2020 Annual Report COMPANY PROFILE
WORLD ACCEPTANCE CORPORATION (“World”), founded in 1962, is one of the largest small-loan consumer
finance companies in the United States. It offers short-term small loans, medium-term larger loans, related credit insurance
products, and ancillary products to individuals who have limited access to other sources of consumer credit. It also offers income
tax return preparation services to its customer base and to others.
World emphasizes quality customer service and the building of strong personal relationships with its customers. As a result,
a substantial portion of World's business is repeat business from the renewal of loans to existing customers and the origination of
new loans to former customers. As of March 31, 2020, World had approximately 890,000 customers. During fiscal 2020, World
loaned $2.9 billion in 1.9 million transactions. World's loans are generally less than $4,000 with maturities of less than 42 months.
World’s average gross loan, including refinances, made in fiscal 2020 was $1,517, and the average contractual maturity was
approximately twelve months.
As of June 30, 2020, World operated 1,240 offices in Alabama, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana,
Mississippi, Missouri, New Mexico, Oklahoma, South Carolina, Tennessee, Texas, Utah and Wisconsin.
1
TABLE OF CONTENTS
Item No. Contents
Financial Highlights
Message to Shareholders
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
SIGNATURES
Page
3
4
6
18
32
32
32
34
34
36
37
53
54
93
93
94
94
94
94
94
94
94
95
96
2
TO OUR SHAREHOLDERS
(Dollars in thousands, except per share and statistical data)
Select Statement of Operations Data:
Total revenues. ......................................................................
Net income .............................................................................
Diluted earnings per share .....................................................
Selected Balance Sheet Data:
Years Ended March 31,
2020
590,029
28,157
3.54
2019
544,543
37,325
4.05
Gross loans receivable ...........................................................
1,209,871
1,127,957
Total assets ............................................................................
1,030,086
Total debt ...............................................................................
Total shareholders' equity ......................................................
Selected Ratios:
Return on average assets ........................................................
Return on average shareholders' equity .................................
Shareholders' equity to assets ................................................
Statistical Data:
451,100
411,963
2.8%
7.3%
40.0%
854,988
251,940
552,117
8.8%
13.6%
64.6%
Number of customers at period end .......................................
895,949
852,593
Number of loans made ...........................................................
1,931,212
1,836,100
Number of offices ..................................................................
1,243
1,193
See our Consolidated Financial Statements and accompanying notes included herein.
Change (%)
8.4%
(24.4%)
(12.5%)
7.3%
20.5%
79.1%
(25.4%)
(68.2%)
(46.3%)
(38.1%)
5.1%
5.2%
4.2%
3
To Our Shareholders
Shareholders,
In my letter last year, I discussed how our mission of helping customers “Get Back to the Good” in life is a reflection of
our company’s long-standing history and culture. In summary, World serves the people that banks have traditionally ignored
or left behind in our communities. We have served the underbanked, credit challenged, and unscored credit customers that were
left as banks moved to higher credit quality customers and higher balance products. And, we’ve done so in a manner that treats
our customers with respect and dignity. We help them in their time of need and give them the opportunity to improve their
credit history for future needs. Our annual customer success statistics include nearly a quarter million customers moving out
of deep subprime or subprime, half a million customers earning reduced interest rates and/or increased credit limits, and lending
to nearly one hundred thousand customers without a credit score. These results exemplify what we aim to achieve as a company:
customer success. We do all of this by underwriting the customer, not just the value of their collateral in case they default. At
World, we are naturally aligned with our customer and share in their success.
With the unexpected changes in our country’s economy and culture during recent months, this is an appropriate time to
dive deeper into what has driven us through these times and will continue to direct us in the future. This year, I’ll share the
“why” behind our decisions.
Two years ago, before I accepted the responsibility as President and CEO, I deliberated at length on what my own guiding
principles would be in this position. The interaction between self-interest, company-interest, and other external interests is a
real and tangible issue facing leaders on a daily basis. Similarly entangled are the interests of a company’s many stakeholders
and the related management challenge of sorting and prioritizing them. Conventional wisdom suggests the only responsibility
is to the shareholders and the board, who represents them. While there is no question about the importance of these two
constituents, using them as the only guideposts seemed to be too narrow, I thought. Using only these guideposts would provide
little guidance on the day to day running of the company, notably how best to affect and drive the indirect or intangibles such
as: why people should join my team and why customers should choose us. Positive externalities, especially those that are
difficult to quantify financially, become less important when accountable only to shareholders. On the other hand, expanding
accountability across too many stakeholders seemed overly complicated and inevitably conflict laden.
After much internal debate, I resolved to use stewardship as my guiding principle. Stewardship would become the yard
stick to hold myself accountable in all decision-making, both easy and difficult, financial and cultural. To me, CEO stewardship
means leading with the tangible goal of one day leaving World Acceptance much better off than I found it. Today, this
leadership philosophy sets the tone for how I make decisions personally and how I encourage my team to make decisions. As
such, it guides us. Implicit in this is a natural impermanence of leadership. Just as I have inherited a strong company built by
prior leaders, I will one day leave it to others who will lead after me. My job, as I view it, is to embrace impermanence and
leave World in an even better position for the next leader, hopefully many years from now. The reality that World will continue
after me or my team, obligates us to grow its long-term producing assets for the future and not use them purely for short-term
gains.
To fully align myself in this philosophy, I have four constituents under the stewardship umbrella: Shareholders, Customers,
Team Members, and the Communities we serve. Improving outcomes for all four of these is the driving force behind our
decisions. Stewardship, by definition, measures success in long-term outcomes, sometimes at the expense of the near-term. I
am not interested in improving one constituent over another one as this is fundamentally short-term in nature. Instead our goal
is to work across the common interests of each to achieve long-term benefit for all, as this ultimately maximizes benefit to the
shareholder over the long-term.
To help embrace the mindset of long-term stewardship, we eliminated short-term incentives for our executives. This isn’t
to minimize the importance of short-term performance, as short-term success ensures long-term existence. It is designed to
always prioritize long-term success when in conflict or inconsistent with the short-term. All executives are now primarily
fiscally motivated by long-term incentives. We’ve also expanded the individuals influenced by long-term equity driven
incentives. Today three times the historical number of team members are long-term equity driven, including all senior leaders
across the company. We altered our branch team member bonus plans to encourage healthy growth across both the short- and
long-term cycles. These changes have had the added benefit of reducing compartmentalization of results and improved
4
To Our Shareholders
collaboration across departments. Even our daily discussions on capital allocation continue to be driven by this principal. The
mindset has emboldened us to invest in the kind of technology and infrastructure, customer growth and portfolio acquisitions,
stock repurchases, and long-term employee and cultural changes with a long-term horizon in mind. More so than ever, all levels
in the company are aligned for long-term results.
Our emphasis on long-term growth is balanced by customer satisfaction in order to maintain and improve customer
retention levels. Former customer return rates have grown dramatically over the last few years, with superior customer service
and improving customer outcomes being a few of the main drivers. New borrowers coming to World through customer referrals
continues to grow season after season. As we continue to focus on customer outcome and satisfaction, the end affect is
improving the 1,200+ communities where we live and serve across the country.
While this philosophy of stewardship, “leaving it better than you found it”, has been a driving tenant during the historical
customer growth over the last two years, it also guided our decision-making during the recent COVID-19 pandemic. During
this period, we offered several benefits to our customers impacted by illness or unemployment, even eliminating the normal
waiting period for insurance product benefits. We decided to prudently right size our staff in our pursuit of increasing the
number of accounts each branch associate can service, decreasing in some areas while investing in others. We kept 97% of our
stores open throughout March, April, and May to serve our communities while also providing flexibility to our team members
to reduce their hours without impacting benefits. All of these decisions were made to steward the company over the long-term.
I’m very proud of how quickly our team has responded, adapted, and come together to support each other and our customers.
We will continue to engrain the philosophy of stewardship throughout the culture of the company in order to maximize
shareholder value, provide “good” to our customers, and treat our team members like family.
Chad Prashad
President & Chief Executive Officer
5
Introduction
World Acceptance Corporation, a South Carolina corporation, operates a small-loan consumer finance (installment loan)
business in sixteen states as of March 31, 2020. As used herein, the "Company,” “we,” “our,” “us,” or similar formulations
include World Acceptance Corporation and each of its subsidiaries, except as the context otherwise requires. All references in
this report to “fiscal 2021” are to the Company’s fiscal year ending March 31, 2021; all references in this report to "fiscal 2020"
are to the Company's fiscal year ended March 31, 2020; all references to “fiscal 2019” are to the Company’s fiscal year ended
March 31, 2019; all references to “fiscal 2018” are to the Company’s fiscal year ended March 31, 2018; all references to "fiscal
2017" are to the Company's fiscal year ended March 31, 2017; and all references to "fiscal 2016" are to the Company's fiscal
year ended March 31, 2016.
PART I.
Item 1.
Description of Business
General. The Company was incorporated under the laws of South Carolina on February 22, 1973 and is now one of the nation's
largest small-loan consumer finance companies, offering short-term small installment loans, medium-term larger installment
loans, related credit insurance and ancillary products and services to individuals. The Company offers standardized installment
loans generally between $100 and $3,200, with the average loan being $1,005. The Company operates 1,243 branches in
Alabama, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, South
Carolina, Texas, Tennessee, Utah, and Wisconsin as of March 31, 2020. The Company generally serves individuals with limited
access to other sources of consumer credit such as banks, credit unions, other consumer finance businesses and credit card
lenders. The Company also offers income tax return preparation services to its loan customers and other individuals.
The small-loan consumer finance industry is a highly fragmented segment of the consumer lending industry. Small-loan
consumer finance companies generally make loans to individuals of less than $2,000 with maturities of less than 18
months. These companies approve loans on the basis of the personal creditworthiness of their customers and maintain close
contact with borrowers to encourage the repayment or, when appropriate to meet the borrower’s needs, the refinancing of
loans. By contrast, commercial banks, credit unions and other consumer finance businesses typically make loans of more than
$5,000 with maturities of greater than one year. Those financial institutions generally approve consumer loans on the security
of qualifying personal property pledged as collateral or impose more stringent credit requirements than those of small-loan
consumer finance companies. As a result of their higher credit standards and specific collateral requirements, commercial
banks, savings and loans and other consumer finance businesses typically charge lower interest rates and fees and experience
lower delinquency and charge-off rates than do small-loan consumer finance companies. Small-loan consumer finance
companies generally charge higher interest rates and fees to compensate for the greater risk of delinquencies and charge-offs
and increased loan administration and collection costs.
The majority of the participants in the industry are independent operators with generally less than 100 branches. We believe
that competition between small-loan consumer finance companies occurs primarily on the basis of the strength of customer
relationships, customer service and reputation in the local community rather than pricing, as participants in this industry
generally charge interest rates and fees at, or close to, the maximum permitted by applicable state laws. We believe that our
relatively large size affords us a competitive advantage over smaller companies by increasing our access to, and reducing our
cost of, capital.
Small-loan consumer finance companies are subject to extensive regulation, supervision, and licensing under various federal
and state statutes, ordinances, and regulations. Consumer loan offices are licensed under state laws which, in many states,
establish maximum loan amounts and interest rates and the types and maximum amounts of fees and other charges. In addition,
state laws govern other aspects of the operation of small-loan consumer finance companies. Periodically, constituencies within
states seek to enact stricter regulations that would affect our business. Furthermore, the industry is subject to numerous federal
laws and regulations that affect lending operations. These federal laws require companies to provide complete disclosure of the
principal terms of each loan to the borrower in accordance with specified standards prior to the consummation of the loan
transaction. Federal laws also prohibit misleading advertising, protect against discriminatory lending practices and prohibit
unfair, deceptive, or abusive credit practices.
Impact of COVID-19. COVID-19 is having a global impact and the Company is closely tracking and reacting to the continued
effects of the pandemic. Thus far, nearly all branches have remained open as a result of being classified as an essential business
by government authorities. In each, steps have been taken to reduce personal interactions and assist associates and customers.
Some of these measures include reducing store hours, providing additional leave for those directly impacted, closing lobbies
and offering curbside service, and encouraging customers to service accounts digitally rather than in person. Branch team
6
members have remained positive, strong, and have worked hard to continue to be a resource for customers during these
uncertainties.
As we began to experience non-essential business and school closures, we proactively halted marketing efforts and updated
underwriting criteria given the uncertainty at that time. The Company experienced expected declines in customer demand due
to a combination of reduced marketing and stay-at-home orders reducing customer mobility. Rapid increases in unemployment
and subsequent federal stimulus packages have both altered the underwriting landscape. As a result, the Company has seen
significant increases in online and phone activity related to account access, payments, and refinances. To assist customers
impacted by COVID-19, the normal 30 day wait period for unemployment insurance claims was waived and payment deferrals
have been offered to impacted customers. The Company has also expedited projects related to its digital presence and online
lending and is currently piloting remote applications, signatures, and funding for select customers.
See Part I, Item 1A for an update to our risk factors related to COVID-19.
Expansion. During fiscal 2020, the Company opened 19 new branches, purchased 38 branches, and merged or consolidated 7
branches into existing branches due to their inability to generate sufficient returns or for efficiency reasons. In fiscal 2021, the
Company currently plans to open or acquire approximately 25 new branches by increasing the number of branches in its existing
market areas or commencing operations in new states where it believes demographic profiles and state regulations are
attractive. The Company may merge other branches on a case-by-case basis based on profitability or other factors. The
Company's ability to continue existing operations and expand its operations in existing or new states is dependent upon, among
other things, laws and regulations that permit the Company to operate its business profitably and its ability to obtain necessary
regulatory approvals and licenses. There can be no assurance that such laws and regulations will not change in ways that
adversely affect the Company or that the Company will be able to obtain any such approvals or consents. See Part 1, Item 1A,
“Risk Factors” for a further discussion of risks to our business and plans for expansion.
The Company's expansion is also dependent upon its ability to identify attractive locations for new branches and to hire suitable
personnel to staff, manage, and supervise new branches. In evaluating a particular community, the Company examines several
factors, including the demographic profile of the community, the existence of an established small-loan consumer finance
market and the availability of suitable personnel.
The following table sets forth the number of branches of the Company at the dates indicated:
State
Alabama
Georgia
Idaho (1)
Illinois
Indiana (2)
Kentucky
Louisiana
Mississippi (3)
Missouri
New Mexico
Oklahoma
South Carolina
Tennessee
Texas
Utah (4)
Wisconsin
Total
2020
68
133
18
79
38
78
52
30
81
37
69
102
107
303
18
30
1,243
2019
65
124
19
77
35
78
47
27
77
37
69
95
107
298
9
29
1,193
2018
65
123
20
82
32
78
47
25
76
38
71
97
105
291
—
27
1,177
2017
65
125
21
80
29
77
47
20
75
39
74
92
104
291
—
30
1,169
At March 31,
2015
2016
68
69
113
114
8
17
82
82
22
25
79
79
49
48
12
20
78
77
44
42
83
82
99
96
107
106
300
300
—
—
28
29
1,172
1,186
2014
68
110
—
82
17
76
48
5
76
44
83
101
105
297
—
26
1,138
2013
64
108
—
81
8
71
47
—
76
44
82
98
105
279
—
21
1,084
2012
62
105
—
75
—
70
44
—
72
44
82
97
105
262
—
14
1,032
2011
51
103
—
68
—
66
40
—
66
44
82
97
103
247
—
5
972
_______________________________________________________
(1) The Company commenced operations in Idaho in October 2014.
(2) The Company commenced operations in Indiana in September 2012.
(3) The Company commenced operations in Mississippi in September 2013.
(4) The Company commenced operations in Utah in October 2018.
7
Mexico Exit. On August 3, 2018 the Company and its affiliates completed the sale of the Company's Mexico operating segment
in its entirety. The Company sold all of the issued and outstanding capital stock and equity interest of WAC de Mexico and
SWAC to the Purchasers, effective as of July 1, 2018, for a purchase price of approximately $44.36 million. The Company has
not and will not have any other involvement with the Mexico operating segment subsequent to the sale's effective date. The
Company and its subsidiaries no longer operate in Mexico. Information about the Mexico operating segment is presented as
discontinued operations in this annual report on Form 10-K.
Loan and Other Products. In each state in which we operate, we primarily offer pre-computed consumer installment loans that
are standardized by amount and maturity. Consumer installment loans are our principal product and interest and fee income
from such loans accounted for 86.2%, 86.2%, and 86.7% of our total revenues in fiscal years 2020, 2019, and 2018, respectively.
Our loans are payable in fully-amortizing monthly installments with terms generally from 3 to 16 months and are pre-payable
at any time without penalty. In addition, we offer income tax preparation and filing services as well as interest and fee-free tax
advance loans.
The following table sets forth information about our loan products for fiscal 2020:
Small loans
Large loans
Minimum
Origination (1)
$
$
100 $
2,500 $
Maximum
Origination (1)
2,450
20,600
Minimum
Term
(Months)
3
12
Maximum
Term
(Months)
25
48
_______________________________________________________
(1) Gross loan net of finance charges.
Specific allowable interest, fees, and other charges vary by state and, consistent with industry practice, we generally charge at,
or close to, the maximum rates allowable under applicable state law in those states that limit loan rates. The finance charge is
a combination of origination or acquisition fees, account maintenance fees, monthly account handling fees, interest and other
charges permitted by the relevant state laws. As of March 31, 2020, the annual percentage rates on loans we offer for small and
large loans, including interest, fees and other charges as calculated in accordance with the Federal Truth in Lending Act, ranged
from 0% to 199%, depending on the loan size, maturity, and the state in which the loan was made.
As of March 31, 2020, annual percentage rates applicable to our gross loans receivable as defined by the Truth in Lending Act
were as follows:
Low
High
— %
37 %
51 %
61 %
71 %
81 %
91 %
101 %
121 %
151 %
36 % $
50 %
60 %
70 %
80 %
90 %
100 %
120 %
150 %
199 %
Amount
361,084,827
286,670,650
170,055,923
70,063,032
36,531,908
70,723,111
119,397,778
84,806,608
9,630,303
907,226
$ 1,209,871,366
Percentage of
total
gross loans
receivable
29.8
23.7
14.1
5.8
3.0
5.8
9.9
7.0
0.8
0.1
100
The Company, as an agent for an unaffiliated insurance company, markets and sells credit life, credit accident and health, credit
property and auto, unemployment, and accidental death and dismemberment insurance in connection with its loans in selected
states where the sale of such insurance is permitted by law. Credit life insurance provides for the payment in full of the
borrower's credit obligation to the lender in the event of death. Credit accident and health insurance provides for repayment of
loan installments to the lender that come due during the insured's period of income interruption resulting from disability from
illness or injury. Credit property and auto insurance insures payment of the borrower's credit obligation to the lender in the
event that the personal property pledged as security by the borrower is damaged or destroyed by a covered
8
event. Unemployment insurance provides for repayment of loan installments to the lender that come due during the insured’s
period of involuntary unemployment. Accidental death and dismemberment insurance insures against unintentional death or
dismemberment of the insured. The Company offers credit insurance for all loans originated in Georgia, Indiana, Kentucky,
Louisiana, Mississippi, Missouri, and South Carolina, and on a more limited basis in Alabama, Oklahoma, Tennessee, and
Texas. Customers in those states typically obtain such credit insurance through the Company. Charges for such credit insurance
are made at filed, authorized rates and are stated separately in the Company's disclosure to customers, as required by the Truth
in Lending Act and by various applicable state laws. In the sale of insurance policies, the Company, as an agent, writes policies
only within limitations established by its agency contracts with the insurer. The Company does not sell credit insurance to non-
borrowers.
The Company has a wholly-owned, captive insurance subsidiary that reinsures a portion of the credit insurance sold in
connection with loans made by the Company. Certain coverages currently sold by the Company on behalf of the unaffiliated
insurance carrier are ceded by the carrier to the captive insurance subsidiary, providing the Company with an additional source
of income derived from the earned reinsurance premiums.
The Company also offers automobile club memberships to its borrowers in Alabama, Georgia, Idaho, Indiana, Kentucky,
Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, Tennessee, Texas, and Wisconsin, as an agent for an unaffiliated
automobile club. Club memberships entitle members to automobile breakdown coverage, towing reimbursement and related
services. The Company is paid a commission on each membership sold, but has no responsibility for administering the club,
paying benefits or providing services to club members. The Company primarily sells automobile club memberships to
borrowers.
The table below shows the types of insurance and ancillary products the Company sells by state as of March 31, 2020:
Credit Life
X
X
Credit Accident
and Health
X
X
Credit
Property and
Auto
X
X
Unemployment
Accidental
Death &
Dismemberment Non-file
Alabama (1)
Georgia
Idaho
Illinois
Indiana
Kentucky
Louisiana
Mississippi
Missouri
New Mexico
Oklahoma (1)
South Carolina
Tennessee (1)
Texas (1)
Utah
Wisconsin
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Automobile
Club
Membership
X
X
X
X
X
X
X
X
X
X
X
X
X
_______________________________________________________
(1) Credit insurance is offered for certain loans.
Another service offered by the Company is income tax return preparation and electronic filing. This program is provided in all
but a few of the Company’s branches. The Company prepared approximately 84,000, 91,000 and 77,000 returns in fiscal years
2020, 2019, and 2018, respectively. Net revenue generated by the Company from this program during fiscal 2020, 2019, and
2018 amounted to approximately $20.9 million, $21.5 million, and $16.8 million, respectively. In addition, our tax customers
are eligible to receive an interest and fee-free tax advance loan which is generally a percentage of the anticipated tax refund
amount. The Company believes that this is a beneficial service for its existing customer base as well as non-loan customers,
and it plans to continue to promote this program.
9
The following table sets forth information about our tax advance loan product for fiscal 2020:
Tax advance loans
Minimum
Origination
100
Maximum
Origination
5,000
Minimum
Term
(Months)
8
Maximum
Term
(Months)
8
Loan Receivables. The following table sets forth the composition of the Company's gross loans receivable by state at March
31 of each year from 2011 through 2020:
State
Alabama
Georgia
Idaho (1)
Illinois
Indiana (2)
Kentucky
Louisiana
Mississippi (3)
Missouri
New Mexico
Oklahoma
South Carolina
Tennessee
Texas
Utah (4)
Wisconsin (5)
Total
2020
2019
2018
2017
At March 31,
2015
2016
2014
2013
2012
2011
5 %
13
4 %
13
5 %
13
1
8
2
8
3
1
8
2
6
10
11
19
1
2
100 %
5 %
13
1
7
2
8
3
1
7
2
7
9
12
21
—
2
100 %
5 %
14
—
7
2
9
2
1
7
2
7
10
13
19
—
2
100 %
4 %
15
—
7
2
10
2
1
7
2
7
11
13
18
—
1
100 %
6 %
13
—
7
1
10
2
—
8
2
8
10
13
19
—
1
100 %
7
1
10
2
4 %
14
— — —
8
7
1 —
9
10
2
2
— — —
7
2
7
12
14
20
— — —
1
100 %
7
2
7
12
13
21
8
2
8
11
13
19
4 %
14
—
7
—
10
2
—
6
2
6
13
15
20
—
1
100 %
1
100 %
1
100 %
4 %
14
—
6
—
10
2
—
6
2
7
14
15
20
—
—
100 %
_______________________________________________________
(1) The Company commenced operations in Idaho in October 2014.
(2) The Company commenced operations in Indiana in September 2012.
(3) The Company commenced operations in Mississippi in September 2013.
(4) The Company commenced operations in Utah in October 2018.
(5) The Company commenced operations in Wisconsin in December 2010.
10
The following table sets forth the total number of loans, the average gross loan balance, and the gross loan balance by state at
March 31, 2020:
Total
Number
of Loans
Average
Gross Loan
Balance
Alabama
Georgia
Idaho
Illinois
Indiana
Kentucky
Louisiana
Mississippi
Missouri
New Mexico
Oklahoma
South Carolina
Tennessee
Texas
Utah
Wisconsin
Total
55,050 $
105,132
9,659
51,184
21,777
58,615
37,803
20,325
47,840
23,717
54,207
89,791
90,653
229,740
6,152
14,214
915,859 $
Gross Loan
Balance
(thousands)
62,639
1,138 $
1,473
154,861
1,026
9,912
1,779
91,055
1,304
28,401
1,604
94,010
1,010
38,179
815
16,563
1,938
92,707
1,173
27,826
1,393
75,529
1,353
121,459
1,497
135,707
1,012
232,504
1,164
7,158
1,503
21,361
1,321 $ 1,209,871
Seasonality. The Company's highest loan demand occurs generally 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. 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. However, the effects of COVID-19 could impact our
typical seasonal trends.
Lending and Collection Operations. The Company seeks to provide short-term consumer installment loans to the segment of
the population that has limited access to other sources of credit. In evaluating the creditworthiness of potential customers, the
Company primarily examines the individual's discretionary income, length of current employment and/or sources of income,
duration of residence, and prior credit experience. Loans are made to individuals on the basis of their discretionary income and
other factors and are limited to amounts we believe that customers can reasonably be expected to repay from that income given
our assessment of their stability and ability and willingness to pay. The Company also generates a proprietary credit score in
assisting loan decisions to potential new customers that evaluates key attributes such as payment history, outstanding debt,
length of credit history, number of credit inquiries as well as credit mix. All loan applicants are required to complete
standardized credit applications in person or by telephone at local Company branches. Each of the Company's local branches
are equipped to perform rapid background, employment, and credit checks and approve loan applications promptly, often while
the customer waits. The Company's employees verify the applicant's sources of income and credit histories through telephone
checks with employers, other employment references, and verification with various credit bureaus. Substantially all new
customers are required to submit a listing of personal property that will serve as collateral to secure the loan, but the Company
does not rely on the value of such collateral in the loan approval process and generally does not perfect its security interest in
that collateral. Accordingly, if the customer were to default in the repayment of the loan, the Company may not be able to
recover the outstanding loan balance by resorting to the sale of collateral.
The Company believes that development and continual reinforcement of personal relationships with customers improve the
Company's ability to monitor their creditworthiness, reduce credit risk, and generate customer loyalty. It is not unusual for the
Company to have made a number of loans to the same customer over the course of several years, many of which were refinanced
with a new loan after the borrower had reduced the existing loan's outstanding balance by making multiple payments. In
determining whether to refinance existing loans, the Company typically requires loans to be current on a recency basis, and
repeat customers are generally required to complete a new credit application if they have not completed one within the prior
two years.
11
Approximately 79.6%, 78.7%, and 79.0% of the Company's loans were generated through refinancings of outstanding loans
and the origination of new loans to previous customers in fiscal 2020, 2019, and 2018, respectively. A refinancing represents
a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an
existing loan and the remaining portion is advanced to the customer. The Company markets the opportunity for qualifying
customers to refinance existing loans prior to maturity. In many cases the existing customer’s past performance and established
creditworthiness with the Company qualifies that customer for a larger loan. This, in turn, may increase the fees and other
income realized for a particular customer. For fiscal 2020, 2019, and 2018, the percentages of the Company's loan originations
that were refinancings of existing loans were 66.9%, 66.2%, and 65.9%, respectively.
The Company allows refinancing of delinquent loans on a case-by-case basis for those customers who otherwise satisfy the
Company's credit standards. Each such refinancing is carefully examined before approval in an effort to avoid increasing credit
risk. A delinquent loan generally may be refinanced only if the customer has made payments that, together with any credits of
insurance premiums or other charges to which the customer is entitled in connection with the refinancing, reduce the balance
due on the loan to an amount equal to or less than the original cash advance made in connection with the loan. The Company
does not allow the amount of the new loan to exceed the original amount of the existing loan. The Company believes that
refinancing delinquent loans for certain customers who have made periodic payments allows the Company to increase its
average loans outstanding and its interest, fees and other income without experiencing a significant increase in loan
losses. These refinancings also provide a resolution to temporary financial setbacks for these borrowers and sustain their credit
rating. Refinancings of delinquent loans represented 1.3%, 1.1%, and 1.2% of the Company’s loan volume in fiscal 2020, 2019,
and 2018, respectively.
To reduce late payment risk, local branch staff encourage customers to inform the Company in advance of expected payment
problems. Local branch staff also promptly contact delinquent customers following any payment due date and thereafter remain
in close contact with such customers through phone calls or letters until payment is received or some other resolution is
reached. The Company expanded our centralized collections in fiscal 2018, focusing on customers who have become more
than 90 days past due on a recency basis. In Alabama, Georgia, Idaho, Indiana, Illinois, Kentucky, Louisiana, Missouri, New
Mexico, Oklahoma, Tennessee, Utah, and Wisconsin, the Company is permitted under state laws to garnish customers' wages
for repayment of loans, but the Company does not otherwise generally resort to litigation for collection purposes and rarely
attempts to foreclose on collateral.
Insurance-related Operations. As discussed above, in certain states, the Company sells credit insurance to customers in
connection with its loans as an agent for an unaffiliated insurance company. These insurance policies provide for the payment
of the outstanding balance of the Company's loan upon the occurrence of an insured event. The Company earns a commission
on the sale of such credit insurance, which, for most products, is directly impacted by the claims experience of the insurance
company on policies sold on its behalf by the Company. In states where commissions on certain products are capped, the
commission earned is not directly impacted by the claims experience.
The Company has a wholly-owned, captive insurance subsidiary that reinsures a portion of the credit insurance sold in
connection with loans made by the Company. Certain coverages currently sold by the Company on behalf of the unaffiliated
insurance carrier are ceded by the carrier to the captive insurance subsidiary, providing the Company with an additional source
of income derived from the earned reinsurance premiums. In fiscal 2020, the captive insurance subsidiary reinsured
approximately 10.5% of the credit insurance sold by the Company and contributed approximately $2.2 million to the Company's
total revenue.
Non-Filing Insurance. The Company typically does not perfect its security interest in collateral securing its smaller loans by
filing UCC financing statements. Non-filing insurance premiums are equal in aggregate amount to the premiums paid by the
Company to purchase non-filing insurance coverage from an unaffiliated insurance company. Under its non-filing insurance
coverage, the Company is reimbursed for losses on loans resulting from its policy not to perfect its security interest in collateral
securing the loans.
Monitoring and Supervision. The Company's loan operations are organized into Southeastern, Central, and Western
Divisions. As of March 31, 2020 the Southeastern Division consisted of Georgia, Missouri, South Carolina and Tennessee; the
Central Division consisted of Illinois, Indiana, Kentucky, Louisiana, Mississippi, Oklahoma and Wisconsin; and the Western
Division consisted of Alabama, Idaho, New Mexico, Texas, and Utah. Several levels of management monitor and supervise
the operations of each of the Company's branches. Branch managers are directly responsible for the performance of their
respective branches. District Managers are responsible for the performance of 8 to 11 branches in their districts. They typically
communicate with the branch managers of each of their branches at least weekly and visit the branches at least monthly. The
Regional Vice Presidents of Operations monitor the performance of all branches within their states (or partial state in the case
of Texas), primarily through communication with District Managers. These Regional Vice Presidents of Operations typically
communicate with the District Managers of each of their districts weekly and regularly visit branches. The Senior Vice
12
Presidents of each of the Southeastern, Central, and Western Divisions are responsible for supervising the Regional Vice
Presidents of Operations.
Senior management has access to daily delinquency, loan volume, charge-off, and other statistical data on a consolidated, state
and branch level. At least eight times per fiscal year District Managers examine the operations of each branch in their
geographic area and submit standardized reports detailing their findings to the Company's senior management. The Company
takes a risk-based approach to determine internal audit frequency. At least once every 18 months each branch undergoes an
audit by the Company's internal auditors. These audits include an examination of cash balances and compliance with Company
loan approval, review and collection procedures, and compliance with federal and state laws and regulations.
Staff and Training. Local branches are staffed with a minimum of two employees. The branch manager supervises and
administers operations of the branch and is responsible for approving all borrower loan applications and requests for increases
in the amount of credit extended. Each branch generally has one or two account specialists who take loan applications, process
loan applications, apply payments, and assist in the preparation of operational reports, collection efforts, and marketing
activities. Larger branches may employ additional account specialists.
New employees are required to review detailed training materials that explain the Company's operating policies and
procedures. The Company tests each employee on the training materials during the first year of employment. In addition, each
branch associate completes an online training session once every week and attends periodic training sessions outside the
branch. The Company has also implemented an enhanced training tool known as World University, which provides continuous,
real-time, on-line training to all locations. This allows for more training opportunities to be available to all employees
throughout the course of their career with the Company.
Advertising. The Company actively advertises through direct mail, targeting both its present and former customers and
potential customers who have used other sources of consumer credit. The Company obtains or acquires mailing lists from third
party sources. In addition to the general promotion of its loans for last-minute needs, back-to-school needs and other uses, the
Company advertises extensively during the October through December holiday season and in connection with new branch
openings. The Company also advertises across digital platforms, by email and to existing customers via SMS/text. The
Company believes its advertising contributes significantly to its ability to compete effectively with other providers of small-
loan consumer credit. Advertising expenses as a percent of revenue were approximately 4.1%, 4.1%, and 4.2% in fiscal 2020,
2019, and 2018, respectively.
Competition. The small-loan consumer finance industry is highly fragmented, with numerous competitors. The majority of the
Company's competitors are independent operators with generally less than 100 branches. Competition from community banks
and credit unions is limited because they typically do not make loans of less than $5,000. We believe that online lending could
be affecting the consumer lending market within which we operate. While it appears online lenders are marketing to a different
customer segment than that of our primary customers, some of our customers may overlap.
The Company believes that competition between small-loan consumer finance companies occurs primarily on the basis of the
strength of customer relationships, customer service, and reputation in the local community rather than pricing, as participants
in this industry generally all charge interest rates and fees at or close to the maximum permitted by applicable laws. The
Company believes that its relatively larger size affords it a competitive advantage over smaller companies by increasing its
access to, and reducing its cost of, capital.
Several of the states in which the Company currently operates limit the size of loans made by small-loan consumer finance
companies and prohibit the extension of more than one loan to a customer by any one company. As a result, many customers
borrow from more than one finance company, which enables the Company, subject to the limitations of various consumer
protection and privacy statutes, including, but not limited to, the Fair Credit Reporting Act and the Gramm-Leach-Bliley Act,
to obtain information on the credit history of specific customers from other consumer finance companies.
Employees. As of March 31, 2020, the Company had 3,744 employees, none of whom were represented by labor unions. The
Company considers its relations with its employees to be good. The Company seeks to hire people who will become long-term
employees, and, as a result, the vast majority of our field leadership has been promoted from within.
Information about our Executive Officers. The names and ages, positions, terms of office and periods of service of each of the
Company's executive officers (and other business experience for executive officers who have served as such for less than five
years) are set forth below. The term of office for each executive officer expires upon the earlier of the appointment and
qualification of a successor or such officer's death, resignation, retirement, or removal.
13
Name and Age
Position
R. Chad Prashad (39)
President and Chief
Executive Officer
John L. Calmes Jr. (40)
Executive Vice President,
Chief Financial and
Strategy Officer, and
Treasurer
D. Clinton Dyer (47)
Executive Vice President
and Chief Branch
Operations Officer
Luke J. Umstetter (40)
Senior Vice President,
Secretary, and General
Counsel
A. Lindsay Caulder (44)
Senior Vice President,
Human Resources
Jason E. Childers (45)
Senior Vice President,
Information Technology
Scott McIntyre (43)
Senior Vice President,
Accounting
Period of Service as Executive Officer and
Pre-Executive Officer Experience (if an
Executive Officer for Less Than Five Years)
President and Chief Executive Officer since June 2018;
Senior Vice President, Chief Strategy & Analytics
Officer from February 2018 to June 2018; Vice
President of Analytics from June 2014 to February
2018; Senior Director of Strategy Development for
Resurgent Capital Services (a consumer debt managing
and servicing company) from 2013 to June 2014;
Director of Legal Strategy for Resurgent Capital
Services from 2009 to 2013.
Executive Vice President and Chief Financial and
Strategy Officer and Treasurer since October 2018;
Senior Vice President, Chief Financial Officer and
Treasurer from November 2015 to October 2018; Vice
President, Chief Financial Officer and Treasurer from
December 2013 to November 2015; Director of
Finance - Corporate and Investment Banking Division
of Bank of Tokyo-Mitsubishi UFJ in 2013; Senior
Manager of PricewaterhouseCoopers from 2011 to
2013; Manager of PricewaterhouseCoopers from 2008
to 2011.
Executive Vice President and Chief Branch Operations
Officer since February 2018; Executive Vice President
of Branch Operations from September 2016
to
February 2018; Senior Vice President, Southeastern
Division from November 2015 to September 2016;
Senior Vice President, Central Division from June 2005
to November 2015; Vice President, Operations –
Tennessee and Kentucky from April 2002 to June 2005.
Senior Vice President, Secretary and General Counsel
since August 2018; General Counsel and Chief
Compliance Officer for Shellpoint Mortgage Servicing
from December 2015 to August 2018; General Counsel
for Global Lending Services from May 2015 to
December 2015; Managing Counsel for Resurgent
Capital Services, June 2009 to May 2015.
Senior Vice President, Human Resources since October
2018; Vice President, Human Resources from February
2016 to October 2018; Divisional Vice President -
Human Resources of Family Dollar Corporation from
2012
to 2016; Director - Learning and Talent
Acquisition of Family Dollar Corporation from 2009-
2012.
Senior Vice President, Information Technology since
October 2018; Vice President of IT Strategic Solutions
from April 2016 to October 2018, Partner and Head of
IT at Sabal Financial Group, LP from March 2009 until
April 2016.
Senior Vice President of Accounting since October
2018; Vice President of Accounting-US from June
2013 to October 2018; Controller-US from June 2011
to June 2013.
14
Government Regulation.
Operations. Small-loan consumer finance companies are subject to extensive regulation, supervision, and licensing under
various federal and state statutes, ordinances, and regulations. In many cases these statutes establish maximum loan amounts
and interest rates and the types and maximum amounts of fees and other charges. In addition, state laws regulate collection
procedures, the keeping of books and records, and other aspects of the operation of small-loan consumer finance
companies. Generally, state regulations also establish minimum capital requirements for each local branch. Accordingly, the
ability of the Company to expand by acquiring existing branches and opening new branches will depend in part on obtaining
the necessary regulatory approvals.
For example, Texas regulation requires the approval of the Texas Consumer Credit Commissioner for the acquisition, directly
or indirectly, of more than 10% of the voting or common stock of a consumer finance company. A Louisiana statute prohibits
any person from acquiring control of 50% or more of the shares of stock of a licensed consumer lender, such as the Company,
without first obtaining a license as a consumer lender. The overall effect of these laws, and similar laws in other states, is to
make it more difficult to acquire a consumer finance company than it might be to acquire control of an unregulated company.
All of the Company's branches are licensed under the laws of the state in which the branch is located. Licenses in these states
are subject to renewal every year and may be revoked for failure to comply with applicable state and federal laws and
regulations. In the states in which the Company currently operates, licenses may be revoked only after an administrative
hearing.
The Company and its operations are regulated by several state agencies, including the following:
• The Alabama State Banking Department
• The Industrial Loan Division of the Office of the Georgia Insurance Commissioner
• The Idaho Department of Finance
• The Consumer Credit Division of the Illinois Department of Financial Institutions
• The Indiana Department of Financial Institutions
• The Kentucky Department of Financial Institutions
• The Louisiana Office of Financial Institutions
• The Mississippi Department of Banking and Consumer Finance
• The Missouri Division of Finance
• The Financial Institutions Division of the New Mexico Regulation and Licensing Department
• The Oklahoma Department of Consumer Credit
• The Consumer Finance Division of the South Carolina Board of Financial Institutions and the South Carolina
Department of Consumer Affairs
• The Tennessee Department of Financial Institutions
• The Texas Office of the Consumer Credit Commissioner
• The Utah Department of Financial Institutions
• The Wisconsin Department of Financial Institutions
These state regulatory agencies audit the Company's local branches from time to time, and most state agencies perform an
annual compliance audit of the Company's operations in that state.
Insurance. The Company is also subject to state regulations governing insurance agents in the states in which it sells credit
insurance. State insurance regulations require that insurance agents be licensed, govern the commissions that may be paid to
agents in connection with the sale of credit insurance and limit the premium amount charged for such insurance. The Company's
captive insurance subsidiary is regulated by the insurance authorities of the Turks and Caicos Islands of the British West Indies,
where the subsidiary is organized and domiciled.
Consumer finance companies are affected by changes in state and federal statutes and regulations. The Company actively
participates in trade associations and in lobbying efforts in the states in which it operates and at the federal level. There have
been, and the Company expects that there will continue to be, media attention, initiatives, discussions, proposals, and legislation
regarding the entire consumer credit industry, as well as our particular installment loan business, and possible significant
changes to the laws and regulations that govern our business, or the authority exercised pursuant to those laws and
regulations. In some cases, proposed or pending legislative or regulatory changes have been introduced that would, if
enacted, have a material adverse effect on, or possibly even eliminate, our ability to continue our current business. We can
give no assurance that the laws and regulations that govern our business, or the interpretation or administration of those laws
and regulations, will remain unchanged or that any such future changes will not materially and adversely affect, or in the worst
case, eliminate, the Company’s lending practices, operations, profitability, or prospects. See "State legislation" and “Federal
15
legislation” below and Part I, Item 1A, “Risk Factors,” for a further discussion of the potential impact of regulatory changes
on our business.
State legislation. The Company is subject to numerous state laws and regulations that affect our lending activities. Many of
these regulations impose detailed and complex constraints on the terms of our loans, lending forms and operations. Further,
there is a trend of increased state regulation on loan origination, servicing, and collection procedures, as well as more detailed
reporting and examinations, and coordination of examinations among the states. Failure to comply with applicable laws and
regulations could subject us to regulatory enforcement action that could result in the assessment against us of civil, monetary,
or other penalties.
In addition, state authorities regulate and supervise our insurance operations. The extent of such regulation varies by product
and by state, but relate primarily to the following: licensing; conduct of business, including marketing and sales practices;
periodic financial and market conduct examination of the affairs of insurers; form and content of required financial reports;
standards of solvency; limitations on the payment of dividends and other affiliate transactions; types of products offered;
approval of policy forms and premium rates; formulas used to calculate any unearned premium refund due to an insured
customer; permissible investments; deposits of securities for the benefit of policyholders; reserve requirements for unearned
premiums, losses, and other purposes; and claims processing.
In the past, several state legislative and regulatory proposals have been introduced which, had they become law, would have
had a materially adverse impact on our operations and ability to continue to conduct business in the relevant state. Although to
date none of these state initiatives have been successful, state legislatures continue to receive pressure to adopt similar
legislation that would affect our lending operations.
In addition, any adverse change in existing laws or regulations, or any adverse interpretation or litigation relating to existing
laws and regulations in any state in which we operate, could subject us to liability for prior operating activities or could lower
or eliminate the profitability of our operations going forward by, among other things, reducing the amount of interest and fees
we can charge in connection with our loans. If these or other factors lead us to close our branches in a state, then in addition to
the loss of net revenues attributable to that closing, we would also incur closing costs such as lease cancellation payments, and
we would have to write off assets that we could no longer use. If we were to suspend rather than permanently cease our
operations in a state, we may also have continuing costs associated with maintaining our branches and our employees in that
state, with little or no revenues to offset those costs.
Federal legislation. In addition to state and local laws and regulations, we are subject to numerous federal laws and regulations
that affect our lending operations. These laws include the Truth in Lending Act, the Equal Credit Opportunity Act, the Military
Lending Act, the Fair Credit Reporting Act, and the regulations thereunder, and the Federal Trade Commission's Credit
Practices Rule. These laws require the Company to provide complete disclosure of the principal terms of each loan to the
borrower prior to the consummation of the loan transaction, prohibit misleading advertising, protect against discriminatory
lending practices, and prohibit unfair, deceptive, or abusive credit practices. Among the principal disclosure items under the
Truth in Lending Act and Regulation Z, which implements this statute, are the terms of repayment, the final maturity, the total
finance charge, and the annual percentage rate charged on each loan. The Equal Credit Opportunity Act prohibits creditors
from discriminating against loan applicants on, among other things, the basis of race, color, sex, age, or marital status. Pursuant
to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures
regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. The
Military Lending Act applies to active-duty service members and their covered dependents. We are prohibited from charging
a borrower covered under the Military Lending Act more than a 36% Military Annual Percentage Rate, which includes certain
costs associated with the loan in calculating the interest rate. The Fair Credit Reporting Act, which among other things, governs
the use of credit bureau reports and reporting information to credit bureaus. Additionally, the Fair Credit Reporting Act requires
the Company to provide certain information to consumers whose credit applications are not approved on the basis of a report
obtained from a consumer reporting agency and to provide additional information to those borrowers whose loans are approved
and consummated if the credit decision was based in whole or in part on the contents of a credit report. The Credit Practices
Rule limits the types of property a creditor may accept as collateral to secure a consumer loan. Violations of these statutes and
regulations may result in actions for damages, claims for refund of payments made, certain fines and penalties, injunctions
against certain practices, and the potential forfeiture of rights to repayment of loans.
Although these laws and regulations remained substantially unchanged for many years, over the last several years the laws and
regulations directly affecting our lending activities have been under review and are subject to change as a result of various
developments and changes in economic conditions, the make-up of the executive and legislative branches of government, and
the political and media focus on issues of consumer and borrower protection. See Part I, Item 1A, “Risk Factors—Media and
public characterization of consumer installment loans as being predatory or abusive could materially adversely affect our
business, prospects, results of operations, and financial condition” below. Any changes in such laws and regulations could force
16
us to modify, suspend, or cease part or, in the worst case, all of our existing operations. It is also possible that the scope of
federal regulations could change or expand in such a way as to preempt what has traditionally been state law regulation of our
business activities. The enactment of one or more of such regulatory changes could materially and adversely affect our business,
results of operations, and prospects.
Various legislative proposals addressing consumer credit transactions have been passed in recent years or are currently pending
in the U.S. Congress. Congressional members continue to receive pressure from consumer activists and other industry
opposition groups to adopt legislation to address various aspects of consumer credit transactions. As part of a sweeping package
of financial industry reform regulations, in July 2010 Congress passed and the President signed into law the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act established the Consumer Financial
Protection Bureau (commonly referred to as the CFPB), which has sweeping regulatory, supervisory, and enforcement powers
over providers of consumer financial products and services, including explicit supervisory authority to examine and require
registration of non-depository lenders and to promulgate rules that can affect the practices and activities of lenders. The CFPB
continues to actively engage in the announcement and implementation of various plans and initiatives in the area of consumer
financial transactions generally. Some of these CFPB announced plans and initiatives, if implemented, would directly affect
certain loan products we currently offer and subject us to the CFPB’s supervisory authority. See Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters,” for more information
regarding the CFPB's regulatory initiatives.
The Dodd-Frank Act also gives the CFPB the authority to examine and regulate large non-depository financial companies and
gives the CFPB authority over anyone deemed by rule to be a “larger participant of a market for other consumer financial
products or services.” The CFPB contemplates regulating the installment lending industry as part of the “consumer credit and
related activities” market. However, this so-called “larger participant rule” will not impose substantive consumer protection
requirements, but rather will provide to the CFPB the authority to supervise larger participants in certain markets, including by
requiring reports and conducting examinations to ensure, among other things, that they are complying with existing federal
consumer financial law. While the CFPB has defined a “larger participant” standard for certain markets, such as the debt
collection, automobile finance, and consumer reporting markets, it has not yet acted to define “larger participant” in the
traditional installment lending market. If, in the future, a traditional installment lending “larger participant rule” is promulgated
by the CFPB, the rule would likely cover only the largest installment lenders, and we do not yet know whether the definition
of larger participant would cover us.
In addition to the grant of certain regulatory powers to the CFPB, the Dodd-Frank Act gives the CFPB authority to pursue
administrative proceedings or litigation for violations of federal consumer financial laws. In these proceedings, the CFPB can
obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of
affirmative relief) and monetary penalties. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB
regulations thereunder, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to
remedy violations of state law.
Although the Dodd-Frank Act prohibits the CFPB from setting interest rates on consumer loans, efforts to create a federal usury
cap, applicable to all consumer credit transactions and substantially below rates at which the Company could continue to operate
profitably, are still ongoing. Any federal legislative or regulatory action that severely restricts or prohibits the provision of
small-loan consumer credit and similar services on terms substantially similar to those we currently provide would, if enacted,
have a material, adverse impact on our business, prospects, results of operations and financial condition. Any federal law that
would impose a national 36% or similar annualized credit rate cap on our services would, if enacted, almost certainly eliminate
our ability to continue our current operations. See Part I, Item 1A, “Risk Factors - Federal legislative or regulatory proposals,
initiatives, actions or changes that are adverse to our operations or result in adverse regulatory proceedings, or our failure to
comply with existing or future federal laws and regulations, could force us to modify, suspend, or cease part or all of our
nationwide operations,” for further information regarding the potential impact of adverse legislative and regulatory changes.
Available Information. The Company maintains an Internet website, “www.LoansByWorld.com,” where interested persons
will be able to access free of charge, among other information, the Company’s annual reports on Form 10-K, its quarterly
reports on Form 10-Q, and its current reports on Form 8-K as well as amendments to these filings via a link to a third-party
website. These documents are available for access as soon as reasonably practicable after we electronically file these documents
with the SEC. The Company files these reports with the SEC via the SEC’s EDGAR filing system, and such reports also may
be accessed via the SEC’s EDGAR database at www.sec.gov. Information included on or linked to our website is not
incorporated by reference into this annual report.
17
Item 1A.
Risk Factors
Forward-Looking Statements
This annual report contains various “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 that are based on management’s beliefs and assumptions, as well as information currently available to
management. Statements other than those of historical fact, as well as those identified by the use of words such as “anticipate,”
“estimate,” “intend,” “plan,” “expect,” “believe,” “may,” “will,” “should,” “would,” “could,” and any variations of the
foregoing and similar expressions, are forward-looking statements. Although we believe that the expectations reflected in any
such forward-looking statements are reasonable, we 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, our actual financial results, performance or financial condition
may vary materially from those anticipated, estimated, expected or implied by any forward-looking statements.
Investors should consider the following risk factors, in addition to the other information presented in this annual report and the
other reports and registration statements the Company files with or furnishes to the SEC from time to time, in evaluating us,
our business, and an investment in our securities. Any of the following risks, as well as other risks, uncertainties, and possibly
inaccurate assumptions underlying our plans and expectations, could result in harm to our business, results of operations and
financial condition and cause the value of our securities to decline, which in turn could cause investors to lose all or part of
their investment in our Company. These factors, among others, could also cause actual results to differ materially from those
we have experienced in the past or those we may express or imply from time to time in any forward-looking statements we
make. Investors are advised that it is impossible to identify or predict all risks, and those risks not currently known to us or
those we currently deem immaterial also could affect us in the future. The following risks should not be construed as exclusive
and should be read with the other cautionary statements that are in this Annual Report on Form 10-K. The Company does not
undertake any obligation to update forward-looking statements, except as may be required by law, whether as a result of new
information, future developments, or otherwise.
The coronavirus (COVID-19) pandemic has and is expected to continue adversely affecting our business, liquidity, results
of operations and financial position.
The COVID-19 pandemic has resulted in widespread volatility and deterioration in household, business, economic, and
market conditions. The ultimate extent of the impact of the COVID-19 global pandemic on our capital, liquidity, and other
financial positions and on our business, results of operations, and prospects will depend on a number of evolving factors,
including the duration, response, effect on customers, employees and service providers, and the effect on markets and
economies.
We are unable to estimate the full impact of COVID-19 on our business and operations at this time. However, we have
started to experience reduced demand for our products and services. We expect to continue experiencing adverse effects
related to the pandemic, any of which could have a material adverse effect on our financial position, results of operations, and
prospects. Sustained adverse effects may also prevent us from satisfying our minimum capital ratios and other requirements
under our revolving credit facility.
In addition, as a result of our CECL implementation in fiscal 2021, our financial results may be negatively affected as weak
or deteriorating economic conditions are forecasted and alter our expectations for credit losses. In addition, due to the
expansion of the time horizon over which we are required to estimate future credit losses under CECL, we may experience
increased volatility in our future provisions for credit losses. As a result, factoring in COVID-19, we could incur a significant
provision expense for credit losses in the first quarter of 2021 and may incur significant provision expense for credit losses in
future periods as well.
Given the unprecedented nature of the crisis, our financial and economic models may be unable to accurately predict and
respond to the impact of the economic contraction or lasting changes to customer behaviors, which in turn may limit our
ability to manage credit risk and avoid higher charge-off rates. Additionally, our credit and economic models may not be able
to adequately predict or forecast credit losses, loan receivables or other financial metrics during and after the crisis, which
could result in our reserves being too large or insufficient. We do not yet know the full extent of the impacts on our business,
our operations or the global economy as a whole.
Federal legislative or regulatory proposals, initiatives, actions, or changes that are adverse to our operations or result in
adverse regulatory proceedings, or our failure to comply with existing or future federal laws and regulations, could force
us to modify, suspend, or cease part or all of our nationwide operations.
We are subject to numerous federal laws and regulations that affect our lending operations. Although these laws and regulations
have remained substantially unchanged for many years, the laws and regulations directly affecting our lending activities have
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been under review and subject to change in recent years as a result of various developments and changes in economic
conditions, the make-up of the executive and legislative branches of government, and the political and media focus on issues
of consumer and borrower protection. Any changes in such laws and regulations could force us to modify, suspend, or cease
part or, in the worst case, all of our existing operations. It is also possible that the scope of federal regulations could change or
expand in such a way as to preempt what has traditionally been state law regulation of our business activities.
In July 2010 the Dodd-Frank Act was enacted. The Dodd-Frank Act restructured and enhanced the regulation and supervision
of the financial services industry and created the CFPB, an agency with sweeping regulatory and enforcement authority over
consumer financial transactions. Although the Dodd-Frank Act prohibits the CFPB from setting interest rates on consumer
loans, efforts to create a federal usury cap, applicable to all consumer credit transactions and substantially below rates at which
the Company could continue to operate profitably, are still ongoing. Any federal legislative or regulatory action that severely
restricts or prohibits the provision of small-loan consumer credit and similar services on terms substantially similar to those we
currently provide would, if enacted, have a material adverse impact on our business, prospects, results of operations, and
financial condition. Any federal law that would impose a 36% or similar annualized credit rate cap on our services would, if
enacted, almost certainly eliminate our ability to continue our current operations. Given the uncertainty associated with the
manner in which various expected provisions of the Dodd-Frank Act have been and are expected to continue to be implemented
by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on our
operations remains unclear; however, these regulations have increased and are expected to further increase our cost of doing
business and time spent by management on regulatory matters, which may have a material adverse effect on the Company’s
operations and results.
The CFPB’s rulemaking and enforcement authority extends to certain non-depository institutions, including us. The CFPB is
specifically authorized, among other things, to take actions to prevent companies providing consumer financial products or
services and their service providers from engaging in unfair, deceptive or abusive acts or practices in connection with consumer
financial products and services, and to issue rules requiring enhanced disclosures for consumer financial products or services.
The CFPB also has authority to interpret, enforce, and issue regulations implementing enumerated consumer laws, including
certain laws that apply to our business. Further, the CFPB has authority to designate non-depository “larger participants” in
certain markets for consumer financial services and products for purposes of the CFPB’s supervisory authority under the Dodd-
Frank Act. Such designated “larger participants” are subject to reporting and on-site compliance examinations by the CFPB,
which may result in increased compliance costs and potentially greater enforcement risks based on these supervisory activities.
Although the CFPB has not yet developed a “larger participant” rule that directly covers the Company’s installment lending
business, in June 2016 the CFPB 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
direct supervisory authority.
On October 5, 2017, the CFPB issued a final rule under its unfair, deceptive and abusive acts and practices rulemaking authority
relating to payday, vehicle title, and similar loans. The final rule imposes limitations on (i) short-term consumer, (ii) longer-
term consumer installment loans with balloon payments, and (iii) higher-rate consumer installment loans repayable by a
payment authorization. The final rule requires lenders originating short-term loans and longer-term balloon payment loans to
first make a good-faith reasonable determination that the consumer has the ability to repay the covered loan along with current
obligations and expenses (“ability to repay requirements”). The final 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”). Although the Company does not make loans with terms
of 45 days or less or obtain access to a customer’s bank account or paycheck for repayment of any of its loans, it does make
some vehicle-secured loans with an Annual Percentage Rate within the scope of the final rule. Pursuant to the ability to repay
requirements, a lender must consider and verify the amount and timing of the consumer’s income, the consumer’s major
financial obligations, and the consumer’s borrowing history prior to making a covered loan. Lenders would also be required to
determine that a consumer is able to make all projected payments under the covered longer-term loan as those payments are
due, while still fulfilling other major financial obligations and meeting living expenses. This ability to repay assessment applies
to both the initial longer-term loan and to any subsequent refinancing. In addition, the final rule includes a rebuttable
presumption that customers seeking to refinance a covered longer-term loan lack an “ability to repay” if at the time of
refinancing: (i) the borrower was delinquent by more than seven days or had recently been delinquent on an outstanding loan
within the past 30 days; (ii) the borrower stated or indicated an inability to make a scheduled payment within the past 30 days;
(iii) the refinancing would result in the first scheduled payment to be due in a longer period of time than between the time of
refinancing the loan and the next regularly scheduled payment on the outstanding loan; or (iv) the refinancing would not provide
the consumer a disbursement of funds or an amount that would not substantially exceed the amount of payment due on the
outstanding loan within 30 days of refinancing. To overcome this presumption of inability to repay, the lender must verify an
improvement in the borrower’s financial capacity to indicate an ability to repay the additional extension of credit. The final
rule has significant differences from the CFPB’s proposed rules announced on June 2, 2016. Further, on February 6, 2019, the
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CFPB issued two notices of proposed rulemaking regarding potential amendments to the Rule. First, the CFPB is proposing
to rescind provisions of the Rule governing the ability to repay requirements. Second, the CFPB is proposing to delay the
August 19, 2019 compliance date for part of the Rule, including the ability to repay requirements. These proposed amendments
are not yet final and are subject to possible change before any final amendments would be issued and implemented. We cannot
predict what the ultimate rulemaking will provide. The Company does not believe that these changes, as currently described
by the CFPB, would have a material impact on the Company’s existing lending procedures, because the Company currently
underwrites all its loans (including those secured by a vehicle title that would fall within the scope of these proposals) by
reviewing the customer’s ability to repay based on the Company’s standards. However, the changes for longer-term loans will
require changes to the Company’s practices and procedures for such loans, which could materially and adversely affect the
Company’s ability to make such loans, the cost of making such loans, the Company’s ability to, or frequency with which it
could, refinance any such loans, and the profitability of such loans. Any regulatory changes could have effects beyond those
currently contemplated that could further materially and adversely impact our business and operations. The Company will have
to comply with the final rule’s payment requirements since it allows consumers to set up future recurring payments online for
certain covered loans such that it meets the definition of having a “leveraged payment mechanism” under the final rule. The
payment provisions of the final rule are expected to go into effect on August 19, 2019. If the payment provisions of the final
rule apply, the Company will have to modify its loan payment procedures to comply with the required notices within the
mandated timeframes set forth in the final rule.
In addition to the specific matters described above, other aspects of our business may be the subject of future CFPB rulemaking.
The enactment of one or more of such regulatory changes, or the exercise of broad regulatory authority by regulators, including
but not limited to, the CFPB, having jurisdiction over the Company’s business or discretionary consumer financial transactions
generically, could materially and adversely affect our business, results of operations and prospects. See Part I, Item 1,
“Business-Government Regulation” for more information regarding legislation we are subject to and related risks.
Although we are working to resolve the previously reported investigation of our Mexico operations, there can be no
assurance that our efforts to reach settlements will be successful, or if they are, what the timing or terms of any such
settlements would be.
In March 2020, our discussions with the SEC progressed to a point that the Company could reasonably estimate a probable loss
and recorded an aggregate accrual of $21.7 million with respect to the SEC matters. As the discussions with the SEC are
continuing, there can be no assurance that the Company's efforts to reach a final resolution with the SEC will be successful or,
if they are, what the timing or terms of such resolution will be. The Company has no offer of settlement or resolution with the
DOJ at this time. Until any settlement or other resolution of these matters is reached, we expect to continue to incur potentially
significant costs in connection with the investigation of our former Mexico operations, primarily in the form of professional
fees and expenses. At this time, we are unable to predict the developments in, outcome of, and economic and other consequences
of the investigation or its impact on our earnings, cash flows, liquidity, financial condition and ongoing business. While we
have made an accrual related to the potential resolution, the discussions are continuing with the SEC, and there can be no
assurance as to the timing or the terms of the final resolution of these matters. Although we do not presently believe that these
matters, including the accrual (and the payment of the accrual at some point-in-time in the future) will have a material adverse
effect on our business, financial position, results of operations or cash flows, given the inherent uncertainties in such situations,
we can provide no assurance that these matters will not be material to our business, financial position, results of operations or
cash flows in the future.
We may be exposed to liabilities under the FCPA, and any determination that the Company or any of its subsidiaries has
violated the FCPA could have a material adverse effect on our business and liquidity.
We are subject to the FCPA and various other anti-corruption and anti-bribery laws. We face significant risks and liability if
we fail to comply with these laws, which generally prohibit companies and their employees and third-party intermediaries from
authorizing, offering, or providing, directly or indirectly, improper payments or benefits to foreign government officials,
political parties or candidates, employees of public international organizations, or private-sector recipients for the corrupt
purpose of obtaining or retaining business, directing business to any person, or securing any advantage. As discussed in Part I,
Item 3, “Legal Proceedings-Mexico Investigation,” in this Annual Report on Form 10-K, we retained outside counsel and
forensic accountants to conduct an investigation of certain transactions and payments in Mexico that potentially implicate the
Company in violations of the FCPA, including the books and records provisions of the FCPA. In addition, we voluntarily
contacted the SEC and the DOJ in June 2017 to advise both agencies that an internal investigation was underway and that the
Company intended to cooperate with both agencies. The Company has and will continue to cooperate with both agencies. The
SEC issued a formal order of investigation in connection with these matters.
If violations of the FCPA 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
adversely impact the Company’s access to debt financing and capital funding and result in further 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
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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. 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.
Detecting, investigating, and resolving these matters is expensive and consumes significant time and attention of the Company’s
senior management. While we are currently unable to predict what actions the DOJ, SEC, or other governmental agencies
(including governmental agencies in Mexico) might take, or what the likely outcome of any such actions might be, we may
incur substantial additional expenses responding to such actions. In addition, such actions, fines, and/or penalties 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, or a settlement thereof, may give rise to an event of default under the
agreement governing our revolving credit facility, which could have a material adverse effect on our liquidity. See Part I, Item
1A, “Risk Factors- We depend to a substantial extent on borrowings under our revolving credit agreement to fund our liquidity
needs” and “-The terms of our debt limit how we conduct our business.”
Our investigation of our previous operations in Mexico may expose the Company to other potential liabilities in addition to
any potential liabilities under the FCPA and cause the Company to incur substantial expenses.
In addition to the FCPA implications of our internal investigation into our previous Mexico operations, as described in the
preceding risk factor, our internal investigation may also uncover other material violations of federal and local laws, including
but not limited to violations of tax laws and regulations. Any such violations could expose us to lawsuits and other liabilities
under applicable law and have a material adverse effect on our business and our liquidity. Investigating, uncovering, and
resolving these matters is expensive and continues to consume significant time and attention of the Company’s senior
management. In addition, we may incur substantial additional expenses responding to potential lawsuits and the results thereof
could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients
and potential clients, to attract and retain employees, and to access the capital markets.
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 WAC de Mexico, SWAC, 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.
Litigation and regulatory actions, including challenges to the arbitration clauses in our customer agreements, could subject
us to significant class actions, fines, penalties, judgments and requirements resulting in increased expenses and potential
material adverse effects on our business, results of operations and financial condition.
In the normal course of business, from time to time, we have been involved in various legal actions, including arbitrations,
class actions and other litigation, arising in connection with our business activities. All such legal proceedings are inherently
unpredictable and, regardless or the merits of the claims, litigation is often expensive, time consuming, disruptive to our
operations and resources, and distracting to management. If resolved against us, such legal proceedings could result in excessive
verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial
condition and how we operate our business. Similarly, if we settle such legal proceedings, it may affect our financial condition
and how we operate our business. Future court decisions, alternative dispute resolution awards, business expansion or
legislative activity may increase our exposure to litigation and regulatory investigations. In some cases, substantial non-
economic remedies or punitive damages may be sought.
Although we maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular
verdict, judgment, or settlement that may be entered against us, that such coverage will prove to be adequate, or that such
coverage will continue to remain available on acceptable terms, if at all. If in any legal proceeding we incur liability or defense
costs that exceed our insurance coverage or that are not within the scope of our insurance coverage, it could have a material
adverse effect on our business, financial condition, and results of operation.
Certain legal actions include claims for substantial compensatory and punitive damages, or claims for indeterminate amounts
of damages. While the arbitration provisions in our customer agreements historically have limited our exposure to consumer
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class action litigation, there can be no assurance that we will be successful in enforcing our arbitration clause in the future.
There may also be legislative, administrative or regulatory efforts to directly or indirectly prohibit the use of pre-dispute
arbitration clauses, or we may be compelled as a result of competitive pressure or reputational concerns to voluntarily eliminate
pre-dispute arbitration clauses.
Unfavorable state legislation, executive orders, or regulatory actions , adverse outcomes in litigation or regulatory
proceedings or failure to comply with existing laws and regulations could force us to cease, suspend or modify our operations
in a state, potentially resulting in a material adverse effect on our business, results of operations and financial condition.
In addition to federal laws and regulations, we are subject to numerous state laws and regulations that affect our lending
activities. Many of these regulations impose detailed and complex constraints on the terms of our loans, lending forms and
operations. Failure to comply with applicable laws and regulations could subject us to regulatory enforcement action that could
result in the assessment against us of civil, monetary, or other penalties, including the suspension or revocation of our licenses
to lend in one or more jurisdictions.
As discussed elsewhere in this report, the Company’s operations are subject to extensive state and federal laws and regulations,
and changes in those laws or regulations or their application could have a material adverse effect on the Company’s business,
results of operations, prospects or ability to continue operations in the jurisdictions affected by these changes. See Part I, Item
1, “Business-Government Regulation-State Legislation” and “-Federal Legislation,” and Part I, Item 1A, “Risk Factors,” for
more information regarding this legislation and related risks.
Passage of adverse legislation, such as rate caps on financial lending products or similar initiatives, in any of the states in which
we operate could have a material adverse effect on the Company’s business, results of operations, prospects, or ability to
continue operations in the jurisdictions affected by such changes. We can give no assurance that the laws and regulations that
govern our business, or the interpretation or administration of those laws and regulations, will remain unchanged or that any
such future changes will not materially and adversely affect or in the worst case, eliminate the Company’s lending practices,
operations, profitability, or prospects.
In addition, any adverse change in existing laws or regulations, or any adverse interpretation or litigation relating to existing
laws and regulations in any state in which we operate, could subject us to liability for prior operating activities or could lower
or eliminate the profitability of our operations going forward by, among other things, reducing the amount of interest and fees
we can charge in connection with our loans. If these or other factors lead us to close our branches in a state, then in addition to
the loss of net revenues attributable to that closing, we would also incur closing costs such as lease cancellation payments and
we would have to write off assets that we could no longer use. If we were to suspend rather than permanently cease our
operations in a state, we may also have continuing costs associated with maintaining our branches and our employees in that
state, with little or no revenues to offset those costs.
Changes in local laws and regulations or interpretations of local laws and regulations could negatively impact our business,
results of operations, and financial condition.
In addition to state and federal laws and regulations, our business is subject to various local laws and regulations, such as local
zoning regulations. Local zoning boards and other local governing bodies have been increasingly restricting the permitted
locations of consumer finance companies. Any future actions taken to require special use permits for or impose other restrictions
on our ability to provide products could adversely affect our ability to expand our operations or force us to attempt to relocate
existing branches. If we were forced to relocate any of our branches, in addition to the costs associated with the relocation, we
may be required to hire new employees in the new areas, which may adversely impact the operations of those branches.
Relocation of an existing branch may also hinder our collection abilities, as our business model relies in part on the locations
of our branches being close to where our customers live in order to successfully collect on outstanding loans.
We may experience significant turnover in our senior management, and our business may be adversely affected by the
transitions in our senior management team.
Executive leadership transitions can be inherently difficult to manage and may cause disruption to our business. In addition,
management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and
execution, and our results of operations and financial condition could be negative impacted as a result. The loss of services of
one or more other members of senior management, or the inability to attract qualified permanent replacements, could have a
material adverse effect on our business. If we fail to successfully attract and appoint permanent replacements with the
appropriate expertise, we could experience increased employee turnover and harm to our business, results of operations, cash
flow and financial condition. The search for permanent replacements could also result in significant recruiting and relocation
costs.
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The departure, transition, or replacement of key personnel could significantly impact the results of our operations. If we
cannot continue to hire and retain high-quality employees, our business and financial results may be negatively affected.
Our future success significantly depends on the continued service and performance of our key management personnel.
Competition for these employees is intense. Our operating results could be adversely affected by higher employee turnover or
increased salary and benefit costs. Like most businesses, our employees are important to our success and we are dependent in
part on our ability to retain the services of our key management, operational, compliance, finance, and administrative personnel.
We have built our business on a set of core values, and we attempt to hire employees who are committed to these values. We
want to hire and retain employees who will fit our culture of compliance and of providing exceptional service to our customers.
In order to compete and to continue to grow, we must attract, retain, and motivate employees, including those in executive,
senior management, and operational positions. As our employees gain experience and develop their knowledge and skills, they
become highly desired by other businesses. Therefore, to retain our employees, we must provide a satisfying work environment
and competitive compensation and benefits. If costs to retain our skilled employees increase, then our business and financial
results may be negatively affected.
Media and public characterization of consumer installment loans as being predatory or abusive could have a materially
adverse effect on our business, prospects, results of operations and financial condition.
Consumer activist groups and various other media sources continue to advocate for governmental and regulatory action to
prohibit or severely restrict our products and services. These critics frequently characterize our products and services as
predatory or abusive toward consumers. If this negative characterization of the consumer installment loans we make and/or
ancillary services we provide becomes widely accepted by government policy makers or is embodied in legislative, regulatory,
policy or litigation developments that adversely affect our ability to continue offering our products and services or the
profitability of these products and services, our business, results of operations and financial condition would be materially and
adversely affected. Furthermore, our industry is highly regulated, and announcements regarding new or expected governmental
and regulatory action regarding consumer lending may adversely impact perceptions of our business even if such actions are
not targeted at our operations and do not directly impact us.
Damage to our reputation could negatively impact our business.
Maintaining a strong reputation is critical to our ability to attract and retain customers, investors, and employees. Harm to our
reputation can arise from many sources, including employee misconduct, misconduct by third-party service providers or other
vendors, litigation or regulatory actions, failure by us to meet minimum standards of service and quality, inadequate protection
of customer information, and compliance failures. Negative publicity regarding our Company (or others engaged in a similar
business or similar activities), whether or not accurate, may damage our reputation, which could have a material adverse effect
on our business, results of operations, and financial condition.
Employee misconduct or misconduct by third parties acting on our behalf could harm us by subjecting us to monetary loss,
significant legal liability, regulatory scrutiny, and reputational harm.
There is a risk that our employees or third-party contractors could engage in misconduct that adversely affects our business.
For example, if an employee or a third-party contractor were to engage in, or be accused of engaging in, illegal or suspicious
activities including fraud or theft, we could suffer direct losses from the activity. Additionally, we could be subject to regulatory
sanctions and suffer serious harm to our reputation, financial condition, customer relationships and ability to attract future
customers. Employee or third-party misconduct could prompt regulators to allege or to determine based upon such misconduct
that we have not established adequate supervisory systems and procedures to inform employees of applicable rules or to detect
violations of such rules. Our branches have experienced employee fraud from time to time, and it is not always possible to
deter employee or third-party misconduct. The precautions that we take to detect and prevent misconduct may not be effective
in all cases. Misconduct by our employees or third-party contractors, or even unsubstantiated allegations of misconduct, could
result in a material adverse effect on our reputation and our business.
Interest rate fluctuations may adversely affect our borrowing costs, profitability and liquidity.
Our profitability may be directly affected by the level of and fluctuations in interest rates, whether caused by changes in
economic conditions or other factors that affect our borrowing costs. Interest rates are highly sensitive to many factors that are
beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and,
in particular, the Federal Reserve Board. Changes in monetary policy, including changes in interest rates, could influence the
amount of interest we pay on our revolving credit facility or any other floating interest rate obligations we may incur. Our
profitability and liquidity could be materially adversely affected during any period of higher interest rates. See Part II, Item 7A,
“Quantitative and Qualitative Disclosure About Market Risk” for additional information regarding our interest rate risk.
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We depend to a substantial extent on borrowings under our revolving credit agreement to fund our liquidity needs.
Our revolving credit agreement allows us to borrow up to $685.0 million through June 7, 2022. Pursuant to the terms of our
revolving credit agreement, we are required to comply with a number of covenants and conditions, including a minimum
borrowing base calculation. If our existing sources of liquidity become insufficient to satisfy our financial needs or our access
to these sources becomes unexpectedly restricted, we may need to try to raise additional capital in the future. If such an event
were to occur, we can give no assurance that such alternate sources of liquidity would be available to us at all or on favorable
terms. Additional information regarding our liquidity risk is included in Part II, Item 7, “Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”
Our risk management efforts may not be effective.
We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify,
manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk, and other
market-related risks, as well as regulatory and operational risks related to our business, assets, and liabilities. Our risk
management policies, procedures, and techniques may not be sufficient to identify all of the risks we are exposed to, mitigate
the risks we have identified, or identify additional risks to which we may become subject in the future.
Our current debt and any additional debt we may incur in the future could negatively impact our business, prevent us from
satisfying our debt obligations and adversely affect our financial condition.
We may incur a substantial amount of debt in the future. As of March 31, 2020, we had approximately $451.1 million of total
debt outstanding and a total debt-to-equity ratio of approximately 1.1 to 1. The amount of debt we may incur in the future could
have important consequences, including the following:
•
•
our ability to obtain additional financing for working capital, debt refinancing, share repurchases or other purposes
could be impaired;
a substantial portion of our cash flows from operations will be dedicated to paying principal and interest on our debt,
reducing funds available for other purposes;
• we may be vulnerable to interest rate increases, as borrowings under our revolving credit agreement bear interest at
variable rates, as may any future debt that we incur;
• we may be at a competitive disadvantage to competitors that are not as highly leveraged;
• we could be more vulnerable to adverse developments in our industry or in general economic conditions;
• we may be restricted from taking advantage of business opportunities or making strategic acquisitions;
• we may be limited in our flexibility in planning for, or reacting to, changes in our business and the industry in which
we operate;
• we may have difficulty satisfying our obligations under the debt if accelerated upon the occurrence of an event of
default; and
• we may be more vulnerable to periods of negative or slow growth in the general economy or in our business.
In addition, meeting our anticipated liquidity requirements is contingent upon our continued compliance with our revolving
credit agreement. An acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue
as a going concern. If our debt obligations increase, whether due to the increased cost of existing indebtedness or the incurrence
of additional indebtedness, the consequences described above could be magnified.
Although the terms of our revolving credit agreement contain restrictions on our ability to incur additional debt, as well as any
future debt that we incur, these restrictions are subject, or likely to be subject, in the case of any future debt, to exceptions that
could permit us to incur a substantial amount of additional debt. In addition, our existing and future debt agreements will not
prevent us from incurring certain liabilities that do not constitute indebtedness as defined for purposes of those debt agreements.
If new debt or other liabilities are added to our current debt levels, the risks associated with our having substantial debt could
intensify. As of March 31, 2020, we had $180.2 million available for borrowing under our revolving credit agreement, subject
to borrowing base limitations and other specified terms and conditions.
We may not be able to generate sufficient cash flows to service our outstanding debt and fund operations and may be forced
to take other actions to satisfy our obligations under such debt.
Our ability to make scheduled payments on the principal of, to pay interest on, or to refinance our indebtedness will depend in
part on our cash flows from operations, which are subject to regulatory, economic, financial, competitive, and other factors
beyond our control. We may not generate a level of cash flows from operations sufficient to permit us to meet our debt service
obligations. If we are unable to generate sufficient cash flows from operations to service our debt, we may be required to sell
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assets, refinance all or a portion of our existing debt, obtain additional financing, or obtain additional equity capital on terms
that may be onerous or highly dilutive. There can be no assurance that any refinancing will be possible or that any asset sales
or additional financing can be completed on acceptable terms or at all.
The terms of our debt limit how we conduct our business.
Our revolving credit agreement contains covenants that restrict our ability to, among other things:
incur and guarantee debt;
pay dividends or make other distributions on or redeem or repurchase our stock;
•
•
• make investments or acquisitions;
•
•
• merge with or into other companies;
•
• make capital expenditures.
create liens on our assets;
sell assets;
enter into transactions with shareholders and other affiliates; and
Our revolving credit agreement also imposes requirements that we maintain specified financial measures not in excess of, or
not below, specified levels. In particular, our revolving credit agreement requires, among other things, that we maintain (i) at
all times a specified minimum consolidated net worth, (ii) as of the end of each fiscal quarter, a minimum ratio of consolidated
net income available for fixed charges for the period of four consecutive fiscal quarters most recently ended to consolidated
fixed charges for that period of not less than a specified minimum, (iii) at all times a specified maximum ratio of total debt to
consolidated adjusted net worth and (iv) at all times a specified ratio of subordinated debt to consolidated adjusted net worth.
These covenants limit the manner in which we can conduct our business and could prevent us from engaging in favorable
business activities or financing future operations and capital needs and impair our ability to successfully execute our strategy
and operate our business.
A breach of any of the covenants in our revolving credit agreement would result in an event of default thereunder. Any event
of default would permit the creditors to accelerate the related debt, which could also result in the acceleration of any other or
future debt containing a cross-acceleration or cross-default provision. In addition, an event of default under our revolving credit
agreement would permit the lenders thereunder to terminate all commitments to extend further credit under the revolving credit
agreement. Furthermore, if we were unable to repay the amounts due and payable under the revolving credit agreement or any
other secured debt we may incur, the lenders thereunder could cause the collateral agent to proceed against the collateral
securing that debt. In the event our creditors accelerate the repayment of our debt, there can be no assurance that we would
have sufficient assets to repay that debt, and our financial condition, liquidity and results of operations would suffer. Additional
information regarding our revolving credit facility is included in Part II, Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources.”
Changes in federal, state and local tax law, interpretations of existing tax law, or adverse determinations by tax authorities,
could increase our tax burden or otherwise adversely affect our financial condition or results of operations.
We are subject to taxation at the federal, state and local levels. Furthermore, we are subject to regular review and audit by tax
authorities. While we believe our tax positions will be sustained, the final outcome of tax audits and related litigation may
differ materially from the tax amounts recorded in our Consolidated Financial Statements, which could adversely impact our
cash flows and financial results.
The conditions of the U.S. and international capital markets may adversely affect lenders with which we have relationships,
causing us to incur additional costs and reducing our sources of liquidity, which may adversely affect our financial position,
liquidity and results of operations.
Turbulence in the global capital markets can result in disruptions in the financial sector and affect lenders with which we have
relationships, including members of the syndicate of banks that are lenders under our revolving credit agreement. Disruptions
in the financial sector may increase our exposure to credit risk and adversely affect the ability of lenders to perform under the
terms of their lending arrangements with us. Failure by our lenders to perform under the terms of our lending arrangements
could cause us to incur additional costs that may adversely affect our liquidity, financial condition, and results of operations.
There can be no assurance that future disruptions in the financial sector will not occur that could have adverse effects on our
business. Additional information regarding our liquidity and related risks is included in Part II, Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.”
25
We are exposed to credit risk in our lending activities.
Our ability to collect on loans to individuals, our single largest asset group, depends on the ability and willingness of our
borrowers to repay such loans. Any material adverse change in the ability or willingness of a significant portion of our
borrowers to meet their obligations to us, whether due to changes in economic conditions, unemployment rates, the cost of
consumer goods (particularly, but not limited to, food and energy costs), disposable income, interest rates, health crises, natural
disasters, acts of war or terrorism, political or social conditions, divorce, death, or other causes over which we have no control,
would have a material adverse impact on our earnings and financial condition. Although new customers are required to submit
a listing of personal property that will serve as collateral to secure their loans, the Company does not rely on the value of such
collateral in the loan approval process and generally does not perfect its security interest in that collateral. Additional
information regarding our credit risk is included in Part II, Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operation-Credit Quality.”
Our insurance operations are subject to a number of risks and uncertainties, including claims, catastrophic events,
underwriting risks and dependence on a primary distribution channel.
Insurance claims and policyholder liabilities are difficult to predict and may exceed the related reserves set aside for claims
(losses) and associated expenses for claims adjudication (loss adjustment expenses). Additionally, events such as cyber security
breaches and other types of catastrophes, and prolonged economic downturns, could adversely affect our financial condition
and results of operations. Other risks relating to our insurance operations include changes to laws and regulations applicable to
us, as well as changes to the regulatory environment, such as: changes to laws or regulations affecting capital and reserve
requirements; frequency and type of regulatory monitoring and reporting; consumer privacy, use of customer data and data
security; benefits or loss ratio requirements; insurance producer licensing or appointment requirements; required disclosures to
consumers; and collateral protection insurance (i.e., insurance some of our lender companies purchase, at the customer’s
expense, on that customer’s loan collateral for the periods of time the customer fails to adequately, as required by his loan,
insure his collateral).
If our estimates of loan losses are not adequate to absorb actual losses, our provision for loan losses would increase, which
would adversely affect our results of operations.
To estimate the appropriate level of allowance for loan losses, we consider known and relevant internal and external factors
that affect loan collectability, including the total amount of loan receivables outstanding, historical loan receivable charge-offs,
our current collection patterns, and economic trends. Our methodology for establishing our allowance for loan losses is based
on the guidance in ASC 450, Contingencies, and, in part, on our historic loss experience. If customer behavior changes as a
result of economic, political, or social conditions, or if we are unable to predict how these conditions may affect our allowance
for loan losses, our allowance for loan losses may be inadequate. Our allowance for loan losses is an estimate, and if actual
loan losses are materially greater than our allowance for loan losses, our provision for loan losses would increase, which would
result in a decline in our future earnings, and thus our results of operations could be adversely affected. Neither state regulators
nor federal regulators regulate our allowance for loan losses. Additional information regarding our allowance for loan losses is
included in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Credit
Quality.”
In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (CECL). This ASU significantly changes the way that entities will be required to measure
credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather
than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit
losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. It is
anticipated that the expected credit loss model may require earlier recognition of credit losses than the incurred loss approach.
CECL became effective for the Company April 1, 2020. We currently expect the adoption of CECL will result in an increase
of approximately $14.5 million to $26.2 million in our allowance for loan losses. See Note 1 of the Notes to Consolidated
Financial Statements included in this report for more information on this new accounting standard.
The concentration of our revenues in certain states could adversely affect us.
We currently operate consumer installment loan branches in sixteen states in the United States. Any adverse legislative or
regulatory change in any one of our states, but particularly in any of our larger states could have a material adverse effect on
our business, prospects, and results of operation or financial condition. See Part I, Item 1, “Description of Business” for
information regarding the size of our business in the various states in which we operate.
26
We have goodwill, which is subject to periodic review and testing for impairment.
At March 31, 2020 our total assets contained $7.4 million of goodwill. Under GAAP, goodwill is subject to periodic review
and testing to determine if it is impaired. Unfavorable trends in our industry and unfavorable events or disruptions to our
operations resulting from adverse legislative or regulatory actions or from other unpredictable causes could result in goodwill
impairment charges.
If we fail to maintain appropriate controls and procedures, we may not be able to accurately report our financial results,
which could have a material adverse effect on our operations, financial condition, and the trading price of our common
stock.
We are required to maintain disclosure controls and procedures and internal control over financial reporting. Section 404(a) of
the Sarbanes Oxley Act requires us to include in our annual reports on Form 10-K an assessment by management of the
effectiveness of our internal control over financial reporting. Section 404(b) of the Sarbanes Oxley Act requires us to engage
our independent registered public accounting firm to attest to the effectiveness of our internal control over financial reporting.
We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult
for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control
over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting.
If we identify a material weakness in our controls and procedures, our ability to record, process, summarize, and report financial
information accurately and within the time periods specified in the rules and forms of the SEC could be adversely affected. In
addition, remediation of a material weakness would require our management to devote significant time and incur significant
expense. A material weakness is a deficiency, or a combination of deficiencies, such that there is a reasonable possibility that
a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. If we
are unable to maintain effective controls and procedures we could lose investor confidence in the accuracy and completeness
of our financial reports, and we may be subject to investigation or sanctions by the SEC. Any such consequence or other
negative effect could adversely affect our operations, financial condition, and the trading price of our common stock.
Regular turnover among our managers and other employees at our branches makes it more difficult for us to operate our
branches and increases our costs of operations, which could have an adverse effect on our business, results of operations
and financial condition.
The annual turnover as of March 31, 2020 among our branch employees was approximately 32.7%. This turnover increases
our cost of operations and makes it more difficult to operate our branches. If we are unable to keep our employee turnover rates
consistent with historical levels or if unanticipated problems arise from our high employee turnover, our business, results of
operations, and financial condition could be adversely affected.
We may be unable to execute our business strategy due to current economic conditions.
Our financial position, liquidity, and results of operations depend on management’s ability to execute our business strategy.
Key factors involved in the execution of our business strategy include achieving our desired loan volume and pricing strategies,
the use of effective credit risk management techniques, marketing and servicing strategies, continued investment in technology
to support operating efficiency, and continued access to funding and liquidity sources. Although our pricing strategy is intended
to maximize the amount of economic profit we generate, within the confines of capital and infrastructure constraints, there can
be no assurance that this strategy will have its intended effect. Our failure or inability to execute any element of our business
strategy could materially adversely affect our financial position, liquidity, and results of operations.
Our ability to execute our growth strategy may be adversely affected.
Our growth strategy includes opening and acquiring branches in existing and new markets and is subject to significant risks,
some of which are beyond our control, including:
•
•
•
•
•
the prevailing laws and regulatory environment of each state in which we operate or seek to operate, and, to the extent
applicable, federal laws and regulations, which are subject to change at any time;
our ability to obtain and maintain any regulatory approvals, government permits, or licenses that may be required;
the degree of competition in new markets and its effect on our ability to attract new customers;
our ability to obtain adequate financing for our expansion plans; and
our ability to attract, train, and retain qualified personnel to staff our new operations.
27
We currently lack product and business diversification; as a result, our revenues and earnings may be disproportionately
negatively impacted by external factors and may be more susceptible to fluctuations than more diversified companies.
Our primary business activity is offering small consumer installment loans together with, in some states in which we operate,
related ancillary products. Thus, any developments, whether regulatory, economic or otherwise, that would hinder, reduce the
profitability of, or limit our ability to operate our small consumer installment loan business on the terms currently conducted
would have a direct and adverse impact on our business, profitability, and perhaps even our viability. Our current lack of
product and business diversification could inhibit our opportunities for growth, reduce our revenues and profits, and make us
more susceptible to earnings fluctuations than many other financial institutions whose operations are more diversified.
A reduction in demand for our products and a failure by us to adapt to such reduction could adversely affect our business
and results of operations.
The demand for the products we offer may be reduced due to a variety of factors, such as demographic patterns, changes in
customer preferences or financial condition, regulatory restrictions that decrease customer access to particular products, or the
availability of competing products, including through alternative or competing marketing channels. For example, we are highly
dependent upon selecting and maintaining attractive branch locations. These locations are subject to local market conditions,
including the employment available in the area, housing costs, traffic patterns, crime, and other demographic influences, any
of which may quickly change, thereby negatively impacting demand for our products in the area. Should we fail to adapt to
significant changes in our customers’ demand for, or access to, our products, our revenues could decrease significantly and our
operations could be harmed. Even if we do make changes to existing products or introduce new products and channels to fulfill
customer demand, customers may resist or may reject such products. Moreover, the effect of any product change on the results
of our business may not be fully ascertainable until the change has been in effect for some time, and by that time it may be too
late to make further modifications to such product without causing further harm to our business, results of operations, and
financial condition.
We operate in a highly competitive market, and we cannot ensure that the competitive pressures we face will not have a
material adverse effect on our results of operations, financial condition and liquidity.
The consumer lending industry is highly competitive. We compete with other consumer finance companies as well as other
types of financial institutions that offer similar consumer financial products and services. Some of these competitors may have
greater financial, technical, and marketing resources than we possess. Some competitors may also have a lower cost of funds
and access to funding sources that may not be available to us. While banks and credit card companies have decreased their
lending to non-prime customers in recent years, there is no assurance that such lenders will not resume those lending activities.
Further, because of increased regulatory pressure on payday lenders, many of those lenders are starting to make more traditional
installment consumer loans in order to reduce regulatory scrutiny of their practices, which could increase competition in
markets in which we operate. We cannot be sure that the competitive pressures we face will not have a material adverse effect
on our results of operations, financial condition, and liquidity.
We depend on secure information technology, and a breach of those systems or those of third-party vendors could result in
significant losses, unauthorized disclosure of confidential customer information, and reputational damage, which could
materially adversely affect our business, financial condition and/or results of operations, and could lead to significant
financial and legal exposure.
Our operations rely heavily on the secure collection, processing, storage, and transmission of personal, confidential, and other
information about us, our customers and third parties with which we do business. We process a significant number of customer
transactions on a continuous basis through our computer systems and networks and are subject to increasingly more risk related
to security systems as we enhance our mobile payment technologies and otherwise attempt to keep pace with rapid
technological changes in the financial services industry.
While we commit resources to the design, implementation, maintenance, and monitoring of our networks and systems, we may
be required to expend significant additional resources in the future to modify and enhance our security controls in response to
new or more sophisticated threats, new regulations related to cybersecurity and other developments. Additionally, there is no
guarantee that our security controls can provide absolute security.
Despite the measures we implement to protect our systems and data, we may not be able to anticipate, identify, prevent or
detect cyber-attacks, particularly because the techniques used by attackers change frequently or are not recognized until
launched, and because cyber-attacks can originate from a wide variety of sources, including third parties who are or may be
involved in organized crime or linked to terrorist organizations or hostile foreign governments. Such third parties may seek to
gain unauthorized access to our systems directly, by fraudulently inducing employees, customers, or other users of our systems,
or by using equipment or security passwords belonging to employees, customers, third-party service providers, or other users
28
of our systems. Or, they may seek to disrupt or disable our services through attacks such as denial-of-service attacks and
ransomware attacks. In addition, we may be unable to identify, or may be significantly delayed in identifying, cyber-attacks
and incidents due to the increasing use of techniques and tools that are designed to circumvent controls, to avoid detection, and
to remove or obfuscate forensic artifacts. As a result, our computer systems, software and networks, as well as those of third-
party vendors we utilize, may be vulnerable to unauthorized access, computer viruses, malicious attacks and other events that
could have a security impact beyond our control. Our staff, technologies, systems, networks, and those of third-parties we
utilize also may become the target of cyber-attacks, unauthorized access, malicious code, computer viruses, denial of service
attacks, ransomware, and physical attacks that could result in information security breaches, the unauthorized release, gathering,
monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, or otherwise
disrupt our or our customers’ operations. We also routinely transmit and receive personal, confidential and proprietary
information through third parties, which may be vulnerable to interception, misuse, or mishandling.
If one or more of such events occur, personal, confidential, and other information processed and stored in, and transmitted
through our computer systems and networks, or those of third-party vendors, could be compromised or could cause interruptions
or malfunctions in our operations that could result in significant losses, loss of confidence by and business from customers,
customer dissatisfaction, significant litigation, regulatory exposures, and harm to our reputation and brand.
In the event personal, confidential, or other information is threatened, intercepted, misused, mishandled, or compromised, we
may be required to expend significant additional resources to modify our protective measures, to investigate the circumstances
surrounding the event, and implement mitigation and remediation measures. We also may be subject to fines, penalties,
litigation (including securities fraud class action lawsuits), and regulatory investigation costs and settlements and financial
losses that are either not insured against or not fully covered through any insurance maintained by us. If one or more of such
events occur, our business, financial condition and/or results of operations could be significantly and adversely affected.
Any interruption of our information systems could adversely affect us.
Our business and reputation may be materially impacted by information system failures or network disruptions. We rely heavily
on communications and information systems to conduct our business. Each branch is part of an information network that is
designed to permit us to maintain adequate cash inventory, reconcile cash balances on a daily basis, and report revenues and
expenses to our headquarters. Any failure or interruption of these systems, including any failure of our back-up systems,
network outages, slow performance, breaches, unauthorized access, misuse, computer viruses, or other failures or disruptions
could result in disruption to our business or the loss or theft of confidential information, including customer information. A
disruption could impair our ability to offer and process our loans, provide customer service, perform collections or other
necessary business activities, which could result in a loss of customer confidence or business, subject us to additional regulatory
scrutiny or negative publicity, or expose us to civil litigation and possible financial liability, or otherwise materially adversely
affect our financial condition and operating results. Furthermore, we may not be able to detect immediately any such breach,
which may increase the losses that we would suffer. In addition, our existing insurance policies may not reimburse us for all of
the damages that we might incur as a result of a breach.
We may not be able to make technological improvements as quickly as some of our competitors, which could harm our
ability to compete with our competitors and adversely affect our results of operations, financial condition, and liquidity.
The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-
driven products and services. The effective use of technology increases efficiency and enables financial and lending institutions
to better serve customers and reduce costs. Our future success and, in particular, the success of our centralized operations, will
depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services
that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. We may not
be able to effectively implement new technology-driven products and services as quickly as some of our competitors or be
successful in marketing these products and services to our existing and new customers. Failure to successfully keep pace with
technological change affecting the financial services industry could harm our ability to compete with our competitors and
adversely affect our results of operations, financial condition, and liquidity.
We are subject to data privacy laws, which may significantly increase our compliance and technology costs resulting in a
material adverse effect on our results of operations and financial condition.
We are subject to various federal and state privacy, data protection, and information security laws and regulations, including
requirements concerning security breach notification. Moreover, various federal and state regulatory agencies require us to
notify customers in the event of a security breach. Federal and state legislators are increasingly pursuing new guidance, laws,
and regulations. Compliance with current or future privacy, data protection and information security laws affecting customer
or employee data to which we are subject could result in higher compliance and technology costs and could materially and
29
adversely affect our profitability. Our failure to comply with privacy, data protection and information security laws may require
us to change our business practices or operational structure, and could subject us to potentially significant regulatory and/or
governmental investigations and/or actions, litigation, fines, sanctions, and damage to our reputation.
We are also subject to the theft or misuse of physical customer and employee records at our facilities.
Our branch offices and centralized headquarters have physical and electronic customer records necessary for day-to-day
operations that contain extensive confidential information about our customers. We also retain physical records in various
storage locations. The loss or theft of customer information and data from our branch offices, headquarters, or other storage
locations could subject us to additional regulatory scrutiny and penalties and could expose us to civil litigation and possible
financial liability, which could have a material adverse effect on our results of operations, financial condition and liquidity. In
addition, if we cannot locate original documents (or copies, in some cases) for certain finance receivables, we may not be able
to collect on those finance receivables.
Our off-site data center and centralized IT functions are susceptible to disruption by catastrophic events, which could have
a material adverse effect on our business, results of operations, and financial condition.
Our information systems, and administrative and management processes could be disrupted if a catastrophic event, such as
severe weather, natural disaster, power outage, act of terror or similar event, destroyed or severely damaged our
infrastructure. Any such catastrophic event or other unexpected disruption of our headquarters functions or off-site data center
could have a material adverse effect on our business, results of operations, and financial condition.
Absence of dividends could reduce our attractiveness to investors.
Since 1989, we have not declared or paid cash dividends on our common stock and may not pay cash dividends in the
foreseeable future. As a result, our common stock may be less attractive to certain investors than the stock of dividend-paying
companies. Investors may need to rely on sales of their common stock after price appreciation, which may not occur, as the
only way to realize future gains on their investment.
Various provisions of our charter documents and applicable laws could delay or prevent a change of control that
shareholders may favor.
Provisions of our articles of incorporation, South Carolina law, and the laws in several of the states in which our operating
subsidiaries are incorporated could delay or prevent a change of control that the holders of our common stock may favor or
may impede the ability of our shareholders to change our management. In particular, our articles of incorporation and South
Carolina law, among other things, authorize our board of directors to issue preferred stock in one or more series, without
shareholder approval, and will require the affirmative vote of holders of two-thirds of our outstanding shares of voting stock,
to approve our merger or consolidation with another corporation. Additional information regarding the similar effect of laws
in certain states in which we operate is described in Part 1, Item 1, “Description of Business - Government Regulation.”
Overall stock market volatility may materially and adversely affect the market price of our common stock.
The Company’s common stock price has been and is likely to continue to be subject to significant volatility. Securities markets
worldwide experience significant price and volume fluctuations. This market volatility, as well as general economic, market,
or political conditions, could reduce the market price of shares of our common stock in spite of our operating performance.
Additionally, a variety of factors could cause the price of the common stock to fluctuate, perhaps substantially, including:
general market fluctuations resulting from factors not directly related to the Company’s operations or the inherent value of its
common stock; state or federal legislative or regulatory proposals, initiatives, actions or changes that are, or are perceived to
be, adverse to our operations or the broader consumer finance industry in general; announcements of developments related to
our business; fluctuations in our operating results and the provision for loan losses; low trading volume in our common stock;
decreased availability of our common stock resulting from stock repurchases and concentrations of ownership by large or
institutional investors; general conditions in the financial service industry, the domestic or global economy or the domestic or
global credit or capital markets; changes in financial estimates by securities analysts; our failure to meet the expectations of
securities analysts or investors; negative commentary regarding our Company and corresponding short-selling market behavior;
adverse developments in our relationships with our customers; investigations or legal proceedings brought against the Company
or its officers; or significant changes in our senior management team.
30
Changes to accounting rules, regulations or interpretations could significantly affect our financial results.
New accounting rules or regulations, changes to existing accounting rules or regulations, and changing interpretations of
existing rules and regulations have been issued or occurred and may continue to be issued or occur in the future. Our
methodology for valuing our receivables and otherwise accounting for our business is subject to change depending upon the
changes in, and interpretation of, accounting rules, regulations, or interpretations. Any such changes to accounting rules,
regulations, or interpretations could negatively affect our reported results of operations and could negatively affect our financial
condition through increased cost of compliance.
In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments (CECL). This ASU significantly changes the way that entities will be required to measure
credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather
than the “incurred loss” approach currently required. The new approach will require entities to measure all expected credit
losses for financial assets based on historical experience, current conditions, and reasonable forecasts of collectability. It is
anticipated that the expected credit loss model may require earlier recognition of credit losses than the incurred loss approach.
CECL became effective for the Company April 1, 2020. We currently expect the adoption of CECL will result in an increase
of approximately $14.5 million to $26.2 million in our allowance for loan losses. See Note 1 of the Notes to Consolidated
Financial Statements included in this report for more information on this new accounting standard.
If assumptions or estimates we use in preparing our financial statements are incorrect or are required to change, our
reported results of operations and financial condition may be adversely affected.
We are required to use certain assumptions and estimates in preparing our financial statements under GAAP, including in
determining allowances for credit losses, the fair value of financial instruments, asset impairment, reserves related to litigation
and other legal matters, the fair value of share-based compensation, valuation of income, and other taxes and regulatory
exposures. In addition, significant assumptions and estimates are involved in determining certain disclosures required under
GAAP, including those involving the fair value of our financial instruments. If the assumptions or estimates underlying our
financial statements are incorrect, the actual amounts realized on transactions and balances subject to those estimates will be
different, and this could have a material adverse effect on our results of operations and financial condition.
In addition, the FASB is currently reviewing or proposing changes to several financial accounting and reporting standards that
govern key aspects of our financial statements, including areas where assumptions or estimates are required. As a result of
changes to financial accounting or reporting standards, whether promulgated or required by the FASB or other regulators, we
could be required to change certain of the assumptions or estimates we previously used in preparing our financial statements,
which could negatively impact how we record and report our results of operations and financial condition generally.
A small number of our shareholders have the ability to significantly influence matters requiring shareholder approval and
such shareholders have interests which may conflict with the interests of our other security holders.
As of March 31, 2020, based on filings made with the SEC and other information made available to us, Prescott General
Partners, LLC and its affiliates beneficially owned approximately 35.0% of our common stock. As a result, these few
shareholders are able to significantly influence matters presented to shareholders, including the election and removal of
directors, the approval of significant corporate transactions, such as any reclassification, reorganization, merger, consolidation
or sale of all or substantially all of our assets, and the control of our management and affairs, including executive compensation
arrangements. Their interests may conflict with the interests of our other security holders.
The future issuance of additional shares of our common stock in connection with potential acquisitions or otherwise will
dilute all other shareholders.
Except in certain circumstances, we are not restricted from issuing additional shares of common stock, including any securities
that are convertible into or exchangeable for, or that represent the right to receive, common stock. The market price of shares
of our common stock could decline as a result of sales of a large number of shares of common stock in the market or the
perception that such sales could occur. We intend to continue to evaluate acquisition opportunities and may issue shares of
common stock in connection with these acquisitions. Any shares of common stock issued in connection with acquisitions, the
exercise of outstanding stock options, or otherwise would dilute the percentage ownership held by our existing shareholders.
Our use of third-party vendors is subject to regulatory review.
The CFPB and other regulators have issued regulatory guidance focusing on the need for financial institutions to perform due
diligence and ongoing monitoring of third-party vendor relationships, which increases the scope of management involvement
31
and decreases the benefit that we receive from using third-party vendors. Moreover, if our regulators conclude that we have
not met the standards for oversight of our third-party vendors, we could be subject to enforcement actions, civil monetary
penalties, supervisory orders to cease and desist or other remedial actions, which could have a materially adverse effect on our
business, reputation, financial condition and operating results. Further, federal and state regulators have been scrutinizing the
practices of lead aggregators and providers recently. If regulators place restrictions on certain practices by lead aggregators or
providers, our ability to use them as a source for applicants could be affected.
Initiating and processing potential acquisitions may be unsuccessful or difficult, leading to losses and increased
delinquencies, which could have a material adverse effect on our results of operations.
We have previously acquired, and in the future may acquire, assets or businesses, including large portfolios of finance
receivables, either through the direct purchase of such assets or the purchase of the equity of a company with such a portfolio.
Since we will not have originated or serviced the loans we acquire, we may not be aware of legal or other deficiencies related
to origination or servicing, and our due diligence efforts of the acquisition prior to purchase may not uncover those deficiencies.
Further, we may have limited recourse against the seller of the portfolio.
In pursuing these transactions, we may experience, among other things:
•
•
•
•
•
•
overvaluing potential targets;
difficulties in integrating any acquired companies or branches into our existing business, including integration of
account data into our information systems;
inability to realize the benefits we anticipate in a timely fashion, or at all;
unexpected losses due to the acquisition of loan portfolios with loans originated using less stringent underwriting
criteria;
significant costs, charges, or write-downs; or
unforeseen operating difficulties that require significant financial and managerial resources that would otherwise be
available for the ongoing development and expansion of our existing operations.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
In January 2020, the Company moved into its new corporate headquarters located at 104 S. Main Street in Greenville, South
Carolina. The Company leases approximately 45,000 square feet at this location. This lease expires on November 30, 2029 and
includes two five-year options. The Company’s previous corporate headquarters, which consists of approximately 42,000
square feet in Greenville, South Carolina, was classified as held for sale as of March 31, 2020.
The Company owns all of the furniture, fixtures and computer terminals located in each of its branches. As of March 31, 2020,
the Company had 1,243 branches, most of which are generally leased pursuant to three- to five-year operating leases. During
the fiscal year ended March 31, 2020, total lease expense was approximately $26.4 million, or an average of approximately
$21.5 thousand per branch. The Company's leases generally provide for an initial three- to five-year term with renewal
options. The Company's branches are typically located in shopping centers, malls and the first floors of downtown
buildings. Branches generally have an average size of 1,603 square feet.
Item 3.
Legal Proceedings
Mexico Investigation
As previously disclosed, the Company retained outside legal counsel and forensic accountants to conduct an investigation of
its operations in Mexico, focusing on the legality under the 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 addressed 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 voluntarily contacted the SEC and the DOJ in June 2017 to
32
advise both agencies that an internal investigation was underway and that the Company intended to cooperate with both
agencies. The Company has and will continue to cooperate with both agencies. The SEC has issued a formal order of
investigation.
There have been ongoing discussions with the SEC regarding the possible resolution of these matters. The discussions with the
SEC have progressed to a point that the Company can now reasonably estimate a probable loss and has recorded an aggregate
accrual of $21.7 million with respect to the SEC matters as of March 31, 2020. As the discussions with the SEC are continuing,
there can be no assurance that the Company's efforts to reach a final resolution with the SEC will be successful or, if they are,
what the timing or terms of such resolution will be. The Company has no offer of settlement or resolution with the DOJ at this
time. The total amount of the Company’s loss incurred in connection with the investigation and any resolution thereof, including
those amounts which remain subject to approval by the SEC, may be higher than the amount of the accrual.
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 adversely impact our access to debt financing and capital funding and result in further 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 or other laws 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. See Part I, Item 1A, “Risk Factors-We may be exposed to liabilities
under the FCPA, and any determination that the Company or any of its subsidiaries has violated the FCPA could have a material
adverse effect on our business and liquidity” and “-Our investigation of our previous operations in Mexico may expose the
Company to other potential liabilities in addition to any potential liabilities under the FCPA and cause the Company to incur
substantial expenses.”
Further, under the terms of the stock purchase agreement among the Company and the Purchasers in connection with the sale
of our Mexico operations, we are obligated to indemnify the Purchasers for claims and liabilities relating to certain
investigations of our former Mexico operations, the Company, and its affiliates 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.
General
In addition, from time to time the Company is involved in litigation matters relating to claims arising out of its operations in
the normal course of business.
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 fines, 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 currently pending legal matters will
be material to the Company’s results of operations or financial conditions. 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.
33
Item 4.
Mine Safety Disclosures
None.
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Since November 26, 1991, the Company’s common stock has traded on NASDAQ and is currently listed on the NASDAQ
Global Select Market (“NASDAQ”) under the symbol WRLD.
Holders
As of May 15, 2020, there were 30 holders of record of our common stock and a significant number of persons or entities who
hold their stock in nominee or “street” names through various brokerage firms.
Dividends
Since April 1989, the Company has not declared or paid any cash dividends on its common stock. Its policy has been to retain
earnings for use in its business and selectively use cash to repurchase its common stock on the open market. In addition, 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.”
In the future, the Company’s Board of Directors may determine whether to pay cash dividends based on conditions then
existing, including the Company’s earnings, financial condition, capital requirements and other relevant factors.
Issuer Purchases of Equity Securities
Since 1996, the Company has repurchased approximately 20.4 million shares for an aggregate purchase price of approximately
$1.13 billion. On March 12, 2020, the Board of Directors authorized the Company to repurchase up to $30.0 million of the
Company’s outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase
authorizations. As of March 31, 2020, the Company had $22.6 million in aggregate remaining repurchase capacity. The timing
and actual number of shares repurchased will depend on a variety of factors, including the stock price, corporate and regulatory
requirements, available funds, alternative uses of capital, restrictions under the revolving credit agreement, and other market
and economic conditions. The Company’s stock repurchase program may be suspended or discontinued at any time.
The repurchase authorization does not have a stated expiration date. The following table details purchases of the Company's
common stock, if any, made by the Company during the three months ended March 31, 2020:
(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
January 1 through January
31, 2020
February 1 through February
29, 2020
March 1 through March 31,
2020
Total for the quarter
— $
—
128,499
128,499 $
—
—
57.47
57.47
— $
—
128,499
128,499
10,030,853
10,030,853
22,614,804
34
Stock Performance Graph
35
Selected Consolidated Financial and Other Data
Item 6.
Selected Financial Data
Selected Consolidated Financial and Other Data
(Amounts in thousands, except number of
branches and per share information)
Statement of Operations Data:
Interest and fee income
Insurance income, net and other income
Total revenues
2020
Years Ended March 31,
2018
2019
2017
2016
$ 508,327
81,702
590,029
$ 469,154
75,389
544,543
$ 435,702
66,967
502,669
$ 427,871
62,951
490,822
$ 452,925
62,376
515,301
Provision for loan losses
General and administrative expenses:
Interest expense
Total expenses
181,730
347,493
25,896
555,119
148,427
288,304
17,934
454,665
117,620
269,108
19,090
405,818
119,096
244,275
21,504
384,875
114,428
241,701
26,849
382,978
Income from continuing operations before
income taxes
34,910
89,878
96,851
105,947
132,323
Income taxes
6,752
15,981
47,758
38,157
48,979
Income (loss) from discontinued operations
—
(36,662)
4,597
5,810
4,052
Net income
Net income per common share from
continuing operations (basic)
Basic weighted average shares
Net income per common share from
continuing operations (diluted)
Diluted weighted average shares
$
$
$
28,158
$
37,235
$
53,690
$
73,600
$
87,396
$
$
3.66
7,688
3.54
7,953
$
$
8.22
8,994
8.03
9,204
$
$
5.58
8,791
5.48
8,959
$
$
7.79
8,706
7.72
8,778
9.65
8,636
9.59
8,692
Balance Sheet Data (end of period):
Loans receivable, net of unearned interest,
insurance and fees
Allowance for loan losses
Loans receivable, net
Total assets
Total debt
Shareholders' equity
Other Operating Data:
As a percent of average net loans
Provision for loan losses
Net charge-offs
$ 900,891
(96,488)
804,403
$ 837,144
(81,520)
755,624
$ 745,241
(66,088)
679,153
$ 701,733
(60,644)
641,089
$ 716,390
(60,923)
655,467
1,030,086
451,100
411,963
854,988
251,940
552,117
840,987
244,900
541,108
800,589
295,136
461,064
806,219
374,685
391,902
Number of branches open at year-end
_______________________________________________________
(1) See Note 18 of the Notes to Consolidated Financial Statements included in this annual report on Form 10-K for more information on our
19.6 %
18.0 %
1,243
18.0 %
16.1 %
1,193
15.6 %
14.9 %
1,177
16.2 %
16.2 %
1,169
14.7 %
15.0 %
1,186
discontinued operations.
36
MANAGEMENT’S DISCUSSION AND ANALYSIS
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
The Company's financial performance continues to be dependent in large part upon the growth in its outstanding loans
receivable, the maintenance of loan quality and acceptable levels of operating expenses. Since March 31, 2016, gross loans
receivable have increased at a 5.83% annual compounded rate from $964.6 million to $1.21 billion at March 31, 2020. We
believe we were able to improve our gross loans receivable growth rates through acquisitions, improved marketing processes,
and analytics. During the four-year period beginning March 31, 2016, the Company has expanded in size from 1,186 branches
to 1,243 branches as of March 31, 2020. During fiscal 2021, the Company currently plans to open or acquire approximately 25
new branches and evaluate acquisitions as opportunities arise.
The Company offers an income tax return preparation and electronic filing program in all but a few of its branches. The
Company prepared approximately 84,000, 91,000, and 77,000 returns in each of the fiscal years 2020, 2019, and 2018,
respectively. Revenues from the Company’s tax preparation business amounted to approximately $20.9 million, a 2.4%
decrease over the $21.5 million earned during fiscal 2019.
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:
Gross loans receivable
Average gross loans receivable (1)
Net loans receivable (2)
Average net loans receivable (3)
Expenses as a percentage of total revenue:
Provision for loan losses
General and administrative
Interest expense
Operating income as a % of total revenue (4)
$
$
$
$
2018
2020
1,209,871
1,256,389
900,891
928,408
Years Ended March 31,
2019
(Dollars in thousands)
1,127,957
1,120,112
837,144
824,763
$
$
$
$
$ 1,004,233
$ 1,019,005
$
745,242
$
753,116
30.8 %
58.9 %
4.4 %
10.3 %
27.3 %
52.9 %
3.3 %
19.8 %
23.4 %
53.5 %
3.8 %
23.1 %
Loan volume
2,929,265
2,720,351
2,487,066
Net charge-offs as percent of average net loans receivable
18.0 %
16.1 %
14.9 %
Return on average assets (trailing 12 months)
Return on average equity (trailing 12 months)
Branches opened or acquired (merged or closed), net
2.8 %
6.1 %
50
8.8 %
6.3 %
13.6 %
10.6 %
16
8
Branches open (at period end)
1,243
1,193
1,177
_______________________________________________________
(1) Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period,
excluding tax advances.
(2) Net loans receivable is defined as gross loans receivable less unearned interest and deferred fees.
(3) Average net loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred
fees over the indicated period, excluding tax advances.
(4) Operating income is computed as total revenue less provision for loan losses and general and administrative expenses.
37
MANAGEMENT’S DISCUSSION AND ANALYSIS
COVID-19 Pandemic Response and Impact
The COVID-19 pandemic has caused significant economic disruption in the United States as many state and local governments,
including all of the states in which the Company operates, have ordered non-essential businesses to close and residents to
shelter in place at home. For the majority of states in which we operate, we have been considered an essential business and thus
nearly all of our branches have remained open to date. However, the impact of COVID-19 is rapidly evolving, its future effects
are uncertain, and it may be difficult to assess or predict the extent of the impacts of the pandemic on us as many factors are
beyond our control and knowledge.
In response to the spread of COVID-19, we have modified our business practices in order to reduce personal interactions and
provide additional support to our associates and customers. Some of these measures include reducing branch hours, limiting
employee travel, implementing work-from-home initiatives for employees when possible, cancelling physical participation in
meetings and training sessions, providing additional leave for those directly impacted, closing lobbies and offering curbside
service, and encouraging customers to service accounts digitally rather than in person. As a result, the Company has seen
significant increases in online and phone activity related to account access, payments, and refinances. The Company has
expedited projects related to its digital presence and online lending and is currently piloting remote applications, signatures,
and funding for select customers.
As non-essential businesses and schools began to close, we proactively halted marketing efforts and updated our underwriting
criteria in light of the tremendous uncertainty, rapid increases in unemployment, and federal stimulus packages. The Company
is experiencing expected declines in customer demand due to a combination of reduced marketing and stay-at-home orders
reducing customer mobility. To assist customers impacted by COVID-19, the Company’s typical 30-day wait period for
unemployment insurance claims has been waived and payment deferrals are being offered to impacted customers.
As of May 15, 2020, we had $320.5 million available under our revolving credit facility. We believe we have sufficient liquidity
to support the fundamental operations of our business throughout the COVID-19 pandemic. However, we are unable to estimate
the long-term impact of COVID-19 on our business and will continue to assess our liquidity needs as the situation evolves. If
we experience sustained adverse effects, we may fail to satisfy our minimum capital ratios and other requirements under our
revolving credit facility.
The extent to which the pandemic will ultimately impact our business and financial condition will depend on future events that
are impossible to predict, including, but not limited to, the duration and severity of the pandemic, the success of actions taken
to contain, treat, and prevent the spread of the virus, the effectiveness of our borrower assistance initiatives and government
economic stimulus measures, and the speed at which normal economic and operating conditions return.
See Part I, Item 1A, “Risk Factors” for additional information.
Adjustments subsequent to the release of earnings on May 7, 2020
The Company has made certain adjustments to its treatment of historic tax credits purchased during fiscal 2020 since the
Company’s earnings release was furnished on May 7, 2020. The adjustments correctly present the Company’s election to
account for historic tax credits purchased using the income statement method in conjunction with the flow-through method.
Under this approach, the deferred tax liability related to the difference between the book and tax basis in the underlying historic
tax credit investment is recorded in the tax provision and reversed over the same period as the amortization of the historic tax
credit investment. As a result of these corrections, the below line items have been adjusted as follows:
38
MANAGEMENT’S DISCUSSION AND ANALYSIS
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended March 31, 2020
Twelve months ended March 31, 2020
As furnished
May 7, 2020 Adjustments As revised
As furnished
May 7, 2020 Adjustments As revised
$ 33,944,288 $
163,045,541
25,010,707
(27,709) $ 33,916,579 $ 81,813,077 $
(27,709) 163,017,832 590,139,848
25,444,803 59,298,010
434,096
(110,833) $ 81,702,244
(110,833) 590,029,015
868,192 60,166,202
96,272,691
136,559,103
434,096
96,706,787 346,625,068
434,096 136,993,199 554,251,380
868,192 347,493,260
868,192 555,119,572
26,486,438
2,806,485
(461,805)
(85,341)
26,024,633 35,888,468
5,204,183
2,721,144
(979,025) 34,909,443
1,547,782
6,751,965
23,679,953
$ 23,679,953 $
(2,526,807) 28,157,478
(376,464) 23,303,489 30,684,285
(376,464) $ 23,303,489 $ 30,684,285 $ (2,526,807) $ 28,157,478
Insurance income, net and
other income
Total revenues
Other expense
Total general and
administrative expense
Total expenses
Income from continuing
operations before
income taxes
Income tax expense
Net income from
continuing operations
Net income
Net income per common
share from continuing
operations, diluted
Net income per common
share, diluted
$
$
3.24 $
(0.06) $
3.18 $
3.86 $
(0.32) $
3.24 $
(0.06) $
3.18 $
3.86 $
(0.32) $
3.54
3.54
CONSOLIDATED BALANCE SHEET
Deferred income taxes, net
Income taxes receivable
Other assets, net
Total assets
Income taxes payable
Accounts payable and accrued expenses
Total liabilities
Shareholders' equity
Total liabilities and shareholders' equity
SELECTED CONSOLIDATED STATISTICS
As revised
As of March 31, 2020
As furnished May 7, 2020 Adjustments
24,805,767 $
$
4,270,778
20,734,227
1,028,091,272
—
59,742,012
613,601,398
414,489,874
1,028,091,272 $
(1,547,782) $
23,257,985
(4,270,778)
—
28,547,950
7,813,723
1,995,163
1,030,086,435
4,965,302
4,965,302
59,298,680
(443,332)
4,521,970
618,123,368
(2,526,807)
411,963,067
1,995,163 $ 1,030,086,435
$
Three months ended March 31, 2020
Twelve months ended March 31, 2020
As furnished
May 7, 2020 Adjustments As revised
As furnished
May 7, 2020 Adjustments As revised
Expenses as a percentage of
total revenue:
General and administrative
Operating income as a % of
total revenue (1)
Return on average equity
(trailing 12 months)
59.0 %
21.2 %
6.7 %
0.3 %
59.3 %
58.7 %
0.2 %
(0.3)%
(0.6)%
20.9 %
10.5 %
6.1 %
6.7 %
(0.2)%
(0.6)%
58.9 %
10.3 %
6.1 %
_______________________________________________________
(1) Operating income is computed as total revenues less provision for loan losses and general and administrative expenses.
39
MANAGEMENT’S DISCUSSION AND ANALYSIS
Comparison of Fiscal 2020 Versus Fiscal 2019
Net income from continuing operations for fiscal 2020 was $28.2 million, a 61.9% decrease from the $73.9 million earned
during fiscal 2019. The decrease in net income from continuing operations was primarily due to a $21.7 million accrual for
estimated losses related to the investigation into our former Mexican business and a $33.3 million increase in provision for
loan losses.
Net income for fiscal 2020 was $28.2 million, a 24.4% decrease from the $37.2 million earned during fiscal 2019. The decrease
in net income was primarily due to a $21.7 million accrual for estimated losses related to the investigation into our former
Mexican business and a $33.3 million increase in provision for loan losses, partially offset by the impairment loss from the
prior period. In fiscal 2019 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, $31.3 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.
Operating income (revenues less provision for loan losses and general and administrative expenses) from continuing operations
decreased $47.0 million.
Total revenues from continuing operations increased $45.5 million, or 8.4%, to $590.0 million in fiscal 2020, from $544.5
million in fiscal 2019. Revenues from continuing operations from the 1,148 branches open throughout both fiscal years
increased by 6.4%. At March 31, 2020, the Company had 1,243 branches in operation, an increase of 50 branches from
March 31, 2019. The increase was the result of opening 19 new branches and acquiring 38 branches, partially offset by merging
7 branches into existing branches.
Interest and fee income from continuing operations during fiscal 2020 increased by $39.2 million, or 8.3%, from fiscal
2019. The increase was primarily due to a corresponding increase in average earning loans. Net loans outstanding at March 31,
2020 increased 7.6% compared to March 31, 2019, and average net loans outstanding increased 12.6% during fiscal 2020
compared to fiscal 2019.
Insurance commissions and other income from continuing operations increased by $6.3 million, or 8.4%, over the two fiscal
years. Insurance commissions from continuing operations increased by $5.2 million, or 11.5%, when comparing the two fiscal
years due to an increase in loan volume in states where we offer our insurance products. Other income from continuing
operations increased by $1.1 million, or 3.8%, when comparing the two fiscal years primarily due to an increase in demand for
the Company's motor club product of $1.8 million, partially off-set by a reduction in tax preparation income of $0.5 million.
The provision for loan losses from continuing operations during fiscal 2020 increased by $33.3 million, or 22.4%, from the
previous year. This increase can mostly be attributed to an increase in charge-off and delinquency rates during the year.
Accounts that were 91 days or more past due represented 4.2% and 3.8% of our loan portfolio on a recency basis at March 31,
2020 and March 31, 2019, respectively. The Company's year-over-year charge-off ratio (net charge-offs as a percentage of
average net loans receivable) increased from 16.1% for the year ended March 31, 2019 to 18.0% for the year ended March 31,
2020.
Customers who are new borrowers to World Finance (less than 6 months since their first origination at the time of their current
loan) as a percentage of the year-end portfolio have grown 39.4% year over year. These "new to World" customers now account
for 17% of the portfolio, an increase from 13.7% last year and an average of 12.5% in the prior 5 fiscal years (2013-2017).
Further, customers with less than 1 year tenure as a percentage of the year-end portfolio have grown 33.2% year over year to
now account for 23% of the portfolio. This increased weighting of new borrowers, our riskiest customer type, in the portfolio
contributed to the increase in delinquency and charge-off rates of the overall portfolio. While we have experienced an increase
in portfolio weighting towards less tenured customers during the last 18 months, we have not seen a significant increase in
charge-off rates when comparing the less tenured customer segment to prior years.
40
MANAGEMENT’S DISCUSSION AND ANALYSIS
Charge-off ratios for the past ten fiscal years averaged 14.9%, with a high of 18.0% (fiscal 2020) and a low of 12.8% (fiscal
2015).The following table presents the Company's charge-off ratios since 2003.
_______________________________________________________
2009 In fiscal 2009 the Company's net charge-off rate increased to 16.7% due to the difficult economic environment, which put
substantial pressure on our customers' ability to repay their loans.
2015 In fiscal 2015 the Company's net charge-off rate decreased to 12.8%. The net charge-off rate benefited from a change in branch
level incentives during the year, which allows managers to continue collection efforts on accounts that are 91 days or more past
due without having their monthly bonus negatively impacted. As expected, the change resulted in an increase in accounts 91 days
or more past due and fewer charge-offs during fiscal 2015. We estimate the net charge-off rate would have been approximately
14.0% for fiscal 2015 excluding the impact of the change.
General and administrative expenses from continuing operations during fiscal 2020 increased by $59.2 million, or 20.5%, over
the previous fiscal year. General and administrative expenses from continuing operations, when divided by average open
branches, increased 16.6% when comparing the two fiscal years, and, overall, general and administrative expenses from
continuing operations as a percent of total revenues from continuing operations increased to 58.9% in fiscal 2020 from 52.9%
in fiscal 2019. The change in general and administrative expense from continuing operations is explained in greater detail
below.
Personnel expense from continuing operations totaled $203.8 million for fiscal 2020, a $23.2 million, or 12.9%,
increase over fiscal 2019. The increase was largely due to an $11.3 million increase in share-based compensation
driven by the long-term incentive plan and director equity awards granted during the prior year. Benefits increased
$5.8 million, mostly due to increase in healthcare costs and increases in headcount, and regular payroll expense
increased $8.4 million year over year primarily due to increases in headcount.
Occupancy and equipment expense from continuing operations totaled $54.2 million for fiscal 2020, a $5.5 million,
or 11.3%, increase over fiscal 2019. Occupancy and equipment expense is generally a function of the number of
branches the Company has open throughout the year. In fiscal 2020 the expense per average open branch increased to
$44.2 thousand, up from $41.0 thousand in fiscal 2019.
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
Advertising expense from continuing operations totaled $24.3 million for fiscal 2020, a $1.8 million, or 8.1%, increase
over fiscal 2019. The increase was primarily due to increased spending in our direct mail and digital campaigns.
Amortization of intangible assets from continuing operations totaled $5.0 million for fiscal 2020, a $3.5 million, or
228.0%, increase over fiscal 2019, which primarily relates to a corresponding increase in total intangible assets during
the comparative periods due to acquisition activity during the current and prior year.
Other expense from continuing operations totaled $60.2 million for fiscal 2020, a $25.2 million, or 72.0%, increase
over fiscal 2019. The increase was primarily due to a $21.7 million accrual related to potential resolution of the
Company's Mexico investigation, which began in March 2017.
Interest expense from continuing operations increased by $8.0 million, or 44.4%, during fiscal 2020 when compared to the
previous fiscal year as a result of an increase in average debt outstanding of 67.5% partially offset by a decrease in the effective
interest rate from 6.7% to 5.8%.
Income tax expense from continuing operations decreased $9.2 million, or 57.8% for fiscal 2020 compared to the prior fiscal
year. The effective tax rate increased to 19.3% for fiscal 2020 compared to 17.8% for fiscal 2019. The increase was primarily
due to the recognition of non-deductible penalties totaling $21.7 million for the current fiscal year which was partially offset
by the recognition of net Federal and state tax credits of $8.1 million in fiscal year 2020 compared to $3.7 million in fiscal year
2019.
Comparison of Fiscal 2019 Versus Fiscal 2018
As disclosed above, we sold our Mexico operations effective July 1, 2018. As a result of the sale, we have classified the Mexico
business as discontinued operations on the statements of operations and balance sheets for the applicable periods. Net income
from continuing operations for fiscal 2019 was $73.9 million, a 50.5% increase from the $49.1 million earned during fiscal
2018. The increase in net income from continuing operations was primarily due to a $15.4 million decrease in income tax
expense related to the implementation of the Tax Cuts and Jobs Act (TCJA) in the prior year as well as an increase in average
net loans receivable in the current period.
Net income for fiscal 2019 was $37.2 million, a 30.6% decrease from the $53.7 million earned during fiscal 2018. 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, $31.3 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.
Operating income (revenues less provision for loan losses and general and administrative expenses) from continuing
operations decreased $8.1 million.
Total revenues from continuing operations increased $41.9 million, or 8.3%, to $544.5 million in fiscal 2019, from $502.7
million in fiscal 2018. Revenues from continuing operations from the 1,125 branches open throughout both fiscal years
increased by 7.7%. At March 31, 2019, the Company had 1,193 branches in operation, an increase of 16 branches from March
31, 2018. The increase was the result of opening 25 new branches and acquiring 17 branches, partially offset by merging 26
branches into existing branches.
Interest and fee income from continuing operations during fiscal 2019 increased by $33.5 million, or 7.7%, from fiscal 2018.
The increase was primarily due to a corresponding increase in average earning loans. Net loans outstanding at March 31, 2019
increased 12.3% compared to March 31, 2018, and average net loans outstanding increased 9.5% during fiscal 2019 compared
to fiscal 2018.
Insurance commissions and other income from continuing operations increased by $8.4 million, or 12.6%, over the two fiscal
years. Insurance commissions from continuing operations increased by $3.2 million, or 7.7%, when comparing the two fiscal
years due to an increase in loan volume in states where we offer our insurance products. Other income from continuing
operations increased by $5.2 million, or 20.8%, when comparing the two fiscal years primarily due to an increase in tax return
preparation income of $4.7 million.
42
MANAGEMENT’S DISCUSSION AND ANALYSIS
The provision for loan losses from continuing operations during fiscal 2019 increased by $30.8 million, or 26.2%, from the
previous year. Approximately $17.4 million of the increase can be attributed to growth in the portfolio year over year.
Approximately $13.4 million can be attributed to an increase in charge-off and delinquency rates during the year. Accounts
that were 91 days or more past due represented 3.8% and 3.4% of our loan portfolio on a recency basis at March 31, 2019 and
March 31, 2018, respectively. The Company's year-over-year charge-off ratio (net charge-offs as a percentage of average net
loans receivable) increased from 14.9% for the year ended March 31, 2018 to 16.1% for the year ended March 31, 2019.
Customers who are new borrowers to World Finance (less than 6 months since their first origination at the time of their current
loan) as a percentage of the year-end portfolio have grown 39.4% year over year. These "new to World" customers now account
for 17% of the portfolio, an increase from 13.7% last year and an average of 12.5% in the prior 5 fiscal years (2013-2017).
Further, customers with less than 1 year tenure as a percentage of the year-end portfolio have grown 33.2% year over year to
now account for 23% of the portfolio. This increased weighting of new borrowers, our riskiest customer type, in the portfolio
contributed to the increase in delinquency and charge-off rates of the overall portfolio. While we have experienced an increase
in portfolio weighting towards less tenured customers during the last 18 months, we have not seen an increase in charge-off
rates when comparing the less tenured customer segment to prior years.
Charge-off ratios for the past ten fiscal years averaged 14.7%, with a high of 16.2% (fiscal 2017) and a low of 12.8% (fiscal
2015). The following table presents the Company's charge-off ratios from 2002 to 2019.
_______________________________________________________
2009 In fiscal 2009 the Company's net charge-off rate increased to 16.7% due to the difficult economic environment, which put
substantial pressure on our customers' ability to repay their loans.
2015 In fiscal 2015 the Company's net charge-off rate decreased to 12.8%. The net charge-off rate benefited from a change in branch
level incentives during the year, which allows managers to continue collection efforts on accounts that are 91 days or more past
due without having their monthly bonus negatively impacted. As expected, the change resulted in an increase in accounts 91 days
or more past due and fewer charge-offs during fiscal 2015. We estimate the net charge-off rate would have been approximately
14.0% for fiscal 2015 excluding the impact of the change.
43
MANAGEMENT’S DISCUSSION AND ANALYSIS
General and administrative from continuing operations expenses during fiscal 2019 increased by $19.2 million, or 7.1%, over
the previous fiscal year. General and administrative expenses from continuing operations, when divided by average open
branches, increased 5.4% when comparing the two fiscal years, and, overall, general and administrative expenses from
continuing operations as a percent of total revenues from continuing operations decreased to 52.9% in fiscal 2019 from 53.5%
in fiscal 2018. The change in general and administrative expense from continuing operations is explained in greater detail
below.
Personnel expense from continuing operations totaled $180.6 million for fiscal 2019, a $16.1 million, or 9.8%,
increase over fiscal 2018. The increase was largely due to an $11.7 million increase in share-based compensation
driven by the long-term incentive plan and director equity awards granted during the year. The prior year included
$2.5 million of severance-related expense stemming from the separation agreement with the Company’s former
President and Chief Executive Officer. The Company also recorded a $1.8 million expense related to a change in the
Company’s paid time off policy in the prior year. Regular payroll expense increased $4.6 million or 4.1% year over
year.
Occupancy and equipment expense from continuing operations totaled $48.8 million for fiscal 2019, a $9.6 million,
or 24.6%, increase over fiscal 2018. Occupancy and equipment expense is generally a function of the number of
branches the Company has open throughout the year. In fiscal 2019 the average expense per branch increased to $41.0
thousand, up from $33.4 thousand in fiscal 2018.
Advertising expense from continuing operations totaled $22.5 million for fiscal 2019, a $1.3 million, or 6.1%, increase
over fiscal 2018. The increase was primarily due to consulting fees related to brand research as well as increased
spending in our direct mail and digital campaigns.
Amortization of intangible assets from continuing operations totaled $1.5 million for fiscal 2019, a $0.5 million, or
54.2%, increase over fiscal 2018, which primarily relates to a corresponding increase in total intangible assets during
the comparative periods due to acquisition activity during the current and prior year.
Other expense from continuing operations totaled $35.0 million for fiscal 2019, a $8.3 million, or 19.2%, decrease
over fiscal 2018. The decrease was primarily due to a decrease in expense related to the Company's Mexico
investigation, which began in March 2017.
Interest expense from continuing operations decreased by $1.2 million, or 6.1%, during fiscal 2019 when compared to the
previous fiscal year as a result of a decrease in average debt outstanding of 16.0% partially offset by an increase in the effective
interest rate from 6.0% to 6.7%.
Income tax expense from continuing operations decreased $31.8 million, or 66.5% for fiscal 2019 compared to the prior fiscal
year. The effective tax rate decreased to 17.8% for fiscal 2019 compared to 49.3% for fiscal 2018. The decrease was primarily
due to a $10.5 million charge to tax expense related to the net impact of revaluing the U.S. deferred tax assets and liabilities
and a $4.9 million charge to tax expense related to the foreign transition tax both of which occurred in fiscal year 2018,
combined with a $10.3 million decrease in tax expense due to the reduction of the Company's U.S. federal statutory income
tax rate from 31.55% to 21%, an $850.0 thousand decrease in tax expense related to an adjustment in revaluing the U.S. deferred
tax assets and liabilities due to additional analysis and change in estimate, and the recognition of state tax credits of $3.7 million
for fiscal 2019.
Mexico Exit
As previously disclosed, the Company sold all of the issued and outstanding capital stock and equity interest of its two Mexico
subsidiaries, WAC de Mexico and SWAC, for a purchase price of MXN $826,795,050, effective as of July 1, 2018. The
Company subsequently converted the purchase price into approximately USD $44.36 million using applicable exchange rates.
The Company and its subsidiaries no longer operate in Mexico. Thus, the Company expects its revenues and gross loans
receivables to be negatively impacted in future years-compared to historical levels.
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 former Mexico operating segment, the Company, and its affiliates 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.
44
MANAGEMENT’S DISCUSSION AND ANALYSIS
Regulatory Matters
Mexico Investigation
As disclosed in Part I, Item 3, “Legal Proceedings-Mexico Investigation” above, As previously disclosed, the Company retained
outside legal counsel and forensic accountants to conduct an investigation of its operations in Mexico, focusing on the legality
under the 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 addressed 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 voluntarily contacted the SEC and the DOJ in June 2017 to
advise both agencies that an internal investigation was underway and that the Company intended to cooperate with both
agencies. The Company has and will continue to cooperate with both agencies. The SEC issued a formal order of investigation.
There have been ongoing discussions with the SEC regarding the possible resolution of these matters. The discussions with the
SEC have progressed to a point that the Company can now reasonably estimate a probable loss and has recorded an aggregate
accrual of $21.7 million with respect to the SEC matters as of March 31, 2020. As the discussions with the SEC are continuing,
there can be no assurance that the Company's efforts to reach a final resolution with the SEC will be successful or, if they are,
what the timing or terms of such resolution will be. The Company has no offer of settlement or resolution with the DOJ at this
time. The total amount of the Company’s loss incurred in connection with the investigation and any resolution thereof, including
those amounts which remain subject to approval by the SEC, may be higher than the amount of the accrual.
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 or other laws 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. See Part I, Item 1A,
“Risk Factors-We may be exposed to liabilities under the FCPA, and any determination that the Company or any of its
subsidiaries has violated the FCPA could have a material adverse effect on our business and liquidity,” “-Our investigation of
our previous operations in Mexico may expose the Company to other potential liabilities in addition to any potential liabilities
under the FCPA and cause the Company to incur substantial expenses,” “-We depend to a substantial extent on borrowings
under our revolving credit agreement to fund our liquidity needs,” and “-The terms of our debt limit how we conduct our
business” for additional information.
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 SEC regarding the matters under investigation,
but the ultimate resolution could be higher than the accrual. Further, in the event that a settlement is reached, there can be no
assurance as to the timing or the terms of any such settlement.
CFPB Rulemaking Initiative
On October 5, 2017, the CFPB 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 Company does not believe that the Rule will have a material impact on the Company’s existing
lending 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. The
45
MANAGEMENT’S DISCUSSION AND ANALYSIS
Company also currently underwrites all its loans (including those secured by a vehicle title that would fall within the scope of
these proposals) by reviewing the customer’s ability to repay based on the Company’s standards. However, implementation of
the Rule’s payment requirements may require changes to the Company’s practices and procedures for such loans, which could
materially and adversely affect the Company’s ability to make such loans, the cost of making such loans, the Company’s ability
to, or frequency with which it could, refinance any such loans, and the profitability of such loans.
Further, on June 6, 2019, the CFPB amended the Rule to delay the August 19, 2019 compliance date for part of the Rule’s
provisions, including the ability to repay requirements. The new compliance date for the ability to repay requirements is
November 19, 2020. In addition, on February 6, 2019, the CFPB issued a notice of proposed rulemaking proposing to rescind
provisions of the Rule governing the ability to repay requirements. The comment period for this proposed rulemaking closed
in May 2019. According to the CFPB’s Fall 2019 rulemaking agenda, the CFPB is reviewing the approximately 190,000
comments it received and expected to take final action in April 2020 with respect to this proposal. However, no final action
has been taken as of yet. Any regulatory changes could have effects beyond those currently contemplated that could further
materially and adversely impact our business and operations. Unless rescinded or otherwise amended, the Company will have
to comply with the Rule’s payment requirements if it continues to allow consumers to set up future recurring payments online
for certain covered loans such that it meets the definition of having a “leveraged payment mechanism” under the Rule. If the
payment provisions of the Rule apply, the Company will have to modify its loan payment procedures to comply with the
required notices and mandated timeframes set forth in the final rule.
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. This initiative was classified as “inactive” on the CFPB’s Spring 2018
rulemaking agenda and has remained inactive since, but the CFPB indicated that such action was not a decision on the merits.
Though the likelihood and 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,” for a further discussion of these matters and the federal regulations
to which the Company’s operations are subject and Part I, Item 1A, “Risk Factors,” for more information regarding these
regulatory and related risks.
Critical Accounting Policies
The Company’s accounting and reporting policies are in accordance with GAAP and conform to general practices within the
finance company industry. The significant accounting policies used in the preparation of the Consolidated Financial Statements
are discussed in Note 1 to the Consolidated Financial Statements. Certain critical 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, revenues, 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 policies and procedures for assessing the adequacy of the allowance for loan losses that take into
consideration various assumptions and estimates with respect to its loan portfolio. The Company’s assumptions and estimates
may be affected in the future by changes in economic conditions, among other factors. For additional discussion concerning
the allowance for loan losses, see “Credit Quality” below.
Share-Based Compensation
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 our common stock at the time of grant, and the fair value of stock options is determined using the Black-Scholes
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 our current estimates.
Income Taxes
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
46
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 or by 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 740, the Company includes 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 that considers 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.
Credit Quality
The Company’s delinquency and net charge-off ratios reflect, among other factors, changes in the mix of loans in the portfolio,
the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions.
Delinquency is computed on the basis of the date of the last full contractual payment on a loan (known as the recency method)
and on the basis of the amount past due in accordance with original payment terms of a loan (known as the contractual
method). Upon refinancings, the contractual delinquency of a loan is measured based upon the terms of the new agreement,
and is not impacted by the refinanced loan's classification as a new loan or modification of the existing loan. Management
closely monitors portfolio delinquency using both methods to measure the quality of the Company's loan portfolio and the
probability of credit losses.
The following table classifies the gross loans receivable of the Company that were delinquent on a contractual and recency
basis for at least 61 days at March 31, 2020, 2019, and 2018:
Contractual basis:
61-90 days past due
91 days or more past due
Total
Percentage of period-end gross loans receivable
Recency basis:
61-90 days past due
91 days or more past due
Total
2020
At March 31,
2019
(Dollars in thousands)
2018
35,021
70,720
105,741
$
$
28,549
59,634
88,183
$
$
24,813
50,020
74,833
8.7 %
7.8 %
7.5 %
28,451
50,670
79,121
$
$
22,393
42,772
65,165
$
$
19,524
34,548
54,072
$
$
$
$
Percentage of period-end gross loans receivable
6.5 %
5.8 %
5.4 %
Approximately 79.6%, 78.7%, and 79.0% of the Company's loans were generated through refinancings of outstanding loans
and the origination of new loans to previous customers in fiscal 2020, 2019, and 2018, respectively. A refinancing represents
a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an
existing loan and the remaining portion is advanced to the customer. For fiscal 2020, 2019, and 2018, the percentages of the
Company’s loan originations that were refinancings of existing loans were 66.9%, 66.2%, and 65.9%, respectively. The
47
MANAGEMENT’S DISCUSSION AND ANALYSIS
Company’s refinancing policies, while limited by state regulations, in all cases consider the customer’s payment history and
require that the customer has made multiple payments on the loan being considered for refinancing. A refinancing is considered
a current refinancing if the customer is no more than 45 days delinquent on a contractual basis. Delinquent refinancings may
be extended to customers who are more than 45 days past due on a contractual basis if the customer completes a new application
and the manager believes that the customer’s ability and intent to repay has improved. It is the Company’s policy not to
refinance delinquent loans in amounts greater than the original amounts financed. In all cases, a customer must complete a new
application every two years. Refinancings of delinquent loans represented 1.3%, 1.1%, and 1.2% of the Company’s loan
volume in fiscal 2020, 2019, and 2018, respectively.
Charge-offs, as a percentage of loans made by category, are greatest on loans made to new borrowers and least on loans made
to former borrowers and refinancings. As a percentage of total loans charged off, refinancings represent the greatest percentage
due to the volume of loans made in this category. The following table depicts the charge-offs as a percent of loans made by
category and as a percent of total charge-offs during fiscal 2020:
Refinancings
Former borrowers
New borrowers
Loan Volume by
Category
(by No. of Accounts)
66.9 %
12.7 %
20.4 %
100.0
Percent of
Total Charge-offs
(by Dollars Loaned)
Charge-off as a Percent of Total
Loans Made by Category
(by Dollars Loaned)
59.7 %
9.2 %
31.1 %
100.0 %
4.8 %
5.8 %
15.3 %
The Company maintains an allowance for loan losses in an amount that, in management's opinion, is adequate to provide for
incurred losses inherent in the existing loan portfolio. The Company charges against current earnings, as a provision for loan
losses, amounts added to the allowance to maintain it at levels expected to cover probable incurred losses of principal. When
establishing the allowance for loan losses, the Company takes into consideration the growth of the loan portfolio, current levels
of charge-offs, current levels of delinquencies, and current economic factors.
The Company uses a mathematical calculation to determine the initial allowance at the end of each reporting period. The
calculation originated as management's estimate of future charge-offs and is used to allocate expenses to the branch level. There
are two components when calculating the allowance for loan losses, which the Company refers to as the general reserve and
the specific reserve. This calculation is a starting point, and over time, and as needed, additional provisions have been added
as determined by management to ensure the allowance is adequate.
The general reserve is 4.25% of the gross loan portfolio. The specific reserve generally represents 100% of all loans 91 days
or more past due on a recency basis, including bankrupt accounts in that category. This methodology is based on historical data
showing that the collection of loans 91 days or more past due is remote.
A process is then performed to determine the adequacy of the allowance for loan losses, as well as considering trends in current
levels of delinquencies, charge-off levels, and economic trends (such as energy and food prices). The primary tool used is the
movement model (on a recency basis), which considers the rolling twelve months of delinquency to determine expected charge-
offs. The sum of expected charge-offs, determined from the movement model (on a recency basis), plus an amount related to
delinquent refinancings is compared to the allowance resulting from the mathematical calculation to determine if any
adjustments are required to make the allowance adequate. Management also determines if any adjustments are needed in the
event the consolidated annual provision for loan losses is less than total net charge-offs. Management uses a precision level of
5% of the allowance for loan losses compared to the aforementioned recency movement model when determining if any
adjustments are needed.
The Company's policy is to charge off at the earlier of when such loans are deemed to be uncollectible or when six months
have elapsed since the date of the last full contractual payment. The Company's charge-off policy has been consistently applied
and no changes have been made during the periods reported. We believe charge-offs during fiscal 2017 were negatively
impacted by ceasing all in-person visits to delinquent borrowers in December 2015. The Company's historical annual charge-
off rate for the past 10 years has ranged from 12.8% to 18.0% of net loans. Management considers the charge-off policy when
evaluating the appropriateness of the allowance for loan losses.
48
MANAGEMENT’S DISCUSSION AND ANALYSIS
To estimate the losses, the Company uses historical information for net charge-offs and average loan life. This method is based
on the fact that many customers refinance their loans prior to the contractual maturity. Average contractual loan terms are
approximately 12 months, and the average loan life is approximately 8 months. The Company had an allowance for loan losses
that approximated 7 months of average net charge-offs at March 31, 2020. Management believes that the allowance is sufficient
to cover estimated losses for its existing loans based on historical charge-offs and average loan life.
A large percentage of loans that are charged off during any fiscal year are not on the Company's books at the beginning of the
fiscal year. The Company believes that it is not appropriate to provide for losses on loans that have not been originated, that
twelve months of net charge-offs are not needed in the allowance due to the average life of the loan portfolio being less than
twelve months and that the method employed is in accordance with GAAP.
The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2020, 2019, and
2018:
Balance at beginning of period
Provision for loan losses
Loan losses
Recoveries
Balance at end of period
2020
81,519,624
181,730,182
(183,439,199)
16,677,249
96,487,856
$
$
2019
2018
$
$
66,088,139
148,426,578
(148,308,199)
15,313,106
81,519,624
$
$
60,644,365
117,620,140
(127,387,857)
15,211,491
66,088,139
Allowance as a percentage of loans receivable, net of unearned
and deferred fees
Net charge-offs as a percentage of average net loans receivable (1)
10.7 %
18.0 %
9.7 %
16.1 %
8.9 %
14.9 %
_______________________________________________________
(1) Average net loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred
fees over the indicated period, excluding tax advances.
Quarterly Information and Seasonality
The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand
typically occurs from October through December, its third fiscal quarter. Loan demand has generally been the lowest and loan
repayment highest from January to March, its fourth fiscal quarter. Loan volume and average balances typically remain
relatively level during the remainder of the year. This seasonal trend affects quarterly operating performance through
corresponding fluctuations in interest and fee income and insurance commissions earned and the provision for loan losses
recorded, as well as fluctuations in the Company's cash needs. Consequently, operating results for the Company's third fiscal
quarter generally are significantly lower than in other quarters and operating results for its fourth fiscal quarter are significantly
higher than in other quarters. However, the effects of COVID-19 could impact our typical seasonal trends.
49
MANAGEMENT’S DISCUSSION AND ANALYSIS
The following table sets forth, on a quarterly basis, certain items included in the Company's unaudited Consolidated Financial
Statements and shows the number of branches open during fiscal years 2020 and 2019.
At or for the Three Months Ended
2020
2019
June
30,
September
30,
December
31,
March
31,
June
30,
September
30,
December
31,
March
31,
(Dollars in thousands)
Total revenues $ 138,441 $ 141,573 $ 146,996 $ 163,018 $ 122,790 $ 127,116 $ 137,639 $ 156,997
Provision for
loan losses
52,968 $ 55,219 $ 32,252 $
30,591 $ 40,359 $
$ 41,291 $
48,944 $
28,533
General and
administrative
expenses
Net income
(loss)
Gross loans
receivable
Number of
branches open
$ 81,776
$
78,452
$ 90,558
$ 96,707
$
67,777
$ 64,936
$
76,964
$
78,626
$
8,608 $
2,513 $
(6,267) $ 23,303 $ (21,503) $ 14,538 $
6,260 $
37,940
$ 1,222,696 $ 1,274,147 $ 1,372,769 $ 1,209,871 $1,062,673 $ 1,126,792 $1,258,908 $1,127,957
1,218
1,234
1,240
1,243
1,181
1,189
1,204
1,193
Recently Issued Accounting Pronouncements
See Part II, Item 8, Financial Statements and Supplementary Data and Note 1—Summary of Significant Accounting Policies
in the Consolidated Financial Statements for the impact of new accounting pronouncements.
Liquidity and Capital Resources
The Company has financed and continues to finance its operations, acquisitions and branch 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. As
the Company's gross loans receivable increased from $943.3 million at March 31, 2017 to $1,209.9 million at March 31, 2020,
net cash provided by operating activities for fiscal years 2020, 2019, and 2018 was $257.4 million, $244.7 million, and $218.0
million, respectively.
The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy
and an excellent use of excess cash when the opportunity arises. However, our revolving credit facility limits share repurchases
to 50% of consolidated adjusted net income in any fiscal year commencing with the fiscal year ending March 31, 2017. The
Company can repurchase additional amounts of shares with prior written consent from lenders.
The Company plans to open or acquire approximately 25 branches during fiscal 2021. Expenditures by the Company to open
and furnish new branches averaged approximately $41,000 per branch during fiscal 2020. New branches have generally
required $66,000 to $673,000 to fund outstanding loans receivable originated during their first 12 months of operation. During
fiscal 2020, the Company opened 19 new branches and merged or closed 7 branches into existing ones.
The Company acquired 38 branches during fiscal 2020. The Company believes that attractive opportunities to acquire new
branches or receivables from its competitors or to acquire branches in communities not currently served by the Company will
continue to become available 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 it includes a
$300,000 letter of credit under a $1.5 million subfacility. In June 2019, the credit facility was amended and restated to, among
other things, (i) increase the aggregate commitments to $685.0 million (increased from $480.0 million), provided that certain
50
MANAGEMENT’S DISCUSSION AND ANALYSIS
conditions are met; (ii) permit the Company to purchase its equity securities or make other distributions in respect of its equity
securities in the amount of $200 million from June 7, 2019 through June 1, 2020 plus up to 50% of consolidated adjusted net
income for the period commencing on January 1, 2019, subject to certain restrictions; (iii) provide for a process to transition to
a new benchmark interest rate from LIBOR, if necessary; (iv) extend the maturity date of the amended and restated revolving
credit agreement to June 7, 2022; and (v) for clarity and convenience, restate the prior credit agreement, as amended since
2010.
Subject to a borrowing base formula, the Company may borrow at the rate of LIBOR plus an applicable margin between 3.0%
and 4.0% based on certain EBITDA related metrics set forth in the revolving credit agreement, which will be determined and
adjusted on a monthly basis with a minimum rate of 4.0%. The Company’s amended and restated revolving credit agreement
provides procedures for determining a replacement or alternative rate in the event LIBOR is unavailable or discontinued or if
the administrative agent elects to replace LIBOR prior to its discontinuation. There can be no assurances as to whether such
replacement or alternative rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect
to the potential phasing out of LIBOR and will work to limit any negative impacts that could result during any transition away
from LIBOR. At March 31, 2020, the aggregate commitments under the revolving credit facility were $685.0 million. The
$300,000 letter of credit outstanding under the subfacility expires on December 31, 2020; however, it automatically extends
for one year on the expiration date. 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, under
the amended and restated revolving credit agreement, the administrative agent has the right to set aside reasonable reserves
against the available borrowing base in such amounts as it may deem appropriate, including, without limitation, reserves with
respect to certain regulatory events or any increased operational, legal, or regulatory risk of the Company and its subsidiaries.
For the year ended March 31, 2020, the effective interest rate, including the commitment fee, on borrowings under the revolving
credit facility was 5.8%. The Company pays a commitment fee equal to 0.50% per annum of the daily unused portion of the
commitments. On March 31, 2020 $451.1 million was outstanding under this facility, and there was $180.2 million of unused
borrowing availability under the borrowing base limitations.
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 (i) a minimum consolidated net worth of (a) $365.0 million through December 30, 2020 and (b) $375.0 million on
and after December 31, 2020; (ii) a minimum fixed charge coverage ratio of (a) 2.25 to 1.0 for the fiscal quarters ending March
31, 2020, June 30, 2020 and September 30, 2020 and (b) 2.75 to 1.0 for each fiscal quarter thereafter; (iii) a maximum ratio of
total debt to consolidated adjusted net worth of 2.0 to 1.0; (iv) as of the end of each fiscal quarter, provision for loan losses for
the four fiscal quarters then ending shall equal or exceed the net loan charge off for the corresponding period (any shortfalls
are required to be deducted in the determination of net income and consolidated net worth); and (v) a maximum collateral
performance indicator of 24% as of the end of each calendar month. 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.
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 March 31, 2020 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,
51
MANAGEMENT’S DISCUSSION AND ANALYSIS
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 Part I, Item 3, “Legal Proceedings—Mexico Investigation,” 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 including, but not limited to, any
discussions in Part 1, Item 1A, "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 following table summarizes the Company’s contractual obligations by period:
Payments Due by Period
Less than 1
Year
1-3 Years
3-5 Years
More than 5
Years
Contractual Obligations
Long-term debt obligations
Capital lease obligations
Operating lease obligations
Purchase obligations
Other long-term liabilities
reflected on the balance sheet
under GAAP
Total
$ 506,041,772 $
24,879,293 $ 481,162,479 $
—
110,079,871
—
—
22,374,762
—
—
35,734,461
—
—
—
—
Total
$ 616,121,643 $
47,254,055 $ 516,896,940 $
Share Repurchase Program
— $
—
22,015,904
—
—
—
29,954,744
—
—
—
22,015,904 $ 29,954,744
On March 12, 2020, the Board of Directors authorized the Company to repurchase up to $30.0 million of the Company’s
outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase authorizations.
As of March 31, 2020, the Company had $22.6 million in aggregate remaining repurchase capacity. 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, restrictions under the revolving credit facility and other market and economic conditions.
The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial strategy
and an excellent use of excess cash when the opportunity arises. However, our revolving credit facility limits share repurchases
to $200 million from June 7, 2019 through June 1, 2020 plus up to 50% of consolidated adjusted net income for the period
commencing on January 1, 2019, subject to certain restrictions. Our first priority is to ensure we have enough capital to fund
loan growth. To the extent we have excess capital, we may repurchase stock, if appropriate and as authorized by our Board of
Directors. As of March 31, 2020 the Company's debt outstanding was $451.1 million and its shareholders' equity was $412.0
million resulting in a debt-to-equity ratio of 1.1:1.0. Management will continue to monitor the Company's debt-to-equity ratio
and is committed to maintaining a debt level that will allow the Company to continue to execute its business objectives, while
not putting undue stress on its consolidated balance sheet.
Inflation
The Company does not believe that inflation, within reasonably anticipated rates, will have a materially 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 loan receivables and
an increase in absolute revenues to be generated from that larger amount of loans receivable. The Company believes that this
increase in absolute revenues should offset any increase in operating costs. In addition, because the Company’s loans have a
52
MANAGEMENT’S DISCUSSION AND ANALYSIS
relatively short contractual term and average life, it is unlikely that loans made at any given point in time will be repaid with
significantly inflated dollars.
Legal Matters
From time to time the Company is involved in litigation relating to claims arising out of its operations in the normal course of
business. See Part I, Item 3, “Legal Proceedings” and Note 16 to our audited Consolidated Financial Statements for further
discussion of legal matters.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of March 31, 2020, 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 8 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 $451.1 million at March 31, 2020. Interest on borrowings under this facility is based on the rate of LIBOR plus an
applicable margin between 3.0% and 4.0% based on certain EBITDA related metrics set forth in the revolving credit agreement,
which will be determined and adjusted on a monthly basis with a minimum rate of 4.0%.
Based on the outstanding balance under the Company's revolving credit facility at March 31, 2020, a change of 1% in the
LIBOR interest rate would cause a change in interest expense of approximately $4.5 million on an annual basis.
53
CONSOLIDATED BALANCE SHEETS
Part II
Item 8.
Financial Statements and Supplementary Data
ASSETS
Cash and cash equivalents
Gross loans receivable
Less:
Unearned interest, insurance and fees
Allowance for loan losses
Loans receivable, net
Right-of-use asset
Property and equipment, net
Deferred income taxes, net
Other assets, net
Goodwill
Intangible assets, net
Assets held for sale (Note 17)
Total assets
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable
Income taxes payable
Lease liability
Accounts payable and accrued expenses
Total liabilities
Commitments and contingencies (Notes 9 and 16)
Shareholders' equity:
March 31,
2020
2019
11,618,922 $
9,335,433
$
1,209,871,366 1,127,957,383
(308,980,724)
(96,487,856)
804,402,786
101,686,918
24,761,108
23,257,985
28,547,950
7,370,791
24,448,477
3,991,498
(290,813,752)
(81,519,624)
755,624,007
—
25,424,183
23,830,899
18,398,935
7,034,463
15,340,153
—
$1,030,086,435 $ 854,988,073
$ 451,100,000 $ 251,940,000
11,550,197
—
39,381,251
302,871,448
4,965,302
102,759,386
59,298,680
618,123,368
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
7,807,834 and 9,284,118 shares at March 31, 2020 and March 31, 2019, respectively
Additional paid-in capital
Retained earnings
Total shareholders' equity
—
—
—
227,214,577
184,748,490
411,963,067
—
198,125,649
353,990,976
552,116,625
Total liabilities and shareholders' equity
$1,030,086,435 $ 854,988,073
See accompanying notes to Consolidated Financial Statements.
54
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
2019
2018
2020
Continuing operations
Revenues:
Interest and fee income
Insurance income, net and other income
Total revenues
Expenses:
Provision for loan losses
General and administrative expenses:
Personnel
Occupancy and equipment
Advertising
Amortization of intangible assets
Other
Total general and administrative expenses
Interest expense
Total expenses
$ 508,326,771 $ 469,154,277 $ 435,701,503
66,966,829
502,668,332
81,702,244
590,029,015
75,388,648
544,542,925
181,730,182
148,426,578
117,620,140
203,774,574
54,237,835
24,304,023
5,010,626
60,166,202
347,493,260
180,561,501
48,751,691
22,482,553
1,527,656
34,980,314
288,303,715
164,496,081
39,113,729
21,195,718
990,399
43,311,742
269,107,669
25,896,130
555,119,572
17,934,060
454,664,353
19,089,635
405,817,444
Income from continuing operations before income taxes
34,909,443
89,878,572
96,850,888
Income taxes
6,751,965
15,981,057
47,757,808
Income from continuing operations
28,157,478
73,897,515
49,093,080
Discontinued operations (Note 18)
Income from discontinued operations before disposal of discontinued
operations and income taxes
Loss on disposal of discontinued operations
Income taxes (benefit)
Income (loss) from discontinued operations
—
—
—
—
2,341,825
(38,377,623)
626,583
(36,662,381)
4,353,617
—
(243,321)
4,596,938
Net income
$ 28,157,478 $ 37,235,134 $ 53,690,018
Net income per common share from continuing operations:
Basic
Diluted
Net income (loss) per common share from discontinued operations:
Basic
Diluted
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
$
$
$
$
3.66 $
3.54 $
— $
— $
3.66 $
3.54 $
8.22 $
8.03 $
(4.08) $
(3.98) $
4.14 $
4.05 $
5.58
5.48
0.52
0.51
6.11
5.99
7,688,242
7,952,900
8,994,036
9,204,377
8,791,168
8,958,676
See accompanying notes to Consolidated Financial Statements.
55
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended March 31,
2019
2018
2020
Net income
Foreign currency translation adjustments
Reclassification of cumulative foreign currency translation
adjustments due to sale of Mexico business
Comprehensive income
$
$
28,157,478
—
37,235,134
(5,235,838)
—
28,157,478
31,290,918
63,290,214
53,690,018
1,727,795
—
55,417,813
See accompanying notes to Consolidated Financial Statements.
56
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Year ended March 31, 2020
Common
Stock
Balances at March 31, 2019
Proceeds from exercise of stock
options
Common stock repurchases
Restricted common stock expense
under stock option plan, net of
cancellations ($4,476,159)
Stock option expense
Net income
Balances at March 31, 2020
Additional
Paid-in
Capital
Shares
9,284,118 $198,125,649 353,990,976
Retained
Earnings
69,481
(1,520,679)
4,612,926
—
— (197,399,964)
(25,086)
—
—
—
—
28,157,478
7,807,834 $227,214,577 184,748,490
18,953,119
5,522,883
—
Accumulated
Other
Comprehensive
Loss, net
Total
Shareholders'
Equity
— 552,116,625
—
4,612,926
— (197,399,964)
18,953,119
—
5,522,883
—
—
28,157,478
— 411,963,067
Year ended March 31, 2019
Common
Stock
Shares
Additional
Paid-in
Capital
Retained
Earnings
Balances at March 31, 2018
9,119,443 $ 175,887,227 391,275,705
Accumulated Other
Comprehensive
Loss, net
(26,055,080) 541,107,852
Total
Shareholders'
Equity
Proceeds from exercise of stock
options
Common stock repurchases
Restricted common stock expense
under stock option plan, net of
cancellations ($1,391,835)
Stock option expense
Other comprehensive loss
Reclassification of cumulative foreign
currency translation adjustments due
to sale of Mexico business
Net income
Balances at March 31, 2019
92,428
(665,020)
5,997,948
—
—
(74,519,863)
—
—
5,997,948
(74,519,863)
737,267
—
—
12,248,507
3,991,967
—
—
—
—
—
—
(5,235,838)
12,248,507
3,991,967
(5,235,838)
—
—
—
37,235,134
9,284,118 $ 198,125,649 353,990,976
—
—
31,290,918
31,290,918
—
37,235,134
— 552,116,625
57
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Year ended March 31, 2018
Common
Stock
Shares
Additional
Paid-in
Capital
Retained
Earnings
Balances at March 31, 2017
8,782,949 $144,241,105 344,605,347
Accumulated Other
Comprehensive
Loss, net
(27,782,875) 461,063,577
Total
Shareholders'
Equity
Proceeds from exercise of stock
options
Common stock repurchases
Restricted common stock expense
under stock option plan, net of
cancellations ($1,517,357)
Stock option expense
ASU 2016-09 adoption
Other comprehensive loss
Net income
Balances at March 31, 2018
389,888
(58,728)
25,323,531
—
—
(4,614,331)
—
—
25,323,531
(4,614,331)
5,334
—
—
—
—
—
—
(2,405,329)
—
53,690,018
9,119,443 $175,887,227 391,275,705
1,564,048
2,353,214
2,405,329
—
—
—
—
—
1,727,795
—
1,564,048
2,353,214
—
1,727,795
53,690,018
(26,055,080) 541,107,852
See accompanying notes to Consolidated Financial Statements.
58
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flow from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
Loss on sale of discontinued operations
Loss on assets held for sale
Amortization of intangible assets
Amortization of debt issuance costs
Provision for loan losses
Depreciation
Loss (gain) on sale of property and equipment
Deferred income tax expense (benefit)
Compensation related to stock option and restricted stock plans, net of
taxes and adjustments
Change in accounts:
Other assets, net
Income taxes payable and receivable
Accounts payable and accrued expenses
Net cash provided by operating activities
Cash flows from investing activities:
Increase in loans receivable, net
Net assets acquired from business combinations and asset acquisitions,
primarily loans
Increase in intangible assets from acquisitions
Purchases of property and equipment
Proceeds from sale of property and equipment
Proceeds from sale of discontinued operations
Net cash used in investing activities
Cash flow from financing activities:
Borrowings from senior notes payable
Payments on senior notes payable
Debt issuance costs associated with senior notes payable
Proceeds from exercise of stock options
Payments for taxes related to net share settlement of equity awards
Repurchase of common stock
Net cash provided by (used in) financing activities
Effects of foreign currency fluctuations on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of year from continuing
Cash and cash equivalents at beginning of year from discontinued
Cash and cash equivalents at end of year
Cash and cash equivalents at end of year from continuing operations
Cash and cash equivalents at end of year from discontinued operations
Supplemental Disclosures:
Interest paid during the year
Income taxes paid during the year
Years Ended March 31,
2019
2018
2020
$ 28,157,478 $ 37,235,134 $ 53,690,018
—
251,263
5,010,626
517,499
38,377,623
—
1,527,656
592,549
—
—
990,399
865,727
181,730,182 148,426,578 130,979,129
7,339,657
210,117
8,785,432
6,608,348
93,199
(3,655,751)
7,147,966
339,259
572,914
28,952,161
17,635,309
5,434,619
(8,602,646)
(858,817)
(6,584,895)
2,015,553
19,917,429
8,574,634
257,409,236 244,664,271 218,026,468
(5,507,068)
(2,547,222)
5,877,916
(183,482,267) (190,976,279) (143,373,549)
(47,100,694)
(14,455,278)
(11,277,780)
284,869
—
(15,586,411)
(33,922,279)
(10,223,508)
(1,987,762)
(9,805,084)
(9,171,468)
466,806
310,542
37,494,505
—
(256,031,150) (206,965,839) (169,808,648)
(991,400)
4,612,926
(4,476,159)
(197,399,964)
905,403
—
2,283,489
9,335,433
—
540,691,400 364,290,000 294,963,800
(341,531,400) (357,250,000) (345,200,000)
(240,000)
(420,000)
5,997,948
25,323,531
(1,394,835)
(1,517,357)
(74,519,863)
(4,614,331)
(31,464,357)
(63,116,750)
2,667,447
132,431
16,885,894
(22,750,871)
12,473,833
11,581,936
19,612,471
3,618,474
$ 11,618,922 $ 9,335,433 $ 32,086,304
12,473,833
9,335,433
19,612,471
11,618,922
—
—
$ 23,942,122 $ 16,835,789 $ 17,696,711
$ 15,711,692 $ 23,259,590 $ 38,741,119
See accompanying notes to Consolidated Financial Statements.
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
The Company's accounting and reporting policies are in accordance with GAAP and conform to general practices within
the finance company industry. The following is a description of the more significant of these policies used in preparing
the Consolidated Financial Statements.
Nature of Operations
The Company is a small-dollar consumer finance (installment loan) 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 limited access to other sources of consumer credit. It also offers income tax return
preparation services to its customer base and to others.
As of March 31, 2020, the Company operated 1,243 branches in Alabama, Georgia, Idaho, Illinois, Indiana, Kentucky,
Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, South Carolina, Tennessee, Texas, Utah, and
Wisconsin. Branches in the aforementioned states operate under one of the following names: Amicable Finance, Colonial
Finance, Freeman Finance, General Credit, Midwestern Loans, World Acceptance, or World Finance. On August 3, 2018
the Company and its affiliates completed the sale of the Company's Mexico operating segment in its entirety, effective as
of July 1, 2018. Thus, the Company operated no branches in Mexico as of March 31, 2020 or 2019. During the first
quarter of fiscal 2019, branches in Mexico operated under the name Préstamos Avance or Préstamos Viva. The Company
is subject to numerous lending regulations that vary by jurisdiction.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of World Acceptance Corporation and its wholly-owned
subsidiaries (the “Company”). Subsidiaries consist of operating entities in various states, ParaData Financial Systems (a
software company acquired during fiscal 1994), and WAC Insurance Company, Ltd. (a captive reinsurance company
established in fiscal 1994). All significant inter-company balances and transactions have been eliminated in consolidation.
The financial statements of the Company’s former foreign subsidiaries in Mexico were prepared using the local currency
as the functional currency. Assets and liabilities of these subsidiaries were translated into U.S. dollars at the then-current
exchange rate while income and expense are translated at an average exchange rate for the applicable period. The resulting
translation gains and losses were recognized as a component of equity in “Accumulated Other Comprehensive Loss, net.”
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of financial statements in conformity with 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. The most significant item subject to such estimates and assumptions that could
materially change in the near term is the allowance for loan losses.
Reclassification
Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications had no
impact on previously reported net income or shareholders' equity.
Business Segments
The Company reports operating segments in accordance with FASB ASC Topic 280. Operating segments are components
of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and assess performance. FASB ASC Topic 280 requires that a public
enterprise report a measure of segment profit or loss, certain specific revenue and expense items, segment assets,
information about the way that the operating segments were determined and other items.
60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has one reportable segment. The other revenue generating activities of the Company, including the sale of
insurance products, income tax preparation, and the automobile club, are done within the existing branch network in
conjunction with or as a complement to the lending operations. There is no discrete financial information available for
these activities, and they do not meet the criteria under FASB ASC Topic 280 to be considered operating segments.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three
months or less from the date of original issuance to be cash equivalents. As of March 31, 2020 and 2019 the Company
had $5.4 million and $5.1 million, respectively, in restricted cash associated with its captive insurance subsidiary that
reinsures a portion of the credit insurance sold in connection with loans made by the Company.
Loans and Interest and Fee Income
The Company is licensed to originate consumer loans in the states of Alabama, Georgia, Idaho, Illinois, Indiana,
Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, South Carolina, Texas, Tennessee, Utah, and
Wisconsin. During fiscal 2020, 2019, and 2018 the Company originated loans generally ranging up to $3,200, with terms
of 48 months or fewer. Experience indicates that a majority of the consumer loans are refinanced, and the Company
accounts for the majority of the refinancings as new loans. Generally a customer must make multiple payments in order
to qualify for refinancing. Furthermore, the Company's lending policy has predetermined lending amounts so that in most
cases a refinancing will result in advancing additional funds. The Company believes that the advancement of additional
funds constitutes more than a minor modification to the terms of the existing loan if the present value of the cash flows
under the terms of the new loan will be 10% or more of the present value of the remaining cash flows under the terms of
the original loan.
The following table sets forth information about our loan products for fiscal 2020:
Small loans
Large loans
Tax advance loans
$
Minimum
Origination
Maximum
Origination
2,450
20,600
5,000
100 $
2,500
100
Minimum
Term
(Months)
3
12
8
Maximum
Term
(Months)
25
48
8
Gross loans receivable at March 31, 2020 and 2019 consisted of the following:
2020
761,364,753 $
442,683,915
5,822,698
1,209,871,366 $
Small loans
Large loans
Tax advance loans
Total gross loans
$
$
2019
736,643,663
383,686,372
7,627,348
1,127,957,383
Fees received and direct costs incurred for the origination of loans are deferred and amortized to interest income over the
contractual lives of the loans using the interest method. Unamortized amounts are recognized in income at the time that
loans are refinanced or paid in full except for those refinancings that do not constitute a more than minor modification.
Loans are carried at the gross amount outstanding, reduced by unearned interest and insurance income, net of deferred
origination fees and direct costs and an allowance for loan losses. The Company recognizes interest and fee income using
the interest method. Charges for late payments are credited to income when collected.
With the exception of tax advance loans, which are interest free, the Company offers its loans at the prevailing statutory
rates for terms not to exceed 48 months. Management believes that the carrying value approximates the fair value of its
loan portfolio.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nonaccrual Policy
The accrual of interest is discontinued when a loan is 61 days or more past the contractual due date. When the interest
accrual is discontinued, all unpaid accrued interest is reversed against interest income. While a loan is on nonaccrual
status, interest revenue is recognized only when a payment is received. Once a loan moves to nonaccrual status, it remains
in nonaccrual status until it is paid out, charged off or refinanced.
Allowance for Loan Losses
The Company maintains an allowance for loan losses in an amount that, in management's opinion, is adequate to provide
for incurred losses inherent in the existing loan portfolio. The Company charges against current earnings, as a provision
for loan losses, amounts added to the allowance to maintain it at levels expected to cover probable incurred losses of
principal. When establishing the allowance for loan losses, the Company takes into consideration the growth of the loan
portfolio, current levels of charge-offs, current levels of delinquencies, and current economic factors.
The Company uses a mathematical calculation to determine the initial allowance at the end of each reporting period. The
calculation originated as management's estimate of future charge-offs and is used to allocate expenses to the branch
level. There are two components when calculating the allowance for loan losses, which the Company refers to as the
general reserve and the specific reserve. This calculation is a starting point and over time, and as needed, additional
provisions have been added as determined by management to make the allowance adequate.
The general reserve is 4.25% of the gross loan portfolio. The specific reserve represents 100% of the gross loan balance
of all loans 91 days or more days past due on a recency basis, including bankrupt accounts in that category. This
methodology is based on historical data showing that the collection of loans 91 days or more past due is remote.
A process is then performed to determine the adequacy of the allowance for loan losses, which considers trends in current
levels of delinquencies, charge-off levels, and economic trends (such as energy and food prices). The primary tool used
is the movement model (on a recency basis) which considers the rolling twelve months of delinquency to determine
expected charge-offs. The sum of expected charge-offs, determined from the recency movement model plus the amount
of delinquent refinancings is compared to the allowance resulting from the mathematical calculation to determine if any
adjustments are needed to make the allowance adequate. Management would also determine if any adjustments are
needed if the consolidated annual provision for loan losses is less than total charge-offs. Management uses a precision
level of 5% of the allowance for loan losses compared to the aforementioned recency movement model when determining
if any adjustments are needed.
The Company's policy is to charge off loans at the earlier of when such loans are deemed to be uncollectible or when six
months have elapsed since the date of the last full contractual payment. The Company's charge-off policy has been
consistently applied and no changes have been made during the periods reported. The Company's historical annual charge-
off rate (net charge-offs as a percentage of average net loans receivable) for the past 10 years has ranged from 12.8% to
18.0% of net loans. Management considers the charge-off policy when evaluating the appropriateness of the allowance
for loan losses.
Impaired Loans
The Company defines impaired loans as bankrupt accounts and accounts 91 days or more past due on a recency basis. In
accordance with the Company’s charge-off policy, once a loan is deemed uncollectible, 100% of the net investment is
charged off, except in the case of a borrower who has filed for bankruptcy. As of March 31, 2020, bankrupt accounts that
had not been charged off were approximately $6.3 million. Bankrupt accounts 91 days or more past due on a recency
basis are reserved at 100% of the gross loan balance. The Company also considers any accounts 91 days or more past due
on a recency basis to be impaired, and such accounts are reserved at 100% of the gross loan balance.
Delinquency is the primary credit quality indicator used to determine the credit quality of the Company's receivables
(additional requirements from ASC 310-10 are disclosed in Note 2).
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is recorded using
62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the straight-line method over the estimated useful life of the related asset as follows: buildings, 25 to 40 years; furniture
and fixtures, 5 to 10 years; equipment, 3 to 7 years; and vehicles, 3 years. Amortization of leasehold improvements is
recorded using the straight-line method over the lesser of the estimated useful life of the asset or the term of the
lease. Additions to premises and equipment and major replacements or improvements are added at cost. Maintenance,
repairs, and minor replacements are charged to operating expense as incurred. When assets are retired or otherwise
disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the
consolidated statement of operations.
Operating Leases
The Company’s branch leases typically have a lease term of three to five years and contain lessee renewal options and
cancellation clauses in the event of regulatory changes. The Company typically renews its leases for one or more option
periods. Accordingly, the Company amortizes its leasehold improvements over the shorter of their economic lives, which
are generally five years, or the lease term that considers renewal periods that are reasonably assured.
Other Assets
Other assets include cash surrender value of life insurance policies, prepaid expenses, debt issuance costs, and other
deposits.
Intangible Assets and Goodwill
Intangible assets include the cost of acquiring existing customers ("customer lists"), and the fair value assigned to non-
compete agreements. Customer lists are amortized on a straight line or accelerated basis over their estimated period of
benefit, ranging from 8 to 23 years with a weighted average of approximately 9.6 years. Non-compete agreements are
amortized on a straight line basis over the term of the agreement, ranging from 3 to 5.3 years with a weighted average of
approximately 4.9 years.
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 FASB 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 a branch 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.
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. The fair value of the customer lists is based on a valuation model that utilizes the
Company’s historical data to estimate the value of any acquired customer lists. In a business combination, the remaining
excess of the purchase price over the fair value of the tangible assets, customer list, and non-compete agreements is
allocated to goodwill. The branches the Company acquires are small, privately-owned branches, which do not have
sufficient historical data to determine customer attrition. The Company believes that the customers acquired have the
same characteristics and perform similarly to its customers. Therefore, the Company utilized the attrition patterns of its
customers when developing the estimate of attrition for acquired customers. This estimation method is re-evaluated
periodically.
The Company evaluates goodwill annually for impairment in the fourth quarter of the fiscal year using the market value-
based approach. The Company has one reporting unit, and the Company has multiple components, the lowest level of
which is individual branches. The Company’s components are aggregated for impairment testing because they have
similar economic characteristics.
Impairment of Long-Lived Assets
The Company assesses impairment of long-lived assets, including property and equipment and intangible assets,
whenever changes or events indicate that the carrying amount may not be recoverable. The Company assesses impairment
of these assets generally at the branch level based on the operating cash flows of the branch and the Company’s plans for
branch closings. The Company will write down such assets to fair value if, based on an analysis, the sum of the expected
future undiscounted cash flows is less than the carrying amount of the assets. The Company did not record any impairment
charges for the fiscal year ended 2020, 2019, or 2018.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value of Financial Instruments
FASB ASC Topic 825 requires disclosures about the fair value of all financial instruments, regardless of whether the
financial instrument is recognized on the balance sheet, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on estimates using present value or other valuation
techniques. The Company’s financial instruments 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 8 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.
Insurance Premiums and Commissions
Insurance premiums for credit life, accident and health, property and unemployment insurance written in connection with
certain loans, net of refunds and applicable advance insurance commissions retained by the Company, are remitted
monthly to an insurance company. All commissions are credited to unearned insurance commissions and recognized as
income over the life of the related insurance contracts. The Company recognizes insurance income using the Rule of 78s
method for credit life (decreasing term), credit accident and health, unemployment insurance and the Pro Rata method
for credit life (level term) and credit property.
Non-filing Insurance
Non-filing insurance premiums are charged on certain loans in lieu of recording and perfecting the Company's security
interest in the assets pledged. The premiums and recoveries are remitted to a third party insurance company and are not
reflected in the accompanying Consolidated Financial Statements (see Note 8).
Claims paid by the third party insurance company result in a reduction to loan losses. Certain losses related to such loans,
which are not recoverable through life, accident and health, property, or unemployment insurance claims are reimbursed
through non-filing insurance claims subject to policy limitations. Any remaining losses are charged to the allowance for
loan losses.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being
sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in the period in which the change in judgment related to
additional facts and circumstances occurs.
Earnings Per Share
Earnings per share (“EPS”) is computed in accordance with FASB ASC Topic 260. Basic EPS includes no dilution and
is computed by dividing net income by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company. Potential
common stock included in the diluted EPS computation consists of stock options and restricted stock, which are computed
using the treasury stock method. See Note 11 for the reconciliation of the numerators and denominators for basic and
dilutive EPS calculations.
64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
FASB ASC Topic 718-10 requires companies to recognize in the income statement the grant-date fair value of stock
options and other equity-based compensation issued to employees. FASB ASC Topic 718-10 does not change the
accounting guidance for share-based payment transactions with parties other than employees provided in FASB ASC
Topic 718-10. Under FASB ASC Topic 718-10, the way an award is classified will affect the measurement of
compensation cost. Liability-classified awards are remeasured to fair value at each balance-sheet date until the award is
settled. Equity-classified awards are measured at grant-date fair value, amortized over the subsequent vesting period, and
are not subsequently remeasured. The fair value of non-vested stock awards for the purposes of recognizing stock-based
compensation expense is the market price of the stock on the grant date. The fair value of options is estimated on the
grant date using the Black-Scholes option pricing model (see Note 12). At March 31, 2020, the Company had several
share-based employee compensation plans, which are described more fully in Note 12.
Share Repurchases
On March 12, 2020, the Board of Directors authorized the Company to repurchase up to $30.0 million of the Company’s
outstanding common stock, inclusive of the amount that remains available for repurchase under prior repurchase
authorizations. As of March 31, 2020, the Company had $22.6 million in aggregate remaining repurchase capacity. 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, restrictions under the revolving credit facility and other market and
economic conditions.
The Company continues to believe stock repurchases are a viable component of the Company’s long-term financial
strategy and an excellent use of excess cash when the opportunity arises. However, our revolving credit agreement limits
share repurchases to 50% of consolidated adjusted net income in any fiscal year commencing with the fiscal year ending
March 31, 2017 without prior written consent of the lenders. As of March 31, 2020 our debt outstanding was $451.1
million and our shareholders' equity was $412.0 million resulting in a debt-to-equity ratio of 1.1:1.0.
Comprehensive Income
Total comprehensive income consists of net income and other comprehensive income (loss). The Company’s other
comprehensive income (loss) and accumulated other comprehensive income (loss) are composed of foreign currency
translation adjustments.
Concentration of Risk
The Company generally serves individuals with limited access to other sources of consumer credit such as banks, credit
unions, other consumer finance businesses and credit card lenders. During the year ended March 31, 2020, the Company
operated in sixteen states in the United States. For the years ended March 31, 2020, 2019, and 2018, total revenue within
the Company's four largest states (Texas, Georgia, Tennessee, and South Carolina) accounted for approximately 56%,
57% and 53%, respectively, of the Company's total revenues.
The Company maintains amounts in bank accounts which, at times, may exceed federally insured limits. The Company
has not experienced losses in such accounts, which are maintained with large domestic banks. Management believes the
Company’s exposure to credit risk is minimal for these accounts.
Advertising Costs
Advertising costs are expensed when incurred. Advertising costs were approximately $24.3 million, $22.5 million, and
$21.2 million for fiscal years 2020, 2019, and 2018, respectively.
Recently Adopted Accounting Standards
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU, as amended by ASU 2018-01,
ASU 2018-10, and 2018-11, requires lessees to recognize assets and liabilities from leases with terms greater than 12
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are effective for annual periods,
and interim periods within those annual periods, beginning after December 15, 2018.
Upon adoption of this guidance on April 1, 2019 the Company removed its deferred rent expense balance of $0.4 million,
recorded a right-of-use asset of $87.4 million, and recorded a lease liability of $87.8 million. Amounts recorded upon
adoption of Topic 842 were adjusted from what was reported in the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 2019 due to the Company finalizing its implementation since that filing. In conjunction with
adoption the Company made the following elections as outlined in ASU 2016-02 and its amendments:
• The Company elected to apply the new guidance retrospectively at the beginning of the period of adoption, and, as a
result, the adoption date is the beginning of the reporting period in which the Company first applies the guidance in
Topic 842. The Company has not adjusted comparative years in the consolidated financial statements or make the new
required disclosures for periods before the adoption date. The new required disclosures are only presented in the period
of adoption and subsequently thereafter.
• The Company elected, by class of underlying asset, to expense short-term leases on a straight-line basis over the life
of the lease rather than applying the recognition requirements in Topic 842 according to the following table:
Class of Underlying Asset
Buildings (Office Space)
Office Equipment
Election? Yes/No
No
Yes
• The Company elected, by class of underlying asset, not to separate non-lease components from lease components and
instead account for each separate lease component and the non-lease components associated with those lease
components as a single lease component according to the following table:
Class of Underlying Asset
Buildings (Office Space)
Office Equipment
Election? Yes/No
Yes
Yes
• The Company elected the following practical expedients, which must be elected as a package, when applying Topic
842 to leases that commenced before the adoption date:
1. Not to reassess whether any expired or existing contracts are or contain leases;
2. Not to reassess the lease classification for any expired or existing leases (that is, all existing leases that were
classified as operating leases in accordance with Topic 840 are classified as operating leases, and all existing
leases that were classified as capital leases in accordance with Topic 840 are classified as finance leases);
and,
3. Not to reassess initial direct costs for any existing leases.
• The Company elected to use hindsight in determining the lease term (that is, when considering lessee options to extend
or terminate the lease and to purchase the underlying asset) and in assessing impairment of the its right-of-use assets
when applying Topic 842 to leases that commenced before the adoption date.
Adoption of the standard did not impact the Company's consolidated statements of operations nor did adoption require
the Company to alter its revolving credit facility to remain in compliance with its debt covenants.
Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. ASU No. 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 No. 2017-04 also
eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative
assessment and, if it fails that qualitative assessment, to perform Step 2 of the goodwill impairment test. Therefore, the
66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
same impairment assessment applies to all reporting units. The ASU also eliminates the provision that allowed a best
estimate of goodwill impairment to be recognized if the goodwill impairment test is not complete before the financial
statements are issued or available to be issued. Thus, the goodwill impairment test now must be complete before issuing
the financial statements. The amendments in this Update are effective for public entities who are SEC filers for fiscal
years beginning after December 15, 2019. Early adoption is permitted.
The Company early adopted ASU 2017-04 for the period ended March 31, 2020. The adoption had no impact on the
Company’s financial statements.
Recently Issued Accounting Standards to be Adopted
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses. The update, as amended by
ASU 2019-04, 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 require loss estimates be determined over the lifetime of the asset
and broaden the information an entity must consider in developing its expected credit losses. The ASU does not specify
a method for measuring expected credit losses and allows an entity to apply methods that reasonably reflect its
expectations of the credit loss estimate based on the entity’s size, complexity and risk profile. 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.
For the Company, the standard will apply to its loan portfolio. A cross-functional team led by Corporate Finance was
established to implement the new standard. We have completed our initial current expected credit loss (“CECL”) model
and accounting policy elections. We continue to refine and test our model, estimation techniques, operational processes
and controls to be used in preparing CECL loss estimates and related financial statement disclosures. The CECL
calculated losses on the loan portfolio are derived using a migration type model based on historical loss experience,
borrower characteristics, forecasts and other factors. The outstanding loans are segmented into pools with similar risk
characteristics, primarily based on the length of time the borrower has been a customer. As the average life of our loans
is generally twelve months or less, recent borrower performance is the best indicator we have of expected loss. Forecasted
changes in macroeconomic variables generally will not materially impact loans that are outstanding at the end of any
given reporting given the short duration of those loans, so we instead consider partial migration curves as well as current
internal credit quality trends as compared to historical amounts to forecast any changes in expected losses over the
remaining period. We are considering the impact of the COVID-19 pandemic as well as the stimulus packages adopted
by the U.S. government as it relates to a qualitative adjustment to the allowance for expected losses.
The Company adopted the guidance on April 1, 2020 using a modified retrospective approach with a cumulative-effect
adjustment to retained earnings. The initial range of impact of this standard to the Company’s consolidated financial
statements is an increase of $14.5 million to $26.2 million to the allowance for credit losses with a corresponding decrease
to retained earnings, net of tax. These amounts are preliminary while the Company completes the processes noted above.
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.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Allowance for Loan Losses and Credit Quality Indicators
The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2020, 2019,
and 2018:
Balance at beginning of period
Provision for loan losses
Loan losses
Recoveries
Balance at end of period
2019
2020
$ 81,519,624
2018
60,644,365
66,088,139
181,730,182 148,426,578 117,620,140
(183,439,199) (148,308,199) (127,387,857)
15,211,491
66,088,139
16,677,249
$ 96,487,856
15,313,106
81,519,624
The following is a summary of loans individually and collectively evaluated for impairment for the periods indicated:
March 31, 2020
Gross loans in bankruptcy, excluding contractually
delinquent
Gross loans contractually delinquent
Loans not contractually delinquent and not in
bankruptcy
Gross loan balance
Unearned interest and fees
Net loans
Allowance for loan losses
Loans, net of allowance for loan losses
Loans
individually
evaluated for
impairment
(impaired loans)
$
5,165,752
70,719,727
—
75,885,479
(16,848,762)
59,036,717
(54,090,509)
4,946,208
$
Loans
collectively
evaluated for
impairment
Total
—
—
5,165,752
70,719,727
1,133,985,887 1,133,985,887
1,133,985,887 1,209,871,366
(308,980,724)
(292,131,962)
900,890,642
841,853,925
(96,487,856)
(42,397,347)
804,402,786
799,456,578
March 31, 2019
Gross loans in bankruptcy, excluding contractually
delinquent
Gross loans contractually delinquent
Loans not contractually delinquent and not in
bankruptcy
Gross loan balance
Unearned interest and fees
Net loans
Allowance for loan losses
Loans, net of allowance for loan losses
Loans individually
evaluated for
impairment
(impaired loans)
Loans collectively
evaluated for
impairment
Total
$
$
4,644,203
59,633,541
—
64,277,744
(14,319,795)
49,957,949
(45,511,124)
4,446,825
—
—
4,644,203
59,633,541
1,063,679,639 1,063,679,639
1,063,679,639 1,127,957,383
(290,813,752)
(276,493,957)
837,143,631
787,185,682
(81,519,624)
(36,008,500)
755,624,007
751,177,182
The average net balance of impaired loans was $57.2 million, $47.0 million, and $42.3 million, respectively, for the
years ended March 31, 2020, 2019, and 2018. It is not practicable to compute the amount of interest earned on impaired
loans, nor is it practicable to compute the interest income recognized using the cash-basis method during the period
such loans were impaired.
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is an assessment of the credit quality for the fiscal years indicated:
Credit risk
Consumer loans- non-bankrupt accounts
Consumer loans- bankrupt accounts
Total gross loans
Consumer credit exposure
Credit risk profile based on payment activity, performing
Contractual non-performing, 61 days or more delinquent (1)
Total gross loans
Credit risk profile based on customer type
New borrower
Former borrower
Refinance
Delinquent refinance
Total gross loans
_______________________________________________________
(1) Loans in non-accrual status
The following is a summary of the past due receivables as of:
March 31, 2020
March 31,
2019
$ 1,203,552,152 1,121,895,834
6,061,549
$ 1,209,871,366 1,127,957,383
6,319,214
$ 1,104,130,714 1,039,774,448
88,182,935
$ 1,209,871,366 1,127,957,383
105,740,652
$
124,800,193
127,108,125
935,448,882
22,514,166
138,140,479
116,242,182
854,880,194
18,694,528
$ 1,209,871,366 1,127,957,383
Contractual basis:
30-60 days past due
61-90 days past due
91 days or more past due
Total
Percentage of period-end gross loans receivable
Recency basis:
30-60 days past due
61-90 days past due
91 days or more past due
Total
March 31, 2020
March 31,
2019
March 31,
2018
$
$
$
$
49,137,102
35,020,925
70,719,727
154,877,754
40,300,574
28,549,394
59,633,541
128,483,509
32,959,151
24,812,730
50,019,567
107,791,448
12.8 %
11.4 %
10.7 %
48,206,910
28,450,942
50,669,837
127,327,689
35,992,122
22,393,106
42,771,862
101,157,090
29,356,319
19,523,845
34,548,433
83,428,597
Percentage of period-end gross loans receivable
10.5 %
9.0 %
8.3 %
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Property and Equipment
Property and equipment consist of:
Land
Building and leasehold improvements
Furniture and equipment
Less accumulated depreciation and amortization
Total
$
March 31,
2020
100,443
17,048,098
51,376,746
68,525,287
(43,764,179)
$ 24,761,108
March 31,
2019
576,977
20,383,762
47,027,859
67,988,598
(42,564,415)
25,424,183
Depreciation expense was approximately $7.1 million, $6.6 million, and $7.3 million for the years ended March 31, 2020,
2019, and 2018, respectively.
(4)
Intangible Assets
The following table provides the gross carrying amount and related accumulated amortization of definite-lived intangible
assets:
March 31, 2020
March 31, 2019
Cost of customer lists
Value assigned to non-
compete agreements
Total
Gross
Carrying
Amount
$ 50,411,969
10,054,643
$ 60,466,612
Gross
Carrying
Accumulated
Amount
Amortization
(27,215,464) 23,196,505 $37,183,018 (22,509,921) 14,673,097
Net
Intangible
Asset
Accumulated
Amortization
Net
Intangible
Asset
(8,802,671)
667,056
(36,018,135) 24,448,477 $46,347,661 (31,007,508) 15,340,153
(8,497,587)
9,164,643
1,251,972
The estimated amortization expense for intangible assets for future years ended March 31 is as follows: $5.0 million for
2021; $4.1 million for 2022; $3.6 million for 2023; $3.5 million for 2024; $3.1 million for 2025; and an aggregate of $5.1
million for the years thereafter.
(5) Goodwill
The following summarizes the changes in the carrying amount of goodwill for the years ended March 31, 2020 and
2019:
Balance at beginning of year:
Goodwill
Accumulated goodwill impairment losses
Goodwill, net
Goodwill acquired during the year
Impairment losses
Balance at end of year:
Goodwill
Accumulated goodwill impairment losses
Goodwill, net
70
2020
2019
$ 7,114,094
(79,631)
$ 7,034,463
7,114,094
(79,631)
7,034,463
$
336,328
—
—
—
$ 7,450,422
(79,631)
$ 7,370,791
7,114,094
(79,631)
7,034,463
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company performed an annual impairment test during the fourth quarters of fiscal 2020 and 2019 and determined
that none of the recorded goodwill was impaired.
(6) Notes Payable
Senior Notes Payable; Revolving Credit Facility
At March 31, 2020 the Company's notes payable consisted of a $685.0 million senior revolving credit facility, which has
an accordion feature permitting the maximum aggregate commitments to increase to $685.0 million provided that certain
conditions are met. At March 31, 2020 $451.1 million was outstanding under the facility, not including a $300.0 thousand
outstanding standby letter of credit related to workers compensation. To the extent that the letter of credit is drawn upon,
the disbursement will be funded by the credit facility. There are no amounts due related to the letter of credit as of
March 31, 2020. The letter of credit expires on December 31, 2020; however, it automatically extends for one year on the
expiration date. Subject to a borrowing base formula, the Company may borrow at the rate of LIBOR plus an applicable
margin between 3.0% and 4.0% based on certain EBITDA related metrics set forth in the revolving credit agreement,
which will be determined and adjusted on a monthly basis with a minimum rate of 4.0%. The revolving credit facility has
a commitment fee of 0.50% per annum on the unused portion of the commitment. Commitment fees on the unused portion
of the borrowing totaled $1.0 million, $1.1 million, and $0.8 million for the years ended March 31, 2020, 2019, and 2018,
respectively. Borrowings under the revolving credit facility mature on June 7, 2022.
For the years ended March 31, 2020, 2019, and 2018 the Company’s effective interest rate, including the commitment
fee, was 5.8%, 6.7%, and 6.0% respectively, and the unused amount available under the revolver at March 31, 2020 was
$180.2 million.
Substantially all of the Company's assets are pledged as collateral for borrowings under the revolving credit agreement.
Debt Covenants
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 (i) a minimum consolidated net worth of (a) $365.0 million through December
30, 2020 and (b) $375.0 million on and after December 31, 2020; (ii) a minimum fixed charge coverage ratio of (a) 2.25
to 1.0 for the fiscal quarters ending March 31, 2020, June 30, 2020 and September 30, 2020 and (b) 2.75 to 1.0 for each
fiscal quarter thereafter; (iii) a maximum ratio of total debt to consolidated adjusted net worth of 2.0 to 1.0; (iv) as of the
end of each fiscal quarter, provision for loan losses for the four fiscal quarters then ending shall equal or exceed the net
loan charge off for the corresponding period (any shortfalls are required to be deducted in the determination of net income
and consolidated net worth); and (v) a maximum collateral performance indicator of 24% as of the end of each calendar
month. 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.
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 March 31, 2020 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
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that a violation of the FCPA has occurred, as described above in Part I, Item 3, “Legal Proceedings—Mexico
Investigation,” 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.
Debt Maturities
As of March 31, 2020, the aggregate annual maturities of the notes payable for each of the five fiscal years subsequent to
March 31, 2020 were as follows:
2021
2022
2023
2024
2025
Total future debt payments
—
—
451,100,000
—
—
451,100,000
$
$
(7)
Insurance and Other Income
Insurance and other income for the years ending March 31, 2020, 2019, and 2018 consist of:
Insurance revenue
Tax return preparation revenue
Auto club membership revenue
Other
Insurance and other income
2020
$ 50,360,730
20,936,447
6,254,748
4,150,319
$ 81,702,244
2019
45,182,596
21,454,117
4,452,018
4,299,917
75,388,648
2018
41,959,092
16,801,909
3,373,023
4,832,805
66,966,829
The Company has a wholly-owned, captive insurance subsidiary that reinsures a portion of the credit insurance sold in
connection with loans made by the Company. Certain coverages currently sold by the Company on behalf of the
unaffiliated insurance carrier are ceded by the carrier to the captive insurance subsidiary, providing the Company with an
additional source of income derived from the earned reinsurance premiums. Insurance premiums are ceded to the
reinsurance subsidiary as written and revenue is recognized over the life of the related insurance contracts. As of
March 31, 2020, 2019, and 2018, the amount of net written premiums by the reinsurance subsidiary were $6.6 million,
$5.6 million, and $6.2 million, respectively, and the amount of earned premiums were $6.2 million, $5.7 million, and
$5.3 million, respectively.
The Company maintains a cash reserve for claims in an amount determined by the ceding company, and as of March 31,
2020 and 2019, the cash reserves were $4.7 million and $3.8 million, respectively.
(8) Non-filing Insurance
The Company maintains non-filing insurance coverage with an unaffiliated insurance company. The following is a
summary of the non-filing insurance activity for the years ended March 31, 2020, 2019, and 2018:
Insurance premiums written
Recoveries on claims paid
Claims paid
2020
8,251,927
1,001,288
7,570,126
$
$
$
2019
6,164,871
996,482
6,553,271
2018
5,987,538
1,093,396
6,540,136
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Leases
Accounting Policies and Matters Requiring Management's Judgment
When determining the economic life of a lease the Company adopts a convention of applying an economic life equal to
the useful life as specified in its accounting policy. Refer to Note 1, “Property and Equipment,” in this Annual Report on
Form 10-K for a description of the Company's accounting policy regarding useful lives.
The Company uses its effective annual interest rate as the discount rate when evaluating leases under Topic 842.
Management applies its effective annual interest rate to leases entered for the entirety of the subsequent year. For example,
fiscal 2019’s annual effective interest rate of 6.7% will be used in the determination of lease type as well as the discount
rate when calculating the present value of lease payments for all leases entered into in fiscal 2020 or until a new annual
effective interest rate is available for application.
Based on its historical practice, the Company believes it is reasonably certain to exercise a given option associated with
a given office space lease. Therefore, the Company classifies all lease options for office space as “reasonably certain”
unless it has specific knowledge to the contrary for a given lease. The Company does not believe it is reasonably certain
to exercise any options associated with its office equipment leases.
Periodic Disclosures
The Company's leases consist of real estate leases for office space as well as office equipment leases, all of which were
classified as operating at March 31, 2020. Both the real estate and office equipment leases range from three years to five
years, and generally contain options to extend which mirror the original terms of the lease.
The following table reports information about the Company's lease cost for the year ended March 31, 2020:
2020
Lease Cost
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
$
$
26,244,323
4,500
3,376,275
29,625,098
The following table reports other information about the Company's leases for year ended March 31, 2020:
Other Lease Information
Cash paid for amounts included in the measurement of lease liabilities
Right-of-use assets obtained in exchange for new operating lease liabilities
Weighted average remaining lease term — operating leases
Weighted-average discount rate — operating leases
$
$
2020
25,618,886
36,826,045
8.4 years
6.7 %
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table reports information about the maturity of the Company's operating leases as of March 31, 2020:
Operating lease liability maturity analysis
FY2021
FY2022
FY2023
FY2024
FY2025
Thereafter
Total undiscounted lease liability
Imputed interest
Total discounted lease liability
22,374,762
19,655,801
16,078,660
12,779,675
9,236,229
29,954,744
110,079,871
7,320,485
102,759,386
$
$
The Company had no leases with related parties at March 31, 2020.
(10) Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA.
The TCJA 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”), 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 changes 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 has calculated a U.S. federal statutory
corporate income tax rate of 21% for the fiscal years ended March 31, 2020 and 2019 and 31.55% for the fiscal year
ended March 31, 2018.
The impact of changes in federal tax rates on deferred tax amounts and the effect of the Transition Tax are significant
unusual or infrequent events which are recognized as discrete items in the Company’s income tax expense in the period
in which the event occurs. The Company recorded a $10.5 million increase in tax expense related to the net impact of
revaluing the U.S. deferred tax assets and liabilities in the third quarter of fiscal 2018. An adjustment was made in the
third quarter of fiscal 2019 to record an $850.0 thousand tax benefit related to the revaluing of the U.S. deferred tax assets
and liabilities due to additional analysis and change in estimate from the original calculation. The Company also recorded
an increase in tax expense of $4.9 million related to the foreign Transition Tax during the final quarter of fiscal 2018.
During the first quarter of fiscal 2019, our former Mexican subsidiaries paid the Company a dividend of $17.1 million.
Because of the Transition Tax, the Company's tax basis was greater than its book basis. The recognition of the basis
difference upon the sale of the Mexican operations in fiscal 2019 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 carryforward.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to
the COVID-19 pandemic. The CARES Act, among other things, expands current benefits of net operating losses and
increases the allowable business interest deduction under Section 163(j). The Company does not expect the CARES Act
to have a material impact on its income tax position.
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense (benefit) from continuing operations consists of:
Year ended March 31, 2020
Continuing Operations- Federal
Continuing Operations- State and local
Year ended March 31, 2019
Continuing Operations- Federal
Continuing Operations- State and local
Year ended March 31, 2018
Continuing Operations- Federal
Continuing Operations- State and local
Current
Deferred
Total
$ 3,307,872
2,871,179
$ 6,179,051
(224,604)
797,518
572,914
3,083,268
3,668,697
6,751,965
$ 20,508,247
(871,439)
$ 19,636,808
(1,833,943)
(1,821,808)
(3,655,751)
18,674,304
(2,693,247)
15,981,057
$ 32,398,898
3,191,525
$ 35,590,423
12,073,220
94,165
12,167,385
44,472,118
3,285,690
47,757,808
Income tax expense from continuing operations was $6.8 million, $16.0 million, and $47.8 million, for the years ended
March 31, 2020, 2019, and 2018, respectively, and differed from the amounts computed by applying the U.S. federal income
tax rate of 21% for fiscal years 2020 and 2019, and 31.55% for fiscal 2018 to pretax income from continuing operations as a
result of the following:
Expected income tax
Increase (reduction) in income taxes resulting from:
State tax (excluding state tax credits), net of federal benefit
Federal tax credits (net)
State tax credits
Revalue deferred tax assets and liabilities
Foreign transition tax
Uncertain tax positions
Nondeductible penalties
Valuation allowance under Section 162(m)
Excess tax benefits related to equity compensation
Prior year adjustments
Other, net
2020
7,330,983
2019
18,874,500
2018
30,556,455
$
3,398,271
(7,616,236)
(500,000)
—
—
(167,455)
4,562,830
1,305,975
(612,987)
(672,358)
(277,058)
6,751,965
1,576,915
—
(3,704,580)
(852,523)
—
(183,929)
2,210
37,457
(287,703)
106,075
412,635
15,981,057
2,249,055
—
—
10,516,827
4,854,640
(340,993)
4,387
—
(11,435)
(130,606)
59,478
47,757,808
$
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income tax expense (benefit) from discontinued operations was 0, $626,583, and ($243,321), for the years ended March
31, 2020, 2019, and 2018, respectively, and differed from the amounts computed by applying the U.S. federal income tax
rate of 21% for fiscal years 2020 and 2019, and 31.55% for fiscal 2018 to pretax income from discontinued operations as
a result of the following:
Expected income tax
Increase (reduction) in income taxes resulting from:
Foreign income adjustments
Other, net
2020
—
—
—
—
$
$
2019
491,783
2018
1,373,566
187,974
(53,174)
626,583
5,483
(1,622,370)
(243,321)
The tax effects of temporary differences from continuing operations that give rise to significant portions of the deferred
tax assets and deferred tax liabilities at March 31, 2020 and 2019 are presented below:
Deferred tax assets:
Allowance for loan losses
Unearned insurance commissions
Accrued expenses primarily related to employee benefits
Reserve for uncollectible interest
Lease liability
Foreign tax credit carryforward
Capital loss carryforward
State net operating loss carryforwards
Gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Fair value adjustment for loans receivable
Property and equipment
Intangible assets
Deferred net loan origination costs
Prepaid expenses
Right-of-use asset
Other
Gross deferred tax liabilities
Deferred income taxes, net
2020
2019
$ 23,900,236
9,964,655
12,730,245
1,205,082
25,309,841
3,254,926
7,784,059
387,558
84,536,602
(11,040,259)
73,496,343
20,162,369
9,308,138
9,271,182
1,011,584
—
3,254,926
7,856,176
1,021,275
51,885,650
(11,112,376)
40,773,274
(14,065,135)
(5,097,147)
(925,319)
(1,664,486)
(1,185,759)
(25,045,690)
(2,254,822)
(50,238,358)
(9,589,188)
(2,426,786)
(1,610,258)
(1,593,385)
(1,054,110)
—
(668,648)
(16,942,375)
$ 23,257,985
23,830,899
At March 31, 2020, the Company had state net operating loss carryforwards of approximately $9.9 million. A deferred
tax asset of approximately $0.4 million has been recorded to reflect the benefit of these losses that the Company expects
to be recognized. Approximately $1,000 of the state net operating loss carryforward will expire in 2025 with the remaining
carryforward expiring between 2036 and 2039.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The valuation allowance for deferred tax assets decreased by $72,117 for the year ended March 31, 2020 when compared
to March 31, 2019. The valuation allowance at March 31, 2020 and 2019 was $11.0 million and $11.1 million,
respectively. The valuation allowance against the total deferred tax assets as of March 31, 2020 consisted of $1,274
related to state of Colorado net operating loss carryforwards in the amount of $54,318, which expire in 2025, a foreign
tax credit carryforward of $3.3 million arising in relation to the Section 965 calculation ("Transition Tax") during fiscal
2018 which expires in 2028, and $7.8 million related to the $37.1 million capital loss carryforward from the sale of the
Mexican operations in fiscal 2019 which expires in 2024. The Company does not expect to generate enough foreign
source income or capital gains in future tax years to realize these tax attributes. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the scheduled
reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income
prior to the expiration of the deferred tax assets governed by the tax code. Based upon the level of historical taxable
income and projections for future taxable income over the periods in which the related temporary differences are
deductible, management believes it is more likely than not the Company will realize the benefits of these deductible
differences, net of the existing valuation allowances at March 31, 2020. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward
period are reduced.
As of March 31, 2020, 2019, and 2018, the Company had $5.8 million, $5.8 million, and $8.8 million of total gross
unrecognized tax benefits including interest, respectively. Of these totals, approximately $5.2 million, $5.4 million, and
$6.9 million, respectively, represents the amount of net unrecognized tax benefits that are permanent in nature and, if
recognized, would affect the annual effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits at March 31, 2020, 2019, and 2018 are
presented below:
Unrecognized tax benefit balance beginning of year
Gross increases (decreases) for tax positions of current year
Gross increases (decreases) for tax positions of prior years
Settlements with tax authorities
Lapse of statute of limitations
Unrecognized tax benefit balance end of year
2018
2020
246,725
786,674
2019
$ 4,043,623 6,946,229 7,264,966
166,375
8,228
—
(493,340)
$ 4,351,811 4,043,623 6,946,229
54,025
(138,405)
— (1,356,714)
(725,211) (1,461,512)
At March 31, 2020, approximately $3.0 million of gross unrecognized tax benefits are expected to be resolved during the
next 12 months through settlements with taxing authorities or the expiration of the statute of limitations. The Company’s
continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. As of
March 31, 2020, 2019, and 2017, the Company had $1.4 million, $1.8 million, and $1.9 million accrued for gross interest,
respectively, of which $(0.1) million, $1.1 million, and $0.4 million represented the current period expense for the periods
ended March 31, 2020, 2019, and 2018.
The Company is subject to U.S. income tax, 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 2015, although carryforward attributes that were generated prior to 2015 may still be adjusted
upon examination by the taxing authorities if they either have been or will be used in a future period.
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted EPS from continuing
operations calculations:
For the year ended March 31, 2020
Shares
(Denominator)
Income
(Numerator)
Per Share
Amount
Basic EPS
Income from continuing operations available to common
shareholders
$ 28,157,478
7,688,242 $
3.66
Effect of dilutive securities options and restricted stock
—
264,658
Diluted EPS
Income from continuing operations available to common
shareholders including dilutive securities
$ 28,157,478
7,952,900 $
3.54
For the year ended March 31, 2019
Shares
(Denominator)
Income
(Numerator)
Per Share
Amount
Basic EPS
Income from continuing operations available to common
shareholders
$ 73,897,515
8,994,036 $
8.22
Effect of dilutive securities options and restricted stock
—
210,341
Diluted EPS
Income from continuing operations available to common
shareholders including dilutive securities
$ 73,897,515
9,204,377 $
8.03
For the year ended March 31, 2018
Shares
(Denominator)
Income
(Numerator)
Per Share
Amount
Basic EPS
Income from continuing operations available to common
shareholders
$ 49,093,080
8,791,168 $
5.58
Effect of dilutive securities options and restricted stock
—
167,508
Diluted EPS
Income from continuing operations available to common
shareholders including dilutive securities
$ 49,093,080
8,958,676 $
5.48
Options to purchase 656,347, 592,947, and 299,455 shares of common stock at various prices were outstanding during
the years ended March 31, 2020, 2019, and 2018, respectively, but were not included in the computation of diluted EPS
because the option exercise price was antidilutive.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Benefit Plans
Retirement Plan
The Company provides a defined contribution employee benefit plan (401(k) plan) covering full-time employees,
whereby employees can invest up to the maximum designated for that year. The Company matches 50% of each
employee's contributions up to the first 6% of the employee's eligible compensation, providing a maximum employer
contribution of 3% of compensation. The Company's expense under this plan was $1.6 million, $1.5 million, and $1.4
million, for the years ended March 31, 2020, 2019, and 2018, respectively.
Supplemental Executive Retirement Plan
The Company has instituted two supplemental executive retirement plans, which are non-qualified executive benefit plans
in which the Company agrees to pay certain executives additional benefits in the future, usually at retirement, in return
for continued employment by the executives. The SERPs are unfunded plans, and, as such, there are no specific assets
set aside by the Company in connection with the establishment of the plans. The executives have no rights under the
agreements beyond those of a general creditor of the Company. For the years ended March 31, 2020, 2019, and 2018,
contributions of $0.6 million, $0.6 million, and $0.8 million, respectively, were charged to expense related to the SERP.
The unfunded liability, which is included as a component of accounts payable and accrued expenses in the Company's
Consolidated Balance Sheets was $6.8 million and $7.9 million as of March 31, 2020 and 2019, respectively.
For the three years presented, the unfunded liability was estimated using the following assumptions: an annual salary
increase of 3.5% for all 3 years; a discount rate of 6.0% for all 3 years; and a retirement age of 65.
Executive Deferred Compensation Plan
The Company has an Executive Deferral Plan. Eligible executives and directors may elect to defer all or a portion of their
incentive compensation to be paid under the Executive Deferral Plan. As of March 31, 2020 and 2019 no executive or
director had deferred compensation under this plan.
Stock Incentive Plans
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 directors, officers, and key employees. Under these plans, a total of 4,350,000
shares of authorized common stock have been 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 ten 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 March 31, 2020 there were a total of 181,789 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.
Long-term Incentive Program and Non-Employee Director Awards
On October 15, 2018, the Compensation Committee and Board approved and adopted a new long-term incentive program
that seeks to motivate and reward certain employees and to align management’s interest with shareholders’ by focusing
executives on the achievement of long-term results. The program is comprised of four components: Service Options,
Performance Options, Restricted Stock, and Performance Shares.
Pursuant to this program, the Compensation Committee approved certain grants of Service Options, Performance Options,
Restricted Stock and Performance Shares under the World Acceptance Corporation 2011 Stock Option Plan and the
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
World Acceptance Corporation 2017 Stock Incentive Plan to certain employee directors, vice presidents of operations,
vice presidents, senior vice presidents, and executive officers. Separately, the Compensation Committee approved certain
grants of Service Options and Restricted Stock to certain of the Company’s non-employee directors.
Under the long-term incentive program, up to 100% of the shares of restricted stock subject to the Performance Shares
shall vest, if at all, based on the achievement of two trailing earnings per share performance targets established by the
Compensation Committee that are based on earnings per share (measured at the end of each calendar quarter, commencing
with the calendar quarter ending September 30, 2019) for the previous four calendar quarters. The Performance Shares
are eligible to vest over the Performance Share Measurement Period and subject to each respective employee’s continued
employment at the Company through the last day of the applicable Performance Share Measurement Period (or as
otherwise provided under the terms of the applicable award agreement or applicable employment agreement).
The Performance Share performance targets are set forth below.
Trailing 4-Quarter EPS Targets for
September 30, 2018 through March 31, 2025
$16.35
$20.45
Restricted Stock Eligible for Vesting
(Percentage of Award)
40%
60%
The Restricted Stock awards will vest in six equal annual installments, beginning on the first anniversary of the grant
date, subject to each respective employee’s continued employment at the Company through each applicable vesting date
or otherwise provided under the terms of the applicable award agreement or applicable employment agreement.
The Service Options will vest in six equal annual installments, beginning on the first anniversary of the grant date, subject
to each respective employee’s continued employment at the Company through each applicable vesting date or otherwise
provided under the terms of the applicable award agreement or applicable employment agreement. The option price is
equal to the fair market value of the common stock on the grant date and the Service Options shall have a 10-year term.
The Performance Options shall fully vest if the Company attains the trailing earnings per share target over four
consecutive calendar quarters occurring between September 30, 2018 and March 31, 2025 described below. Such
performance target was established by the Compensation Committee and will be measured at the end of each calendar
quarter commencing on September 30, 2019. The Performance Options are eligible to vest over the Option Measurement
Period, subject to each respective employee’s continued employment at the Company through the last day of the Option
Measurement Period or as otherwise provided under the terms of the applicable award agreement or applicable
employment agreement. The option price is equal to the fair market value of the common stock on the grant date and the
Performance Options shall have a 10-year term. The Performance Option performance target is set forth below.
Trailing 4-Quarter EPS Targets for
September 30, 2018 through March 31, 2025
$25.30
Options Eligible for Vesting
(Percentage of Award)
100%
Stock Options
The weighted-average fair value at the grant date for options issued during the years ended March 31, 2020, 2019, and
2018 was $57.69, $53.50, and $39.49 per share, respectively. This fair value was estimated at grant date using the
weighted-average assumptions listed below.
Dividend yield
Expected volatility
Average risk-free interest rate
Expected life
2020
0 %
52.28 %
1.58 %
6.3 years
2019
0 %
48.94 %
3.01 %
6.7 years
2018
0 %
52.97 %
1.98 %
5.0 years
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The expected stock price volatility is based on the historical volatility of the Company’s 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 year ended March 31, 2020 was as follows:
Options outstanding, beginning of year
Granted
Exercised
Forfeited
Expired
Options outstanding, end of period
Options exercisable, end of period
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
85.33
112.54
66.39
99.43
34.75
88.30
75.20
6.50 $
4.41 $
551,175
549,716
Shares
704,240 $
24,171
(69,481)
(10,432)
(1,770)
646,728 $
323,729 $
The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference between
the closing stock price on March 31, 2020 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 March 31, 2020. This
amount will change as the stock's market price changes. The total intrinsic value of options exercised during the periods
ended March 31, 2020, 2019, and 2018 was as follows:
2020
$5,083,094
2019
$4,433,495
2018
$12,336,156
As of March 31, 2020, total unrecognized stock-based compensation expense related to non-vested stock options amounted
to approximately $10.9 million, which is expected to be recognized over a weighted-average period of approximately 4.2
years.
Restricted Stock
During fiscal 2020, the Company granted 11,223 shares of restricted stock (which are equity classified), to certain vice
presidents, senior vice presidents, executive officers, and non-employee directors with a grant date weighted average fair
value of $90.23.
During fiscal 2019, the Company granted 760,420 shares of restricted stock (which are equity classified) to certain
executive officers, with a grant date weighted average fair value of $101.61 per share.
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 vest on each
anniversary of the grant date over the three years following the grant date.
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 $23.4 million, $13.6
million, and $3.1 million for the years ended March 31, 2020, 2019, and 2018, respectively, which is included as a
component of general and administrative expenses in the Company's Consolidated Statements of Operations.
As of March 31, 2020, there was approximately $43.5 million of unrecognized compensation cost related to unvested
restricted stock awards, which is expected to be recognized over the next 3.5 years based on current estimates.
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company’s restricted stock as of March 31, 2020 and changes during the year ended March
31, 2020, are presented below:
Outstanding at March 31, 2019
Granted during the period
Vested during the period
Forfeited during the period
Outstanding at March 31, 2020
Total Stock-Based Compensation
Shares
Weighted Average Fair
Value at Grant Date
783,450 $
11,223
(89,419)
—
705,254 $
100.66
90.23
92.93
—
101.47
Total stock-based compensation included as a component of net income during the years ended March 31, 2020, 2019, and
2018 was as follows:
2020
2019
2018
Stock-based compensation related to equity classified units:
Stock-based compensation related to stock options
Stock-based compensation related to restricted stock
Total stock-based compensation related to equity classified awards
$ 5,522,883
23,429,277
$ 28,952,160
3,991,967
13,643,343
17,635,310
2,353,214
3,081,405
5,434,619
(13) Acquisitions
The Company evaluates each set of assets and activities it acquires to determine if the set meets the definition of a business
according to FASB 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 an asset purchase.
The following table sets forth the acquisition activity of the Company for the years ended March 31, 2020, 2019, and
2018:
2020
2019
2018
Number of branches acquired through business combinations
Number of asset purchases
Total acquisitions
38
140
178
17
88
105
5
34
39
Purchase price
Tangible assets:
Loans receivable, net
Property and equipment
$ 61,555,973 $ 44,145,787 $ 17,574,172
47,026,694
74,000
47,100,694
33,920,847
1,500
33,922,347
15,583,411
3,000
15,586,411
Excess of purchase prices over fair value of net tangible assets
$ 14,455,279 $ 10,223,440 $
1,987,761
Customer lists
Non-compete agreements
Goodwill
$ 13,228,951 $
890,000
336,328
9,688,440 $
535,000
—
815,518
205,000
967,243
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
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allocated to the tangible assets and intangible assets acquired based upon their estimated fair values at the acquisition
date. The remainder is allocated to goodwill.
The following table describes the Company's business combination activity for the year ended March 31, 2020.
Acquiree Name
No.
1 Western Shamrock Corporation (11 branches)
2 Western Shamrock Corporation (7 branches)
3 Western Shamrock Corporation (3 branches)
4 Loyal Loans (7 branches)
5 Courtesy Loans (1 branch)
6 Courtesy Loans (8 branches)
7 Eagle Financial Services (1 branch)
Acquiree State(s)
GA
SC
AL
UT
IL
MO, LA
TN
Date
4/29/2019
5/9/2019
5/14/2019
8/27/2019
8/28/2019
9/6/2019
2/27/2020
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 values at the
acquisition date. In an asset purchase, no goodwill is recorded.
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 FASB 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.
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.
(14) Fair Value
Fair Value Disclosures
The Company may carry certain financial instruments and derivative assets and liabilities 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.
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1 – 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 markets that are less active.
• Level 3 – Unobservable inputs for assets or liabilities reflecting the reporting entity’s own assumptions.
The Company’s financial instruments 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 8 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 considered 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.
March 31, 2020
March 31, 2019
Input Level Carrying Value
Estimated Fair
Value
Carrying Value
Estimated Fair
Value
ASSETS
Cash and cash
t
l
Loans receivable, net
i
LIABILITIES
Senior notes payable
1
3
3
$
11,618,922 $
804,402,786
11,618,922 $
804,402,786
9,335,433 $
755,624,007
9,335,433
755,624,007
451,100,000
451,100,000
251,940,000
251,940,000
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.
ASSETS
Assets held for sale
March 31, 2020
Input Level Carrying Value
Estimated Fair
Value
2
$
3,991,498 $
3,991,498
The Company re-valued its corporate headquarters in Greenville, SC as of March 31, 2020 in conjunction with its
reclassification of the related assets as held for sale. The revaluation resulted in an impairment loss of approximately
$251,000, which is included as a component of other expense in the Company's Consolidated Statements of Operations.
The observable inputs the Company used in its revaluation were the agreed-upon prices to sell the assets.
There were no other significant assets or liabilities measured at fair value on a non-recurring basis as of March 31, 2020
and 2019.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) Quarterly Information (Unaudited)
The following sets forth selected quarterly operating data:
Fiscal 2020
Second Third
First
Fourth
First
Second Third
Fourth
Fiscal 2019
(Dollars in thousands, except for earnings per share data)
Total revenues
Provision for loan losses
General and
administrative expenses
Interest expense
Income tax expense
Income (loss) from
discontinued operations
Net income (loss)
Net income (loss) per
common share:
Basic
Diluted
$ 138,441 141,573 146,996 163,018 122,790 127,116 137,639 156,997
28,533
30,591 40,359
52,968 55,219
41,291
32,252
48,944
81,776
4,403
2,363
78,452 90,558
7,130
6,328
356
1,312
96,707
8,035
2,721
67,777 64,936
4,158
4,225
3,604
4,559
76,964
4,637
834
78,626
4,914
6,984
—
$ 8,608
—
2,513
—
(6,267)
—
23,303
(37,141)
479
(21,503) 14,538
—
6,260
—
37,940
$
$
1.01
0.97
0.32
0.31
(0.87)
(0.87)
3.23
3.18
(2.37)
(2.32)
1.60
1.56
0.69
0.67
4.34
4.22
The Company's highest loan demand occurs generally 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. Consequently, the
Company experiences significant seasonal fluctuations in its operating results and cash needs. Operating results from 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.
(16) Commitments and Contingencies
Mexico Investigation
As previously disclosed, the Company retained outside legal counsel and forensic accountants to conduct an investigation
of its operations in Mexico, focusing on the legality under the 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 addressed 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 voluntarily contacted the SEC and the DOJ in June
2017 to advise both agencies that an internal investigation was underway and that the Company intended to cooperate
with both agencies. The Company has and will continue to cooperate with both agencies. The SEC has issued a formal
order of investigation.
There have been ongoing discussions with the SEC regarding the possible resolution of these matters. The discussions
with the SEC have progressed to a point that the Company can now reasonably estimate a probable loss and has recorded
an aggregate accrual of $21.7 million with respect to the SEC matters as of March 31, 2020. As the discussions with the
SEC are continuing, there can be no assurance that the Company's efforts to reach a final resolution with the SEC will be
successful or, if they are, what the timing or terms of such resolution will be. The Company has no offer of settlement or
resolution with the DOJ at this time. The total amount of the Company’s loss incurred in connection with the investigation
and any resolution thereof, including those amounts which remain subject to approval by the SEC, may be higher than
the amount of the accrual.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 adversely impact our access to debt financing and capital funding and result in further 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 or other laws 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 SEC regarding the matters under
investigation, but the ultimate resolution could be higher than the accrual. Further, in the event that a settlement is reached,
there can be no assurance as to the timing or the terms of any such settlement.
General
In addition, from time to time the Company is involved in litigation matters relating to claims arising out of its operations
in the normal course of business.
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 fines, 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 currently pending legal matters will be material to the Company’s results of operations or
financial conditions. 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.
(17) Assets Held for Sale
In the fourth quarter of fiscal 2020 the Company moved its corporate headquarters from properties it owned outright in
Greenville, SC to leased office space in downtown Greenville, SC. Under ASC 360-10, the properties met the criteria for
classification as held for sale as of March 31, 2020. In conjunction with the classification of the properties as held for
sale, the Company recognized an impairment loss of approximately $251,000, which is included as a component of other
expense in the Company's Consolidated Statements of Operations.
The following table reconciles the major classes of assets held for sale to the amounts presented in the Consolidated
Balance Sheets:
Assets held for sale:
Property and equipment, net
Total assets held for sale
86
March 31, 2020
$
$
3,991,498
3,991,498
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) Discontinued Operations
On August 3, 2018 the Company and its affiliates completed the sale of the Company's Mexico operating segment in its
entirety. The Company sold all of the issued and outstanding capital stock and equity interest of WAC de Mexico and
SWAC to the Purchasers, effective as of July 1, 2018, for a purchase price of approximately $44.36 million. Under the
terms of the stock purchase agreement, we are obligated to indemnify the Purchasers for claims and liabilities relating to
certain investigations of WAC de Mexico, SWAC, or the Sellers by the DOJ or the SEC that commenced prior to July 1,
2018. Additionally, the Company has provided limited ParaData systems and software training to the Purchasers, as
requested. The Company has not and will not have any other involvement with the Mexico operating segment subsequent
to the sale's effective date.
The following table reconciles the major classes of line items constituting pre-tax income (loss) of discontinued operations
to the amounts presented in the Consolidated Statements of Operations:
Revenues
Provision for loan losses
General and administrative expenses
2020
$
Year ended March 31,
2019
9,693,367 $ 46,037,802
1,809,059
13,358,989
5,542,483
28,325,196
— $
—
—
2018
Income from discontinued operations before disposal of
discontinued operations and income taxes
Gain (loss) on disposal of discontinued operations
Income taxes (benefit)
Income (loss) from discontinued operations
2,341,825
(38,377,623)
626,583
—
—
—
— $ (36,662,381) $
4,353,617
—
(243,321)
4,596,938
$
The following table presents operating, investing and financing cash flows for the Company’s discontinued operations:
2020
Year ended March 31,
2019
2018
Cash provided by operating activities:
Cash provided by (used in) investing activities:
Cash provided by (used in) financing activities:
$
$
— $
—
— $
3,553,854 $
1,138,084
(17,126,000) $
19,511,343
(3,649,778)
—
(19) Subsequent Events
COVID-19 Pandemic
The COVID-19 pandemic has caused significant economic disruption in the United States as many state and local governments,
including all of the states in which we operate, have ordered non-essential businesses to close and residents to shelter in place
at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since
the COVID-19 pandemic, more than 30 million people have filed claims for unemployment, and stock markets have
significantly declined in value.
For the majority of states in which we operate, we are considered to be an essential business. However, the spread of COVID-
19 has caused us to modify our business practices, including limiting branch hours and employee travel, implementing work-
from-home initiatives for employees when possible, and cancelling physical participation in meetings and training sessions.
On March 27, 2020, the U.S. Congress passed the CARES Act, which provided several forms of economic relief designed to
defray the impact of COVID-19. In subsequent weeks, the Company experienced a decrease in loan applications. The extent
to which COVID-19 may impact our financial condition or results of operations is uncertain.
In April 2020, the Company began deferring loan payments for some of its customers.
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company evaluated its March 31, 2020 consolidated financial statements for subsequent events through the date the
consolidated financial statements were issued. As a result of the spread of COVID-19 and the response of government
authorities, economic uncertainties have arisen which are likely to negatively impact our operational and financial performance.
The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments,
including the duration and spread of the outbreak and impact on our customers, employees and the markets in which we operate,
all of which are uncertain and cannot be predicted.
Management is not aware of any other significant events occurring subsequent to the balance sheet date that would have a
material effect on the financial statements thereby requiring adjustment or disclosure.
88
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a
– 15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of internal control over financial
reporting as of March 31, 2020. Our assessment was based on criteria established in the Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Our internal control over financial reporting is a process designed 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. Our internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and
dispositions of our assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and board of directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition
of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, any
assumptions regarding internal control over financial reporting in future periods based on an evaluation of effectiveness in a
prior period are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Based on using the COSO criteria, we believe our internal control over financial reporting as of March 31, 2020 was effective.
Our independent registered public accounting firm has audited the Consolidated Financial Statements included in this Annual
Report and has issued an attestation report on the effectiveness of our internal control over financial reporting, as stated in their
report.
By: /s/ R. Chad Prashad
R. Chad Prashad
President and Chief Executive Officer
Date: May 29, 2020
By: /s/ John L. Calmes, Jr.
John L. Calmes, Jr.
Executive Vice President and Chief Financial and
Strategy Officer
Date: May 29, 2020
89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of World Acceptance Corporation and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of World Acceptance Corporation and its subsidiaries (the
Company) as of March 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period ended March 31, 2020, and the related notes to the
consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of March 31, 2020 and 2019, and the results of its operations
and its cash flows for each of the three years in the period ended March 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of March 31, 2020, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013, and our report dated May 29, 2020 expressed an unqualified opinion on the effectiveness of
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on
the accounts or disclosures to which they relate.
Allowance for Loan Losses
As described in Notes 1 and 2 to the consolidated financial statements, the Company established an allowance for loan losses
of $96.5 million as of March 31, 2020, which was estimated using quantitative and qualitative factors. The Company’s general
reserve is 4.25% of the gross loan portfolio and the specific reserve represents 100% of the gross loan balance of all loans 91
days or more days past due on a recency basis, including bankrupt accounts in that category. Management considered the
adequacy of the allowance for loan losses by evaluating growth of the loan portfolio, current levels of charge-offs, current
levels of delinquencies, and current economic factors. Additionally, management uses a recency movement model which
considers the rolling twelve months of delinquency on the basis of the date of last payment made by the customer to determine
expected charge-offs, which is compared to the allowance to determine if any adjustments are needed. Management utilizes
significant judgment in determining probable incurred losses and in identifying and evaluating qualitative factors.
We identified the Company’s allowance for loan losses as a critical audit matter as auditing management’s judgments and
qualitative factors regarding the allowance for loan losses requires a high degree of auditor judgment and increased extent of
audit effort.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our audit procedures related to the Company’s allowance for loan losses include the following, among others:
• We obtained an understanding of the relevant controls related to the allowance for loan losses, and tested such controls
for design and operating effectiveness including those controls over (a) validation of data within movement model (on
a recency basis), (b) loan charge-off activity, and (c) the management review and approval of the computed allowance
for loan losses;
• We tested the completeness and accuracy of data inputs into the recency movement model.
• We evaluated the Company’s ability to estimate losses by comparing historical estimates with actual loss experience.
• We evaluated the reasonableness of management’s delinquency amounts used within the recency movement model
by performing the following procedures:
◦ Testing the loan system’s recency aging calculation on a sample of loans.
◦ Analytically reviewing delinquency trends.
• We evaluated the appropriateness of the general and specific reserve by testing the mathematical accuracy of the
quantitative calculations used by the Company.
• We evaluated key assumptions and qualitative factors identified by the Company for reasonableness by comparing to
internal and external sources.
/s/ RSM US LLP
We have served as the Company's auditor since 2014.
Las Vegas, Nevada
May 29, 2020
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of World Acceptance Corporation and subsidiaries
Opinion on the Internal Control Over Financial Reporting
We have audited World Acceptance Corporation and subsidiaries’ (the Company) internal control over financial reporting as
of March 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of March 31, 2020, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of March 31, 2020 and 2019 and the related consolidated
statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period
ended March 31, 2020, and our report dated May 29, 2020 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and directors of the
Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Las Vegas, Nevada
May 29, 2020
92
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
The Company had no disagreements on accounting or financial disclosure matters with its independent registered public
accounting firm to report under this Item 9.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer, as
of the end of the period covered by this report, our principal executive officer and principal financial officer 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 our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.
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
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.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the reliability of our
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
Management assessed our internal control over financial reporting as of March 31, 2020, the end of our fiscal year. Management
based its assessment on criteria established in the Internal Control-Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included evaluation of elements
such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies,
and our overall control environment.
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the
end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with GAAP. Management’s Report on Internal Control over
Financial Reporting is included in Part II, Item 8 of this Form 10-K. We reviewed the results of management’s assessment with
the Audit Compliance Committee of our Board of Directors.
Our independent registered public accounting firm, RSM US LLP, independently assessed the effectiveness of the Company’s
internal control over financial reporting. RSM US LLP has issued an attestation report concurring with management’s
assessment, which is included at the end of Part II, Item 8 of this Form 10-K.
Inherent Limitations on Effectiveness of Controls
Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems,
no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the
controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
93
Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may
become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Item 9B.
Other Information
None.
PART III.
Item 10.
Directors, Executive Officers and Corporate Governance
Information contained under the captions “Proposal 1 - Election of Directors,” “Corporate Governance,” “Delinquent Section
16(a) Reports” in the Proxy Statement is incorporated herein by reference in response to this Item 10. The information in
response to this Item 10 regarding the executive officers of the Company is contained in Item 1, Part I hereof under the caption
“Information about our Executive Officers.”
Item 11.
Executive Compensation
Information contained under the captions “Corporate Governance,” “Executive Compensation,” “Director Compensation,” and
“Compensation Discussion and Analysis” in the Proxy Statement is incorporated herein by reference in response to this Item
11. The “Report of the Compensation Committee” in the Proxy Statement, which shall be deemed furnished, but not filed
herewith, is incorporated herein by reference in response to this Item 11.
Item 12.
Security Ownership of Certain Beneficial Owners, Management and Related Stockholder Matters
Information contained under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity
Compensation Plan Information” in the Proxy Statement is incorporated by reference herein in response to this Item 12.
For additional information on our stock option plans, see Note 12 in the Notes to Consolidated Financial Statements for the
year ended March 31, 2020.
Item 13.
Certain Relationships and Related Transactions and Director Independence
Information contained under the captions “Certain Relationships and Related Person Transactions” and “Corporate
Governance” in the Proxy Statement is incorporated by reference in response to this Item 13.
Item 14.
Principal Accountant Fees and Services
Information contained under the caption “Proposal 3 - Ratification of Appointment of Independent Registered Public
Accounting Firm” in the Proxy Statement is incorporated by reference in response to this Item 14.
PART IV.
Item 15.
Exhibits and Financial Statement Schedules
(a)(1) The following Consolidated Financial Statements of the Company and Report of Independent Registered
Public Accounting Firm are filed as part of this Annual Report under Item 8.
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 2020 and 2019
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Consolidated Statements of Operations for the fiscal years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the fiscal years ended March 31, 2020,
2019, and 2018
Consolidated Statements of Shareholders' Equity for the fiscal years ended March 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
(a)(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under
the related instructions, are inapplicable, or the required information is included elsewhere in the Consolidated
Financial Statements.
(a)(3) Exhibits
The list of exhibits filed as a part of this Form 10-K is set forth on the Exhibit Index immediately preceding the signatures to
this Form 10-K and is incorporated by reference in this Item 15(a)(3).
(b)
Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report on Form 10-K.
(c)
Separate Financial Statements and Schedules
Financial statement schedules have been omitted since the required information is included in our Consolidated Financial
Statements contained in Item 8 of this Annual Report on Form 10-K.
Item 16.
Form 10-K Summary
None.
95
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
WORLD ACCEPTANCE CORPORATION
By: /s/ R. Chad Prashad
R. Chad Prashad
President and Chief Executive Officer
Date: May 29, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/ R. Chad Prashad
R. Chad Prashad
President and Chief Executive Officer
Signing on behalf of the registrant and as principal
executive officer
/s/ John L. Calmes, Jr.
John L. Calmes, Jr.
Executive Vice President and Chief Financial and Strategy
Officer
Signing on behalf of the registrant and as principal financial
officer
Date: May 29, 2020
Date: May 29, 2020
/s/ Scott McIntyre
Scott McIntyre
Senior Vice President of Accounting
Signing on behalf of the registrant and as principal
accounting officer
Date: May 29, 2020
/s/ Ken R. Bramlett, Jr.
Ken R. Bramlett, Jr.
Chairman of the Board of Directors and a Director
/s/ Scott J. Vassalluzzo
Scott J. Vassalluzzo
Director
Date: May 29, 2020
Date: May 29, 2020
/s/ Charles D. Way
Charles D. Way
Director
/s/ Darrell Whitaker
Darrell Whitaker
Director
Date: May 29, 2020
Date: May 29, 2020
96
BOARD OF DIRECTORS
Ken R. Bramlett Jr.
Private Investor
Darrell E. Whitaker
President and Chief Operating Officer
IMI Resort Holdings, Inc.
R. Chad Prashad
President and Chief Executive Officer
World Acceptance Corporation
CORPORATE OFFICERS
R. Chad Prashad
President and Chief Executive Officer
John L. Calmes, Jr.
Executive Vice President, Chief Financial and Strategy
Officer and Treasurer
D. Clinton Dyer
Executive Vice President, Chief Branch Operations Officer
Luke J. Umstetter
Senior Vice President, Secretary and General Counsel
Scott McIntyre
Senior Vice President, Accounting
A. Lindsay Caulder
Senior Vice President, Human Resources
Jason E. Childers
Senior Vice President, Information Technology
Chris M. Simonetti
Senior Vice President, Strategy and Analytics
Charles D. Way
Private Investor
Scott J. Vassalluzzo
Managing Member
Prescott General Partners LLC
Zachary W. Denton
Vice President, Predictive Analytics
Robert D. Edwards
Vice President, Operations Performance
Brian D. Hoff
Vice President, IT Business Applications
Keith T. Littrell
Vice President, Tax and Assistant Secretary
Victoria G. Hammond
Vice President, Marketing
Thomas M. Wagner, Jr.
Vice President, Customer Success
Jackie C. Willyard
Senior Vice President, Southeastern Division
Jeff L. Tinney
Senior Vice President, Western Division
97
Common Stock
Executive Offices
World Acceptance Corporation’s common stock trades on
the Nasdaq Global Select Market under the symbol: WRLD.
As of July 7, 2020, there were 30 shareholders of record and
the Company believes there are a significant number of
persons or entities who hold their stock in nominee or “street”
names through various brokerage firms. On this date, there
were 7,417,863 shares of common stock outstanding.
The table below reflects the stock prices published by Nasdaq
by quarter for the last two fiscal years. The last reported sales
price on July 7, 2020 was $64.75.
Market Price of Common Stock
Fiscal 2020
Quarter
High
Low
First
Second
Third
Fourth
$ 166.70
175.78
133.98
93.04
$ 115.10
119.23
84.56
50.70
Fiscal 2019
Quarter
High
Low
First
Second
Third
Fourth
$
125.13
125.14
114.39
124.46
$
100.05
99.90
89.78
99.90
World Acceptance Corporation
Post Office Box 6429 (29606)
100 South Main Street, Suite 400 (29601)
Greenville, South Carolina
(864) 298-9800
Transfer Agent
American Stock Transfer & Trust Company
10150 Mallard Creek Drive, Suite 307
Charlotte, North Carolina 28262
(718) 921-8522
Legal Counsel
Womble Bond Dickinson (US) LLP
550 South Main Street, Suite 400
Greenville, SC 29601
Independent Registered Public Accounting
Firm
RSM US LLP
1201 Edwards Mill Road, Suite 300
Raleigh, North Carolina 27607
Annual Report on Form 10-K
A copy of the Company’s Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission, may be
obtained without charge by writing to the Corporate
Secretary at the executive offices of the Company. In
addition to the copy contained herein, the Form 10-K can also
be reviewed or downloaded from the Company’s website:
http://www.loansbyworld.com.
The Company has never paid a dividend on its Common
Stock. The Company presently intends to retain its earnings
to finance the growth and development of its business and
does not expect to pay cash dividends in the foreseeable
future. The Company’s debt agreements also contain certain
limitations on the Company’s ability to pay dividends.
For Further Information
R. Chad Prashad
President and Chief Executive Officer
World Acceptance Corporation
(864) 298-9800
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World Acceptance Corporation2020 Annual ReportPhoto: VisitGreenvilleSC/Dread Xeppelin Aerial