EDGAR-pro

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 K 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 K Accelerated filer Non-accelerated filer O (Do not check if smaller reporting company) Smaller reporting company O 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 The number of outstanding shares of the issuer's no par value common stock as of August 2, 2018 was 9,143,267 . No Ditl EFTA00791823 WORLD ACCEPTANCE CORPORATION Form 10-Q Table of Contents Item No. PART I - FINANCIAL INFORMATION Ears 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 2017 1 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 . 3 EFTA00791824 Table of Contents PART I. FINANCIAL INFORMATION WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS June 30, 2018 March 31, 2018 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 EFTA00791825 Table of Contents 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 5 EFTA00791826 Table of Contents 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 EFTA00791827 Table or Contents 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 Comprehensive income (loss) $ (26,739,132) 5 15,546,305 (5,235,838) 2,478,619 See accompanying notes to consolidated financial statements. 7 EFTA00791828 Table of Contents WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Shareholders' 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 Table of Contents WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Cash flow from operating activities: Three months ended June 30, 2018 2017 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 EFTA00791830 Table of Contents See accompanying notes to consolidated financial statements. 10 EFTA00791831 Table of Contents 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 EFTA00791832 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 The following table presents operating, investing and financing cash flows for the Company's discontinued operations: S (37.140.959) S 1.859.231 Three months ended June 30, 2018 2017 Cash provided by operating activities: Cash provided by (used in) investing activities: Cash provided by (used in) financing activities: S (17,126,000) S NOTE 3 —SUMMARY OF SIGNIFICANT POI irws Nature of Operations 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 3,553,854 S 5,356,127 1,138,084 (6,671,126) 12 EFTA00791833 Table of Contents 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 of Modification 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. Revenue from 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 of Financial 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. Revenue from 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 13 EFTA00791834 Table of Contents 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 Test for 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 of Credit 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. 14 EFTA00791835 Table of Contents 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. Input Level June 30, 2018 March 31, 2018 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 . 15 EFTA00791836 Table of Contents 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 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: no longs financing the 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: June 30.2018 Loans individually evaluated for impairment (impaired loans) Loans collectively evaluated for 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 16 EFTA00791837 Table of Contents March 31, 2018 Loans individually evaluated for Loans collectively impairment evaluated for (impaired loans) impairment Total Gross loans in bankruptcy, excluding contractually delinquent Gross loans contractually delinquent 50,019,567 50,019,567 Loans not contractually delinquent and not in bankruptcy 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 Allowance for loan losses (38,782,574) (27,305,565) (66,088,139) 4,627,599 4,627,599 949,585,993 949,585,993 702,028,167 745,241,667 Loans, net of allowance for loan losses June 30, 2017 $ 4.430.926 674.722.602 679.153.528 Loans individually evaluated for Loans collectively 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 Loans not contractually delinquent and not in bankruptcy 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) 43,699,438 43,699,438 933,412,049 933,412,049 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. 17 EFTA00791838 Table of Contents June 30, 2018 March 31, 2018 June 30, 2017 The following is an assessment of the credit quality for the period indicated: 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. 21)18 March 31, 2018 June 30, 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: Basic: Three months ended June 30, 2018 2017 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 18 EFTA00791839 Table of Contents 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: Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic 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 I9 EFTA00791840 Table of Contents 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 Granted during the period Vested during the period Forfeited during the period Outstanding at June 30, 2018 71,098 $ 66.60 73,810 $ 65.74 (2,712) 43.14 20 EFTA00791841 Table of Contents 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: Share-based compensation related to equity classified awards: Three months ended June 30, 2018 2017 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. 21 EFTA00791842 Table of Contents 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. 22 EFTA00791843 Table of Contents 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 23 EFTA00791844 Table of Contents 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. 24 EFTA00791845 Table of Contents 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. 25 EFTA00791846 Table of Contents Item 2. Management's Discussion and Analysis of Financial 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 ("CFPB"), and individual state regulators having jurisdiction over the Company; the unpredictable nature of regulatory proceedings and litigation; developments in, and the outcome of, our ongoing investigation into certain transactions and payments in Mexico, including any legal proceedings or govemment enforcement actions which could arise out of the matters under review, and any remedial actions we may take in connection therewith; any determinations, findings, claims or actions made or taken by regulators or other third parties in connection with or resulting from our ongoing investigation or the SEC's formal order of investigation; the recent sale of our Mexico subsidiaries, including claims or litigation resulting therefrom; uncertainties associated with management tumover and the effective succession of senior management; the impact of changes in accounting rules and regulations, or their interpretation or application, which could materially and adversely affect the Company's reported consolidated financial statements or necessitate material delays or changes in the issuance of the Company's audited consolidated financial statements; the Company's assessment of its internal control over financial reporting; changes in interest rates; risks relating to expansion; risks inherent in making loans, including repayment risks and value of collateral; our dependence on debt and the potential impact of limitations in the Company's amended revolving credit facility; the timing and amount of revenues that may be recognized by the Company; changes in current revenue and expense trends (including trends affecting delinquency and charge-offs); changes in the Company's markets and general changes in the economy (particularly in the markets served by the Company). These and other risks are discussed in more detail in Part II, Item IA "Risk Factors" in this Quarterly Report on Form 10-Q and in Part I. Item IA "Risk Factors" in the Company's most recent report on Form 10-K for the fiscal year ended March 31, 2018 filed with the SEC, and in the Company's other reports filed with, or furnished to, the SEC from time to time. The Company does not undertake any obligation to update any forward-looking statements it may make. Mexico Exit 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 MXNS826,795,050.00 (the "Purchase Price"), which was paid in full to the Sellers in Mexican pesos and subsequently converted by the Company to approximately USDS44.36 million using applicable exchange rates. The effective date of the sale is July 1, 2018. Results of Operations The following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets, as well as operating data and ratios, for the periods indicated (unaudited). As a result of the sale of our Mexico subsidiaries, the below statistics describe our U.S. operating segment only: 26 EFTA00791847 Table of Contents Three months ended June 30, 2018 2017 (Dollars in thousands) Gross loans receivable 1,062,673 981,824 Average gross loans receivable 1,028,071 956,287 Net loans receivable 781,786 724,268 Average net loans receivable 2 760,176 709,465 Expenses as a percentage of total revenue: Provision for loan losses 24.9% 23.8% General and administrative 55.2% 56.8% Interest expense 3.4% 3.6% Operating income as a % of total revenue 3 19.9% 19.5% Loan volume 672,242 619.927 Net charge-offs as percent of average net loans receivable 15.1% 14.1% Return on average assets (trailing 12 months) 6.8% 8.3% Return on average equity (trailing 12 months) 11.1% 15.3% Branches opened or acquired (merged or closed), net 4 Branches open (at period end) 1,181 1,169 "' Average gross loans receivable have been determined by averaging month•end gross loans receivable over the indicated period. 12' Average net loans receivable have been determined by avenging month-end grass loans receivable less unearned intent and deferred fees over the indicated period. 11, Operating income is computed as total revenues less provision for loan losses and general and administrative expenses. Comparison of three months ended June 30, 2018 versus three months ended June 30, 2017 Gross loans outstanding in the US increased to S1.06 billion as of June 30, 2018, an 8.2% increase from the $981.8 million of gross loans outstanding as of June 30, 2017. Our unique borrowers in the US increased by 20,805 or 2.7% during the first quarter of fiscal 2019. This is compared to an increase of 15,616 or 2.1% during the first quarter of fiscal 2018. As a result of our decision to sell our Mexico operations, we have classified the Mexico business segment as held for sale on the balance sheet as of June 30, 2018 and March 31, 2018 and reported the results as discontinued operations on the statement of operations for the quarters ended June 30, 2018 and June 30, 2017. Net income from continuing operations for the first quarter increased to S15.6 million , a 39.5% increase from the $11.2 million reported for the same quarter of the prior year. Operating income (revenue less provision for loan losses and general and administrative expenses) from continuing operations increased by S1.7 million , or 7.5%. We recognized a $39.0 million impairment loss on our investment in our Mexico operations in the first quarter of fiscal 2019. In accordance with GAAP, our testing for, and subsequent recognition of, the impairment was triggered by the change in classification of our Mexico operations from continuing operations to held for sale. Of the total impairment loss, 531.3 million is directly attributable to the cumulative translation loss on the investment stemming from the devaluation of the Mexican Peso relative to the U.S. Dollar since the date of our investment. In terms of our impairment analysis, the cumulative translation loss effectively increased our investment in our Mexico operations from $51.6 million to $82.9 million, which ultimately resulted in a total impairment of $39.0 million to reflect an estimated fair value of $43.9 million. Due to the impairment. net income for the first quarter of fiscal 2019 decreased $34.6 million to a $21.5 million loss compared to the S13.1 million of net income reported for the corresponding quarter of the previous year. 27 EFTA00791848 Table of Contents Revenues from continuing operations increased by $6.2 million , or 5.3%, to 5122.8 million during the quarter ended June 30, 2018 from S116.6 million for the corresponding quarter of the previous year. The increase was primarily due to an increase in average net loans outstanding. Revenues from the 1,147 offices open throughout both quarterly periods increased by 5.7%. Interest and fee income from continuing operations for the quarter ended June 30, 2018 increased by $5.1 million , or 4.9% , from the corresponding quarter of the previous year. The increase was primarily due to a corresponding increase in average net loans outstanding. Net loans outstanding at the end of the quarter ended June 30, 2018 increased 8.0% over the balance at the end of the prior year quarter. Average net loans outstanding increased 7.1% for the quarter ended June 30, 2018 compared to the quarter ended June 30, 2017 . We have seen a slight reduction in the overall yield on our portfolio. This is largely due to moving our performing customers into larger balance loans with lower rates. We have also reduced ow interest rates in certain markets due to competitive pressures. Insurance commissions and other income from continuing operations for the quarter ended June 30, 2018 increased by $1.1 million , or 8.1% , from the corresponding quarter of the previous year. Insurance commissions increased by approximately $0.6 million , or 5.7% , during the three months ended June 30, 2018 when compared to the three months ended June 30, 2017 . Other income increased 5330,000 due to the preparation of tax returns and 5290,000 due to the Company's motor club product. Accounts from continuing operations that were 61 days or more past due on a recency basis increased to 5.0% at June 30, 2018, compared to 4.9% at June 30, 2017. Accounts from continuing operations that were 61 days or more past due on a contractual basis were 6.6% at June 30, 2018 and 2017. The Company's allowance for loan losses from continuing operations as a percentage of net loans from continuing operations was 8.7% at June 30, 2018 and 2017. The provision for loan losses for continuing operations for the quarter ended June 30, 2018 increased by $2.9 million , or 10.4%, from the corresponding quarter of the previous year. The increase is primarily due to an increase in net charge-offs from continuing operations of $3.6 million. Net charge-offs from continuing operations as a percentage of average net loans on an annualized basis increased from 14.1% in the quarter ended June 30, 2017 to 15.1% in the quarter ended June 30, 2018 . The portion of the provision driven by total loans outstanding at June 30, 2018 increased by $855,000 over the balance at June 30, 2017 due to faster growth in outstanding loans from continuing operations during the first quarter of fiscal 2019. The provision also decreased $1.6 million when compared with the balance at June 30, 2017 , which is the net result of a decrease in accounts that were 91 days or more past due of $500,000 over the three months ended June 30, 2018 and an increase in accounts that were 91 days or more past due of SI. 1 million over the three months ended June 30, 2017. General and administrative ("GRA") expenses from continuing operations for the quarter ended June 30, 2018 increased by $1.6 million , or 2.4%, from the corresponding quarter of the previous year. As a percentage of revenues, G&A expenses decreased from 56.8% during the first quarter of fiscal 2018 to 55.2% during the first quarter of fiscal 2019. G&A expenses per average open office increased by 1.6 % when comparing the two fiscal quarters. The change in G&A expense is explained in greater detail below. Personnel expense totaled $41.6 million for the quarter ended June 30, 2018 , a $0.5 million , or 1.3% , increase over the quarter ended June 30, 2017 . The increase was primarily driven by increased incentive payments of 51.3 million due to improved performance, partially offset by decreased employee benefit expense of $0.4 million and lower salary expense of $0.5 million. Occupancy and equipment expense totaled 510.1 million for the quarter ended June 30, 2018 , a $0.5 million , or 5.5%, increase over the quarter ended June 30, 2017 . Occupancy and equipment expense is generally a function of the number of branches the Company has open throughout the period. For the quarter ended June 30, 2018 , the average expense per branch increased slightly to $8.5 thousand, up from 58.1 thousand for the quarter ended June 30, 2017 . Advertising expense totaled $4.9 million for the quarter ended June 30, 2018 , a 50.2 million , or 4.6%, increase over the quarter ended June 30, 2017 . Amortization of intangible assets totaled 50.3 million for the quarter ended June 30, 2018 , a 50.1 million , or 41.8%. increase over the quarter ended June 30, 2017 , which primarily relates to a corresponding increase in total intangible assets during the comparative periods due to acquisitions over the last twelve months. Other expense totaled $11.0 million for the quarter ended June 30, 2018 , a 50.2 million , or 2.1% , increase over the quarter ended June 30, 2017. Legal expense decreased $1.5 million for the quarter, largely due to lower expense related to the Mexico investigation. Professional expense increased $1.0 million, largely due to costs associated with implementing new systems. Our ongoing information technology spend also increased $0.4 million for the quarter. Interest expense for the quarter ended June 30, 2018 decreased by $21,701 , or 0.5% , from the corresponding quarter of the previous year. The decrease in interest expense was due to a 17.6% decrease in the average debt outstanding, from $292.0 million to $240.7 million . The Company disbursed $17.1 million in cash from its discontinued operations to its continuing operations at the end of 28 EFTA00791849 Table of Contents the quarter and used this cash to pay down outstanding debt. The Company's debt to equity ratio decreased from 0.6:1 at June 30, 2017 to 0.5:1 at June 30, 2018. Other key return ratios for the first quarter of fiscal 2019 included a 6.8% return on average assets and a return on average equity of 11.1% (both on a trailing 12- month basis). 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 the first quarter of fiscal 2019 that resulted in a permanent difference for tax purposes. Regulatory Matters Mexico Inwitication 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, to government officials in Mexico relating to loans made to unionized employees. The Company has voluntarily contacted the SEC and the DOJ to advise both agencies that an 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 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. 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 to the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q for more information surrounding the sale of the Company's Mexico operating segment. Refer to Note II to the unaudited consolidated financial statements in this Quarterly Report on Form 10-Q and the Risk Factors in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018 and in the Company's other reports filed with, or furnished to, the SEC from time to time for additional information. rFPB Rulemakinv On October 5, 2017, the CPPB issued a final rule (the "Rule") imposing limitations on (i) short-term consumer loans, (ii) longer-term consumer installment loans with balloon payments, and (iii) higher-rate consumer installment loans repayable by a payment authorization. The Rule requires lenders originating short-term loans and longer-term balloon payment loans to evaluate whether each consumer has the ability to repay the loan along with current obligations and expenses ("ability to repay requirements"). The Rule also curtails repeated unsuccessful attempts to debit consumers' accounts for short-term loans, balloon payment loans. and installment loans that involve a payment authorization and an Annual Percentage Rate over 36% ("payment requirements"). The final Rule has significant differences from the CFPB's proposed rules announced on June 2, 2016, relating to payday, vehicle title, 29 EFTA00791850 Table of Contents and similar loans. The Company does not believe that the CFPB's final rule will have a material impact on the Company's existing tending procedures, because the Company currently does not make short-term consumer loans or longer-term consumer installment loans with balloon payments that would subject the Company to the Rule's ability to repay requirements. To the extent that the Rule's payment requirements would apply to the Company's loans, the Company does not believe that these requirements would have a material impact on the Company's lending procedures. The CFPB also has stated that it expects to conduct separate rulemaking to identify larger participants in the installment lending market for purposes of its supervision program. Though the timing of any such rulemaking is uncertain, the Company believes that the implementation of such rules would likely bring the Company's business under the CFPB's supervisory authority which, among other things, would subject the Company to reporting obligations to, and on-site compliance examinations by, the CFPB. See Part I, Item 1, "Business - Government Regulation - Federal legislation" and Pat I, Item 1 A, "Risk Factors" in the Company's Form 10-K for the year ended March 31, 2018 for a further discussion of these matters and federal regulations to which the Company's operations are subject. Liquidity• and Capital Resources The Company has financed and continues to finance its operations, acquisitions and office expansion through a combination of cash flows from operations and borrowings from its institutional lenders. The Company has generally applied its cash flows from operations to fund its loan volume, fund acquisitions, repay long- term indebtedness, and repurchase its common stock. The Company continues to believe repurchases of common stock are a viable component of the Company's long-term financial strategy and an excellent use of excess cash when the opportunity arises. However, the Company's amended credit facility limits share repurchases to 50% of consolidated adjusted net income in any fiscal year commencing with the fiscal year ended March 31, 2017. Expenditures by the Company to open and furnish new offices averaged approximately $41,000 per branch during fiscal 2018 . New branches have also required from 5100,000 to 5400,000 to fund outstanding loans receivable originated during their first 12 months of operation. During the three months ended June 30, 2018 , the Company opened 8 new branches and 4 branches were merged into existing branches. The Company acquired no branches through business combinations during the first three months of fiscal 2019 . The Company may acquire new branches or receivables from its competitors or acquire offices in communities not currently served by the Company if attractive opportunities arise as conditions in local economies and the financial circumstances of owners change. The Company has a revolving credit facility with a syndicate of banks. The revolving credit facility provides for revolving borrowings of up to the lesser of (a) the aggregate commitments under the facility and (b) a borrowing base, and includes a $300.0 thousand letter of credit subfacility. At June 30, 2018 , the aggregate commitments under the credit facility were 5480.0 million . The borrowing base limitation is equal to the product of (a) the Company's eligible finance receivables less unearned finance charges, insurance premiums and insurance commissions, and (b) an advance rate percentage that ranges from 79% to 85% based on a collateral performance indicator, as more completely described below. Further, the administrative agent under the revolving credit facility has the right at any time, and from time to time in its permitted discretion (but without any obligation), to set aside reasonable reserves against the borrowing base in such amounts as it may deem appropriate, including, without limitation, reserves with respect to regulatory events or any increased operational, legal or regulatory risk. In June 2018, the credit facility was amended to, among other things: (i) extend the maturity date under the Revolving Credit Agreement from June 15, 2019 to June 15, 2020; (ii) require the use of deposit account control agreements in favor of the administrative agent in certain circumstances; and (iii) require quarterly reports updating the schedule showing the Company's deposit accounts. Funds borrowed under the revolving credit facility bear interest at the LIBOR rate plus 4.0% per annum, with a minimum rate of 5.0%. During the three months ended June 30, 2018 , the effective interest rate, including the commitment fee and amortization of debt issuance costs, on borrowings under the revolving credit facility was 6.rA, . The Company pays a commitment fee equal to 0.50% per annum of the daily unused portion of the commitments. On June 30, 2018 , 5239.8 million was outstanding under this facility, and there was 5239.9 million of unused borrowing availability under the borrowing base limitations. 30 EFTA00791851 Table of Contents The Company's obligations under the revolving credit facility, together with treasury management and hedging obligations owing to any lender under the revolving credit facility or any affiliate of any such lender, are required to be guaranteed by each of the Company's wholly-owned domestic subsidiaries. The obligations of the Company and the subsidiary guarantors under the revolving credit facility, together with such treasury management and hedging obligations, are secured by a first-priority security interest in substantially all assets of the Company and the subsidiary guarantors. The agreement governing the Company's revolving credit facility contains affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, pay dividends and repurchase or redeem capital stock, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, redeem or prepay subordinated debt, amend subordinated debt documents, make changes in the nature of its business, and engage in transactions with affiliates. The agreement also contains financial covenants, including a minimum consolidated net worth of S330.0 million plus 50% of the borrowers' consolidated net income for each fiscal year beginning with 2017, a minimum fixed charge coverage ratio of 2.5 to 1.0, a maximum ratio of total debt to consolidated adjusted net worth of 2.0 to 1.0, and a maximum ratio of subordinated debt to consolidated adjusted net worth of 1.0 to 1.0. The agreement allows the Company to incur subordinated debt that matures after the termination date for the revolving credit facility and that contains specified subordination terms, subject to limitations on amount imposed by the financial covenants under the agreement. In addition, the agreement establishes a maximum specified level for the collateral performance indicator. The collateral performance indicator is equal to the sum of (a) a three-month rolling average rate of receivables at least sixty days past due and (b) an eight-month rolling average net charge-off rate. The Company was in compliance with these covenants at June 30, 2018 and does not believe that these covenants will materially limit its business and expansion strategy. The 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 has occurred, as described above in "—Regulatory Matters—Mexico Investigation" and in Part I, Item 3, "Legal Proceedings—Mexico Investigation" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018 , such violation may give rise to an event of default under our credit agreement if such violation were to have a material adverse effect on our 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. The Company believes that cash flow from operations and borrowings under its revolving credit facility or other sources will be adequate to fund the expected cost of opening or acquiring new branches, including funding initial operating losses of new branches and funding loans receivable originated by those branches and the Company's other branches (for the next 12 months and for the foreseeable future beyond that). Except as otherwise discussed in this report and in the Company's Form 10-K for the year ended March 31, 2018 , including, but not limited to, any discussions in Part I, Item IA, "Risk Factors" (as supplemented by any subsequent disclosures in information the Company files with or furnishes to the SEC from time to time), management is not currently aware of any trends, demands, commitments, events or uncertainties that it believes will or could result in, or are or could be reasonably likely to result in, any material adverse effect on the Company's liquidity. The Mexico operating segment has generally been fully self-sustaining since the Company's initial investment in the business. Additional infusions of cash have been, by and large, infrequent and immaterial to the consolidated entity's financial statements. Likewise, the Company has generally refrained from repatriating cash from its Mexico operations to the U.S., other than a one-time $17.1 million distribution to the Company during the first quarter of fiscal 2019. The Company does not expect the sale of its Mexico operating segment to materially affect its liquidity outside of the one-time increase in cash on hand directly related to the funds received from the sale. 31 EFTA00791852 Table of Contents Share Repurchase Program On March 10, 2015, the Board of Directors authorized the Company to repurchase up to 525.0 million of the Company's common stock. As of June 30, 2018 . the Company has 51.9 million in aggregate remaining repurchase capacity under the March 10, 2015 repurchase authorization. The timing and actual number of shares of common stock repurchased will depend on a variety of factors, including the stock price, corporate and regulatory requirements and other market and economic conditions. Although the repurchase authorization above has no stated expiration date, the Company's stock repurchase program may be suspended or discontinued at any time. The Company has not repurchased any shares of its common stock since the first quarter of fiscal 2018. At the time of this filing, it is uncertain if or when the Company will recommence share repurchases. The Company continues to believe common stock repurchases to be a viable component of the Company's long-term financial strategy and an excellent use of excess cash when the opportunity arises. However, our amended credit facility limits share repurchases to 50% of consolidated adjusted net income in any fiscal year commencing with the fiscal year ended March 31, 2017. Our first priority is to ensure we have enough capital to fund loan growth. To the extent we have excess capital, we may continue repurchasing common stock, if appropriate and as authorized by our Board of Directors. As of June 30, 2018 our debt outstanding was 5239.8 million and our shareholders' equity was 5517.3 million , resulting in a debt-to-equity ratio of 0.5 :1.0. We will continue to monitor our debt-to-equity ratio and are committed to maintaining a debt level that will allow us to continue to execute our business objectives, while not putting undue stress on our consolidated balance sheet. Inflation The Company does not believe that inflation, within reasonably anticipated rates, will have a material, adverse effect on its financial condition. Although inflation would increase the Company's operating costs in absolute terms, the Company expects that the same decrease in the value of money would result in an increase in the size of loans demanded by its customer base. It is reasonable to anticipate that such a change in customer preference would result in an increase in total loans receivable and an increase in absolute revenue to be generated from that larger amount of loans receivable. That increase in absolute revenue should offset any increase in operating costs. In addition, because the Company's loans have a relatively short contractual term, it is unlikely that loans made at any given point in time will be repaid with significantly inflated dollars. Quarterly Information and Seasonality See Note 3 to the unaudited Consolidated Financial Statements. Recently Adopted Accounting Pronouncements See Note 3 to the unaudited Consolidated Financial Statements. Critical Accounting Policies The Company's accounting and reporting policies are in accordance with U.S. GAAP and conform to general practices within the finance company industry. Certain accounting policies involve significant judgment by the Company's management, including the use of estimates and assumptions which affect the reported amounts of assets, liabilities, revenue, and expenses. As a result, changes in these estimates and assumptions could significantly affect the Company's financial position and results of operations. The Company considers its policies regarding the allowance for loan losses, share-based compensation and income taxes to be its most critical accounting policies due to the significant degree of management judgment involved. Allowance for Loan Losses The Company has developed processes and procedures for assessing the adequacy of the allowance for loan losses that take into consideration various assumptions and estimates with respect to the loan portfolio. The Company's assumptions and estimates may be affected in the future by changes in economic conditions, among other factors. Additional information concerning the allowance for loan losses is discussed under Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Credit Quality" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018 . Share-Bored romnensation The Company measures compensation cost for share-based awards at fair value and recognizes compensation over the service period for awards expected to vest. The fair value of restricted stock is based on the number of shares granted and the quoted price of the Company's common stock at the time of grant, and the fair value of stock options is determined using the Black-Scholes 32 EFTA00791853 Table of Contents valuation model. The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free interest rate and expected life, changes to which can materially affect the fair value estimate. Actual results and future changes in estimates may differ substantially from the Company's current estimates. Income Tares Management uses certain assumptions and estimates in determining income taxes payable or refundable. deferred income tax liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations. Management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax liabilities and assets. These judgments and estimates are re-evaluated on a periodic basis as regulatory and business factors change. No assurance can be given that either the tax returns submitted by management or the income tax reported on the Consolidated Financial Statements will not be adjusted by either adverse rulings, changes in the tax code, or assessments made by the Internal Revenue Service, state, or foreign taxing authorities. The Company is subject to potential adverse adjustments, including but not limited to: an increase in the statutory federal or state income tax rates, the permanent non- deductibility of amounts currently considered deductible either now or in future periods, and the dependency on the generation of future taxable income in order to ultimately realize deferred income tax assets. Under FASB ASC Topic 740, the Company will include the current and deferred tax impact of its tax positions in the financial statements when it is more likely than not (likelihood of greater than 50%) that such positions will be sustained by taxing authorities, with full knowledge of relevant information, based on the technical merits of the tax position. While the Company supports its tax positions by unambiguous tax law, prior experience with the taxing authority, and analysis of what it considers to be all relevant facts, circumstances and regulations, management must still rely on assumptions and estimates to determine the overall likelihood of success and proper quantification of a given tax position. 33 EFTA00791854 Table of Contents Item 3. Ouantitative and Oualitative Disclosures about Market Risk Interest Rate Risk As of June 30, 2018 , the Company's financial instruments consisted 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 outstanding debt under its revolving credit facility was $239.8 million at June 30, 2018. Interest on borrowing under this facility is based on the greater of 5.0% or one month LIBOR plus 4.0%. Based on the outstanding balance at June 30, 2018 , a change of 1.0% in the interest rates would cause a change in interest expense of approximately $2.4 million on an annual basis. Foreign Currency Exchange Rate Risk As of June 30, 2018, the Company held branches in Mexico, where its local businesses utilize the Mexican peso as their functional currency. The consolidated financial statements of the Company are denominated in U.S. dollars and are, therefore, as of June 30, 2018, subject to fluctuation as the U.S. dollar and Mexican peso foreign exchange rates change. International revenue from our non-U.S. operations accounted for approximately 7.3% and 9.5% of consolidated revalue during the three months ended June 30, 2018 and 2017 , itspectively. Our international assets exposed us to risks, including but not limited to potential FCPA compliance risks, differing economic conditions, changes in political climate, social unrest, labor union dynamics that could affect the collectability of our payroll deduct product, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Our exposure to foreign exchange rate fluctuations arose in part from balances in our intercompany accounts included on our subsidiary balance sheets. These intercompany accounts were denominated in the functional currency of the foreign subsidiaries and are translated to U.S. dollars at each reporting period end. The effect of foreign exchange rate fluctuations on our consolidated financial position is recognized within shareholders' equity through accumulated other comprehensive income (loss). The net translation adjustment for the three months ended June 30, 2018 resulted in a loss of approximately S 5.2 million . As noted above in "—Mexico Exit," the Company sold its foreign subsidiaries, effective as of July 1, 2018. Thus, the Company is no longer subject to foreign currency exchange rate risk. The Company performed a foreign exchange sensitivity analysis as of June 30, 2018 assuming a hypothetical 10% increase and decrease in the value of the U.S. dollar relative to the Mexican peso. The foreign exchange risk sensitivity of both net loans receivable and consolidated net income was assessed using hypothetical scenarios and assumes that earnings in Mexican pesos were recognized evenly throughout a period. The foreign exchange risk sensitivity of net loans denominated in Mexican pesos and translated into U.S. dollars, which were approximately $52.0 million and $73.3 million at June 30, 2018 and 2017 , respectively. on the reported consolidated net loans receivable amount is summarized in the following table: Foreign Exchange Sensitivity Analysis of Loans Receivable, Net Amounts As of June 30, 2018 Foreign exchange spot rate, U.S. dollars to Mexican pesos -10% 0% 10% Loans receivable, net of unearned 829,031,256 $ 833,755,790 S 839,530,239 % change from base amount (0.57)% 0.69% $ change from base amount (4,724,534) $ — S 5,774,449 Foreign exchange spot rate, U.S. dollars to Mexican pesos As of June 30, 2017 -10% 0% 10% Loans receivable, net of unearned $ 790,921,096 $ 797,586,473 S 805,733,046 %change from base amount (0.84)% 1.02% change from base amount (6,665,377) $ — $ 8,146,573 34 EFTA00791855 Table of Contents The following table summarizes the results of the foreign exchange risk sensitivity analysis on reported consolidated net income as of the dates indicated below: Foreign Exchange Sensitivity Analysis of Net Income Foreign exchange spot rate. US. dollars to Nlesitati pesos For the three months ended June 30. 2018 -10% 0% HI% Net Income (18,126,764) $ (21,503,294) S (25,629.949) % change from base amount 05.701% —% 19.19% S change from base amount 3,376,530 $ — $ (4,126,655) Foreign exchange spot rate, U.S. dollars to Mexican pesos For the three months ended June 30, 2017 -10% 0% 10% Net Income 12,898,661 $ 13,067,686 $ 13,274,261 %change from base amount (1.29)% 1.58% change from base amount (169,025) $ $ 206,575 Item 4. Controls and Pmeralares Changes in Internal Control over Financial Reporting There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that occurred during the period covered by this report that have materially affected. or are reasonably likely to materially affect, our internal control over financial reporting. Evaluation of Disclosure Controls and Procedures Based on management's evaluation, with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including ow principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. 35 EFTA00791856 Table of Contents PART II. OTHER INFORMATION Item I. Legal Proceedings See Note I I to the unaudited Consolidated Financial Statements for information regarding legal proceedings. Item IA. Risk Factors Other than as set forth below, them have been no material changes to the risk factors disclosed in Part I, Item IA of the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018 . We may suffer significant liability in connection with indemnification provisions of the Stock Purchase Agreement pursuant to which we sold our Mexico subsidiaries In the second quarter of fiscal year 2019. we completed the sale of our two Mexico subsidiaries, WAC de Mexico and SWAC, to the Purchasers. Under the terms of the Stock Purchase Agreement, we are obligated to indemnify the Purchasers for claims and liabilities relating to certain investigations of the Subsidiaries or the Sellers by the DOJ or the SEC that commenced prior to July 1, 2018. Any such indemnification claims could have a material adverse effect on our financial condition, including liquidity, and results of operations. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company's credit agreements contain certain restrictions on the payment of cash dividends on its capital stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources." Since 1996, the Company has repurchased approximately 18.2 million shares for an aggregate purchase price of approximately $858.8 million . On March 10, 2015, the Board of Directors authorized the Company to repurchase up to 525.0 million of the Company's common stock. As of June 30, 2018 , the Company has 41.9 million in repurchase capacity remaining under this authorization. Although the repurchase authorization above has no stated expiration date, the Company's stock repurchase program may be suspended or discontinued at any time. The following table details purchases of the Company's common stock, if any, made by the Company during the three months ended June 30, 2018 : (a) Total number of shares purchased (b) Average price paid per share (c) Total number of shares purchased as part of publicly announced plans or programs (d) Approximate dollar value of shares that may yet be purchased under the plans or programs April 1 through April 30, 2018 — May I through May 31, 2018 June 1 through June 30, 2018 Total for the quarter Item 3. DefaillIS llpon Senior Seri wide," None. Item 4. MinrSafaxasslasums Not applicable. Item 5 Other Infommtiori None. — $ 1,906,179 1.906,179 1,906,179 — S 36 EFTA00791857 Table of Contents Item 6. Exhibits The exhibits listed in the accompanying exhibit index are filed as part of the Quarterly Report on Form 10-Q. EXHIBIT INDEX Exhibit Number Exhibit Description Filed Herewith Incorpora ed by Reference Form or Registration Number Exhibit Filing Date 2.01 Stock Purchase Agreement to be effective as of July 1. 2018, by and among World 8-K 2.1 08-03-18 Accentance Corporation. WFC Services Inc.. WAC Mexico Holdings LLC. Astro Wealth S A de C.V., and Astro Assets S.A. de C V. 10.01 Twelfth Amendment to Amended and Restated Revolving Credit Agreement. dated as of June 8-K 10.1 06-01-18 1 2018 31.01 Rule 13a-14M/15d-144O Certification of Chief Executive Officer 31.02 Rule 13a-14O/15d-14(a) Certification of Chief Financial Officer 32.01 Section 1350 Certification of Chief Executive Officer 32.02 Section 1350 Certification of Chief Financial Officer 101.01 The following materials front the Company's Quarterly Report for the fiscal quarter ended June 30, 2018, formatted in XBRL: (i) Consolidated Balance Sheets as of Lune 30, 2018 and March 31, 2018; (ii) Consolidated Statements of Operations for the three months ended June 30, 2018 and June 30, 2017; (iii) Consolidated Statements of Comprehensive Income for the three months ended June 30, 2018 and June 30, 2017; (iv) Consolidated Statements of Shareholder's Equity for the year ended March 31, 2018 and the three months ended June 30.2018; (v) Consolidated Statements of Cash Flows for the three months ended June 30. 2018 and June 30, 2017; and (vi) Notes to the Consolidated Financial Statements. • Submitted electronically herewith. + Management Contract or other compensatory plan required to be filed under Item 6 of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission. 37 EFTA00791858 Table of Contents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WORLD ACCEPTANCE CORPORATION By: /sI R. Chad Prashad R. Chad Prashad President and Chief Executive Officer Date: August 9, 2018 By: Is/ John L. Calmes, Jr. John L. Calmes, Jr. Senior Vice President and Chief Financial Officer Date: August 9, 2018 38 EFTA00791859 EXHIBIT 31.01 CERTIFICATION I, R. Chad Prashad, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of World Acceptance Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(0) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: August 9, 2018 /s/ R. Chad Prashad R. Chad Prashad President and Chief Executive Officer EFTA00791860 EXHIBIT 31.02 CERTIFICATION I, John L. Calmes, Jr., certify that: I. I have reviewed this Quarterly Report on Form 10-Q of World Acceptance Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's intemal control over financial reporting. Dated: August 9, 2018 /s/ John L. Calmes, Jr. John L. Calmes, Jr. Senior Vice President and Chief Financial Officer EFTA00791861 EXHIBIT 32.01 CERTIFICATION OF PERIODIC REPORT I, R. Chad Prashad, President and Chief Executive Officer of World Acceptance Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge: (1) the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018 . (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents. in all material respects, the financial condition and results of operations of the Company. Dated: August 9, 2018 /s/ R. Chad Prashad R. Chad Prashad President and Chief Executive Officer EFTA00791862 EXHIBIT 32.02 CERTIFICATION OF PERIODIC REPORT I, John L. Calmes, Jr., Senior Vice President and Chief Financial Officer of World Acceptance Corporation (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to my knowledge: (1) the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2018 . (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents. in all material respects, the financial condition and results of operations of the Company. Dated: August 9, 2018 /s/ John L. Calmes, Jr. John L. Calmes, Jr. Senior Vice President and Chief Financial Officer EFTA00791863