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, 2001
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT of 1934
For the transition period from to
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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 Identification
incorporation or organization) Number)
108 Frederick Street
Greenville, South Carolina 29607
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(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 14, 2002.
Common Stock, no par value 18,779,159
- ----------------------------------- -----------------------------------
(Class) (Outstanding)
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,
2001, and March 31, 2001 3
Consolidated Statements of Operations for the
three-month periods and nine-month periods ended
December 31, 2001, and December 31, 2000 4
Consolidated Statements of Shareholders' Equity
for the year ended March 31, 2001, and the nine-month
period ended December 31, 2001 5
Consolidated Statements of Cash Flows for the three-month
periods and nine-month periods ended December 31, 2001, and
December 31, 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 nine-month periods ended December 31, 2001,
and December 31, 2000 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 6. Exhibits and Reports on Form 8-K 14
Signatures 16
2
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2001 2001
------------- -------------
(Unaudited)
ASSETS
Cash $ 3,785,011 3,292,504
Gross loans receivable 257,243,573 210,893,604
Less:
Unearned interest and fees (63,223,179) (48,504,582)
Allowance for loan losses (14,846,481) (12,031,622)
------------ -------------
Loans receivable, net 179,173,913 150,357,400
Property and equipment, net 6,996,187 6,538,131
Other assets, net 10,298,390 9,834,117
Intangible assets, net 14,143,437 13,138,307
------------ -------------
$ 214,396,938 183,160,459
============ =============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable 110,300,000 83,150,000
Subordinated notes payable 6,000,000 8,000,000
Other note payable 482,000 482,000
Income taxes payable (receivable) (929,851) 3,038,113
Accounts payable and accrued expenses 5,512,927 5,763,812
------------ -------------
Total liabilities 121,365,076 100,433,925
------------ -------------
Shareholders' equity:
Common stock, no par value - -
Additional paid-in capital 251,127 313,655
Retained earnings 92,780,735 82,412,879
------------ -------------
Total shareholders' equity 93,031,862 82,726,534
------------ -------------
$ 214,396,938 183,160,459
============ =============
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,
------------------------------- -------------------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Interest and fee income $ 30,326,909 26,265,723 84,831,265 74,043,425
Insurance and other income 4,437,658 3,614,595 11,651,559 11,389,997
------------ ------------- ------------ -------------
Total revenues 34,764,567 29,880,318 96,482,824 85,433,422
------------ ------------- ------------ -------------
Expenses:
Provision for loan losses 8,571,870 7,038,705 20,677,551 16,106,118
------------ ------------- ------------ -------------
General and administrative expenses:
Personnel 12,356,922 10,566,842 35,368,746 31,836,793
Occupancy and equipment 1,999,989 1,931,412 5,939,927 5,622,941
Data processing 428,097 393,668 1,262,017 1,097,677
Advertising 2,282,279 1,848,957 4,031,508 3,315,532
Amortization of intangible assets 537,084 476,682 1,450,253 1,322,574
Other 2,672,521 2,338,167 7,456,282 7,088,120
------------ ------------- ------------ -------------
20,276,892 17,555,728 55,508,733 50,283,637
------------ ------------- ------------ -------------
Interest expense 1,243,662 2,303,843 4,363,684 6,217,342
------------ ------------- ------------ -------------
Total expenses 30,092,424 26,898,276 80,549,968 72,607,097
------------ ------------- ------------ -------------
Income before income taxes 4,672,143 2,982,042 15,932,856 12,826,325
Income taxes 1,633,000 1,007,000 5,565,000 4,400,000
------------ ------------- ------------ -------------
Net income $ 3,039,143 1,975,042 10,367,856 8,426,325
============ ============= ============ =============
Net income per common share:
Basic $ .16 .11 .55 .45
============ ============= ============ =============
Diluted $ .16 .11 .54 .45
============ ============= ============ ==============
Weighted average common shares outstanding:
Basic 18,771,555 18,627,573 18,780,498 18,676,840
============ ============= ============ =============
Diluted 19,229,989 18,748,298 19,375,945 18,804,146
============ ============= ============ =============
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 (321,419 shares),
including tax benefit of $364,855 1,982,221 - 1,982,221
Common stock repurchases (232,500 shares) (2,044,749) - (2,044,749)
Net income for the nine months - 10,367,856 10,367,856
----------- ----------- -----------
Balances at December 31, 2001 $ 251,127 92,780,735 93,031,862
=========== =========== ===========
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,
-------------------------- ---------------------------
2001 2000 2001 2000
---- ---- ---- ----
Cash flows from operating activities:
Net income $ 3,039,143 1,975,042 10,367,856 8,426,325
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 8,571,870 7,038,705 20,677,551 16,106,118
Amortization of intangible assets 537,084 476,682 1,450,253 1,322,574
Amortization of loan costs and discounts 26,885 17,342 109,398 44,580
Depreciation 400,860 397,917 1,176,697 1,179,900
Change in accounts:
Other assets, net (498,918) 110,993 (573,671) (697,434)
Income taxes payable (2,329,002) (192,707) (3,603,109) (502,526)
Accounts payable and accrued expenses 1,221,365 519,951 (250,885) (106,180)
----------- ----------- ----------- -----------
Net cash provided by operating activities 10,969,287 10,343,925 29,354,090 25,773,357
----------- ----------- ----------- -----------
Cash flows from investing activities:
Increase in loans, net (25,193,133) (24,739,997) (39,585,185) (41,134,291)
Net assets acquired from office acquisitions,
primarily loans (1,924,393) (263,648) (10,009,513) (15,653,874)
Purchases of premises and equipment (415,322) (265,568) (1,534,119) (1,164,610)
Purchases of intangible assets (548,235) (237,687) (2,455,383) (3,901,035)
----------- ----------- ----------- -----------
Net cash used by investing activities (28,081,083) (25,506,900) (53,584,200) (61,853,810)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of senior notes payable, net 17,350,000 12,450,000 27,150,000 39,500,000
Repayment of term notes - - (2,000,000) (2,000,000)
Proceeds from exercise of stock options 116,495 - 1,617,366 43,750
Common stock repurchases - - (2,044,749) (1,433,913)
----------- ----------- ----------- -----------
Net cash provided by financing activities 17,466,495 12,450,000 24,722,617 36,109,837
----------- ----------- ----------- -----------
Increase (decrease) in cash 354,699 (2,712,975) 492,507 29,384
Cash, beginning of period 3,430,312 4,433,035 3,292,504 1,690,676
----------- ----------- ----------- -----------
Cash, end of period $ 3,785,011 1,720,060 3,785,011 1,720,060
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 1,381,468 2,215,446 4,277,249 5,719,655
Cash paid for income taxes 3,962,002 1,199,707 9,168,109 4,902,526
Supplemental schedule of noncash financing activities:
Tax benefits from exercise of stock options 23,965 - 364,855 9,756
See accompanying notes to consolidated financial statements.
6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The consolidated financial statements of the Company at December 31, 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 December 31, 2001, 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, 2001, 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, 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 Nine months
ended December 31, ended December 31,
--------------------------- --------------------------
2001 2000 2001 2000
---- ---- ---- ----
Balance at beginning of period $ 13,871,217 12,589,573 12,031,622 10,008,257
Provision for loan losses 8,571,870 7,038,705 20,677,551 16,106,118
Loan losses (8,090,814) (6,340,570) (20,086,049) (15,387,615)
Recoveries 458,001 355,270 1,343,671 1,065,853
Allowance on acquired loans,
net of specific charge-offs 36,206 (615,697) 879,686 1,234,668
----------- ----------- ----------- ----------
Balance at end of period $ 14,846,481 13,027,281 14,846,481 13,027,281
=========== ========== =========== ==========
NOTE 4 - INCOME TAXES PAYABLE (RECEIVABLE)
- ------------------------------------------
The decrease in income taxes payable is due to the timing of estimated
payments made.
7
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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,
------------------ ------------------
2001 2000 2001 2000
---- ---- ---- ----
(Dollars in thousands)
Average gross loans receivable (1) $ 239,148 218,017 226,839 201,123
Average loans receivable (2) 180,169 165,945 171,711 154,054
Expenses as a % of total revenue:
Provision for loan losses 24.7% 23.6% 21.4% 18.9%
General and administrative 58.3% 58.8% 57.5% 58.9%
Total interest expense 3.6% 7.7% 4.5% 7.3%
Operating margin (3) 17.0% 17.7% 21.0% 22.3%
Return on average assets (annualized) 5.9% 4.2% 7.1% 6.4%
Offices opened or acquired, net 7 2 21 16
Total offices (at period end) 441 426 441 426
_____________________
/(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 December 31, 2001, Versus
- ----------------------------------------------------------
Three Months Ended December 31, 2000
- ------------------------------------
Net income amounted to $3.0 million for the three months ended December
31, 2001, a 53.9% increase from the $2.0 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 $630,000, or 11.9%, combined with a decrease in
interest expense and offset by an increase in income taxes.
Interest and fee income for the quarter ended December 31, 2001, increased
by $4.1 million, or 15.5%, over the same period of the prior year. This increase
resulted primarily from the $14.2 million increase, or 8.6%, in average loans
receivables over the two corresponding periods. The increase in interest and fee
income was also aided by favorable changes in state laws and regulations in
three states during the past 18 months. In Tennessee, on loans less than $1,000,
the interest and fees allowed were substantially increased, while the sale of
credit insurance and other ancillary products was eliminated. In Texas, the $10
initial charge was made non-refundable. In Georgia, there was an increase in the
monthly maintenance charge and the allowed late charge, as well as a change in
the restricted period on loan renewals. All of these changes contributed to an
increase in loan yields when comparing the two quarterly periods. Insurance
commissions and other income increased by $823,000, or 22.8%, over the two
quarters primarily as a result of the expansion of the loan portfolio in
Kentucky where credit insurance and other ancillary products may be sold in
conjunction with a loan. Insurance commissions increased by $259,000 or 12.4%
and other income increased by $564,000, or 36.8% when comparing the two
quarterly periods.
8
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
-----------------------------------------------
Total revenues rose to $34.8 million during the quarter ended December 31,
2001, a 16.3% increase over the $29.9 million in total revenues for the same
quarter of the prior year. Revenues from the 399 offices open throughout both
three-month periods increased by approximately 12.4%. At December 31, 2001, the
Company had 441 offices in operation, a net increase of 7 offices during the
current quarter, and 21 offices since the beginning of the fiscal year.
The provision for loan losses amounted to $8.6 million during the quarter
ended December 31, 2001, representing a 21.8% increase over the $7.0 million
during the same quarter of the prior fiscal year. This increase resulted from an
increase in net loans charged off during the quarter due primarily to the growth
in the loan portfolio. As a percentage of average loans receivable outstanding,
net charge-offs increased to 16.9% during the quarter ended December 31, 2001,
compared to 14.4% during the prior year third fiscal quarter. This increase was
due to the maturing of the larger loan portfolio, resulting in higher losses in
this category as well as an increase in overall losses due primarily to the
decline in the economy. Although the Company's management remains concerned over
the rise in 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 by this factor in future quarters.
General and administrative expenses for the quarter ended December 31,
2001, increased by $2.7 million, or 15.5%, over the same quarter of fiscal 2001.
This increase resulted primarily from the additional expenses associated with
the 15 new offices opened or acquired between December 31, 2000, and December
31, 2001. During the same 12-month period, the Company has also sold or merged
eight 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 58.8% for the quarter
ended December 31, 2000, to 58.3% for the most recent quarter.
Interest expense decreased by $1.1 million, or 46.0%, when comparing the
two corresponding quarterly periods. This decrease resulted from the dramatic
decrease in interest rates over the two periods.
Comparison of Nine Months Ended December 31, 2001,
- --------------------------------------------------
Versus Nine Months Ended December 31, 2000
- ------------------------------------------
For the nine month period ending December 31, 2001, net income amounted to
$10.4 million. This represents an increase of $1.9 million, or 23.0% when
comparing the two nine-month periods. Operating income rose by $1.3 million, or
6.6%, combined with a decrease in interest expense of $1.9 million, or 29.8%.
These improvements to net earnings were partially offset by an increase in
income taxes.
Total revenues amounted to $96.5 million during the current nine-month
period, an increase of $11.0 million, or 12.9%, over the prior-year period. This
increase resulted from an increase in interest and fee income of 14.6%, combined
with an increase in insurance and other income of 2.3%. Revenues from the 399
offices open throughout both nine-month periods increased approximately 9.8%.
The provision for loan losses increased by $4.6 million, or 28.4%, during
the current nine month period when compared to the same period of fiscal 2001.
This increase was due primarily to the growth in the loan portfolio. As a
percentage of average loans, net charge-offs on an annualized basis grew from
12.4% for the nine months ended December 31, 2000, to 14.6% for the most recent
nine month period.
9
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
-----------------------------------------------
General and administrative expenses increased by $5.2 million, or 10.4%,
during the most recent nine-month period. As a percentage of total revenues,
these expenses decreased from 58.9% during the prior year nine-month period to
57.5% during the current period. Excluding the expenses associated with
ParaData, overall general and administrative expenses, when divided by the
average open offices, increased by only 8.2% when comparing the two nine-month
periods.
Interest expense decreased by $1.9 million when comparing the two
nine-month periods, a decrease of 29.8%. This decrease is due to the reduction
in interest rates over the past 12 months.
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 agreement, (temporarily
increased to $120.0 million), and $6.0 million of subordinated notes. The
temporary increase of $15.0 million is consistent with the seasonality of our
loan demand. The Company historically receives this increase in the third and
fourth quarters of each fiscal year.
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 December 31, 2001, the weighted average interest rate under the
facility was 3.76%, and the Company's outstanding balance was $110.3 million,
leaving $9.7 million in borrowing availability under existing borrowing base
limitations (based on eligible loans receivable). The Company received a
temporary increase in availability under the revolving credit facility of $15.0
million for the period beginning November 15, 2001, through March 31, 2002.
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 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 of the ten 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.
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 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
11
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 $1.6 million, and unamortized identifiable assets of
approximately $12.1 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 $130,000 for the year ended March 31, 2001, and the nine months
ended December 31, 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.
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 $110.3 million at December 31, 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 December 31,
2001, a change of 1% in the interest rate would cause a change in
interest expense of approximately $1.10 million on an annual basis.
12
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
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 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 Income Plan 10.7 2000 10-K
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 December
31, 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: February 14, 2002 /s/ C. D. Walters
-------------------------------------------
C. D. Walters, Chief Executive Officer
Dated: February 14, 2002 /s/ A. A. McLean III
-------------------------------------------
A. A. McLean III, Executive Vice President
and Chief Financial Officer
16