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, 2001
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
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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
incorporation or organization) Identification Number)
108 Frederick Street
Greenville, South Carolina 29607
--------------------------------
(Address of principal executive offices)
(Zip Code)
(864) 298-9800
--------------
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 14, 2001.
Common Stock, no par value 18,772,792
-------------------------- ----------
(Class) (Outstanding)
This Filing contains 16 pages.
The Exhibit Index is on page 14.
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 September 30,
2001, and March 31, 2001 3
Consolidated Statements of Operations for the
three-month periods and six-month periods ended
September 30, 2001, and September 30, 2000 4
Consolidated Statements of Shareholders' Equity
for the year ended March 31, 2001, and the six-month
period ended September 30, 2001 5
Consolidated Statements of Cash Flows for the
three-month periods and six-month periods ended
September 30, 2001, and September 30, 2000 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, 2001,
and September 30, 2000 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II - OTHER INFORMATION
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Securityholders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
2
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
2001 2001
------------ -----------
ASSETS
Cash $ 3,430,312 3,292,504
Gross loans receivable 228,877,828 210,893,604
Less:
Unearned interest and fees (54,373,854) (48,504,582)
Allowance for loan losses (13,871,217) (12,031,622)
------------ -----------
Loans receivable, net 160,632,757 150,357,400
Property and equipment, net 6,977,225 6,538,131
Other assets, net 9,826,357 9,834,117
Intangible assets, net 14,132,286 13,138,307
------------ -----------
$194,998,937 183,160,459
============ ===========
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable 92,950,000 83,150,000
Subordinated notes payable 6,000,000 8,000,000
Other note payable 482,000 482,000
Income taxes payable 1,423,116 3,038,113
Accounts payable and accrued expenses 4,291,562 5,763,812
------------ -----------
Total liabilities 105,146,678 100,433,925
------------ -----------
Shareholders' equity:
Common stock, no par value - -
Additional paid-in capital 110,667 313,655
Retained earnings 89,741,592 82,412,879
----------- -----------
Total shareholders' equity 89,852,259 82,726,534
------------ -----------
$194,998,937 183,160,459
============ ===========
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,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Interest and fee income $27,852,989 24,926,473 54,504,356 47,777,702
Insurance and other income 3,471,251 3,683,999 7,213,901 7,775,402
----------- ---------- ---------- ----------
Total revenues 31,324,240 28,610,472 61,718,257 55,553,104
----------- ---------- ---------- ----------
Expenses:
Provision for loan losses 6,902,167 5,155,110 12,105,681 9,067,413
----------- ---------- ---------- ----------
General and administrative expenses:
Personnel 11,110,932 10,401,230 23,011,824 21,269,951
Occupancy and equipment 2,027,227 1,902,071 3,939,938 3,691,529
Data processing 420,126 379,056 833,920 704,009
Advertising 809,371 845,002 1,749,229 1,466,575
Amortization of intangible assets 486,211 422,232 913,169 845,892
Other 2,419,936 2,377,266 4,783,761 4,749,953
----------- ---------- ---------- ----------
17,273,803 16,326,857 35,231,841 32,727,909
----------- ---------- ---------- ----------
Interest expense 1,525,012 2,153,433 3,120,022 3,913,499
----------- ---------- ---------- ----------
Total expenses 25,700,982 23,635,400 50,457,544 45,708,821
----------- ---------- ---------- ----------
Income before income taxes 5,623,258 4,975,072 11,260,713 9,844,283
Income taxes 1,950,000 1,713,000 3,932,000 3,393,000
----------- ---------- ---------- ----------
Net income $ 3,673,258 3,262,072 7,328,713 6,451,283
=========== ========== ========== ==========
Net income per common share:
Basic $ .20 0.18 .39 .34
=========== ========== ========== ==========
Diluted $ .19 0.17 .38 .34
=========== ========== ========== ==========
Weighted average common shares
outstanding:
Basic 18,828,202 18,627,573 18,784,969 18,701,474
=========== ========== ========== ==========
Diluted 19,589,543 18,758,398 19,448,923 18,832,071
=========== ========== ========== ==========
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, 2000 $ 267,958 67,924,428 68,192,386
Proceeds from exercise of stock options (76,400 shares),
including tax benefit of $41,355 367,161 - 367,161
Common stock repurchases (275,000 shares) (321,464) (1,112,449) (1,433,913)
Net income - 15,600,900 15,600,900
---------- ---------- ----------
Balances at March 31, 2001 313,655 82,412,879 82,726,534
Proceeds from exercise of stock options (298,519 shares),
including tax benefit of $340,890 1,841,761 - 1,841,761
Common stock repurchases (232,500 shares) (2,044,749) - (2,044,749)
Net income - 7,328,713 7,328,713
---------- ---------- ----------
Balances at September 30, 2001 $ 110,667 89,741,592 89,852,259
========== ========== ==========
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,
--------------------------- --------------------------
2001 2000 2001 2000
------------ ----------- ----------- -----------
Cash flows from operating activities:
Net income $ 3,673,258 3,262,072 7,328,713 6,451,283
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 6,902,167 5,155,110 12,105,681 9,067,413
Amortization of intangible assets 486,211 422,232 913,169 845,892
Amortization of loan costs and discounts 47,549 13,962 82,513 27,238
Depreciation 393,369 391,281 775,837 781,983
Change in accounts:
Other assets, net 462,971 (352,470) (74,753) (808,427)
Income taxes payable 253,002 1,146,580 (1,274,107) (309,819)
Accounts payable and accrued expenses (828,344) 766,514 (1,472,250) (626,131)
------------ ----------- ----------- -----------
Net cash provided by operating activities 11,390,183 10,805,281 18,384,803 15,429,432
------------ ----------- ----------- -----------
Cash flows from investing activities:
Increase in loans, net (5,670,166) (6,509,757) (14,263,153) (16,394,294)
Net assets acquired from office acquisitions,
primarily loans (4,970,588) (6,214,342) (8,214,019) (15,390,226)
Purchase of intangible assets (1,456,648) (2,066,897) (1,907,148) (3,663,348)
Purchases of premises and equipment (509,089) (454,590) (1,118,797) (899,042)
------------ ----------- ----------- -----------
Net cash used by investing activities (12,606,491) (15,245,586) (25,503,117) (36,346,910)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of senior notes payable, net 4,950,000 6,250,000 9,800,000 27,050,000
Repayment of senior subordinated notes (2,000,000) - (2,000,000) (2,000,000)
Proceeds from exercise of stock options 565,955 - 1,500,871 43,750
Common stock repurchases (1,851,141) - (2,044,749) (1,433,913)
------------ ----------- ----------- -----------
Net cash provided by financing activities 1,664,814 6,250,000 7,256,122 23,659,837
------------ ----------- ----------- -----------
Increase in cash 448,506 1,809,695 137,808 2,742,359
Cash, beginning of period 2,981,806 2,623,340 3,292,504 1,690,676
------------ ----------- ----------- -----------
Cash, end of period $ 3,430,312 4,433,035 3,430,312 4,433,035
============ =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 1,482,946 1,880,130 2,895,781 3,504,209
Cash paid for income taxes 3,329,280 610,662 5,206,107 3,702,819
Supplemental schedule of noncash financing activities:
Tax benefits from exercise of stock options 155,053 - 340,890 9,756
See accompanying notes to consolidated financial statements.
6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The consolidated financial statements of the Company at September 30, 2001,
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, 2001, and the
results of operations and cash flows for the periods then ended, have been
included. The results for the periods ended September 30, 2001, are not
necessarily indicative of the results that may be expected for the full year or
any other interim period.
Certain reclassification entries have been made for fiscal 2001 to conform
with fiscal 2002 presentation. These reclassifications had no impact on
shareholders' equity or net income.
The preparation of financial statements in conformity with generally accepted
accounting principals 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 revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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, 2001, included in the Company's 2001 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,
------------------------ -------------------------
2001 2000 2001 2000
---------- ---------- ----------- ----------
Balance at beginning of period $12,657,397 11,270,736 12,031,622 10,008,257
Provision for loan losses 6,902,167 5,155,110 12,105,681 9,067,413
Loan losses (6,634,965) (5,132,196) (11,995,235) (9,047,045)
Recoveries 442,791 361,181 885,670 710,583
Allowance on acquired loans, net
of specific charge-offs 503,827 934,742 843,479 1,850,365
----------- ---------- ----------- ----------
Balance at end of period $13,871,217 12,589,573 13,871,217 12,589,573
=========== ========== =========== ==========
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,
--------------------- ---------------------
2001 2000 2001 2000
-------- ------- ------- -------
(Dollars in thousands)
Average gross loans receivable /(1)/ $225,054 203,551 220,094 192,545
Average loans receivable /(2)/ 170,435 156,111 167,079 148,052
Expenses as a % of total revenue:
Provision for loan losses 22.0% 18.0% 19.6% 16.3%
General and administrative 55.1% 57.1% 57.1% 58.9%
Total interest expense 4.9% 7.5% 5.1% 7.0%
Operating margin /(3)/ 22.8% 24.9% 23.3% 24.8%
Return on average assets (annualized) 7.6% 7.4% 7.7% 7.6%
Offices opened or acquired, net 10 6 14 13
Total offices (at period end) 434 423 434 423
____________________
/(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)/ Operating margin is computed as total revenues less provision for loan
losses and general and administrative expenses, as a percentage of total
revenues.
Comparison of Three Months Ended September 30, 2001, Versus
- -----------------------------------------------------------
Three Months Ended September 30, 2000
- -------------------------------------
Net income rose to $3.7 million during the three months ended September 30,
2001, a 12.6% increase over the $3.3 million earned during the corresponding
three-month period of the previous year.
Interest and fee income for the quarter ended September 30, 2001, increased by
$2.9 million, or 11.7%, over the same period of the prior year. This increase
resulted from a $14.3 million increase, or 9.2%, in average loans receivable
over the two corresponding periods. The large increase in average loans
receivable over the two corresponding quarters was due primarily to several
acquisitions during the first six months of the fiscal year. The Company has
acquired approximately 10,000 accounts, or approximately $11.2 million in gross
loans, in 14 separate transactions during the current fiscal year.
Insurance commissions and other income decreased by $213,000, or 5.8%, over
the two quarters primarily as a result of a decrease in insurance commissions,
as well as a decrease in revenue at the Company's ParaData computer subsidiary.
Insurance commissions decreased by $104,000, or 4.9%, when comparing the two
quarterly periods. This decrease was largely attributable to a change in the
Tennessee statute governing loans less than $1,000. The change in the statute,
which the Company believes was ultimately revenue neutral, increased the
8
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
-----------------------------------------------
Comparison of Three Months Ended September 30, 2001, Versus
- -----------------------------------------------------------
Three Months Ended September 30, 2000, continued
- ------------------------------------------------
interest and fees that can be charged on these loans, but eliminated the sale of
all insurance products in conjunction with these loans. Other income decreased
by $109,000, or 7.0%, over the two quarterly periods as a result of the decrease
in net revenue from ParaData.
Total revenues rose to $31.3 million during the quarter ended September 30,
2001, a 9.5% increase over the $28.6 million for the corresponding quarter of
the previous year. Revenues from the 399 offices open throughout both quarters
increased by approximately 8.1%, primarily due to increased balances of loans
receivable in those offices. At September 30, 2001, the Company had 434 offices
in operation, an increase of 14 offices from March 31, 2001.
The provision for loan losses during the quarter ended September 30, 2001,
increased by $1.7 million, or 33.9%, from the same quarter last year. This
increase resulted from a combination of increases in both the general allowance
for loan losses due to loan growth and the amount of loans charged off. Net
charge-offs for the current quarter amounted to $6,192,000, a 29.8% increase
over the $4,771,000 charged off during the same quarter of fiscal 2001. As a
percentage of average loans receivable, net charge-offs increased to 14.5% on an
annualized basis for three months ended September 30, 2001, from 12.2%
annualized for the prior year quarter. While the Company believes generally that
the level of loan losses is not directly affected by changes in the overall
economy, a recent rise in personal bankruptcy has contributed to the recent rise
in losses. Management does not currently believe that loan losses will continue
to rise significantly above the most recent quarterly levels; however, the
Company can give no assurance that loan losses will not continue to increase and
such further increases would negatively affect the Company's financial
performance.
General and administrative expenses for the quarter ended September 30, 2001,
increased by $947,000, or 5.8% over the same quarter of fiscal 2001. This
increase resulted from the additional general and administrative expenses
associated with the 11 net new offices opened or acquired between September 30,
2000 and 2001. Overall, general and administrative expenses, when divided by
average open offices, increased by approximately 1.8% when comparing the two
periods; and, as a percentage of total revenue, decreased from 57.1% during the
prior year quarter to 55.1% during the most recent quarter.
Interest expense decreased by $628,000, or 29.2%, primarily as a result of the
reduction of interest rates during the last two quarters.
The Company's effective income tax rate increased slightly from 34.4% to 34.7%
when comparing the two quarters due to reduced tax benefits from the Company's
captive insurance subsidiary.
Comparison of Six Months Ended September 30, 2001,
- --------------------------------------------------
Versus Six Months Ended September 30, 2000
- ------------------------------------------
For the six-month period ended September 30, 2001, net income amounted to $7.3
million. This represents a $877,000, or 13.6%, increase when comparing the two
six-month periods. Operating income (revenues less the provision for loan losses
and general and administrative expenses) increased by $623,000, or 4.5%, over
the two periods. This increase was in addition to a decrease in interest
expense, offset by an increase in income taxes.
Total revenues amounted to $61.7 million during the current six-month period,
an increase of $6.2 million, or 11.1%, over the prior-year period. This increase
resulted from an increase in interest and fee income of 14.1%, offset by a
decrease in insurance and other income of 7.2%. The increase in interest and fee
income resulted from the increase in average loans receivable of 12.9% when
comparing the two six-month periods. Insurance income decreased by $293,000 or
6.7%, when comparing the two six-month periods due to the changes in Tennessee
law. This was in addition to a $269,000 decrease in other income due to reduced
gross profit from ParaData. Revenues from the 399 offices open throughout both
six-month periods increased approximately 8.4%.
The provision for loan losses increased by $3.0 million, or 33.5%, during the
current six-month period when compared to the same period of fiscal 2001. This
increase resulted primarily from an increase in loan losses over these
9
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
-----------------------------------------------
Comparison of Six Months Ended September 30, 2001,
- --------------------------------------------------
Versus Six Months Ended September 30, 2000, continued
- -----------------------------------------------------
two periods. Net charge-offs increased to $11.1 million during the six-months
ended September 30, 2001, a $2.8 million, or 33.3%, increase over the $8.3
million charged-off during the September 30, 2000 period. As a percentage of
average loans receivable, annualized net charge-offs rose to 13.3% during the
current period from 11.3% during the same period of fiscal 2001.
General and administrative expenses increased by $2.5 million, or 7.7%, over
the two six-month periods. This increase resulted from the 11 net new offices
added during the 12 month period ending September 30, 2001. The Company
benefited from a reduction in the general and administrative expense ratios, as
these expenses as a percentage of total revenues declined to 57.1% during the
most recent six months from 58.9% 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
5.9% when comparing the two six-month periods.
Interest expense decreased by $793,000 when comparing the two six-month
periods, a decrease of 20.3%. This reflects the decrease in interest rates
during the past two quarters.
The effective income tax rate increased slightly to 34.9% during the six
months ended September 30, 2001, from 34.5% during the same period ended
September 30, 2000 due to the reduced benefits from the Company's captive
insurance subsidiary.
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 repayment of
existing debt and the repurchase of its common stock.
The Company has a $105.0 million revolving credit facility, and $6.0 million
of subordinated notes.
The revolving credit facility expires on September 30, 2003, and bears
interest, at the Company's option, at the agent's prime rate or LIBOR plus
1.75%. At September 30, 2001, the weighted average interest rate under the
facility was 4.97%, and the Company's outstanding balance was $93.0 million,
leaving $12.0 million in borrowing availability under existing borrowing base
limitations (based on eligible loans receivable). To provide for seasonal
borrowing needs, the maximum amount available under the revolving credit
facility increases from $105 million to $120 million from November 15 of each
year through March 31 of the following year.
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 are due each
June 1, with a final maturity date of June 1, 2004.
Borrowings under the revolving credit agreement and the senior 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 for the foreseeable future to fund
the continuing growth of the Company's loan portfolio, the principal payments
due under the subordinated notes, the repurchase of the Company's common stock
on a limited basis and 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
10
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
-----------------------------------------------
of the nine 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.
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.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001, as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141 immediately,
and Statement 142 effective April 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001, will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001, will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require, upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
form goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent in intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation, Statement
142 will require the Company to perform an assessment of whether there is an
indication that goodwill is impaired as of the date of adoption. To accomplish
this the Company must identify its reporting units and determine the carrying
value of each reporting unit by assigning the assets and liabilities, including
the existing goodwill and intangible assets, to those reporting units as of the
date of adoption. The Company will then have up to six months from the date of
adoption to
11
determine the fair value of each reporting unit and compare it to the reporting
unit's carrying amount. To the extent a reporting unit's carrying amount exceeds
its fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform the second step of the transitional
impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with Statement 141, to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of operations.
As of the date of adoption, the Company expects to have unamortized goodwill
of approximately $850,000, and unamortized identifiable assets of approximately
$11.6 million, all of which will be subject to the transition provisions of
Statements 141 and 142. Amortization expense related to goodwill was $166,000
and $84,000 for the year ended March 31, 2001, and the six months ended
September 30, 2001, respectively. Because of the extensive effort needed to
comply with adopting Statements 141 and 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle.
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. 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 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); 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 the revolving credit facility was
$93.0 million at September 30, 2001. Interest on borrowings under this
facility is based, at the Company's option, on the prime rate or LIBOR
plus 1.75%. Based on the outstanding balance at September 30, 2001, a
change of 1% in the interest rate would cause a change in interest
expense of approximately $930,000 on an annual basis.
12
PART II. OTHER INFORMATION
Item 2. Changes in Securities
---------------------
The Company's credit agreements contain certain restrictions on the
payment of cash dividends on its capital stock.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The 2001 Annual Meeting of Shareholders was held on August 1, 2001.
(b) Pursuant to Instruction 3 to Item 4, this paragraph need not be
answered.
(c) At the 2001 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 2002 Annual
Meeting of Shareholders:
VOTES IN FAVOR VOTES WITHHELD*
-------------- ---------------
Ken R. Bramlett, Jr. 17,224,413 36,400
---------- -------
James R. Gilreath 17,224,713 36,100
---------- -------
William S. Hummers III 17,224,413 36,400
---------- -------
Douglas R. Jones 17,155,561 105,252
---------- -------
A. Alexander McLean III 17,123,161 137,652
---------- -------
Charles D. Walters 17,155,561 105,252
---------- -------
Charles D. Way 17,224,713 36,100
---------- -------
(2) The ratification of the selection of KPMG LLP as Independent
Auditors:
VOTES IN FAVOR VOTES AGAINST ABSTENTIONS*
-------------------- ----------------- ------------------
17,227,613 32,700 500
-------------- ------------- -----------
*There were no broker non-votes on these routine items.
13
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 Agreements, 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 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
4.6 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 10.3 12-31-99 10-Q
August 16, 1999
10.4+ Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
10.5+ World Acceptance Corporation Supplemental 10.7 2000 10-K
Income Plan
14
10.6+ Board of Directors Deferred Compensation Plan 10.6 2000 10-K
10.7+ 1992 Stock Option Plan of the Company 4 33-52166
10.8+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.9+ The Company's Executive Incentive Plan 10.6 1994 10-K
10.10+ World Acceptance Corporation Retirement Savings Plan 4.1 333-14399
10.11+ Executive Deferral Plan 10.12 2001 10-K
+ Management Contract or other compensatory plan required to be filed under
Item 14(c) of this report and Item 601 of Regulation 5-K of the Securities and
Exchange Commission.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended September
30, 2001.
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: November 14, 2001 /s/ C. D. Walters
---------------------------------------------
C. D. Walters, Chief Executive Officer
Dated: November 14, 2001 /s/ A. A. McLean III
---------------------------------------------
A. A. McLean III, Executive Vice President
and Chief Financial Officer
16