UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT of 1934
For the transition period from to
---------------------- ---------------------
Commission File Number: 0-19599
WORLD ACCEPTANCE CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter.)
South Carolina 57-0425114
--------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
108 Frederick Street
Greenville, South Carolina 29607
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(864) 298-9800
----------------------------------------------------
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period than the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date, February 9, 2000.
Common Stock, no par value 19,025,573
- ------------------------------ ----------------------
(Class) (Outstanding)
1
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets as of December 31,
1999, and March 31, 1999 3
Consolidated Statements of Operations for the
three-month periods and nine-month periods ended
December 31, 1999, and December 31, 1998 4
Consolidated Statements of Shareholders' Equity
for the year ended March 31, 1999, and the nine-month
period ended December 31, 1999 5
Consolidated Statements of Cash Flows for the three-month periods
and nine-month periods ended December 31, 1999, and
December 31, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the three-month
periods and nine-month periods ended December 31, 1999,
and December 31, 1998 8
Item 3. Quantitive and Qualitative Disclosures about market risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 16
2
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1999 1999
------------- ---------
ASSETS (Unaudited)
Cash $ 3,027,347 1,236,207
Gross loans receivable 182,899,686 149,570,861
Less:
Unearned interest and fees (41,184,665) (32,231,831)
Allowance for loan losses (10,465,721) (8,769,367)
-------------- --------------
Loans receivable, net 131,249,300 108,569,663
Property and equipment, net 6,761,016 6,299,662
Other assets, net 8,281,177 7,536,987
Intangible assets, net 10,040,929 9,827,885
------------ -------------
$ 159,359,769 133,470,404
============ ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable 90,250,000 71,150,000
Other note payable 482,000 482,000
Income taxes payable 292,950 1,940,091
Accounts payable and accrued expenses 4,839,399 5,206,483
---------- -------------
Total liabilities 95,864,349 78,778,574
------------ -------------
Shareholders' equity:
Common stock, no par value - -
Additional paid-in capital 968,666 935,921
Retained earnings 62,526,754 53,755,909
------------ -------------
Total shareholders' equity 63,495,420 54,691,830
------------ -------------
$ 159,359,769 133,470,404
============ =============
See accompanying notes to consolidated financial statements.
3
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
December 31, December 31,
------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Interest and fee income $ 22,701,793 20,784,775 64,728,962 58,524,057
Insurance and other income 4,228,754 3,051,166 12,041,417 7,727,586
------------ ------------- ------------ -------------
Total revenues 26,930,547 23,835,941 76,770,379 66,251,643
------------ ------------- ------------ -------------
Expenses:
Provision for loan losses 5,540,330 4,261,642 13,152,128 9,733,276
------------ ------------- ------------ -------------
General and administrative expenses:
Personnel 9,605,213 9,013,178 29,111,530 26,965,675
Occupancy and equipment 1,745,307 1,629,300 5,154,222 4,821,281
Data processing 387,004 344,975 1,117,031 1,065,645
Advertising 1,660,173 1,643,864 3,226,004 3,376,122
Legal 175,451 98,288 352,421 5,785,468
Amortization of intangible assets 378,153 335,007 1,092,756 962,084
Other 1,934,255 1,947,729 5,855,837 5,656,821
------------ ------------- ------------ -------------
15,885,556 15,012,341 45,909,801 48,633,096
------------ ------------- ------------ -------------
Interest expense 1,582,876 1,456,033 4,401,605 4,083,371
------------ ------------- ------------ -------------
Total expenses 23,008,762 20,730,016 63,463,534 62,449,743
------------ ------------- ------------ -------------
Income before income taxes 3,921,785 3,105,925 13,306,845 3,801,900
Income taxes 1,336,000 1,052,000 4,536,000 1,285,000
------------ ------------- ------------ -------------
Net income $ 2,585,785 2,053,925 8,770,845 2,516,900
============ ============= ============ =============
Net income per common share:
Basic $ .14 .11 .46 .13
============ ============= ============ =============
Diluted $ .14 .11 .46 .13
============ ============= ============ =============
Weighted average common shares outstanding:
Basic 19,019,703 19,016,573 19,017,616 19,008,861
============ ============= ============ =============
Diluted 19,140,205 19,181,261 19,177,901 19,206,356
============ ============= ============ =============
See accompanying notes to consolidated financial statements.
4
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Additional
Paid-in Retained
Capital Earnings Total
----------- --------- --------
Balances at March 31, 1998 $ 864,968 46,436,312 47,301,280
Proceeds from exercise of stock options (18,000 shares),
including tax benefit of $18,453 70,953 - 70,953
Net income - 7,319,597 7,319,597
----------- ------------ -----------
Balances at March 31, 1999 $ 935,921 53,755,909 54,691,830
----------- ---------- ----------
Proceeds from exercise of stock options (9,000 shares),
including tax benefit of $6,495 32,745 - 32,745
Net income for the nine months - 8,770,845 8,770,845
----------- ------------ -----------
Balances at December 31, 1999 $ 968,666 62,526,754 63,495,420
=========== ========== ==========
See accompanying notes to consolidated financial statements.
5
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended Nine months ended
December 31, December 31,
-------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Cash flows from operating activities:
Net income $ 2,585,785 2,053,925 8,770,845 2,516,900
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 5,540,330 4,261,642 13,152,128 9,733,276
Amortization of intangible assets 378,153 335,007 1,092,756 962,084
Amortization of loan costs and discounts 24,076 29,524 73,918 90,217
Depreciation 390,039 344,058 1,095,649 1,054,302
Change in accounts:
Other assets, net (156,588) 104,880 (818,108) 19,960
Income taxes payable (562,970) 1,736,291 (1,640,646) -
Accounts payable and accrued expenses 547,655 (719,341) (367,084) 2,849,046
----------- ------------ ------------ -----------
Net cash provided by operating activities 8,746,480 8,145,986 21,359,458 17,225,785
----------- ----------- ----------- -----------
Cash flows from investing activities:
Increase in loans, net (18,234,709) (18,969,750) (32,608,353) (30,206,973)
Net assets acquired from office acquisitions,
primarily loans (706,473) (2,655,063) (3,256,510) (3,640,338)
Purchases of premises and equipment (357,464) (314,100) (1,523,905) (1,315,177)
Purchases of intangible assets (185,000) (895,298) (1,305,800) (1,272,748)
----------- ----------- ----------- -----------
Net cash used by investing activities (19,483,646) (22,834,211) (38,694,568) (36,435,236)
----------- ----------- ------------ -----------
Cash flows from financing activities:
Proceeds of senior notes payable, net 16,200,000 18,900,000 23,100,000 23,450,000
Repayment of senior term notes (4,000,000) (4,000,000) (4,000,000) (4,000,000)
Proceeds from exercise of stock options 26,250 - 26,250 52,500
----------- ----------- ----------- -----------
Net cash provided by financing activities 12,226,250 14,900,000 19,126,250 19,502,500
----------- ----------- ----------- -----------
Increase in cash 1,489,084 211,775 1,791,140 293,049
Cash, beginning of period 1,538,263 1,293,885 1,236,207 1,212,611
----------- ----------- ----------- -----------
Cash, end of period $ 3,027,347 1,505,660 3,027,347 1,505,660
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 1,226,879 1,474,498 4,075,510 4,248,206
Cash paid for income taxes 1,898,970 295,500 6,176,646 4,048,885
Supplemental schedule of noncash financing activities:
Tax benefits from exercise of stock options 6,495 - 6,495 18,453
See accompanying notes to consolidated financial statements.
6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of the Company at December 31, 1999,
and for the periods then ended were prepared in accordance with the instructions
for Form 10-Q and are unaudited; however, in the opinion of management, all
adjustments (consisting only of items of a normal recurring nature) necessary
for a fair presentation of the financial position at December 31, 1999, and the
results of operations and cash flows for the three and nine-month periods then
ended, have been included. The results for the three and nine-month periods
ended December 31, 1999, are not necessarily indicative of the results that may
be expected for the full year or any other interim period.
These consolidated financial statements do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the Company's audited financial statements and related notes
for the year ended March 31, 1999, included in the Company's 1999 Annual Report
to Shareholders.
NOTE 2 - COMPREHENSIVE INCOME
The Company applies the provision of Financial Accounting Standards Board's
(FASB) Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting
Comprehensive Income." The Company has no items of other comprehensive income;
therefore, net income equals comprehensive income.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
The following is a summary of the changes in the allowance for loan losses
for the periods indicated (unaudited):
Three months Nine months
ended December 31, ended December 31,
--------------------------- --------------------------
1999 1998 1999 1998
---- ---- ---- ----
Balance at beginning of period $ 9,602,961 8,908,102 8,769,367 8,444,563
Provision for loan losses 5,540,330 4,261,642 13,152,128 9,733,276
Loan losses (5,046,411) (3,450,666) (12,518,389) (8,930,531)
Recoveries 332,346 317,770 975,775 972,288
Allowance on acquired loans,
net of specific charge-offs 36,495 38,467 86,840 (144,281)
----------- ---------- ----------- -----------
Balance at end of period $ 10,465,721 10,075,315 10,465,721 10,075,315
=========== ========== ========== ==========
7
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain information derived from the
Company's consolidated statements of operations and balance sheets, as well as
operating data and ratios, for the periods indicated (unaudited):
Three months Nine months
ended December 31, ended December 31,
------------------ --------------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Average gross loans receivable (1) $ 169,244 150,585 161,532 141,326
Average loans receivable (2) 130,663 116,578 124,930 109,938
Expenses as a % of total revenue:
Provision for loan losses 20.6% 17.9% 17.1% 14.7%
General and administrative (3) 59.0% 63.0% 59.8% 73.4%
Total interest expense 5.9% 6.1% 5.7% 6.2%
Operating margin (4) 20.4% 19.1% 23.1% 11.9%
Return on average assets (annualized) 6.8% 6.1% 8.1% 2.6%
Offices opened or acquired, net 5 9 25 23
Total offices (at period end) 404 383 404 383
- ----------
(1) Average gross loans receivable have been determined by averaging month-end
gross loans receivable over the indicated period.
(2) Average loans receivable have been determined by averaging month-end gross
loans receivable less unearned interest and deferred fees over the
indicated period.
(3) Includes $5.4 million charge for a legal settlement for the nine-month
period ended December 31, 1998. Excluding this one time charge, the ratio
would have been 65.3% for the nine-month period.
(4) Operating margin is computed as total revenues less provision for loan
losses and general and administrative expenses, as a percentage of total
revenues. Excluding the $5.4 million charge for the legal settlement, the
operating margin for the nine-month period ended December 31, 1998 would
have been 20.1%.
Comparison of Three Months Ended December 31, 1999, Versus
Three Months Ended December 31, 1998
Net income amounted to $2.6 million for the three months ended December 31,
1999, a 25.9% increase over the $2.1 million earned during the corresponding
three-month period of the previous year. This increase resulted from an increase
in operating income (revenues less provision for loan losses and general and
administrative expenses) of $943,000 , or 20.7% offset by an increase in
interest expense and income taxes.
Interest and fee income for the quarter ended December 31, 1999, increased
by $1.9 million, or 9.2%, over the same period of the prior year. This increase
resulted primarily from the $14.1 million increase, or 12.1%, in average loans
receivables over the two corresponding periods. The increase in interest and
fees was slightly less than the increase in average balances outstanding due to
a slight reduction in the overall yield in the loan portfolio, which was due to
lower interest rates charged on larger loans made in select offices of the
Company. Insurance commissions and other income increased by $1.2 million, or
38.6%, when comparing the two quarterly periods. Insurance commissions increased
by $678,000, or 46.0%, primarily due to the growth in the larger loan portfolio,
which generally has various credit related insurance products offered in
conjunction with these loans. Other income increased by 31.7% primarily as a
result of improved performance from the ParaData subsidiary, whose gross profit
increased from $483,000 for the quarter ended December 31, 1998, to $914,000
during the most recent quarter.
8
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Total revenues rose to $26.9 million during the quarter ended December 31,
1999, a 13.0% increase over the $23.8 million in total revenues for the same
quarter of the prior year. Revenues from the 346 offices open throughout both
three-month periods increased by approximately 6.2%. At December 31, 1999, the
Company had 404 offices in operation, a net increase of 5 offices during the
current quarter, and 25 offices since the beginning of the fiscal year.
The provision for loan losses amounted to $5.5 million during the quarter
ended December 31, 1999, representing a 30.0% increase over the $4.3 million
during the same quarter of the prior fiscal year. The increase resulted
primarily from increased levels of net loans charged off. During the quarter
ended December 31, 1999, net charge-offs as a percentage of average net loans
increased to 14.4% on an annualized basis from 10.7% from the corresponding
quarter of the prior year. Although the Company's management remains concerned
over the rise in the level of charge-offs and continues to focus on strict
adherence to the Company's lending and collection guidelines and policies by all
branch personnel, there can be no assurance that this trend will not continue,
or that earnings will not be negatively affected as a result in future quarters.
General and administrative expenses for the quarter ended December 31,
1999, increased by $873,000, or 5.8%, over the same quarter of fiscal 1999. This
increase resulted primarily from the additional expenses associated with the 29
new offices opened or acquired between December 31, 1998, and December 31, 1999.
During the same 12-month period, the Company has also sold or merged 8 offices
with other existing offices. These were offices that had not grown as expected
to a profitable size within a reasonable period of time. As a percentage of
total revenues, total general and administrative expenses decreased from 63.0%
for the quarter ended December 31, 1998, to 59.0% for the most recent quarter.
Additionally, excluding the expenses associated with ParaData, overall general
and administrative expenses when divided by the average open offices decreased
by .3% when comparing the two periods.
Interest expense increased by $127,000, or 8.7%, when comparing the two
corresponding quarterly periods. This increase resulted from an increase in the
level of debt, which grew from $83.6 million at December 31, 1998, to $90.7
million at December 31, 1999.
Comparison of Nine Months Ended December 31, 1999,
Versus Nine Months Ended December 31, 1998
For the nine-month period ended December 31, 1999, net income amounted to
$8.8 million. The results for the prior year period were greatly affected by an
accrual for legal expenses resulting from a settlement of certain litigation
(see Legal Proceedings). Excluding the effects of this $5.4 million legal
settlement and related income tax benefit, net income amounted to $6.0 million
for the nine-month period ended December 31, 1998. This represents a $2.8
million, or 47.0% increase over the two corresponding nine-month periods.
Operating income, excluding the prior year legal settlement, increased by $4.4
million, or 33.3%, over the two periods. This increase was offset by increases
in both interest expense and income taxes.
Total revenues amounted to $76.8 million during the current nine-month
period, an increase of $10.5 million, or 15.9%, over the prior-year period. This
increase resulted from an increase in interest and fee income of 10.6% combined
with an increase in insurance and other income of 55.8%. Revenues from the 346
offices open throughout both nine-month periods increased approximately 9.3%.
Interest and fee income rose by $6.2 million, or 10.6%, during the two
corresponding nine-month periods primarily as a result of increases in loan
balances outstanding. Average loans receivable were $124.9 million during the
nine months ended December 31, 1999, representing a 13.6% increase over the
average balances of the prior year. Other income increased by 55.8% due to
increased insurance commissions, as well as increased gross profits from
ParaData ($1.7 million or 123%).
The provision for loan losses increased by $3.4 million, or 35.1%, during
the current nine-month period when compared to the same period of fiscal 1999.
This increase is due primarily to the increased level of loan charge-offs
experienced during recent quarters. As a percentage of average loans receivable,
net charge-offs on an annualized basis increased from 9.7% for the nine-months
ended December 31, 1998 to 12.3% for the most recent nine-month period.
Addressing this rise in loan losses remain a high priority within the Company,
but should this trend continue, earnings will be adversely affected in future
quarters.
9
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
General and administrative expenses, excluding the legal settlement from
the prior year period, increased by $2.7 million, or 6.2%, during the most
recent nine-month period. As a percentage of total revenues, these expenses
decreased from 65.3% during the prior year nine-month period to 59.8% during the
current period. The Company's expense ratios have benefited from the merger or
sale of eight unprofitable offices during the year, as well as excellent same
office revenue growth during the current fiscal year. Excluding the expenses
associated with ParaData, overall general and administrative expenses, when
divided by the average open offices, increased by only .1% when comparing the
two nine-month periods.
Interest expense increased by $318,000 when comparing the two nine-month
periods, an increase of 7.8%. This increase reflects the 8.5% increase in the
level of debt outstanding when comparing the two December period ending dates.
The effective income tax rate increased slightly during the current
nine-month period to 34.1% from 33.8% for the prior year period primarily as a
result of the legal settlement in the prior period.
Liquidity and Capital Resources
The Company's primary sources of funds are cash flow from operations and
borrowings under its revolving credit agreement. The Company's primary ongoing
cash requirements are funding the opening and operation of new offices, funding
overall growth of loans outstanding (including acquisitions), the repurchase of
its common stock and the repayment of existing debt.
The Company has a $85.0 million revolving credit agreement, and $10.0
million of subordinated notes.
The revolving credit facility expires on September 30, 2001, and bears
interest, at the Company's option, at the agent's prime rate or LIBOR plus
1.60%. At December 31, 1999, the interest rate under the facility was 8.03%, and
the Company's outstanding balance was $80.25 million, leaving $4.75 million in
borrowing availability under existing borrowing base limitations (based on
eligible loans receivable).
The subordinated notes provide for interest payments to be made quarterly
at a fixed rate of 10.0%. Annual principal payments of $2.0 million will be due
beginning June 1, 2000, with a final maturity date of June 1, 2004.
Borrowings under the revolving credit agreement, the senior term notes, and
the subordinated notes are secured by a lien on substantially all the tangible
and intangible assets of the Company and its subsidiaries pursuant to various
security agreements.
The Company believes that cash flow from operations and borrowings under
its revolving credit facility will be adequate to fund the principal payments
due under the subordinated notes and to fund any anticipated common stock
repurchases, as well as funding the expected costs of opening and operating new
offices, including funding initial operating losses of new offices, and funding
loans receivable originated by those offices and the Company's other offices.
Inflation
The Company does not believe that inflation has a material adverse effect
on its financial condition or results of operations. The primary impact of
inflation on the operations of the Company is reflected in increased operating
costs. While increases in operating costs would adversely affect the Company's
operations, the consumer lending laws of three of the six states in which the
Company currently operates allow indexing of maximum loan amounts to the
Consumer Price Index. These provisions will allow the Company to make larger
loans at existing interest rates, which could partially offset the effect of
inflationary increases in operating costs.
10
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Quarterly Information and Seasonality
The Company's loan volume and corresponding loans receivable follow
seasonal trends. The Company's highest loan demand occurs each year from October
through December, its third fiscal quarter. Loan demand is generally the lowest
and loan repayment is highest from January to March, its fourth fiscal quarter.
Loan volume and average balances remain relatively level during the remainder of
the year. This seasonal trend causes fluctuations in the Company's cash needs
and quarterly operating performance through corresponding fluctuations in
interest and fee income and insurance commissions earned, since unearned
interest and insurance income are accreted to income on a collection method.
Consequently, operating results for the Company's third fiscal quarter are
significantly lower than in other quarters and operating results for its fourth
fiscal quarter are generally higher than in other quarters.
11
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Forward-Looking Information
This report on Form 10-Q, including "Management's Discussion and Analysis
of Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management.
Specifically, management's statements of expectations with respect to the
litigation described below in "Legal Proceedings," may be deemed forward-looking
statements. When used in this document, the words "anticipate," "estimate,"
"expect," and similar expressions may identify forward-looking statements.
Although the Company believes that the expectations reflected in any such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the Company's actual financial results, performance or financial condition may
vary materially from those anticipated, estimated or expected. Among the key
factors that could cause the Company's actual financial results, performance or
condition to differ from the expectations expressed or implied in such
forward-looking statements are the following: changes in interest rates; risks
inherent in making loans, including repayment risks and value of collateral;
recently-enacted or proposed legislation; the occurrence of non-filing claims at
historical levels in circumstances validated by the Settlement; the timing and
amount of revenues that may be recognized by the Company; changes in current
revenue and expense trends (including trends affecting charge-offs); changes in
the Company's markets and general changes in the economy (particularly in the
markets served by the Company); the unpredictable nature of litigation; and
other matters discussed in this Report and the Company's other filings with the
Securities and Exchange Commission.
The Company is a party to certain legal proceedings. See Part II, Item 1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's outstanding debt under its revolving credit facility
was $80.25 million at December 31, 1999. Interest on borrowings under
this facility is based, at the Company's option, on the prime rate or
LIBOR plus 1.60%. Based on the outstanding balance at December 31,
1999, a change of 1% in the interest rate would cause a change in
interest expense of approximately $802,500 on an annual basis.
12
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Since April 1995, the Company and several of its subsidiaries have
been parties to litigation challenging the Company's non-filing
insurance practices. Non-filing insurance is an insurance product
that lenders like the Company can purchase in lieu of filing a UCC
financing statement covering the collateral of their borrowers. The
litigation against the Company was consolidated with other litigation
against other finance companies, jewelry and furniture retailers, and
insurance companies in a purported nationwide class action in the
U.S. District Court in Alabama under the caption In re: Consolidated
"Non-filing Insurance" Fee Litigation (Multidistrict Litigation
Docket No. 1130), U.S. District Court, Middle District of Alabama,
Northern Division). On November 11, 1998, the Company and its
subsidiaries named in this action entered into a settlement agreement
(the "Settlement"). Pursuant to the Settlement, the Company agreed to
settle all claims alleged in the litigation involving it and its
subsidiaries for an aggregate cash payment of $5 million, which was
funded in the fourth quarter of fiscal 1999. In addition, the terms
of the Settlement will curtail certain non-filing practices by the
Company and its subsidiaries and allows the court to approve criteria
defining those circumstances in which the Company's subsidiaries can
make non-filing insurance claims going forward. As a result of the
Settlement, non-filing insurance fees charged to borrowers will be
reduced by 25%. The Settlement, which includes the settlement by
several other defendants in the litigation, including the Company's
insurer, was approved by the court on July 16, 1999, as fair and
reasonable to the plaintiff class.
The Company is named as a defendant in an action, TURNER V. WORLD
ACCEPTANCE CORP. ET. AL., filed May 20, 1997, in the Fourteenth
Judicial District, Tulsa County, Oklahoma (CJ-97-1921), hereinafter
referred to as the "Tulsa Case." The Company is also a co-plaintiff
in an action, INDEPENDENT FINANCE INSTITUTE, ET. AL., filed February
27, 1997, in the District Court of Oklahoma County, Oklahoma
(CJ-97-1394) hereinafter referred to as the "Administrator's Case."
The Tulsa Case challenges the validity of the Oklahoma Consumer
Credit Code (OCCC) provisions under which the Company operates and
alleges that the Company and other consumer finance defendants have
collected excess finance charges in connection with refinanced loans.
In the Administrator's Case, the Company and other members of the
consumer finance industry sought a declaratory judgement invalidating
and enjoining the application of an opinion by the Oklahoma Attorney
General regarding consumer loan refinancing under the OCCC. Summary
judgement favorable to the Company was issued in both cases and both
cases were appealed to the Oklahoma Supreme Court. While the cases
were pending in the lower courts, the Oklahoma Legislature enacted
legislation, effective August 29, 1999, which validates the prior
practices followed by the Company and which should eliminate
challenges to the Company's practice from that point forward. On May
11, 1999, the Oklahoma Supreme Court issued an opinion in the
Administrator's Case reversing the summary judgement issued by the
trial court. That opinion included language regarding the decision's
retroactive applicability that, if allowed to stand, could have
resulted in extremely adverse consequences in the Tulsa Case. The
Company and other consumer finance companies sought relief by way of
reconsideration from the Oklahoma Supreme Court and, on November 4,
1999, that Court issued its Order modifying favorably to the Company
that portion of the Court's original decision that related to its
retroactive application. The decision in the Administrator's case, as
now modified, limits its applicability to the period from March 3,
1999, through August 29, 1999. The appeal from the Tulsa case remains
pending before the Oklahoma Supreme Court. Because of these recent
developments, the Company expects that, even if the appeal in the
Tulsa Case is decided adversely, the results, although possibly
including a material monetary award, would not materially affect the
Company's financing practices in Oklahoma. The Company intends to
continue to defend itself vigorously in the Tulsa Case.
From time to time the Company is involved in other routine litigation
relating to claims arising out of its operations in the normal course
of business. The Company believes that it is not presently a party to
any such other pending legal proceedings that would have a material
adverse effect on its financial condition.
Item 2. Changes in Securities
The Company's credit agreements contain certain restrictions on the
payment of cash dividends on its capital stock.
13
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION, CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Filed
Herewith (*) or
Previous Company
Exhibit Exhibit Registration
Number Description Number No. or Report
- --------------------------------------------------------------------------------------------------------------
3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K
Company
3.2 First Amendment to Second Amended and Restated Articles 3.2 1995 10-K
of Incorporation
3.3 Amended Bylaws of the Company 3.4 33-42879
4.1 Specimen Share Certificate 4.1 33-42879
4.2 Articles 3, 4 and 5 of the Form of Company's Second 3.1, 3.2 1995 10-K
Amended and Restated Articles of Incorporation (as amended)
4.3 Article II, Section 9 of the Company's Second Amended 3.2 1995 10-K
and Restated Bylaws
4.4 Amended and Restated Revolving Credit Agreement, dated as 4.4 9-30-97 10-Q
of June 30, 1997, between Harris Trust and Savings Bank,
the Banks signatory thereto from time to time and the Company
4.5 Amended and Restated Note Agreement, dated as of June 30, 1997, 4.5 9-30-97 10-Q
between Jefferson-Pilot Life Insurance Company and the Company
4.6# Amended and Restated Note Agreement, dated as of June 30, 1997, 4.6 9-30-97 10-Q
between Principal Mutual Life Insurance Company and the Company
4.7 Note Agreement, dated as of June 30, 1997, between Principal 4.7 9-30-97 10-Q
Mutual Life Insurance Company and the Company re: 10%
Senior Subordinated Secured Notes
4.8 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97 10-Q
of Trust, dated as of June 30, 1997, between the Company and
Harris Trust and Savings Bank, as Security Trustee
10.1 Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K
1994
10.2 Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K
April 1, 1994
10.3 Employment Agreement of Douglas R. Jones, effective August *
16, 1999
10.4 Settlement Agreement dated as of April 1, 1999, between the 10.3 1999 10-K
Company and R. Harold Owens,
14
10.5 Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
10.6 1992 Stock Option Plan of the Company 4 33-52166
10.7 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.8 The Company's Executive Incentive Plan 10.6 1994 10-K
27 Financial Data Schedule (for SEC purposes only)
# Omitted from filing -- substantially identical to immediately preceding
exhibits, except for the parties thereto and the principal amount involved.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended December
31, 1999.
15
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD ACCEPTANCE CORPORATION
Dated: February 9, 2000 /s/ C. D. Walters
---------------------
C. D. Walters, Chief Executive Officer
Dated: February 9, 2000 /s/ A. A. McLean III
------------------------
A. A. McLean III, Executive Vice President
and Chief Financial Officer
16