISITIONS
The Company evaluates each set of assets and activities it acquires to determine if the set meets the definition of a business according to EASE ASC Topic 805-10-
55. Acquisitions meeting the definition of a business are accounted for as a business combination while all other acquisitions are accounted for as asset purchases.
The Company completed no acquisitions during the three months ended June 30, 2018 . The following table sets forth the acquisition activity of the Company for
the three months ended June 30, 2017 .
Three months ended June
30,
2017
Acquisitions:
Number of branches acquired through business combinations 2
Number of loan portfolios acquired through asset purchases
Total acquisitions 9
Purchase price 5 2,830,586
Tangible assets:
Loans receivable, net 2,309,245
Property and equipment
Total tangible assets 2,309,245
Excess of purchase prices over carrying value of net tangible assets 521,341
Customer lists 471,341
Non-compete agreements 50,000
Goodwill
Total intangible assets 5 521,341
Acquisitions that are accounted for as business combinations typically result in one or more new branches. In such cases, the Company typically retains the existing
employees and the branch location from the acquisition. The purchase price is allocated to the tangible assets and intangible assets acquired based upon their
estimated fair market values at the acquisition date. The remainder is allocated to goodwill. During the three months ended June 30, 2018 the Company acquired
no branches through business combinations.
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Acquisitions that are accounted for as asset purchases are typically limited to acquisitions of loan portfolios. The purchase price is allocated to the tangible assets
and intangible assets acquired based upon their estimated fair market values at the acquisition date. In an asset purchase, no goodwill is recorded. During the three
months ended June 30, 2018 , the Company acquired no loan portfolios.
The Company's acquisitions include tangible assets (generally loans and furniture and equipment) and intangible assets (generally non-compete agreements,
customer lists, and goodwill), both of which are recorded at their fair values, which are estimated pursuant to the processes described below.
Acquired loans are valued at the net loan balance. Given the short-term nature of these loans, generally eight months and that these loans are priced at current
rates, management believes the net loan balances approximate their fair value.
Furniture and equipment are valued at the specific purchase price as agreed to by both parties at the time of acquisition, which management believes approximates
their fair values.
Non-compete agreements are valued at the stated amount paid to the other party for these agreements, which the Company believes approximates the fair value.
Customer lists are valued with a valuation model that utilizes the Company's historical data to estimate the value of any acquired customer lists. Customer lists are
allocated at a branch level and are evaluated for impairment at a branch level when a triggering event occurs in accordance with FASS ASC Topic 360-10-05. If a
triggering event occurs, the impairment loss to the customer list is generally the remaining unamortized customer list balance. In most acquisitions, the original fair
value of the customer list allocated to an office is less than $100,000, and management believes that in the event a triggering event were to occur, the impairment
loss to an unamortized customer list would be immaterial.
In a business combination, the remaining excess of the purchase price over the fair value of the tangible assets, customer lists, and non-compete agreements is
allocated to goodwill.
The results of all acquisitions have been included in the Company's Consolidated Financial Statements since the respective acquisition date. The pro forma impact
of these branches as though they had been acquired at the beginning of the periods presented would not have a material effect on the results of operations as
reported.
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NOTE 9 — DEBT
At June 30, 2018 the Company's notes payable consisted of a $480.0 million senior revolving credit facility with borrowings of $239.8 million outstanding and
$300.0 thousand outstanding in standby letters of credit related to workers compensation. To the extent that the letters of credit are drawn upon, the disbursement
will be funded by the credit facility. There are no amounts due related to the letters of credit as of June 30, 2018 , and they expire on December 31, 2018. The
letters of credit are automatically extended for one year on the expiration date. Subject to a borrowing base formula, the Company may borrow at the rate of
LIBOR plus 4.0% with a minimum rate of 5.0%. For the three months ended June 30, 2018 and fiscal year ended March 31, 2018 , the Company's effective
interest rate, including the commitment fee and amortization of debt issuance costs, was 6.8% and 6.0%, respectively, and the unused amount available under the
revolver at June 30, 2018 was $239.9 million . The revolving credit facility has a commitment fee of 0.50% per annum on the unused portion of the
commitment. Borrowings under the revolving credit facility mature on June 15, 2020 .
Substantially all of the Company's assets, excluding the assets of the Company's Mexican subsidiaries, are pledged as collateral for borrowings under the revolving
credit agreement.
The revolving credit agreement contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of
covenants, misrepresentation, cross-default to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, actual or asserted invalidity of
loan documentation, invalidity of subordination provisions of subordinated debt, certain changes of control of the Company, and the occurrence of certain
regulatory events (including the entry of any stay, order, judgment, ruling or similar event related to the Company's or any of its subsidiaries' originating, holding,
pledging, collecting or enforcing its eligible finance receivables that is material to the Company or any subsidiary) which remains unvacated, undischarged,
unbonded or unstayed by appeal or otherwise for a period of 60 days from the date of its entry and is reasonably likely to cause a material adverse change. If it is
determined that a violation of the FCPA or other laws has occurred, as described in Note II, such violation may give rise to an event of default under the revolving
credit agreement if such violation were to have a material adverse effect on the Company's business, operations, properties, assets, or condition (financial or
otherwise) or if the amount of any settlement resulted in the Company failing to satisfy any financial covenants.
NOTE 10 - wow TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax
Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time
repatriation tax on deferred foreign income ("Transition Tax"), and changes in deductions, credits and business-related exclusions.
The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% was effective January 1, 2018. When a federal tax rate change occurs
during a fiscal year, the Internal Revenue Code requires taxpayers to compute a weighted daily average rate for the fiscal year of enactment. As a result, the
Company calculated a U.S. federal statutory corporate income tax rate of 31.55% for the fiscal year ending March 31, 2018. The U.S. corporate federal statutory
rate of 31.55% is the weighted daily average rate between the pre-enactment federal statutory rate of 35% and post-enactment federal statutory rate of 21%.
The impact of changes in federal tax rates on deferred tax amounts and the effect of the Transition Tax are significant unusual or infrequent items which are
recognized as discrete items in the Company's income tax expense in the interim period in which the event occurs. The Company recorded a S10.5 million net
impact of revaluing the U.S. deferred tax assets and liabilities in the third quarter of fiscal 2018. The Company also recorded additional tax expense of $4.9 million
related to the foreign "Transition Tax" during the fourth quarter of fiscal 2018.
During the first of fiscal 2019, the Mexican subsidiaries paid the U.S. Company a dividend of $17.1 million . The Company will no longer claim permanent
reinvestment in the respective foreign jurisdiction. Because of the Transition Tax, the Company's tax basis is greater than its book basis. This difference was
recognized during the first quarter when the foreign subsidiaries were marked as held for sale. The recognition of the basis difference created a capital loss that the
Company does not believe will be recognized in the carryforward period, therefore a full tax valuation allowance was recorded against the recognized loss.
As of June 30, 2018 and March 31, 2018 , the Company had 59.5 million and $8.8 million , respectively, of total gross unrecognized tax benefits including
interest. Approximately $7.6 million and $6.9 million , respectively, represent the amount of net unrecognized tax benefits that are permanent in nature and, if
recognized, would affect the annual effective tax rate. At June 30, 2018 , approximately $4.2 million of gross unrecognized tax benefits are expected to be resolved
during the next twelve months through the expiration of the statute of limitations and settlement with taxing authorities. The Company's continuing practice is to
recognize interest and penalties related to income tax matters in income tax expense. As of June 30, 2018 , the Company had approximately
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52.6 million accrued for gross interest, of which 50.8 million was a current period-end expense for the three months ended June 30, 2018 .
The Company is subject to U.S. and Mexican income taxes, as well as various other state and local jurisdictions. With the exception of a few states, the Company
is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2014, although carryforward attributes
that were generated prior to 2014 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.
The Company's effective income tax rate for continuing operations decreased to 22.6% for the quarter ended June 30, 2018 compared to 39.3% for the prior year
quarter. The decrease is related to the reduction in the federal statutory tax rate that was fully integrated during the first quarter of fiscal 2019. The effective income
tax rate for discontinued operations decreased to (1.3)% for the quarter ended June 30, 2018 compared to 23.5% for the prior year quarter. The decrease is related
to the impairment recorded during first quarter of fiscal 2019 that resulted in a permanent difference for tax purposes.
NOTE 11 — COMMITMENTS AND CONTINGENCIES
Mexico Investigation
As previously disclosed, the Company has retained outside legal counsel and forensic accountants to conduct an investigation of its operations in Mexico, focusing
on the legality under the U.S. Foreign Corrupt Practices Act of 1977, as amended ("FCPA"), and certain local laws of certain payments related to loans, the
maintenance of the Company's books and records associated with such payments. and the treatment of compensation matters for certain employees.
The investigation continues to address whether and to what extent improper payments, which may violate the FCPA and other local laws, were made
approximately between 2010 and 2017 by or on behalf of WAC de Mexico, S.A. de C.V., SOFOM, E.N.R., a subsidiary of the Company ("WAC de Mexico"), to
government officials in Mexico relating to loans made to unionized employees. The Company has voluntarily contacted the SEC and the U.S. Department of
Justice Man to advise both agencies that an internal investigation is underway and that the Company intends to cooperate with both agencies. The SEC has
issued a formal order of investigation. A conclusion cannot be drawn at this time as to what potential remedies these agencies may seek. The Company cannot
determine at this time the ultimate effect that the investigation or any remedial measures will have on its financial condition or results of operations.
If violations of the FCPA or other local laws occurred, the Company could be subject to fines, civil and criminal penalties, equitable remedies, including profit
disgorgement and related interest, and injunctive relief. In addition, any disposition of these matters could result in modifications to our business practices and
compliance programs. Any disposition could also potentially require that a monitor be appointed to review future business practices with the goal of ensuring
compliance with the FCPA and other applicable laws. The Company could also face fines, sanctions, and other penalties from authorities in Mexico, as well as
third-party claims by shareholders and/or other stakeholders of the Company. In addition, disclosure of the investigation or its ultimate disposition could adversely
affect the Company's reputation and its ability to obtain new business or retain existing business from its current customers and potential customers. to attract and
retain employees, and to access the capital markets. If it is determined that a violation of the FCPA has occurred, such violation may give rise to an event of default
under the Company's credit agreement if such violation were to have a material adverse effect on the Company's business, operations, properties, assets, or
condition (financial or otherwise) or if the amount of any settlement, penalties, fines or other payments resulted in the Company failing to satisfy any financial
covenants. Additional potential FCPA violations or violations of other laws or regulations may be uncovered through the investigation.
In addition to the ultimate liability for disgorgement and related interest, the Company believes that it could be further liable for fines and penalties. The Company
is continuing its discussions with the DOJ and SEC regarding the matters under investigation, but the Company cannot reasonably estimate the amount of any fine
or penalty that it may have to pay as a part of any possible settlement or assess the potential liability that might be incurred if a settlement is not reached and the
government were to litigate the matter. As such, based on the information available at this time, any additional liability related to this matter is not reasonably
estimable. The Company will continue to evaluate the amount of its liability pending final resolution of the investigation and any related discussions with the
government.
Further, under the terms of the stock purchase agreement, we are obligated to indemnify the purchasers for claims and liabilities relating to certain investigations of
our Mexico operating segment, the Company, and its affiliates by the DOJ or the SEC that commenced prior to July I, 2018. Any such indemnification claims
could have a material adverse effect on our financial condition, including liquidity, and results of operations. Refer to Note 12 — Subsequent Events in this
Quarterly Report on Fenn 10-Q for more information surrounding the sale of the Company's Mexico operating segment.
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General
In addition, from time to time the Company is involved in routine litigation matters relating to claims arising out of its operations in the normal course of business,
including matters in which damages in various amounts are claimed.
Estimating an amount or range of possible losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an
extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve tines, penalties or damages that are
discretionary in amount, involve a large number of claimants or significant discretion by regulatory authorities, represent a change in regulatory policy or
interpretation, present novel legal theories, are in the early stages of the proceedings, are subject to appeal or could result in a change in business practices. In
addition, because most legal proceedings are resolved over extended periods of time, potential losses are subject to change due to. among other things, new
developments, changes in legal strategy, the outcome of intermediate procedural and substantive rulings and other parties' settlement posture and their evaluation
of the strength or weakness of their case against us. For these reasons. we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate
the possible losses or a range of possible losses resulting from, the matters described above. Based on information currently available, the Company does not
believe that any reasonably possible losses arising from cummtly pending legal matters will be material to the Company's results of operations or financial
condition. However, in light of the inherent uncertainties involved in such matters, an adverse outcome in one or more of these matters could materially and
adversely affect the Company's financial condition, results of operations or cash flows in any particular reporting period.
NOTE 12— SUBSEOUENT EVENTS
On July 13, 2018, the Company and its affiliates, WFC Services Inc. and WAC Mexico Holdings LLC (jointly with the Company, the "Sellers"), approved the sale
of all of the issued and outstanding capital stock and equity interest of WAC de Mexico, S.A. de C.V., SOFOM, E.N.R. ("WAC de Mexico") and Servicios World
Acceptance Corporation de Mexico, S. de R.L. de C.V. ("SWAC") (together, the "Subsidiaries") to Astro Wealth S.A. de C.V. ("Purchaser I") and Astro Assets
S.A. de C.V. ("Purchaser 2", jointly with Purchaser I, the "Purchasers"). The Sellers and Purchasers executed a Stock Purchase Agreement (the "Stock Purchase
Agreement") on July 13, 2018 but held the executed signature pages and the Sellers' share certificates, equity interest and applicable corporate books, records and
documents in escrow until August 3, 2018.
Pursuant to the Stock Purchase Agreement, the Sellers sold all of the issued and outstanding capital stock and equity interest of the Subsidiaries to the Purchasers
for a purchase price of MXN5826,795,050.00 (the "Purchase Price"), which was paid in full to the Sellers in Mexican pesos and subsequently converted by the
Company to approximately USD544.36 million using applicable exchange rates. The effective date of the sale is July 1, 2018.
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Item 2. Management's Discussion and Analysis ofFinancial Condition and Results of Operations
Cautionary Note Regarding Forward-Looking Information
This report on Fenn 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains various "forward-
looking statements," within the meaning of The Private Securities Litigation Refonn Act of 1995, that are based on management's belief and assumptions, as well
as information currently available to management. Statements other than those of historical fact, as well as those identified by the words "anticipate," "estimate,"
"intend," "plan," "expect," "believe," "may," "will," "should," "would," "could," and any variation of the foregoing and similar expressions are forward-looking
statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual financial results, performance or financial condition may vary
materially from those anticipated, estimated or expected.
Among the key factors that could cause our actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-
looking statements are the following: recently enacted, proposed or future legislation and the manner in which it is implemented, including the effect of changes in
tax law, such as the effect of the TCJA that was enacted on December 22, 2017; the nature and scope of regulatory authority, particularly discretionary authority,
that may be exercised by regulators, including, but not limited to, the U.S. Securities and Exchange Commission ("SEC"), U.S. Department of Justice ("DOJ"),
U.S. Consumer Financial Protection Bureau (