UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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, November 15, 1999.
Common Stock, no par value 19,016,573
-------------------------- -------------
(Class) (Outstanding)
This Filing contains 19 pages.
The Exhibit Index is on page 17.
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets as of September 30,
1999, and March 31, 1999 3
Consolidated Statements of Operations for the
three-month periods and six-month periods ended
September 30, 1999, and September 30, 1998 4
Consolidated Statements of Shareholders' Equity
for the year ended March 31, 1999, and the six-month
period ended September 30, 1999 5
Consolidated Statements of Cash Flows for the
three-month periods and six-month periods ended
September 30, 1999, and September 30, 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 six-month periods ended September 30, 1999,
and September 30, 1998 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Securityholders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 17
2
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, March 31,
1999 1999
-------------- ------------
ASSETS
Cash $ 1,538,263 1,236,207
Gross loans receivable 163,227,863 149,570,861
Less:
Unearned interest and fees (35,776,454) (32,231,831)
Allowance for loan losses (9,602,961) (8,769,367)
------------- -------------
Loans receivable, net 117,848,448 108,569,663
Property and equipment, net 6,793,591 6,299,662
Other assets, net 8,148,665 7,536,987
Intangible assets, net 10,234,082 9,827,885
------------- -------------
$ 144,563,049 133,470,404
============= =============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable 78,050,000 71,150,000
Other note payable 482,000 482,000
Income taxes payable 862,415 1,940,091
Accounts payable and accrued expenses 4,291,744 5,206,483
------------- -------------
Total liabilities 83,686,159 78,778,574
------------- -------------
Shareholders' equity:
Common stock, no par value - -
Additional paid-in capital 935,921 935,921
Retained earnings 59,940,969 53,755,909
------------- -------------
Total shareholders' equity 60,876,890 54,691,830
------------- -------------
$ 144,563,049 133,470,404
============= =============
See accompanying notes to consolidated financial statements.
3
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Interest and fee income $21,474,500 19,293,990 42,027,169 37,739,282
Insurance and other income 4,038,264 2,388,103 7,812,663 4,676,420
----------- ----------- ----------- -----------
Total revenues 25,512,764 21,682,093 49,839,832 42,415,702
----------- ----------- ----------- -----------
Expenses:
Provision for loan losses 4,572,978 3,111,965 7,611,798 5,471,634
----------- ----------- ----------- -----------
General and administrative expenses:
Personnel 9,485,230 8,934,320 19,506,317 17,952,497
Occupancy and equipment 1,787,634 1,697,193 3,408,915 3,191,981
Data processing 366,335 368,619 730,027 720,670
Advertising 648,541 841,234 1,565,831 1,732,258
Legal 87,536 5,562,793 176,970 5,687,180
Amortization of intangible assets 365,948 316,391 714,603 627,077
Other 1,982,343 1,975,397 3,921,582 3,709,092
----------- ----------- ----------- -----------
14,723,567 19,695,947 30,024,245 33,620,755
----------- ----------- ----------- -----------
Interest expense 1,462,388 1,411,655 2,818,729 2,627,338
----------- ----------- ----------- -----------
Total expenses 20,758,933 24,219,567 40,454,772 41,719,727
----------- ----------- ----------- -----------
Income (loss) before income taxes 4,753,831 (2,537,474) 9,385,060 695,975
Income taxes (benefit) 1,625,000 (867,000) 3,200,000 233,000
----------- ----------- ----------- -----------
Net income (loss) $ 3,128,831 (1,670,474) 6,185,060 462,975
=========== =========== =========== ===========
Net income (loss) per common share:
Basic $ .16 (.09) .33 .02
=========== =========== =========== ===========
Diluted $ .16 (.09) .32 .02
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 19,016,573 19,006,888 19,016,573 19,005,005
=========== =========== =========== ===========
Diluted 19,218,789 19,187,248 19,196,750 19,218,723
=========== =========== =========== ===========
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
Net income - 6,185,060 6,185,060
---------- ---------- ----------
Balances at September 30, 1999 $ 935,921 59,940,969 60,876,890
========== ========== ==========
See accompanying notes to consolidated financial statements.
5
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended Six months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 3,128,831 (1,670,474) 6,185,060 462,975
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 4,572,978 3,111,965 7,611,798 5,471,634
Amortization of intangible assets 365,948 316,391 714,603 627,077
Amortization of loan costs and discounts 20,319 33,172 49,842 60,693
Depreciation 365,912 376,405 705,610 710,244
Change in accounts:
Other assets, net (678,034) 171,258 (661,520) (84,920)
Income taxes payable (2,072,720) (1,531,140) (1,077,676) (1,736,291)
Accounts payable and accrued expenses 315,294 4,325,427 (914,739) 3,568,387
----------- ----------- ----------- -----------
Net cash provided by operating activities 6,018,528 5,133,004 12,612,978 9,079,799
----------- ----------- ----------- -----------
Cash flows from investing activities:
Increase in loans, net (5,834,317) (5,786,913) (14,373,644) (11,237,223)
Net assets acquired from office acquisitions,
primarily loans (1,441,267) (754,725) (2,550,037) (985,275)
Purchases of premises and equipment (797,785) (697,425) (1,166,441) (1,001,077)
Purchases of intangible assets (567,300) (355,100) (1,120,800) (377,450)
----------- ----------- ----------- -----------
Net cash used by investing activities (8,640,669) (7,594,163) (19,210,922) (13,601,025)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of senior notes payable, net 3,050,000 2,950,000 6,900,000 4,550,000
Proceeds from exercise of stock options - 35,000 - 52,500
----------- ----------- ----------- -----------
Net cash provided by financing activities 3,050,000 2,985,000 6,900,000 4,602,500
----------- ----------- ----------- -----------
Increase in cash 427,859 523,841 302,056 81,274
Cash, beginning of period 1,110,404 770,044 1,236,207 1,212,611
----------- ----------- ----------- -----------
Cash, end of period $ 1,538,263 1,293,885 1,538,263 1,293,885
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 1,451,902 1,286,218 2,848,631 2,773,708
Cash paid for income taxes 3,697,720 2,734,960 4,277,676 3,753,385
Supplemental schedule of noncash financing activities:
Tax benefits from exercise of stock options - 10,090 - 18,453
See accompanying notes to consolidated financial statements.
6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of the Company at September 30, 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 September 30, 1999, and the
results of operations and cash flows for the periods then ended, have been
included. The results for the periods ended September 30, 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 Six months
ended September 30, ended September 30,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Balance at beginning of period $ 9,038,922 8,799,019 8,769,367 8,444,563
Provision for loan losses 4,572,978 3,111,965 7,611,798 5,471,634
Loan losses (4,438,099) (3,132,470) (7,471,978) (5,479,865)
Recoveries 310,630 323,695 643,429 654,518
Allowance on acquired loans, net
of specific charge-offs 118,530 (194,107) 50,345 (182,748)
----------- ----------- ----------- -----------
Balance at end of period $ 9,602,961 8,908,102 9,602,961 8,908,102
=========== =========== =========== ===========
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 Six months
ended September 30, ended September 30,
------------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(Dollars in thousands)
Average gross loans receivable (1) $ 161,431 139,013 157,367 136,006
Average loans receivable (2) 124,853 108,170 121,865 106,082
Expenses as a % of total revenue:
Provision for loan losses 17.9% 14.4% 15.3% 12.9%
General and administrative (3) 57.7% 90.8% 60.2% 79.3%
Total interest expense 5.7% 6.5% 5.7% 6.2%
Operating margin (4) 24.4% (5.2%) 24.5% 7.8%
Return on average assets (annualized) 8.8% 5.8% 8.9% 6.4%
Offices opened or acquired, net 12 8 20 14
Total offices (at period end) 399 374 399 374
- ----------
s(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 accrual for legal settlement for the three and
six-month periods ended September 30, 1998. Excluding this one time charge,
the ratios would have been 65.9% and 66.5% for the three and six-month
periods, respectively.
(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 pending legal
settlement, the operating margins for the three and six-month periods ended
September 30, 1998 would have been 19.7% and 20.6%, respectively.
Comparison of Three Months Ended September 30, 1999, Versus
Three Months Ended September 30, 1998
Net income rose to $3.1 million during the three months ended September 30,
1999, representing a 75.8% increase over the recurring net income for the prior
year quarter. Recurring net income for the September 30, 1998, quarter excludes
a $5.4 million accrual (less income tax benefit of $1.9 million) for a legal
settlement (see Legal Proceedings). Including this one-time charge, net of
related income tax benefits, the Company incurred a net loss of $1.7 million
during the three months ended September 30, 1998. The large increase in earnings
of $1.3 million over the two quarters (excluding the prior year settlement
charge) resulted from a $1.9 million, or 45.4%, increase in operating income
(revenues less provision for loan losses and general and administrative
expenses) over the two periods, offset by a slight increase in interest expense
and by increased income taxes.
Interest and fee income for the quarter ended September 30, 1999, increased
by $2.2 million, or 11.3%, over the same period of the prior year. This increase
resulted primarily from the $16.7 million increase, or 15.4%, in average loans
receivables over the corresponding periods. The increase in interest and fees
was 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 $1.7 million, or 69.1%, when
comparing the two quarterly periods. Insurance commissions increased by 46.0%,
tracking the growth in loans in those states that allow the sale of credit
insurance, as well as the growth in the larger loan portfolio, which generally
offers the borrowers insurance protection on these loan products. Other income
increased by $1.0 million, or 99.1%, primarily as the result of an $816,000
gross profit increase at the Company's ParaData subsidiary.
8
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Comparison of Three Months Ended September 30, 1999, Versus
Three Months Ended September 30, 1998, continued
Total revenues rose to $25.5 million during the quarter ended September 30,
1999, a 17.7% increase over the $21.7 million in total revenues for the same
quarter of the prior year. Revenues from the 347 offices open throughout both
three-month periods increased by approximately 10.8%. At September 30, 1999, the
Company had 399 offices in operation, a net increase of 12 offices during the
current quarter, and 20 offices since the beginning of the fiscal year.
The provision for loan losses amounted to $4.6 million during the quarter
ended September 30, 1999, representing a 46.9% increase over the $3.1 million
during the same quarter of fiscal 1999. This increase resulted from increases in
the general allowance for loan losses and in loan losses themselves. Net
charge-offs increased by $1.3 million, or 47%, over the two quarterly periods
and as an annualized percentage of average loans receivable, increased to 13.2%
for the current quarter from 10.4% for the quarter ended September 30, 1998. The
rise in charge-off ratios is due to several factors, including increased
employee turnover, as well as competitive forces in certain geographic areas.
Although credit quality is a key area of focus, there can be no assurance that
these trends will not continue, or these earnings will not be negatively
impacted as a result in coming quarters.
Excluding the accrual for the legal settlement from the September 1998
quarter, general and administrative expenses rose by 3.0% when comparing the two
quarterly periods. As a percentage of revenues, these expenses decreased from
65.9% (excluding the settlement) during the three months ended September 30,
1998 to 57.7% during the quarter ended September 30, 1999. The improvement in
the expense ratios resulted primarily from the closing and merging into other
existing offices 13 non-profitable offices during the last 13 months. Excluding
the expenses of ParaData, overall general and administrative expenses, when
divided by average open offices, declined by 2.2% when comparing the two
quarterly periods.
Interest expense increased by $51,000, or 3.6%, when comparing the two
corresponding quarterly periods. This increase resulted from an increase in the
level of debt, which grew from $68.7 million at September 30, 1998, to $78.5
million at September 30, 1999, offset by a slight decrease in the overall
composite rate of interest on this debt.
Comparison of Six Months Ended September 30, 1999,
Versus Six Months Ended September 30, 1998
For the six-month period ended September 30, 1999, net income amounted to
$6.2 million. Excluding the effects of the $5.4 million legal settlement and
related income tax benefit, net income amounted to $3.9 million during the
six-month period ending September 30, 1998. This represents a $2.3 million, or
58.0%, increase when comparing the two six-month periods. Operating income
increased by $3.5 million, or 39.9%, over the two periods. This increase was
partially offset by an increase in both interest expense and income taxes.
Total revenues amounted to $49.8 million during the current six-month
period, an increase of $7.4 million, or 17.5%, over the prior-year period. This
increase resulted from an increase in interest and fee income of 11.4% combined
with an increase in insurance and other income of 67.1%. The large increase in
insurance and other income resulted from a $1.3 million, or 50.6%, increase in
insurance premium income primarily due to the growth in the larger loan
portfolio combined with a $1.3 million increase in gross profits from the
Company's ParaData subsidiary. Revenues from the 347 offices open throughout
both six-month periods increased approximately 11.1%.
The provision for loan losses increased by $2.1 million, or 39.1%, during
the current six-month period when compared to the same period of fiscal 1999.
This increase resulted primarily from an increase in loan losses over these two
periods. Net charge-offs increased to $6.8 million during the six-months ended
September 30, 1999, a $2.0 million, or 41.6%, increase over the $4.8 million
charged-off during the September 30, 1998 period. As a percentage of average
loans receivable, annualized net charge-offs rose to 11.2% during the current
period from 9.1% during the same period of fiscal 1999. While management's
number one priority is to reduce the percentage of charge-offs to prior year
levels, there can be no assurance that these trends will not continue and
earnings will not be negatively impacted in future quarters.
9
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Comparison of Six Months Ended September 30, 1998,
Versus Six Months Ended September 30, 1997, continued
General and administrative expenses increased by $1.8 million, or 6.4%,
over the two six month periods after excluding the 5.4 million for the legal
settlement from the September 30, 1998 period. This increase resulted from the
25 net new offices added during the 12 month period ending September 30, 1999.
The Company benefited from a reduction in the general and administrative expense
ratios as these expenses as a percentage of total revenues declined to 60.2%
during the most recent six months from 66.5% (excluding the one-time legal
charge) during the prior year period. Additionally, excluding the expenses
associated with ParaData, overall general and administrative expenses, when
divided by the average open offices, increased by 0.4% when comparing the two
six-month periods.
Interest expense increased by $191,000 when comparing the two six-month
periods, an increase of 7.3%. This reflects the increase in overall debt from
September 1998 to the end of the current quarter.
The effective income tax rate increased slightly to 34.1% during the six
months ended September 30, 1999, from 33.5% during the same period ended
September 30, 1998 due to the effects of the legal settlement during the prior
year 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) and the repayment
of existing debt.
The Company has an $85.0 million revolving credit agreement, $4.0 million
of senior term notes, 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 September 30, 1999, the interest rate under the facility was 7.08%,
and the Company's outstanding balance was $64.1 million, leaving $20.9 million
in borrowing availability under existing borrowing base limitations (based on
eligible loans receivable).
The senior term notes provide for interest payments to be made
semi-annually at a fixed rate of 8.5%, with the final annual principal payment
of $4.0 million to be made on December 1, 1999.
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 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 continuing growth of
the Company's loan portfolio, the principal payments due under the term notes
and fund the expected cost of opening and operating new offices, including
funding initial operating losses of new offices and 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.
Year 2000
The Company recognizes that there is a business risk in computerized
systems and products as the calendar rolls over into the next century. Failure
of these systems and products to correctly process the date could cause
miscalculations, unpredictable or inconsistent results, or complete system
failures. This problem is commonly called the "year 2000 problem." In
particular, in the Company's line of business, the year 2000 problem could cause
results such as miscalculations of interest on loans or other significant
problems.
The Company has determined that its primary software package, the "Loan
Manager System" developed and maintained by its wholly owned subsidiary,
ParaData Financial Systems, is year 2000 compliant.
The Company is also dependent upon several outside vendors for processing
information such as payroll, general ledger, benefits administration, etc.
Inquiries have been made of and assurances received from, each of these
providers that these systems are also prepared for the year 2000. The Company
believes that its total costs of addressing the year 2000 problem has been, and
will continue to be, immaterial.
The Company believes the most reasonably likely worst case year 2000
scenario would be the failure of key suppliers (e.g. utility providers, phone
and data communication vendors, banks, etc.) to achieve year 2000 compliance,
resulting in lost revenues due to forced office closings or loss of
communications for extended periods of time. Currently, based on responses
obtained from third parties to date, the Company is not aware of any material
third parties that do not expect to be year 2000 compliant. However, due to the
uncertainty surrounding the readiness of third parties, the Company is unable to
determine whether the consequences of year 2000 failures will materially affect
the Company's financial condition or results of operations. The Company
maintains a contingency plan that allows individual offices to operate in a
manual environment for short periods of time; however, these alternatives would
not be sufficient should year 2000 failures cause blackouts for extended
periods.
The year 2000 disclosure set forth above should be read in connection with
"Forward-Looking Information," which follows.
11
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," and the matters discussed
above in "Year 2000," 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 ability of the Company and third parties with whom the
Company deals to achieve year 2000 compliance; the unpredictable nature of
litigation; and other matters discussed in this Report and the Company's other
filings with the Securities and Exchange Commission.
Legal Proceedings
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 $64.1 million at September 30, 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 September 30,
1999, a change of 1% in the interest rate would cause a change in
interest expense of approximately $641,000 on an annual basis.
12
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 has
been funded. 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 plaintiff in
an action, INDEPENDENT FINANCE INSTITUTE, ET. AL., filed 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 enjoying 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. In addition, 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
not 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
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1999 Annual Meeting of Shareholders was held on August 4,
1999.
(b) Pursuant to Instruction 3 to Item 4, this paragraph need not be
answered.
(c) At the 1999 Annual Meeting of Shareholders, the following two
matters were voted upon and passed. The tabulation of votes was:
(1) The election of seven Directors to serve until the 2000
Annual Meeting of Shareholders:
VOTES IN FAVOR VOTES WITHHELD*
Ken R. Bramlett, Jr. 17,721,212 40,314
--------------- ---------------
James R. Gilreath 17,718,212 43,314
--------------- ---------------
William S. Hummers III 17,721,212 40,314
--------------- ---------------
A. Alexander McLean III 17,720,512 41,014
--------------- ---------------
Charles D. Walters 17,717,512 44,014
--------------- ---------------
Charles D. Way 17,718,212 43,314
--------------- ---------------
(2) The ratification of the selection of KPMG LLP as Independent
Auditors:
VOTES IN FAVOR VOTES AGAINST ABSTENTIONS*
17,757,226 3,900 400
*There were no broker non-votes on these routine items.
14
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION, CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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 Agreements, dated as of June 30, 4.5 9-30-97 10-Q
1997, between Jefferson-Pilot Life Insurance Company and the
Company
4.6# Amended and Restated Note Agreement, dated as of June 30, 4.6 9-30-97 10-Q
1997 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 Settlement Agreement, dated as of April 1, 1999, between the 10.3 1999 10-K
Company and R. Harold Owens
10.4 Security Holders' Agreement, dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its security Holders
15
10.5 1992 Stock Option Plan of the Company 4 33-52166
10.6 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.7 The Company's Executive Incentive Plan 10.6 1994 10-K
27 Financial Data Schedules (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 September
30, 1999.
16
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: November 10, 1999 /s/ C. D. Walters
------------------------------------------
C. D. Walters, Chief Executive Officer
Dated: November 10, 1999 /s/ A. A. McLean III
------------------------------------------
A. A. McLean III, Executive Vice President
and Chief Financial Officer
17