SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For this transition period from _______________ to ________________
Commission file number 0-19599
WORLD ACCEPTANCE
CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 570425114
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
108 Frederick Street
Greenville, South Carolina 29607
(Address of principal executive offices) (Zip Code)
(864) 298-9800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The agregate market value of voting stock held by non-affiliates of the
registrant as of June 10, 1997, computed by reference to the closing sale price
on such date, was $. As of the same date, 18,946,573 shares of Common Stock, no
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1997 Annual Report ("the Annual Report") furnished to
the Commission pursuant to Rule 14a-3(b) and the Notice of Annual Meeting of
Shareholders and definitive Proxy Statement pertaining to the 1997 Annual
Meeting of Shareholders ("the Proxy Statement") and filed pursuant to Regulation
14A are incorporated herein by reference into Parts II and IV, and Part III,
respectively.
<PAGE>
WORLD ACCEPTANCE CORPORATION
Form 10-K Report
Table of Contents
<TABLE>
<CAPTION>
Item No. Page
- -------- ----
PART I
<S> <C>
1. Description of Business 1
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 9
8. Financial Statements and Supplementary Data 10
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
PART III
10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial Owners and Management 10
13. Certain Relationships and Related Transactions 10
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
</TABLE>
<PAGE>
Introduction
World Acceptance Corporation, a South Carolina corporation, operates a
small-loan consumer finance business in nine states. As used herein, the
"Company" includes World Acceptance Corporation and each of its subsidiaries,
except that when used with reference to the Common Stock or other securities
described herein and in describing the positions held by management or
agreements of the Company, it includes only World Acceptance Corporation. All
references in this report to "fiscal 1997" are to the Company's fiscal year
ended March 31, 1997.
PART I.
Item 1. Description of Business.
General. The Company is engaged in the small-loan consumer finance
business, offering short-term loans, related credit insurance and ancillary
products and services to individuals. The Company generally offers standardized
installment loans of between $130 to $1350 through 348 offices in South
Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri,
and New Mexico as of June 20, 1997. The Company targets individuals with limited
access to other sources of consumer credit from banks, savings and loans, other
consumer finance businesses and credit cards. The Company's customers typically
use their loans to meet temporary or unanticipated cash needs, such as holiday
gift purchases, car repairs, medical bills and back-to-school needs.
Small-loan consumer finance companies operate in a highly structured
regulatory environment. Consumer loan offices are individually licensed under
state laws, which establish allowable interest rates, fees and other charges on
small loans made to consumers and, in many states, the maximum principal amounts
and maturities of these loans. The Company believes that virtually all
participants in the small-loan consumer finance industry charge the maximum
rates permitted under applicable state laws.
The small-loan consumer finance industry is a highly fragmented segment of
the consumer lending industry. Small-loan consumer finance companies generally
make loans to individuals of up to $1,000 with maturities of one year or less.
These companies approve loans on the basis of the personal creditworthiness of
their customers and maintain close contact with borrowers to encourage the
repayment or refinancing of loans. By contrast, commercial banks, savings and
loans and other consumer finance businesses typically make loans of more than
$1,000 with maturities of more than one year. Those financial institutions
generally approve consumer loans on the security of qualifying personal property
pledged as collateral or impose more stringent credit requirements than those of
small-loan consumer finance companies. As a result of their higher credit
standards and specific collateral requirements, commercial banks, savings and
loans and other consumer finance businesses typically charge lower interest
rates and fees and experience lower delinquency and charge-off rates than do
small-loan consumer finance companies. Small-loan consumer finance companies
generally charge higher interest rates and fees to compensate for the greater
credit risk of delinquencies and charge-offs and increased loan administration
and collection costs.
The lending activities of small-loan consumer finance companies also differ
from those of pawnshops. Pawnshops generally make smaller loans with shorter
original maturities than small-loan consumer finance companies. Pawnshops also
extend loans based exclusively on the assessed value of the personal property
that is pledged to secure their loans rather than on the personal
creditworthiness of the borrower. Pawnshops experience default or forfeiture
rates on their loans that are significantly greater than those experienced by
small-loan consumer finance companies and, as a result, derive a large portion
of their revenues from the sale of forfeited collateral in the ordinary course
of their operations.
1
<PAGE>
Expansion. The Company opened or acquired 54 new offices (net) during
fiscal 1997. The Company plans to open or acquire at least 30 new offices in
each of the next two fiscal years by increasing the number of offices in its
existing market areas and in new states where it believes demographic profiles
and state regulations are attractive. The Company's ability to expand operations
into new states is dependent upon its ability to obtain necessary regulatory
approvals and licenses, and there can be no assurance that the Company will be
able to obtain any such approvals or consents.
The Company's expansion is also dependent upon its ability to identify
attractive locations for new offices and hire suitable personnel to staff,
manage and supervise new offices. In evaluating a particular community, the
Company examines several factors, including the demographic profile of the
community, the existence of an established small-loan consumer finance market
and the availability of suitable personnel to staff, manage and supervise the
new offices. The Company generally locates new offices in communities already
served by at least one small-loan consumer finance company.
The small-loan consumer finance industry is highly fragmented in the
nine states in which the Company currently operates. The Company believes
that its competitors in these markets are principally local operations with
fewer than 20 offices. The Company also believes that attractive
opportunities to acquire offices from competitors in its existing markets
and to acquire offices in communities not currently served by the Company
will become available as conditions in the local economies and the financial
circumstances of the owners change.
The following table sets forth the number of offices of the Company at the
dates indicated:
<TABLE>
<CAPTION>
At March 31,
------------------------------------------------------------------------------
At June 20,
State 1991 1992 1993 1994 1995 1996 1997 1997
- ----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Carolina 52 52 53 56 59 62 68 68
Georgia 31 34 35 35 38 39 45 47
Texas 58 62 66 81 93 104 131 131
Oklahoma 21 23 27 31 33 39 40 39
Louisiana(1) - 5 10 12 15 20 18 18
Tennessee(2) - - - 2 6 18 24 28
Illinois(3) - - - - - - 3 4
Missouri(4) - - - - - - 1 7
New Mexico(5) - - - - - - 6 6
--- ---- ---- ----- ----- ---- --- ----
Total 162 176 191 217 244 282 336 348
=== === === ==== === === === ====
</TABLE>
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(1) The Company commenced operations in Louisiana in May 1991.
(2) The Company commenced operations in Tennessee in April 1993.
(3) The Company commenced operations in Illinois in September 1996.
(4) The Company commenced operations in Missouri in August 1996.
(5) The Company commenced operations in New Mexico in December 1996.
Loan and Other Products. In each state in which it operates, the Company
offers loans that are standardized by amount and maturity in an effort to reduce
documentation and related processing costs. Substantially all of the Company's
loans are payable in monthly installments with terms of four to fifteen months,
and all loans are prepayable at any time without penalty. In fiscal 1997 the
Company's average originated loan size and term were approximately $473 and
eight months, respectively. State laws regulate lending terms, including the
maximum loan amounts and interest rates and the types and maximum amounts of
fees, insurance premiums and other costs that may be charged. As of March 31,
1997, the annual percentage rates on loans offered by the Company, which include
interest, fees and other charges as calculated for the purposes of federal
consumer loan disclosure requirements, ranged from 40% to 201% depending on the
loan size, maturity and the state in which the loan is made. In addition, in
certain states, the Company sells credit insurance in connection with its loans
as agent for an unaffiliated insurance company, which may increase its yields on
loans originated in those states.
2
<PAGE>
Specific allowable charges vary by state and, consistent with industry
practice, the Company generally charges the maximum rates allowable under
applicable state law. Statutes in Texas, Oklahoma and South Carolina allow for
indexing the maximum loan amounts to the Consumer Price Index. Fees charged by
the Company include origination and account maintenance fees, monthly handling
charges and, in South Carolina, Georgia, Louisiana and Tennessee, non-file fees,
which are collected by the Company and paid as premiums to an unaffiliated
insurance company for non-recording insurance.
The Company, as an agent for an unaffiliated insurance company, markets and
sells credit life, credit accident and health and credit property insurance in
connection with its loans in states where the sale of such insurance is
permitted by law. Credit life insurance provides for the payment in full of the
borrower's credit obligation to the lender in the event of death. Credit
accident and health insurance provide for repayment of loan installments to the
lender that come due during the insured's period of involuntary unemployment
resulting from disability from illness or injury. Credit property insurance
insures payment of the borrower's credit obligation to the lender in the event
that the personal property pledged as security by the borrower is damaged or
destroyed. The Company requires each customer to obtain credit insurance in the
amount of the loan for all loans originated in South Carolina, Georgia and
Tennessee, and encourages customers to obtain credit insurance for loans
originated in Louisiana. Customers in those states typically obtain such credit
insurance through the Company. Charges for such credit insurance are made at
maximum authorized rates and are stated separately in the Company's disclosure
to customers, as required by the Truth-in-Lending Act. In the sale of insurance
policies, the Company as agent writes policies only within limitations
established by its agency contracts with the insurer. The Company does not sell
credit insurance to non-borrowers.
In fiscal 1994 the Company began marketing automobile club memberships to
its borrowers in Georgia, Tennessee and Louisiana as an agent for an
unaffiliated automobile club. Club memberships entitle members to automobile
breakdown and towing insurance and related services. The Company is paid a
commission on each membership sold, but has no responsibility for administering
the club, paying insurance benefits or providing services to club members. The
Company generally does not market automobile club memberships to non-borrowers.
In fiscal 1995 the Company implemented its World Class Buying Club, and began
marketing certain electronic products and appliances to its Texas borrowers.
Since implementation, the Company has expanded this program to Georgia,
Tennessee, and South Carolina and plans to introduce the program in Louisiana in
the fall of 1997. Borrowers participating in this program can purchase a product
from a catalog available at a branch office and finance the purchase with a
retail installment sales loan provided by the Company. Products sold through
this program are shipped directly by the manufacturers to the Company's
customers and, accordingly, the Company is not required to maintain any
inventory to support the program.
Loan Activity and Seasonality. The following table sets forth the
composition of the Company's gross loans receivable by state at March 31 of each
year from 1991 through 1997.
At March 31,
----------------------------------------------------
State 1991 1992 1993 1994 1995 1996 1997
----- ---- ---- ---- ---- ---- ---- ----
South Carolina 40% 38% 37% 37% 35% 33% 26%
Georgia 13 13 14 14 13 13 13
Texas 39 39 38 38 38 35 39
Oklahoma 8 8 8 7 7 8 7
Louisiana(1) -- 2 3 3 4 5 3
Tennessee(2) -- -- -- 1 3 6 10
Illinois(3) -- -- -- -- -- -- --
Missouri(4) -- -- -- -- -- -- --
New Mexico(5) -- -- -- -- -- -- 2
--- --- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100% 100%
=== === === === === === ===
- ----------
(1) The Company commenced operations in Louisiana in May 1991.
(2) The Company commenced operations in Tennessee in April 1993.
(3) The Company commenced operations in Illinois in September 1996.
(4) The Company commenced operations in Missouri in August 1996.
(5) The Company commenced operations in New Mexico in December 1996.
3
<PAGE>
The following table sets forth the total number of loans and the average
loan balance by state at March 31, 1997.
Total
Number Average Gross Loan
of Loans Balance
-------- -------
South Carolina......................... 69,871 $428
Georgia................................ 35,594 420
Texas.................................. 122,016 362
Oklahoma............................... 21,873 345
Louisiana.............................. 10,592 377
Tennessee.............................. 20,593 522
Illinois............................... 375 361
Missouri............................... 469 258
New Mexico............................. 5,331 366
-------
Total.............................. 286,714
=======
The Company's highest loan demand occurs generally from October through
December, its third fiscal quarter. Loan demand is generally lowest and loan
repayment highest from January to March, its fourth fiscal quarter.
Consequently, the Company experiences significant seasonal fluctuations in its
operating results and cash needs. Operating results from the Company's third
fiscal quarter are generally significantly lower than in other quarters and
operating results for its fourth fiscal quarter are generally higher than in
other quarters.
Lending and Collection Operations. The Company seeks to provide short-term
loans to the segment of the population that has limited access to other sources
of credit. In evaluating the creditworthiness of potential customers, the
Company primarily examines the individual's discretionary income, length of
current employment, duration of residence and prior credit experience. Loans are
made to individuals on the basis of the customer's discretionary income and
other factors and are limited to amounts that the customer can reasonably be
expected to repay from that income. All of the Company's new customers are
required to complete standardized credit applications in person or by telephone
at local Company offices. Each of the Company's local offices is equipped to
perform immediate background, employment and credit checks and approve loan
applications promptly, often while the customer waits. The Company's employees
verify the applicant's employment and credit histories through telephone checks
with employers, other employment references and a variety of credit services.
Each new customer is required to submit a listing of personal property that will
be pledged as collateral to secure the loan, but the Company does not rely on
the value of such collateral in the loan approval process and generally does not
perfect its security interest in that collateral. Accordingly, if the customer
were to default in the repayment of the loan, the Company may not be able to
recover the outstanding loan balance by resort to collateral. The Company
believes that it generally approves less than 50% of applications for loans to
new customers.
The Company believes that the development and continual reinforcement of
personal relationships with customers improve the Company's ability to monitor
their creditworthiness, reduce credit risk and generate repeat loans. It is not
unusual for the Company to have made a number of loans to the same customer over
the course of several years, many of which were refinanced with a new loan after
two or three payments. In determining whether to refinance existing loans, the
Company typically requires loans to be current on a recency basis, and repeat
customers are generally required to complete a new credit application if they
have not completed one within the prior two years.
In fiscal 1997 approximately 91% of the Company's loans were generated
through refinancings of outstanding loans and the origination of new loans to
previous customers. A refinancing represents a new loan transaction with a
present customer in which a portion of the new loan is used to repay the balance
of an existing loan and the remaining portion is advanced to the customer. The
refinancing of loans increases the Company's returns because the Company is
generally permitted to charge the full amount of fees, premiums and other
charges collected on the existing loans. The Company actively markets the
opportunity to refinance existing loans prior to maturity, thereby increasing
the amount borrowed and increasing the fees and other income realized. For
fiscal 1995, 1996 and 1997, the percentages of the Company's loan originations
that were refinancings of existing loans were 79.5%, 80.0%, and 81.8%
respectively.
4
<PAGE>
The Company allows refinancing of delinquent loans on a case-by-case basis
for those customers who otherwise satisfy the Company's credit standards. Each
such refinancing is carefully examined before approval to avoid increasing
credit risk. A delinquent loan may generally be refinanced only if the customer
has made payments which, together with any credits of insurance premiums or
other charges to which the customer is entitled in connection with the
refinancing, reduce the balance due on the loan to an amount equal to or less
than the original cash advance made in connection with the loan. The Company
does not allow the amount of the new loan to exceed the original amount of the
existing loan. The Company believes that refinancing delinquent loans for
certain customers who have made periodic payments allows the Company to increase
its average loans outstanding and its interest, fee and other income without
experiencing a material increase in loan losses.
To reduce late payment risk, local office staff encourage customers to
inform the Company in advance of expected payment problems. Local office staff
also promptly contact delinquent customers following any payment due date and
thereafter remain in close contact with such customers through phone calls,
letters or personal visits to the customer's residence or place of employment
until payment is received or some other resolution is reached. When
representatives of the Company make personal visits to delinquent customers, the
Company's policy is to encourage the customers to return to the Company's office
to make payment. Company employees are instructed not to accept payment outside
of the Company's offices except in unusual circumstances. In Georgia and
Oklahoma, the Company is permitted under state laws to garnish customers' wages
for repayment of loans, but the Company does not otherwise generally resort to
litigation for collection purposes, and rarely attempts to foreclose on
collateral.
Insurance-related Operations. In Georgia, Louisiana, South Carolina and
Tennessee, the Company sells credit insurance to customers in connection with
its loans as an agent for an unaffiliated insurance company. These insurance
policies provide for the payment of the outstanding balance of the Company's
loan upon the occurrence of an insured event. The Company earns a commission on
the sale of such credit insurance, which is based in part on the claims
experience of the insurance company on policies sold on its behalf by the
Company.
The Company has a wholly owned captive insurance subsidiary, which
reinsures a portion of the credit insurance sold in connection with loans made
by the Company. Certain coverages currently sold by the Company on behalf of the
unaffiliated insurance carrier are ceded by the carrier to the captive insurance
subsidiary, providing the Company with an additional source of income derived
from the earned reinsurance premiums. In fiscal 1997, the captive insurance
subsidiary reinsured less than 15% of the credit insurance sold by the Company
and contributed approximately $674,000 to the Company's total revenues.
The Company typically does not perfect its security interest in collateral
securing its loans by filing Uniform Commercial Code financing statements.
Statutes in Georgia, Louisiana, South Carolina and Tennessee permit the Company
to charge a non-file or non-recording insurance fee in connection with loans
originated in these states. These fees are equal in aggregate amount to the
premiums paid by the Company to purchase non-file insurance coverage from an
unaffiliated insurance company. Under its non-file insurance coverage, the
Company is reimbursed for losses on loans resulting from its policy not to
perfect its security interest in collateral pledged to secure the loans.
Monitoring and Supervision. The Company's loan operations are organized
into Eastern and Western Divisions, with the Eastern Division consisting of
South Carolina, Georgia, Tennessee and Illinois and the Western Division
consisting of Louisiana, Texas, Oklahoma, Missouri and New Mexico. Several
levels of management monitor and supervise the operations of each of the
Company's offices. Branch managers are directly responsible for the performance
of their respective offices and must approve all credit applications. District
supervisors are responsible for the performance of eight to ten offices in their
districts, typically communicate with the branch managers of each of their
offices at least weekly and visit the offices monthly. Each of the state Vice
Presidents of Operations monitor the performance of all offices within their
states (or partial state in the case of Texas), primarily through communication
with district supervisors. These Vice Presidents of Operations typically
communicate with the district supervisors of each of their districts weekly and
visit each office in their states quarterly.
5
<PAGE>
Senior management receives daily delinquency reports consolidated by state
and has access to these daily reports for each branch office. At least monthly,
district supervisors audit the operations of each office in their geographic
area and submit standardized reports detailing their findings to the Company's
senior management. At least once every nine months, each office undergoes an
audit by the Company's internal auditors. These audits include an examination of
cash balances and compliance with Company loan approval, review and collection
procedures and federal and state laws and regulations.
In fiscal 1994 the Company converted all of its loan offices to a new
computer system following its acquisition of Paradata Financial Systems, Inc., a
small software company located near St. Louis, Missouri. This system uses a
proprietary data processing software package developed by Paradata, and has
enabled the Company to fully automate all loan account processing and collection
reporting. The system also provides significantly enhanced management
information and control capabilities. The Company also markets the system to
other finance companies, but there can be no assurance that revenues from sales
of the system to third parties will be material.
Staff and Training. Local offices are generally staffed with three
employees. The branch manager supervises operations of the office and is
responsible for approving all loan applications. Each office generally has one
assistant manager, who contacts delinquent customers, reviews loan applications
and prepares operational reports and one service representative, who takes and
processes loan applications and payments and assists in the preparation of
operational reports. Large offices may employ additional assistant managers and
service representatives.
New employees are required to review a detailed training manual that
outlines the Company's operating policies and procedures. The Company tests each
employee on the training manual during the first year of employment. In
addition, each branch provides in-office training sessions once every week and
training sessions outside the office for one full day every two months.
Compensation. The Company administers a performance-based compensation
program for all of its district supervisors and branch managers. The Company
annually reviews the performance of branch managers and adjusts their base
salaries based upon a number of factors, including office loan growth,
delinquencies and profitability. Branch managers also receive incentive
compensation based upon office profitability and delinquencies. In addition,
branch managers are paid a cash bonus for training personnel who are promoted to
branch manager positions. Assistant managers and service representatives are
paid a base salary and incentive compensation based primarily upon their
office's loan volume and delinquency ratio.
Advertising. The Company actively advertises through direct mail, targeting
both its present and former customers and potential customers who have used
other sources of consumer credit. The Company creates mailing lists from public
records of collateral filings by other consumer credit sources, such as
furniture retailers and other consumer finance companies and obtains or acquires
mailing lists from other sources. In addition to the general promotion of its
loans for vacations, back-to-school needs and other uses, the Company advertises
extensively during the October through December holiday season and in connection
with new office openings. The Company believes its advertising contributes
significantly to its ability to compete effectively with other providers of
small-loan consumer credit. In fiscal 1997, advertising expenses were
approximately 3.8% of total revenues.
Competition. The small-loan consumer finance industry is highly fragmented,
with numerous competitors. The majority of the Company's competitors are local
operators with fewer than 20 offices. Pawnshops also provide competition in most
of the communities served by the Company. The Company believes that it is one of
only two large small-loan consumer finance companies in the states in which it
currently operates. Management believes that the Company's largest competitor is
Security Finance Corporation, which has more than 500 offices, including offices
in each of the six states in which the Company currently operates its lending
business. Competition from nationwide consumer finance businesses is limited
because these companies typically do not make loans of less than $1,000.
The Company believes that pricing is not an important competitive factor in
the industry because most small-loan consumer finance companies charge the
maximum interest rates and fees allowable under applicable state laws. The
Company believes that competition between small-loan consumer finance companies
occurs primarily on the basis of the strength of customer relationships,
customer service and reputation in the local community. The Company believes
that its relatively larger size affords it a competitive advantage over smaller
companies by increasing its access to, and reducing its cost of, capital.
6
<PAGE>
Most of the states in which the Company currently operates limit the size
of loans made by small-loan consumer finance companies and prohibit the
extension of more than one loan to a customer by any one company. As a result,
many customers borrow from more than one finance company, enabling the Company
to obtain information on the credit history of specific customers from other
consumer finance companies. The Company generally seeks to open new offices in
communities already served by at least one other small-loan consumer finance
company.
Government Regulation. Small-loan consumer finance companies are subject to
extensive regulation, supervision and licensing under various federal and state
statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees, insurance premiums and other costs that may be charged. In addition, state
laws regulate collection procedures, the keeping of books and records and other
aspects of the operation of small-loan consumer finance companies. Generally,
state regulations also establish minimum capital requirements for each local
office. State agency approval generally is required to open new branch offices.
Accordingly, the ability of the Company to expand by acquiring existing offices
and opening new offices will depend in part on obtaining the necessary
regulatory approvals.
A Texas regulation requires the approval of the Texas Consumer Credit
Commissioner for the acquisition, directly or indirectly, of more than 10% of
the voting or common stock of a consumer finance company. A Louisiana statute
prohibits any person from acquiring control of 50% or more of the shares of
stock of a licensed consumer lender, such as the Company, without first
obtaining a license as a consumer lender. The overall effect of these laws, and
similar laws in other states, is to make it more difficult to acquire a consumer
finance company than it might be to acquire control of a nonregulated
corporation.
Each of the Company's branch offices is separately licensed under the laws
of the state in which the office is located. Licenses granted by the regulatory
agencies in these states are subject to renewal every year and may be revoked
for failure to comply with applicable state and federal laws and regulations. In
the states in which the Company currently operates, licenses may be revoked only
after an administrative hearing.
The Company and its operations are regulated by several state agencies,
including the Industrial Loan Division of the Office of the Georgia Insurance
Commissioner, the Consumer Finance Division of the South Carolina Board of
Financial Institutions, the South Carolina Department of Consumer Affairs, the
Texas Office of the Consumer Credit Commission, the Oklahoma Department of
Consumer Credit, the Louisiana Office of Financial Institutions and the
Tennessee Department of Financial Institutions. These state regulatory agencies
audit the Company's local offices from time to time and each state agency
performs an annual compliance audit of the Company's operations in that state.
The Company is also subject to state regulations governing insurance agents
in the states in which it sells credit insurance. State insurance regulations
require that insurance agents be licensed, govern the commissions that may be
paid to agents in connection with the sale of credit insurance and limit the
premium amount charged for such insurance. The Company's captive insurance
subsidiary is regulated by the insurance authorities of the Turks and Caicos
Islands of the British West Indies, where the subsidiary is organized and
domiciled.
The Company is subject to extensive federal regulation as well, including
the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act and the regulations thereunder and the Federal Trade Commission's
Credit Practices Rule. These laws require the Company to provide complete
disclosure of the principal terms of each loan to every prospective borrower,
prohibit misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices. Among the principal disclosure
items under the Truth-in-Lending Act are the terms of repayment, the final
maturity, the total finance charge and the annual percentage rate charged on
each loan. The Equal Credit Opportunity Act prohibits creditors from
discriminating against loan applicants on the basis of race, color, sex, age or
marital status. Pursuant to Regulation B promulgated under the Equal Credit
Opportunity Act, creditors are required to make certain disclosures regarding
consumer rights and advise consumers whose credit applications are not approved
of the reasons for the rejection. The Fair Credit Reporting Act requires the
Company to provide certain information to consumers whose credit applications
are not approved on the basis of a report obtained from a consumer reporting
agency. The Credit Practices Rule limits the types of property a creditor may
accept as collateral to secure a consumer loan. Violations of the statutes and
regulations described above may result in actions for damages, claims for refund
of payments made, certain fines and penalties, injunctions against certain
practices and the potential forfeiture of rights to repayment of loans.
7
<PAGE>
Consumer finance companies are affected by changes in state and federal
statutes and regulations. The Company actively participates in trade
associations and in lobbying efforts in the states in which it operates.
Although the Company is not aware of any pending or proposed legislation that
would have a material adverse effect on the Company's business, there can be no
assurance that future regulatory changes will not adversely affect the Company's
lending practices, operations, profitability or prospects.
Employees. As of March 31, 1996, the Company had approximately 1,154
employees, none of whom were represented by labor unions. The Company considers
its relations with its personnel to be good. The Company seeks to hire people
who will become long-term employees. The Company experiences a high level of
turnover among its entry-level personnel, which the Company believes is typical
of the small-loan consumer finance industry.
Executive Officers. The names and ages, positions, terms of office and
periods of service of each of the Company's executive officers are set forth
below. The term of office for each executive officer expires upon the earlier of
the appointment and qualification of a successor or such officers' death,
resignation, retirement or removal.
<TABLE>
<CAPTION>
Name and Age Position Period of Service as Executive Officer
------------ -------- --------------------------------------
<S> <C> <C>
Charles D. Walters (58) Chairman and Chief Chairman since July 1991; President since
Executive Officer; Director July 1986; CEO since July 1991; Director
since April 1989
R. Harold Owens (49) President and Chief President since August 1996; Executive Vice
Operating Officer President since June 1995;
Director since August 1995
A. Alexander McLean, III (45) Executive Vice President; Chief Executive Vice President since August 1996;
Financial Officer; Director Senior Vice President since July 1992;
CFO and Director since June 1989
Mark C. Roland (41) Senior Vice President-Eastern Since January 1996
Division
</TABLE>
Item 2. Properties.
The Company owns its headquarters facility of approximately 14,000 square
feet in Greenville, South Carolina and all of the furniture, fixtures and
computer terminals located in each branch office. As of June 20, 1997, the
Company had 348 branch offices, most of which are leased pursuant to short-term
operating leases. During the fiscal year ended March 31, 1997, total lease
expense was approximately $2.3 million, or an average of approximately $7,550
per office. The Company's leases generally provide for an initial three- to
five-year term with renewal options. The Company's branch offices are typically
located in shopping centers, malls and the first floors of downtown buildings.
Branch offices generally have a uniform physical layout and range in size from
800 to 1,200 square feet.
Item 3. Legal Proceedings.
The Company and its Georgia subsidiary are named as co-defendants with a
number of other finance companies, jewelry and furniture retailers, and
insurance companies in a consolidated action, currently pending in 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). The consolidated
action involves the defendants' non-file insurance practices. The complaint
alleges, among other things, that the defendants' non-file insurance coverages
do not constitute true insurance, and that the defendants' practices with
respect to non-file insurance constitute alleged federal truth-in-lending, RICO
and antitrust violations. The complaint has been certified as a nationwide class
action and seeks to recover money damages and injunctive relief. The complaint
was filed on April 18, 1995, the Company has filed an answer and the parties are
in the discovery process. The Company has been advised that certain of the
defendants in the case have agreed to settle the claims made against them by
paying money damages to the plaintiffs. The Company has also been advised that
certain of the settling defendants has agreed to change its non-file insurance
practices. If the Company's non-file insurance
8
<PAGE>
practices are found to be improper, the Company could be required to refund
non-file insurance fees, pay other significant damages to the plaintiffs, and
change its non-file insurance practices going forward, and the Company could
experience a reduction in future income.
The Company has been named as a defendant in an action, Turner v. World
Acceptance Corp., pending in District Court for the Fourteenth Judicial
District, Tulsa County, Oklahoma (No. CJ-97-1921). The action was commenced
against the Company on May 20, 1997, names numerous other consumer finance
companies as defendants, and seeks certification as a statewide class action.
The action alleges that World and other consumer finance defendants collected
excess finance charges in connection with refinancing certain consumer finance
loans in Oklahoma and seeks money damages and an injunction against further
collection of such charges. The Company has filed an answer in the action
denying liability, and discovery has not commenced. The plaintiff's claim is
based on a recent opinion of the Oklahoma Attorney General interpreting a
provision of the Oklahoma Consumer Credit Code with respect to the permitted
amount of certain loan refinance charges in a manner contrary to prior
regulatory practice in Oklahoma. Enforcement of the Oklahoma Attorney General's
opinion has been enjoined, and such action is currently pending before the
Oklahoma Supreme Court. In addition, the State of Oklahoma has recently enacted
legislation to clarify the interpretation of the disputed provision of
the Oklahoma Consumer Credit Code consistent with prior regulatory practice.
World intends to vigorously defend this action.
Management's statement of expectation with respect to these litigation
matters may be deemed a forward-looking statement, within the meaning of Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and no
assurance can be given that management's expectation will prove correct, as
such expectation is subject to certain risks, uncertainties and assumptions
based on the preliminary nature of the actions and the vagaries of litigation
generally. Should one or more of these risks materialize or should underlying
assumptions prove incorrect, the actual outcome of these litigation matters
could differ materially from management's expectation (See Note 6 of Notes to
Consolidated Financial Statements).
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 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to the Company's security holders during
the fourth fiscal quarter ended March 31, 1997.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Since November 26, 1991, the Company's Common Stock has traded on the
NASDAQ National Market System ("NASDAQ") under the symbol WRLD. As of June 20,
1997, there were 163 holders of record of Common Stock.
Since April 1989, the Company has not declared or paid any cash dividends
on its Common Stock. Its policy has been to retain earnings for use in its
business. In the future, the Company's Board of Directors will determine whether
to pay cash dividends based on conditions then existing, including the Company's
earnings, financial condition, capital requirements and other relevant factors.
In addition, the Company's credit agreements with its lenders impose
restrictions on the amount of cash dividends that may be paid on its capital
stock. Information contained under the caption "Corporate Information--Common
Stock" in the Annual Report is incorporated herein by reference in further
response to this Item 5.
Item 6. Selected Financial Data.
Information contained under the caption "Selected Consolidated Financial
and Other Data" in the Annual Report is incorporated herein by reference in
response to this Item 6.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference in response to this Item 7.
9
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Consolidated Financial Statements for the Company and the Independent
Auditors' Report thereon are contained in the Annual Report and are incorporated
by reference in response to this Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company had no disagreements on accounting or financial disclosure
matters with its independent certified public accountants to report under this
Item 9.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
Information contained under the caption "Election of Directors" and in the
final paragraph under the caption "Ownership of Common Stock of Management as of
June 20, 1997" in the Proxy Statement is incorporated herein by reference in
response to this Item 10. The information in response to this Item 10 regarding
the executive officers of the Company is contained in Item 1, Part I hereof
under the caption "Executive Officers."
Item 11. Executive Compensation.
Information contained under the caption "Executive Compensation" in the
Proxy Statement, except for the information therein under the subcaption "Joint
Report of the Compensation Committee and the Stock Option Committee," is
incorporated herein by reference in response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information contained under the captions "Ownership of Shares by Certain
Beneficial Owners as of June 20, 1997" and "Ownership of Common Stock of
Management as of June 20, 1997" in the Proxy Statement is incorporated by
reference herein in response to this Item 12.
Item 13. Certain Relationships and Related Transactions.
Information contained under the headings "Certain Transactions" and
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement is incorporated herein by reference in response to this Item 13.
10
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(1) The following consolidated financial statements of the Company and
Independent Auditors' Report are contained in the Annual Report and are
incorporated herein by reference.
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1997 and 1996
Consolidated Statements of Operations for the years ended March
31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended March
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable, or the required information is included
elsewhere in the consolidated financial statements.
(3) Exhibits:
The following exhibits are filed as part of this report or, where so
indicated, have been previously filed and are incorporated herein by reference.
<TABLE>
<CAPTION>
Filed Herewith (*), Non-
Applicable (NA), or
Incorporated by Reference
Previous
Exhibit Exhibit Company Registration
Number Description Number No. or Report
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation of the Company 3.1 1992 10-K
3.2 First Amendment to Second Amended and Restated Articles of 3.2 1995 10-K
Incorporation
3.3 Amended Bylaws of the Company 3.4 33-42879
4.1 Specimen Share Certificate 4.1 33-42879
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.2 Articles 3, 4 and 5 of the Form of Company's Second Amended and 3.1, 3.2 1995 10-K
Restated Articles of Incorporation (as amended)
4.3 Article II, Section 9 of the Company's Second Amended and Restated 3.2 1995 10-K
Bylaws
4.4 Revolving Credit Agreement, dated as of December 1, 1992, between 4.6 33-61524
Harris Trust and Savings Bank, the Banks signatory thereto from
time to time and the Company
4.5 First Amendment re: Note Agreements, Revolving Credit Agreement and 4.5 1994 10-K
Security Agreement, Pledge and Indenture of Trust, dated as of
April 2, 1993, between the Company and the Banks signatory thereto
4.6 Second Amendment to Revolving Credit Agreement, dated as of 4.6 1994 10-K
September 1, 1993, between the Company and the Banks signatory
thereto
4.7 Third Amendment to Credit Agreement/Second Amendment to Revolving 4.7 1995 10-K
Credit Notes, dated as of November 1, 1994, between the Company and
the Banks signatory thereto
4.8 Third [sic] Amendment to Credit Agreement, dated as of March 13, 4.8 1995 10-K
1995, between the Company and the Banks signatory thereto
4.9 Fifth Amendment to Credit Agreement, dated as of June 30, 1995 4.9 1996 10-K
4.10 Sixth Amendment to Credit Agreement, dated as of September 1, 1995 4.10 1996 10-K
4.11 Seventh Amendment to Credit Agreement, dated as of November 1, 1995 4.11 1996 10-K
4.12 Eighth Amendment to Credit Agreement, dated as of June 1, 1996 4.12 1996 10-K
4.13 Ninth Amendment to Credit Agreement, dated as of December 2, 1996 * NA
4.14 Tenth Amendment to Revolving Credit Agreement and Amendment to * NA
Security Agreement, dated as of March 31, 1997
4.15 Term Note Agreement, dated as of December 1, 1992, between 4.7 33-61524
Jefferson-Pilot Life Insurance Company and the Company
4.16 Term Note Agreement, dated as of December 1, 1992, between NA NA
Principal Mutual Life Insurance Company and the Company
4.17 First [sic] Amendment to Note Agreements, dated November 1, 1994, 4.11 1995 10-K
between Principal Mutual Life Insurance Company, Jefferson-Pilot
Life Insurance Company and the Company
4.18 Third Amendment to Note Agreements, dated June 30, 1995, among the * NA
Company and Principal Mutual Life Insurance Company and
Jefferson-Pilot Life Insurance Company
4.19 Security Agreement, Pledge and Indenture of Trust, dated as of 4.9 33-61524
December 1, 1992, between the Company and Harris Trust and Savings
Bank, as Security Trustee
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
4.20 Second Amendment to Security Agreement, Pledge and Indenture of 4.10 1994 10-K
Trust, dated as of September 1, 1993, between the Company and
Harris Trust and Savings Bank, as Security Trustee
4.21 Third Amendment to Security Agreement, Pledge and Indenture of 4.18 1996 10-K
Trust, dated as of June 30, 1995
4.22 Fourth Amendment to Security Agreement, Pledge and Indenture of 4.19 1996 10-K
Trust, dated as of November 1, 1995
4.23 Fifth Amendment to Security Agreement, Pledge and Indenture of 4.20 1996 10-K
Trust, dated as of June 1, 1996
4.24 Sixth Amendment to Security Agreement, Pledge and Indenture of * NA
Trust, dated as of December 2, 1996
10.1+ Employment Agreement of Charles D. Walters, effective April 1, 1994 10.1 1994 10-K
10.2+ Employment Agreement of A. Alexander McLean, III, effective April 10.2 1994 10-K
1, 1994
10.3+ Employment Agreement of R. Harold Owens, effective June 26, 1995 10.3 1995 10-K
10.4 Securityholders' Agreement, dated as of September 19, 1991, between 10.5 33-42879
the Company and certain of its securityholders
10.5+ 1992 Stock Option Plan of the Company 4 33-52166
10.6+ 1994 Stock Option Plan of the Company 10.6 1995 10-K
10.7+ The Company's Executive Incentive Plan 10.6 1994 10-K
10.8+ The Company's Executive Strategic Incentive Plan 10.8 1995 10-K
10.9+ Amendment No. 1, dated as of April 1, 1996, to the Executive 10.9 1996 10-K
Incentive Plan and the Executive Strategic Incentive Plan
13 Excerpts from 1997 Annual Report of the Company, with respect to * NA
those portions incorporated by reference into this report
21 Schedule of Company's subsidiaries * NA
23 Consent of KPMG Peat Marwick LLP in connection with the Company's * NA
Registration Statements on Form S-8
27 Financial Data Schedule * NA
</TABLE>
+ Management Contract or other compensatory plan required to be filed under Item
14(c) of this report and Item 601 of Regulation S-K of the Securities and
Exchange Commission.
# Omitted from filing - substantially identical to immediately preceding
exhibit, except for the parties thereto and the principal amount involved.
(4) Reports on Form 8-K:
During the most recent fiscal quarter, there were no reports filed on Form
8-K.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WORLD ACCEPTANCE CORPORATION
By: /s/ A. Alexander McLean, III
------------------------------
A. Alexander McLean, III,
Senior Vice President
Date: June 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature
---------
/s/ Charles D. Walters
- ----------------------------------
Charles D. Walters, Chairman and Chief Executive Officer
(principal executive officer); Director
Date: June 27, 1997
/s/ A. Alexander McLean, III
- ----------------------------------
A. Alexander McLean, III, Executive Vice President and Chief
Financial Officer (principal financial officer and principal
accounting officer); Director
Date: June 27, 1997
/s/ R. Harold Owens
- ----------------------------------
R. Harold Owens, President and Chief
Operating Officer (principal operating officer); Director
Date: June 27, 1997
/s/ Ken R. Bramlett, Jr.
- ----------------------------------
Ken R. Bramlett, Jr., Director
Date: June 27, 1997
14
<PAGE>
WORLD ACCEPTANCE CORPORATION
NINTH AMENDMENT TO CREDIT AGREEMENT AND
FIFTH AMENDMENT TO REVOLVING CREDIT NOTES
Harris Trust and Savings Bank
in its individual capacity as a Bank and as Agent
111 West Monroe Street
Chicago, Illinois 60690
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
December 1, 1992, between the undersigned, World Acceptance Corporation, a South
Carolina corporation (the "Borrower") and you, as heretofore amended (the
"Credit Agreement"). All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
The Borrower has requested that the Banks make an amendment to the Credit
Agreement and the Notes to increase the amount of the Revolving Credit
thereunder, and the Banks are willing to do so under the terms and conditions
set forth in this Amendment.
1. AMENDMENT.
Upon your acceptance hereof in the space provided for that purpose below,
the Credit Agreement shall be and hereby is amended as follows:
(a) The Commitments of the Banks under the Credit Agreement are hereby
amended as follows:
Bank Commitment
Harris Trust and Savings Bank $25,000,000 plus additional
$12,500,000 from November 30, 1996
to and including April 15, 1997
The First National Bank of Chicago $25,000,000 plus additional
$12,500,000 from November 30, 1996
to and including April 15, 1997
(b) The proviso in the first sentence of Section 3.1 of the Credit
Agreement shall be amended in its entirety and as so amended shall read as
follows:
provided however, that the commitment fee for any unused portion of the
$25,000,000 temporary increase in the Commitments shall be one-quarter of
one percent (1/4 of 1%) per annum.
<PAGE>
2. AMENDMENTS TO NOTES.
Upon your acceptance hereof in the space provided for that purpose below,
each of the Notes shall be and hereby is amended as follows:
(a) Each Note shall be amended by deleting the amount "$30,000,000" wherever
such amount appears therein and by substituting therefor the amount
"$37,500,000".
(b) Each Note shall be amended by deleting the phrase "Thirty Million" appearing
therein and by substituting therefor the phrase "Thirty-Seven Million Five
Hundred Thousand".
The Borrower hereby confirms its promise to pay all principal of and
interest on the Notes as amended hereby.
3. CONDITIONS PRECEDENT
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Borrower and the Banks shall have executed and delivered this Amendment.
(b) The Company shall have paid closing fees to each Bank in the amount of
$18,750 per Bank.
(c) The Banks shall have received copies (executed or certified, as may be
appropriate) of all legal documents or proceedings taken in connection with
execution and delivery of this Amendment to the extent the Banks or their
counsel may reasonably request.
(d) Legal matters incident to the execution and delivery of this Amendment shall
be satisfactory to the Banks and their counsel; and the Banks shall have
received the favorable written opinion of counsel for the Borrower in form and
substance satisfactory to the Banks and their counsel.
(e) Each Restricted Subsidiary shall have executed and delivered to the Banks
its consent in the form set forth below.
(f) The Note Purchasers shall have consented to the execution and delivery
hereof.
4. REPRESENTATIONS.
In order to induce the Banks to execute and deliver this Amendment, the
Borrower hereby represents to the Banks that, except as set forth on Schedule 1
hereto, as of the date hereof, each of the representations and warranties set
forth in Section 6 of the Credit Agreement are and shall be and remain true and
correct (except that the representations contained in Section 6.6 shall be
deemed to refer to the most recent financial statements of the Borrower
delivered to the Banks), in each such case, after giving effect to this
Amendment and the Borrower is in full compliance with all of the terms and
conditions of the Credit Agreement and no
-2-
<PAGE>
Default or Event of Default has occurred and is continuing thereunder or shall
result after giving effect to this Amendment.
5. MISCELLANEOUS
(a) The Borrower has heretofore executed and delivered the Collateral Documents
to the Security Trustee for the benefit of the Banks and the Note Purchasers and
the Borrower hereby agrees that notwithstanding the execution and delivery of
this Amendment, the Collateral Documents shall be and remain in full force and
effect and that any rights and remedies of the Security Trustee thereunder,
obligations of the Borrower thereunder and any liens and security interest
created or provided for thereunder shall be and remain in full force and effect
and shall not be affected, impaired or discharged hereby. Nothing herein
contained shall in any manner affect or impair the priority of the liens and
security interests created and provided for by the Collateral Documents as to
the indebtedness which would be secured thereby prior to giving effect to this
Amendment.
(b) The Credit Agreement and Notes, as amended hereby, shall continue in full
force and effect in accordance with their original terms. Reference to this
specific Amendment need not be made in any note, document, letter, certificate,
the Credit Agreement or Notes being sufficient to refer to the Credit Agreement
and Notes as amended hereby.
(c) The Borrower agrees to pay on demand all costs and expenses of or incurred
by the Agent in connection with the negotiation, preparation, execution and
delivery of this Amendment, including the fees and expenses of counsel for the
Agent.
(d) This Amendment may be executed in any number of counterparts, and by
different counterparts, all of which taken together shall constitute one and the
same agreement. Any of the parties hereto may execute this Amendment by signing
any such counterpart and each of such counterparts shall for all purposes be
deemed to be an original. This Amendment shall be governed by the internal laws
of the State of Illinois.
December 2, 1996
WORLD ACCEPTANCE CORPORATION
By /s/A.A. McLean III
Its Executive Vice President
-3-
<PAGE>
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK, in its
individual capacity as a Bank and as
Agent
By /s/[signature illegible]
Its Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/Craig Goldsmith
Its AVP
-4-
<PAGE>
For purposes of inducing the undersigned Note Purchasers to consent to this
Amendment, the Borrower hereby represents and warrants that, except as set forth
on Schedule 1 hereto, as of the date hereof, each of the representations and
warranties set forth in Exhibit C of the Note Purchase Agreements are and shall
be and remain true and correct (except that the representations contained in
paragraph 4 shall be deemed to refer to the most recent financial statements of
the Borrower delivered to the Note Purchasers), in each such case, after giving
effect to this Amendment and the Borrower is in full compliance with all of the
terms and conditions of the Note Purchase Agreements and no Default or Event of
Default (as defined therein) has occurred and is continuing thereunder or shall
result after giving effect to this Amendment.
WORLD ACCEPTANCE CORPORATION
By /s/A.A. McLean III
Its Executive Vice President
Consented and agreed to as of the date and year last above written.
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By /s/James C. Fifield
Its____________________________
By /s/Stephen G. Skrivanek
Its Counsel
JEFFERSON PILOT LIFE INSURANCE
COMPANY
By /s/James E. McDonald
Its_____________________________
-5-
<PAGE>
CONSENT
The undersigned have each heretofore executed and delivered to the Security
Trustee a Guaranty Agreement ("Guaranty") and a Security Agreement and Indenture
of Trust ("Security Agreement") and each hereby consents to the Amendment as set
forth above and confirms that its Guaranty and Security Agreement and all of the
undersigned's obligations thereunder remain in full force and effect. The
undersigned each further agrees that the consent of the undersigned to any
further amendments of the Credit Agreement shall not be required as a result of
this consent having been obtained.
WORLD ACCEPTANCE CORPORATION OF
ALABAMA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD ACCEPTANCE CORPORATION OF
MISSOURI
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF GEORGIA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer and Assistant
Secretary
WORLD FINANCE CORPORATION OF
ILLINOIS
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF
LOUISIANA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
-6-
<PAGE>
Secretary
WORLD ACCEPTANCE CORPORATION OF
OKLAHOMA, INC.
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF SOUTH
CAROLINA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer and Assistant
Secretary
WORLD FINANCE CORPORATION OF
TENNESSEE
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF TEXAS
By /s/A.A. McLean III
Its President
WFC LIMITED PARTNERSHIP
By: WFC of South Carolina, Inc.,
as sole general partner
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WFC OF SOUTH CAROLINA, INC.
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
-7-
<PAGE>
Schedule 1
Exceptions to Representations and Warranties
The Borrower and its Georgia subsidiary are named as co-defendants with a
number of other finance companies, jewelry and furniture retailers and insurance
companies in an action, formerly pending in U.S. District Court in Georgia,
which has been transferred and consolidated with other pending actions under the
caption In re American Insurance Company, "Non-filing Insurance" Fee Litigation
(Multidistrict Litigation Docket No. 1130, U.S. District Court, District of
Alabama, Northern Division). The consolidated action involves the defendants'
non-file insurance practices. The complaint alleges, among other things, that
the defendants' non-file insurance coverages do not constitute true insurance,
which result in alleged federal truth-in-lending, RICO and antitrust violations
and state fraud, breach of contract and conversion violations, and seeks
certification of a nationwide class of plaintiffs to recover money damages and
injunctive relief. The complaint in this action was filed on April 18, 1995, the
Borrower has filed an answer and the parties are in the discovery process. The
Borrower has been advised that certain of the defendants in the case have agreed
to settle the claims made against them by paying money damages to the
plaintiffs. The Borrower has also been advised that at least one of the settling
defendants has agreed to change its non-file insurance practices. If the
Borrower's non-file insurance practices are found to be invalid, the Borrower
could be required to refund non-file insurance fees, pay other significant
damages to the plaintiffs or change its non-file insurance practices going
forward, and the Borrower could experience a reduction in future income unless
legislative reforms are enacted. The Borrower disputes the allegations made in
the complaint, and intends to defend itself vigorously. Although the Borrower is
unable to predict with certainty the outcome of this litigation, management
expects that it will not have a material adverse effect on the Borrower's
consolidated financial position or results of operations.
-8-
WORLD ACCEPTANCE CORPORATION
TENTH AMENDMENT TO REVOLVING CREDIT AGREEMENT AND AMENDMENT
TO SECURITY AGREEMENTS AND SUBSIDIARY GUARANTY AGREEMENTS
Harris Trust and Savings Bank, Principal Mutual Life Insurance Company
in its individual capacity as a Bank, Des Moines, Iowa
as Agent, and as Security Trustee
Chicago, Illinois
The First National Bank of Chicago Jefferson-Pilot Life Insurance Company
Chicago, Illinois Greensboro, North Carolina
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
December 1, 1992, as amended, between the undersigned, World Acceptance
Corporation, a South Carolina corporation, Harris Trust and Savings Bank,
individually and as agent, and The First National Bank of Chicago (the
"Revolving Credit Agreement"). Reference is also hereby made to that certain
Security Agreement, Pledge and Indenture of Trust dated as of December 1, 1992,
as amended, between World Acceptance Corporation, a South Carolina corporation,
and Harris Trust and Savings Bank, as Security Trustee for the holders of the
Notes referred to therein (the "Company Security Agreement"). All capitalized
terms used herein without definition shall have the same meanings herein as such
terms have in the Company Security Agreement.
The Company and the Banks have agreed to amend the definitions of Borrowing
Base and Eligible Finance Receivables set forth in the Revolving Credit
Agreement, and the Noteholders, the Company and its Restricted Subsidiaries have
agreed to amend certain provisions of the Company Security Agreement, the
Subsidiary Security Agreements and the Subsidiary Guaranty Agreements, all under
the terms and conditions set forth in this Tenth Amendment (the "Amendment").
1. AMENDMENTS TO REVOLVING CREDIT AGREEMENT.
Upon the satisfaction of the conditions set forth in Section 3 below, the
definitions of "Borrowing Base" and "Eligible Finance Receivables" appearing in
Section 5.1 of the Revolving Credit Agreement shall be and hereby are amended
and restated in their entirety to read as follows:
"Borrowing Base" means, as of any time it is to be determined, the sum of:
(a) the product of 85% multiplied by the remainder of (x) the then
outstanding unpaid amount of Eligible
<PAGE>
Finance Receivables, other than Eligible Finance Receivables consisting of
instruments not in the possession of the Security Trustee minus (y) all
unearned finance charges applicable to such Eligible Finance Receivables;
plus
(b) the lesser of (i) $15,000,000, (ii) 11.11% of the product
determined in accordance with clause (a) above or (iii) the product of 50%
multiplied by the remainder of (x) the then outstanding unpaid amount of
Eligible Finance Receivables consisting of instruments not in the
possession of the Security Trustee minus (y) all unearned finance charges
applicable to such Eligible Finance Receivables.
"Eligible Finance Receivables" means and includes each Finance Receivable
of the Borrower or any Restricted Subsidiary that:
(a) is the valid, binding and legally enforceable obligation of the
debtor obligated thereon and such debtor is not (i) an Affiliate of the
Borrower or of any Restricted Subsidiary, (ii) a shareholder, director,
officer or employee of the Borrower or of any Restricted Subsidiary or of
any Affiliate of the Borrower or any Restricted Subsidiary, (iii) the
United States of America or any department, agency or instrumentality
thereof unless the Borrower or such Restricted Subsidiary has complied with
the Assignment of Claims Act to the satisfaction of the Agent, (iv) a
debtor under any proceeding under the United States Bankruptcy Code or any
other comparable bankruptcy or insolvency law applicable under the law of
any other country or political subdivision thereof, or (v) an assignor for
the benefit of creditors;
(b) is assignable and not evidenced by an instrument or chattel paper
unless the same has been endorsed and delivered to the Security Trustee
(except that, until a Default or Event of Default has occurred and is
continuing and thereafter until otherwise notified by the Security Trustee
pursuant to Section 4.3(b) of the Company Security Agreement or the
Subsidiary Security Agreements, as appropriate, the same shall not be
required to be delivered to the Security Trustee if a legend shall have
been placed thereon in accordance with Section 4.3(c) of the Company
Security Agreement or the Subsidiary Security Agreements, as appropriate);
(c) is subject to a perfected, first priority Lien pursuant to the
Company Security Agreement or the Subsidiary Security Agreements, as
appropriate, in favor of the Security Trustee for the benefit of the Banks
(except that, in the case of instruments referred to in clause (b) above,
the same need not be perfected until the Security Trustee requests delivery
of the same in accordance with Section 4.3(b) of the Company Security
Agreement or the Subsidiary Security Agreements, as appropriate), and is
free and clear of any other Lien other than the lien in favor of the Note
Purchasers and liens permitted under Sections 3.19(e) and 3.19(g) of the
Company Security Agreement;
(d) is net of any credit or allowance given by the Borrower or such
Restricted Subsidiary to such account debtor;
-2-
<PAGE>
(e) is not subject to any offset, counterclaim or other defense with
respect thereto;
(f) is not owed by an account debtor who is obligated on accounts owed
to the Borrower or such Restricted Subsidiary any portion of which is
unpaid more than 60 days after the contractual due date (which must be
issued in accordance with the Borrower's or such Restricted Subsidiary's
business practices in effect as of the date hereof) unless the Agent has
approved the continued eligibility thereof; and
(g) is subject to loan and security documentation which complies in
all respects with all applicable federal, state and local laws, rules and
regulations.
2. AMENDMENTS TO SECURITY AGREEMENTS AND SUBSIDIARY GUARANTY AGREEMENTS.
Upon the satisfaction of the conditions set forth in Section 3 below, the
Company Security Agreement, each Subsidiary Security Agreement, and each
Subsidiary Guaranty Agreement shall be amended as follows:
(a) Section 8.2(i) of the Company Security Agreement and Section
7.2(i) or 8.2(i), as the case may be, of the relevant Subsidiary Security
Agreement (containing terms substantially similar to Section 8.2(i) of the
Company Security Agreement) shall each be amended and restated in its
entirety to read as follows:
"(i) Intentionally deleted."
(b) The section entitled "Waivers and Consents by Noteholders;
Supplemental Security Agreements with Noteholders' Consent" set forth in
Section 9.2 of the Company Security Agreement and Section 8.2 or 9.2, as
the case may be, of the relevant Subsidiary Security Agreement shall be
amended and restated in its entirety to read as follows:
"Waivers and Consents by Noteholders; Supplemental Security
Agreements with Noteholders' Consent. Upon the waiver or
consent of (x) the holders of more than 50% of the Aggregate
Principal Amount of Outstanding Notes, computed solely by
reference to the Senior Secured Notes, and of (y) the
holders of more than 50%, of the Aggregate Principal Amount
of Outstanding Notes, computed solely by reference to the
Revolving Credit Notes, (a) the Company may take any action
prohibited, or omit the taking of any action required, by
any of the provisions of this Agreement or any indenture
supplemental hereto, or (b) the Company and the Security
Trustee may enter into an agreement or agreements
supplemental hereto for the purpose of adding, changing or
eliminating any provisions of this Agreement or of any
agreement supplemental hereto or modifying in any manner the
-3-
<PAGE>
rights and obligations of the holders of the Notes and the
Company; provided, however, that no such waiver or
supplemental agreement shall (i) impair or affect the right
of any holder to receive payments or prepayments of the
principal of and payments of the interest and premium, if
any, on its Note, as therein and herein provided, without
the consent of such holder, (ii) permit the creation of any
lien and security interest with respect to any of the
Collateral, without the consent of the holders of all the
Notes at the time outstanding, (iii) effect the deprivation
of the holder of any Note of the benefit of the lien and
security interest of this Agreement upon all or any part of
the Collateral without the consent of such holder, (iv)
reduce the aforesaid percentages of the aggregate principal
amount of Notes, the holders of which are required to
consent to any such waiver or supplemental indenture
pursuant to this Section, without the consent of the holders
of all of the Notes at the time outstanding (including,
without limitation, any change to the definition of
"Aggregate Principal Amount of the Outstanding Notes"), (v)
modify the rights, duties or immunities of the Security
Trustee without the consent of the holders of all of the
Notes at the time outstanding, (vi) consent to the release
or termination of any Subsidiary Guaranty Agreement without
the consent of the holders of all of the Notes at the time
outstanding or (vii) amend or modify the form of
subordination provisions attached hereto without the consent
of the holders of all of the Notes at the time outstanding."
(b) The Noteholders, the Company and each Restricted Subsidiary hereby
acknowledge and agree that the Revolving Credit Notes issued and outstanding
under the Revolving Credit Agreement, as amended, currently in the aggregate
principal amount of $75,000,000 constitute "Revolving Credit Notes" for all
purposes of the Company Security Agreement, each Subsidiary Security Agreement,
and each Subsidiary Guaranty Agreement, entitled to all the benefits and
security provided for thereby or referred to therein, and the definition of
"Revolving Credit Notes" set forth in the Company Security Agreement, each
Subsidiary Security Agreement, and each Subsidiary Guaranty Agreement shall be
deemed amended hereby to refer to such amount.
3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Noteholders, the Company and each existing Restricted
Subsidiary shall have executed and delivered this Amendment.
-4-
<PAGE>
(b) The Noteholders shall have received copies (executed or certified,
as may be appropriate) of all legal documents or proceedings taken in
connection with the execution and delivery of this Amendment to the extent
the Noteholders, or their counsel, may reasonably request.
(c) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Noteholders and their counsel.
4. REPRESENTATIONS.
In order to induce the Noteholders to execute and deliver this Amendment,
the Company hereby represents to the Noteholders that, except as set forth on
Schedule 1 hereto, as of the date hereof, each of the representations and
warranties set forth in the Revolving Credit Agreement and each Note Agreement
is and shall be and remain true and correct, in each such case after giving
effect to this Amendment, and the Company is in compliance with all of the terms
and conditions of the Revolving Credit Agreement and each Note Agreement and no
Default or Event of Default has occurred and is continuing thereunder or shall
result after giving effect to this Amendment.
5. MISCELLANEOUS.
(a) The Company and its Restricted Subsidiaries set forth on the signature
pages set forth below have heretofore executed and delivered to the Security
Trustee for the benefit of the Noteholders the Company Security Agreement and
the Subsidiary Security Agreements (collectively, the "Collateral Documents");
and the Company and each Restricted Subsidiary hereby agrees that,
notwithstanding the execution and delivery of this Amendment, the Collateral
Documents shall be and remain in full force and effect and that any rights and
remedies of the Security Trustee thereunder, obligations of the Company or any
Restricted Subsidiary thereunder, and any liens and security interests created
or provided for thereunder shall be and remain in full force and effect and
shall not be affected, impaired or discharged hereby. Nothing herein contained
shall in any manner affect or impair the priority of the liens and security
interests created and provided for by the Collateral Documents as to the
indebtedness which would be secured thereby prior to giving effect to this
Amendment.
(b) The Revolving Credit Agreement, Company Security Agreement, Subsidiary
Security Agreements and Subsidiary Guaranty Agreements shall continue in full
force and effect in accordance with their original terms except to the extent
amended hereby. Reference to this specific Amendment need not be made in any
note, document, letter, certificate, the Revolving Credit Agreement, the Company
Security Agreement, any Subsidiary Guaranty Agreement, or any Subsidiary
Security Agreement, or any communication issued or made pursuant to or with
respect thereto, any reference in any of such items to the Revolving Credit
Agreement, the Company Security Agreement, any Subsidiary Security Agreement, or
any Subsidiary Guaranty Agreement being sufficient to refer to such agreements
as amended hereby.
-5-
<PAGE>
(c) The Company agrees to pay on demand all costs and expenses of or
incurred by the Noteholders in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Noteholders.
(d) This Amendment may be executed in any number of counterparts, and by
the different parties on different counterparts, all of which taken together
shall constitute one and the same agreement. Any of the parties hereto may
execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of Illinois.
(e) By signing below, the Noteholders hereby request that the Security
Trustee execute and deliver this Amendment pursuant to the terms of the Company
Security Agreement and the relevant Subsidiary Security Agreements.
Dated as of March 31, 1997.
WORLD ACCEPTANCE CORPORATION
By /s/ A A McLean III
-----------------------------
Its Executive Vice President,
Chief Financial Officer, and
Assistant Secretary
-6-
<PAGE>
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK, in its PRINCIPAL MUTUAL LIFE INSURANCE
individual capacity as a Bank and as COMPANY
Agent
By /s/ Jerome Crokin By /s/ James C. Fifield
----------------------- ----------------------------
Its Vice President Its [illegible]
By /s/ Stephen G. Skrivanek
----------------------------
Its Counsel
THE FIRST NATIONAL BANK OF CHICAGO JEFFERSON-PILOT LIFE INSURANCE
COMPANY
By /s/ Craig Goldsmith By /s/ [illegible]
------------------------------- ---------------------------
Its AVP Its [illegible]
Acknowledged and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK,
as Security Trustee
By /s/ Robert D. Foltz
------------------------------
Its Vice President
-7-
<PAGE>
ACKNOWLEDGEMENT AND CONSENT
The undersigned have each heretofore executed and delivered to the Security
Trustee a Guaranty Agreement and a Security Agreement and Indenture of Trust or
a Security Agreement, Pledge and Indenture of Trust, in each case in favor of
the Security Trustee for the benefit of the Noteholders referred to therein.
Each of the undersigned hereby acknowledges and agrees to the Amendment as set
forth above (including, without limitation, Section 2 above) and confirms that
its Subsidiary Guaranty Agreement and Subsidiary Security Agreement, and all of
the obligations of the undersigned thereunder, remain in full force and effect.
WORLD ACCEPTANCE CORPORATION OF
ALABAMA
By /s/ A A McLean III
------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD ACCEPTANCE CORPORATION OF
MISSOURI
By /s/ A A McLean III
------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF GEORGIA
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
-8-
<PAGE>
WORLD FINANCE CORPORATION OF
LOUISIANA
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD ACCEPTANCE CORPORATION OF
OKLAHOMA, INC.
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF SOUTH
CAROLINA
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF
TENNESSEE
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF TEXAS
By /s/ Duane D. Moore
------------------------------------
Its President
-9-
<PAGE>
WFC LIMITED PARTNERSHIP
By WFC of South Carolina, Inc.,
as sole general partner
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WFC OF SOUTH CAROLINA, INC.
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF ILLINOIS
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
PERSONAL CREDIT PLAN, INC.
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF NEW
MEXICO
By /s/ A A McLean III
------------------------------------
Its Executive Vice President,
Chief Financial Officer, and Assistant
Secretary
-10-
<PAGE>
SCHEDULE I
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
The Company and its Georgia subsidiary are named as co-defendants with 46
other finance companies, merchants, and insurance companies in purported class
action, Jordan, et al. v. AVCO Financial Services, Inc., et al, (Case No. 96-CL-
1557N, MDL No. 1130, U.S. District Court, Middle District of Alabama), that
challenges the defendants' practices with respect to non-filing insurance. The
action was filed on April 18, 1995, in U.S. District Court for the Middle
District of Georgia, in Columbus, Georgia, and by order dated October 11, 1996
was consolidated for pre-trial proceedings before Judge U.W. Clemon of the U.S.
District Court for the Middle District of Alabama by the Judicial Panel on
Multidistrict Litigation. Non-filing insurance is a product that lenders can
purchase as an alternative to filing a UCC-1 financing statement to perfect the
lenders' security interest borrowers' collateral. Borrowers are charged a fee
representing the amount of the non-filing insurance premium. In the Jordan
action, the plaintiffs have alleged that non-filing insurance is not true,
legitimate insurance and that non-filing fees charged to borrowers are not being
disclosed properly under the federal Truth-in-Lending Act. The plaintiffs also
have alleged violations of RICO and the federal antitrust laws. The plaintiffs
originally asserted state law claims for breach of contract, conversion, and
fraud, but subsequently dismissed those claims without prejudice. The plaintiffs
seek damages, permanent injunctive relief, and attorneys' fees. If the Company's
non-filing insurance practices are found to be unlawful, the Company could be
required to refund non-filing insurance fees, pay other damages to the
plaintiffs, and change its non-filing insurance practices going forward.
World has denied that its non-filing insurance practices are unlawful and
is defending the case vigorously. Discovery in the case is ongoing, and,
pursuant to court order, will continue through March 1998. A hearing on the
issue of class certification was held on January 23, 25 and 28; although Judge
Clemon has not yet ruled on the plaintiffs' request to certify a national class
(including borrowers who dealt with the defendants beginning in 1991), he has
indicated that he expects to certify a nationwide class. Due to the complexity
of the litigation, it is difficult to predict either the outcome or the
potential damages that the Company would have to pay if an outcome were adverse.
WORLD ACCEPTANCE CORPORATION
THIRD AMENDMENT TO NOTE AGREEMENTS
June 30, 1995
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392-08000
Attn: Mr. Dennis Menken,
Investment Department
Securities Division
Jefferson-Pilot Life Insurance Company
P.O. Box 21008
100 North Greene Street
Greensboro, North Carolina 27420
Attn: Mr. H. Lusby Brown
Securities Administration 36300
Ladies and Gentlemen:
Reference is hereby made to those certain Note Agreements each dated as of
December 1, 1992, between the undersigned World Acceptance Corporation, a South
Carolina corporation (the "Company"), and you, as amended by agreements dated as
of April 2, 1993 and November 1, 1994 (the "Note Agreements"). All capitalized
terms used herein without definition shall have the same meanings herein as such
terms have in the Note Agreements.
The Company has requested that you make certain amendments to the Note
Agreements such that the definition of "subsidiary" contained therein shall
contemplate subsidiaries which are organized as partnerships, limited liability
companies and other entities in addition to corporations, and you are willing to
do so under the terms and conditions set forth in this Amendment.
1. AMENDMENTS.
Upon your acceptance hereof in the space provided for that purpose below,
the Note Agreements shall be and hereby are amended as follows:
(a) The term "subsidiary" set forth in Section 7.1 of the Note Agreements
is amended in its entirety as follows:
"subsidiary" shall mean, as to any particular parent corporation, any
corporation, partnership, limited liability company or other entity of
which more
<PAGE>
Principal Mutual Life Insurance Company
Jefferson-Pilot Life Insurance Company
June 30, 1995
Page -2-
- ---------------------------------------
than 50% (by number of votes or other similar decisionmaking authority) of
the Voting Stock shall be owned by such parent corporation and/or one or
more corporations, partnerships, limited liability companies or other
entities which are themselves subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.
(b) The last two sentences of Paragraph 1 of Exhibit 2 to the Note
Agreements are amended in their entirety as follows:
The Company has good and marketable title to all of the shares of the
stock, partnership interest, membership interest or other applicable equity
interest of each Subsidiary, free and clear in each case of any Lien other
than the Lien of the Company Security Agreement. All such shares,
partnership interests, membership interests and other equity interests have
been duly authorized and validly issued and are fully paid and
non-assessable.
(c) Paragraph 2 of Exhibit 2 to the Note Agreements is amended in its
entirety as follows:
2. Organization and Authority. The Company, and each Subsidiary,
(a) is a corporation, partnership, limited liability company or other
entity duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization;
(b) has all requisite corporate or other applicable power and
authority and all necessary licenses and permits to own and operate its
properties and to carry on its business as now conducted; and
(c) is duly licensed or qualified and is in good standing as a foreign
corporation, partnership, limited liability company or other entity in each
jurisdiction where the nature of the business conducted or the nature of
the property owned or leased by its makes such licensing or qualification
necessary.
(d) Paragraph 20 of Exhibit 2 to the Note Agreements is amended in its
entirety as follows:
<PAGE>
Principal Mutual Life Insurance Company
Jefferson-Pilot Life Insurance Company
June 30, 1995
Page -3-
- ---------------------------------------
20. Compliance by Restricted Subsidiaries. Compliance by each
Restricted Subsidiary with all of the provisions of its respective
Subsidiary Security Agreement and its respective Subsidiary Guaranty
Agreement--
(a) is within the corporate or other applicable powers of such
Restricted Subsidiary;
(b) will not violate any provisions of any law or any order of any
court or governmental authority or agency and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under the charter, bylaws, certificate of limited
partnership, partnership agreement, articles of organization, operating
agreement or other applicable governing documents of such Restricted
Subsidiary or any indenture or other agreement or instrument to which such
Restricted Subsidiary is a party or by which it may be bound or result in
the imposition of any Liens or encumbrances on any property of such
Restricted Subsidiary (other than as contemplated by such Subsidiary
Security Agreement); and
(c) has been duly authorized by proper corporate or other proper
action on the part of such Restricted Subsidiary (other than such action as
has already been taken, no action by the stockholders or other
equityholders of such Restricted Subsidiary being required by law, by the
charter, bylaws, certificate of limited partnership, partnership agreement,
articles of organization, operating agreement or other applicable governing
documents of such Restricted Subsidiary or otherwise), executed and
delivered by such Restricted Subsidiary and such Subsidiary Security
Agreement and Subsidiary Guaranty Agreement constitute the legal, valid and
binding obligations, contracts and agreements of such Restricted Subsidiary
enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law) and to the
discretion of the court before which any proceedings may be brought.
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
(a) The Company and holders of at least 76% in aggregate principal
amount of outstanding Notes shall have executed and delivered this
Amendment.
<PAGE>
Principal Mutual Life Insurance Company
Jefferson-Pilot Life Insurance Company
June 30, 1995
Page -4-
- ---------------------------------------
(b) The Purchasers shall have received copies (executed or certified,
as may be appropriate) of all legal documents or proceedings taken in
connection with the execution and delivery of this Amendment to the extent
the Purchasers or their counsel may reasonably request.
(c) Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Purchasers and their counsel; and
the Purchasers shall have received the favorable written opinion of counsel
for the Company in form and substance satisfactory to the Purchasers and
their counsel.
(d) Each Restricted Subsidiary shall have executed and delivered to
the Purchasers its consent in the form set forth below.
3. REPRESENTATIONS.
In order to induce the Purchasers to execute and deliver this Amendment,
the Company hereby represents to the Purchasers that, except as set forth on
Schedule 1 hereto, as of the date hereof, each of the representations and
warranties set forth in Exhibit C to the Note Agreements are and shall be and
remain true and correct, in each such case, after giving effect to this
Amendment, and the Company is in full compliance with all of the terms and
conditions of the Note Agreements and no Default or Event of Default has
occurred and is continuing thereunder or shall result after giving effect to
this Amendment. For purposes of this Section 3 and the filing and recording of
financing statements or other notices with respect to the Subsidiary Security
Agreements executed and delivered as of the date hereof or as of July 1, 1995,
the term Closing Date as used in Paragraph 19 of Exhibit C to the Note
Agreements shall mean and include the date of this Amendment and July 1, 1995.
4. MISCELLANEOUS.
(a) The Company and the Restricted Subsidiaries have heretofore executed
and delivered the Company Security Agreement and the Subsidiary Security
Agreements, as applicable, to the Security Trustee for the benefit of the
Purchasers and the Banks, and the Company and the Restricted Subsidiaries hereby
agree that notwithstanding the execution and delivery of this Amendment, the
Company Security Agreement and Subsidiary Security Agreements shall be and
remain in full force and effect and that any rights and remedies of the Security
Trustee thereunder, obligations of the Company and the Restricted Subsidiaries
thereunder and any liens and security interests created or provided for
thereunder shall be and remain in full force and effect and shall not be
affected, impaired or discharged hereby. Nothing herein contained shall in any
manner affect or impair the priority of the liens and
<PAGE>
Principal Mutual Life Insurance Company
Jefferson-Pilot Life Insurance Company
June 30, 1995
Page -5-
- ---------------------------------------
security interests created and provided for by the Company Security Agreement or
the Subsidiary Security Agreements as to the indebtedness which would be secured
thereby prior to giving effect to this Amendment.
(b) The Note Agreements, as amended hereby, shall continue in full force
and effect in accordance with their original terms. Reference to this specific
Amendment need not be made in any note, document, letter, certificate, the Note
Agreements themselves, the Notes or any communication issued or made pursuant to
or with respect to the Note Agreements, any reference in any of such to the Note
Agreements being sufficient to refer to the Note Agreements as amended hereby.
(c) The Company agrees to pay on demand all costs and expenses of or
incurred by the Purchasers in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Purchasers.
(d) This Amendment may be executed in any number of counterparts, and by
the different parties on different counterparts, all of which taken together
shall constitute one and the same agreement. Any of the parties hereto may
execute this Amendment by signing any such counterpart and each of such
counterparts shall for all purposes be deemed to be an original. This Amendment
shall be governed by the internal laws of the State of South Carolina.
<PAGE>
Principal Mutual Life Insurance Company
Jefferson-Pilot Life Insurance Company
June 30, 1995
Page -6-
- ---------------------------------------
Dated June 30, 1995.
WORLD ACCEPTANCE CORPORATION
By: /s/ A. A. McLean, III
-----------------------------------
Title: Senior Vice President,
Chief Financial Officer
and Assistant Secretary
Accepted and agreed to as of the date and year last above written.
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By: /s/ Clint Woods
-----------------------------------
Title: Counsel
By: /s/ Christopher J. Henderson
-----------------------------------
Title: Counsel
JEFFERSON-PILOT LIFE INSURANCE
COMPANY
By: /s/ Robert E. Whalen, II
-----------------------------------
Title: Second Vice President
<PAGE>
CONSENT
The undersigned have each heretofore executed and delivered to the Security
Trustee a Guaranty Agreement ("Guaranty") and a Security Agreement and Indenture
of Trust ("Security Agreement") and each hereby consents to the Amendment as set
forth above and confirms that its Guaranty and Security Agreement and all of the
undersigned's obligations thereunder remain in full force and effect. The
undersigned each further agrees that the consent of the undersigned to any
further amendments of the Note Agreements shall not be required as a result of
this consent having been obtained.
COLONIAL FINANCE CORPORATION OF
TENNESSEE
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD ACCEPTANCE CORPORATION OF
ALABAMA
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD ACCEPTANCE CORPORATION OF
MISSOURI
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD FINANCE CORPORATION OF GEORGIA
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
[signatures continued]
<PAGE>
WORLD FINANCE CORPORATION OF
LOUISIANA
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD FINANCE CORPORATION OF
OKLAHOMA, INC.
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD FINANCE CORPORATION OF
SOUTH CAROLINA
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD FINANCE CORPORATION OF
TENNESSEE
By: /s/ A. A. McLean, III
----------------------------------------------
Title: Senior Vice President, Chief Financial
Officer and Assistant Secretary
WORLD FINANCE CORPORATION OF TEXAS
By: /s/ Duane D. Moore
----------------------------------------------
Title: President
WFC LIMITED PARTNERSHIP
By: WORLD FINANCE CORPORATION OF TEXAS
By: /s/ Duane D. Moore
-----------------------------------------
Title: President
-2-
<PAGE>
SCHEDULE 1
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
The Company and its Georgia subsidiary are named as co-defendants with 30
other finance companies, jewelry and furniture retailers and insurance companies
in an action, Elaine M. Jordan, et al. v. World Finance Corporation of Georgia
and World Acceptance Corporation, et al. (Case No. 95-52-COL, U.S. Dist. Ct.,
Middle District of Georgia, Columbus Division), involving the defendants'
non-file insurance practices. The complaint alleges, among other things, that
the defendants' non-file insurance coverages do not constitute true insurance,
which result in alleged federal truth-in-lending, RICO and antitrust violations
and state fraud, breach of contract and conversion violations, and seeks
certification of a nationwide class of plaintiffs to recover money damages. The
complaint in this action was filed on April 18, 1995, and as of the date of this
Report, the Company is in the process of preparing its answer. The Company
disputes the allegations made in the complaint, and intends to defend itself
vigorously. Although the Company is unable to predict the outcome of this
litigation, management believes that it will not have a material adverse effect
on the Company's financial position or results of operations.
WORLD ACCEPTANCE CORPORATION
SIXTH AMENDMENT TO SECURITY AGREEMENT, PLEDGE AND
INDENTURE OF TRUST
December 2, 1996
Harris Trust and Savings Bank,
as Security Trustee
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Security Agreement, Pledge and
Indenture of Trust dated as of December 1, 1992 between the undersigned, World
Acceptance Corporation, a South Carolina corporation (the "Company") and you
(the "Security Trustee"), as amended by that certain First Amendment dated as of
April 2, 1993, Second Amendment dated as of September 1, 1993, Third Amendment
dated as of June 30, 1995, Fourth Amendment dated as of November 1, 1995 and
Fifth Amendment dated as of June 1, 1996 (collectively, the "Indenture"). All
capitalized terms used herein without definition shall have the same meanings
herein as such terms have in the Indenture.
The Company has requested that the holders of the Notes (hereinafter
referred to as "Noteholders") make certain amendments to, and give certain
consents under, the Indenture, and the Noteholders and the Security Trustee are
willing to do so under the terms and conditions set forth in this Amendment.
1. AMENDMENTS.
Upon acceptance hereof by the Required Noteholders (as hereinafter defined)
and the Security Trustee in the spaces provided for that purpose below, the
Indenture shall be and hereby is amended by inserting the following clause after
the word "Debt" in the fourth line of Section 3.18(a)(i):
; provided, that for the period from November 30, 1996 through May 31,
1997, the percentage "400%" in the second sentence of this clause (i) shall
be "500%".
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of all
of the following conditions precedent:
a. The Company, holders of at least 76% of the Aggregate Principal
Amount of Outstanding Notes (the "Required Noteholders") and the Trustee
shall have executed and delivered this Amendment.
b. The Company shall have paid closing fees (i) to Principal Mutual
Life Insurance Company, in the amount of
<PAGE>
$22,500 and (ii) to Jefferson-Pilot Life Insurance Company, in the amount
of $7,500.
c. The Security Trustee and Noteholders shall have received copies
(executed or certified) of all legal documents or proceedings taken in
connection herewith to the extent the Security Trustee, any Noteholder or
their respective counsel may reasonably request.
d. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Security Trustee, the Required
Noteholders and their counsel; and the Noteholders shall have received the
favorable written opinion of counsel for the Company in form and substance
satisfactory to the Security Trustee, the Required Noteholders and their
counsel.
e. Each Restricted Subsidiary shall have executed and delivered to the
Security Trustee and Noteholders its consent in the form set forth below.
3. REPRESENTATIONS.
In order to induce the Security Trustee and Noteholders to execute and
deliver this Amendment, the Company hereby represents to the Security
Trustee and Noteholders that, except as set forth on Schedule A hereto, as
of the date hereof, each of the representations and warranties set forth in
Section 3 of the Indenture and in Exhibit C to the Note Agreements are and
shall be and remain true and correct, in each such case, after giving
effect to this Amendment; the Company is in full compliance with all of the
terms and conditions of the Indenture and the Note Agreements; and no
Default or Event of Default has occurred and is continuing thereunder or
shall result after giving effect to this Amendment.
4. MISCELLANEOUS.
a. The Indenture, as amended hereby, shall continue in full force and
effect in accordance with its original terms and any and all rights and
remedies of the Security Trustee and Noteholders thereunder, obligations of
the Company thereunder and any liens and security interests created or
provided for thereunder shall be and remain in full force and effect and
shall not be affected, impaired or discharged hereby. Nothing herein
contained shall in any manner affect or impair the priority of the liens
and security interests created and provided for by the Indenture as to the
indebtedness which would be secured thereby prior to giving effect to this
Amendment. Reference to this specific Amendment need not be made in any
note, document, letter, certificate, the Indenture itself, the Notes or any
communication issued or made pursuant to or with respect to the Indenture,
any reference in any of such to the Indenture being sufficient to refer to
the Indenture as amended hereby.
-2-
<PAGE>
b. The Company agrees to pay on demand all costs and expenses of or
incurred by the Security Trustee and Noteholders in connection with the
negotiation, preparation, execution and delivery of this Amendment,
including the fees and expenses of counsel for the Security Trustee and
Noteholders.
c. This Amendment may be executed in any number of counterparts, and
by the different parties on different counterparts, all of which taken
together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each
of such counterparts shall for all purposes be deemed to be an original.
This Amendment shall be governed by the internal laws of the State of South
Carolina.
Dated as of December 2, 1996.
WORLD ACCEPTANCE CORPORATION
By /s/A.A. McLean III
A.A. McLean, III,
Executive Vice President
-3-
<PAGE>
Accepted and agreed to as of the date and year last above written.
HARRIS TRUST AND SAVINGS BANK,
as Security Trustee
By /s/[signature illegible]
Its Vice President
The undersigned Noteholders hereby consent to the foregoing and direct
the Security Trustee to execute and deliver the same as of the date last
above written.
PRINCIPAL MUTUAL LIFE HARRIS TRUST AND SAVINGS BANK
INSURANCE COMPANY individually and as Agent
under Credit Agreement dated
of December 1, 1992, as
amended
By /s/James C. Fifield By /s/[signature illegible]
Its____________________ Its Vice President
By /s/Stephen G. Skrivanek
Its Counsel
JEFFERSON-PILOT LIFE THE FIRST NATIONAL BANK OF
INSURANCE COMPANY CHICAGO
By /s/James E. McDonald By /s/Craig Goldsmith
Its____________________ Its AVP
-4-
<PAGE>
CONSENT
The undersigned have each heretofore executed and delivered to the Security
Trustee a Guaranty Agreement ("Guaranty") and a Security Agreement and Indenture
of Trust or a Security Agreement, Pledge and Indenture of Trust ("Security
Agreement"), in each case, in favor of the Security Trustee and each hereby
consents to the Amendment as set forth above and each hereby confirms that its
Guaranty and Security Agreement and all of the undersigned's obligations
thereunder remain in full force and effect. The undersigned each further agrees
that the consent of the undersigned to any further amendments of the Indenture
shall not be required as a result of this consent having been obtained.
WORLD ACCEPTANCE CORPORATION OF
ALABAMA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD ACCEPTANCE CORPORATION OF
MISSOURI
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF GEORGIA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer and Assistant
Secretary
-5-
<PAGE>
WORLD FINANCE CORPORATION OF
LOUISIANA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD ACCEPTANCE CORPORATION OF
OKLAHOMA, INC.
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF SOUTH
CAROLINA
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer and Assistant
Secretary
WORLD FINANCE CORPORATION OF
TENNESSEE
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WORLD FINANCE CORPORATION OF TEXAS
By /s/Duane D. Moore
Its President
WFC LIMITED PARTNERSHIP
By: WFC of South Carolina, Inc.,
as sole general partner
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
WFC OF SOUTH CAROLINA, INC.
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
-6-
<PAGE>
WORLD FINANCE CORPORATION OF ILLINOIS
By /s/A.A. McLean III
Its Executive Vice President, Chief
Financial Officer, and Assistant
Secretary
-7-
<PAGE>
Schedule 1
Exceptions to Representations and Warranties
The Borrower and its Georgia subsidiary are named as co-defendants with a
number of other finance companies, jewelry and furniture retailers and insurance
companies in an action, formerly pending in U.S. District Court in Georgia,
which has been transferred and consolidated with other pending actions under the
caption In re American Insurance Company, "Non-filing Insurance" Fee Litigation
(Multidistrict Litigation Docket No. 1130, U.S. District Court, District of
Alabama, Northern Division). The consolidated action involves the defendants'
non-file insurance practices. The complaint alleges, among other things, that
the defendants' non-file insurance coverages do not constitute true insurance,
which result in alleged federal truth-in-lending, RICO and antitrust violations
and state fraud, breach of contract and conversion violations, and seeks
certification of a nationwide class of plaintiffs to recover money damages and
injunctive relief. The complaint in this action was filed on April 18, 1995, the
Borrower has filed an answer and the parties are in the discovery process. The
Borrower has been advised that certain of the defendants in the case have agreed
to settle the claims made against them by paying money damages to the
plaintiffs. The Borrower has also been advised that at least one of the settling
defendants has agreed to change its non-file insurance practices. If the
Borrower's non-file insurance practices are found to be invalid, the Borrower
could be required to refund non-file insurance fees, pay other significant
damages to the plaintiffs or change its non-file insurance practices going
forward, and the Borrower could experience a reduction in future income unless
legislative reforms are enacted. The Borrower disputes the allegations made in
the complaint, and intends to defend itself vigorously. Although the Borrower is
unable to predict with certainty the outcome of this litigation, management
expects that it will not have a material adverse effect on the Borrower's
consolidated financial position or results of operations.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Years Ended March 31,
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Interest and fee income $ 67,454 $ 60,265 $ 52,341 $ 45,870 $ 40,650
Insurance commissions and other income 7,863 9,608 5,871 4,798 3,231
--------- --------- --------- --------- ---------
Total revenues 75,317 69,873 58,212 50,668 43,881
--------- --------- --------- --------- ---------
Provision for loan losses 12,114 9,194 5,783 4,275 3,515
General and administrative expenses 46,846 41,023 35,302 33,497 28,801
Interest expense 4,322 3,498 3,598 3,719 4,298
--------- --------- --------- --------- ---------
Total expenses 63,282 53,715 44,683 41,491 36,614
--------- --------- --------- --------- ---------
Income before income taxes 12,035 16,158 13,529 9,177 7,267
Income taxes 3,952 5,602 4,910 3,390 2,868
--------- --------- --------- --------- ---------
Net income $ 8,083 $ 10,556 $ 8,619 $ 5,787 $ 4,399
========= ========= ========= ========= =========
Net income per common share (fully diluted) $ .41 $ .49 $ .41 $ .28 $ .21
========= ========= ========= ========= =========
Fully diluted weighted average common
equivalent shares 19,840 21,703 20,787 20,760 20,755
========= ========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Loans receivable $ 89,539 $ 79,624 $ 71,527 $ 58,227 $ 49,635
Allowance for loan losses (6,283) (5,007) (4,364) (3,479) (2,958)
---------- ---------- ---------- --------- ---------
Loans receivable, net 83,256 74,617 67,163 54,748 46,677
Total assets 102,163 89,423 83,518 73,200 63,448
Total debt 58,682 38,232 37,882 36,082 32,832
Shareholders' equity 38,963 44,880 35,758 26,858 21,002
OTHER OPERATING DATA:
As a percentage of average loans receivable:
Provision for loan losses 14.2% 11.9% 8.8% 7.7% 7.3%
Net charge-offs 13.7% 11.2% 7.5% 6.8% 6.8%
Number of offices open at year-end 336 282 244 217 191
</TABLE>
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's financial performance continues to be dependent in large part
upon the growth in its outstanding loan receivables, the ongoing introduction of
new products and services for marketing to the customer base, and the
maintenance of loan quality and acceptable levels of operating expenses. Since
March 31, 1993, gross loans receivable have increased from $61.7 million to
$113.4 million at March 31, 1997. This represents in excess of 16% compounded
rate of growth in receivables over the four-year period. The increase reflects
both the higher volume of loans generated through the Company's existing offices
and the contribution of loans generated from new offices opened or acquired over
the period. Since March 31, 1993, the Company has grown from 191 offices to 348
offices as of June 20, 1997. The Company plans to open or acquire at least 30
new offices in each of the next two fiscal years. The Company's financial
performance also has been affected by the significant level of amortization of
intangible assets, which arose from the acquisition of the Company in 1989.
These intangibles were being written off on a rapid schedule and the final
portion was fully amortized in May 1997.
The Company continues to identify new products and services for marketing
to its customer base. In addition to several new insurance related products,
which have been introduced in selected states over the last several years, the
Company began to sell and finance electronic items and appliances to its
existing customer base. This program began in Texas in February 1995 and has
since been expanded to include Georgia, Tennessee and South Carolina. The
program was recently further expanded to include the marketing of these items to
non-World customers in an effort to enhance the growth of the program as well as
providing cross-selling opportunities of the traditional small-loan product. The
sale of these new products has provided positive contributions during the past
two fiscal years and is expected to continue to enhance revenues in fiscal 1998
and beyond.
The Company's ParaData Financial Systems subsidiary provides data
processing systems to 97 separate finance companies, including World, and
currently supports approximately 850 individual branch offices in 42 states.
Regardless of their financial contribution, one of ParaData's primary goals is
to provide state-of-the-art data processing support for the Company's in-house
integrated computer system.
During fiscal 1997, the Company expanded its product line on a limited
basis to include larger balance, lower risk and lower yielding, individual
consumer loans. Through two strategic acquisitions, the Company opened two
non-traditional offices, one each in Georgia and Tennessee. While the gross
loans outstanding in these two offices amounted to $3.9 million, or 3.4% of the
total portfolio, at March 31, 1997, this product should provide additional
opportunities to further service both existing customers as well as potential
customers not previously within our market segment. These offices should support
much larger asset balances with lower expense ratios, thus providing positive
contributions. While the Company does not intend to change its primary lending
focus, the individual "small-loan," it does intend to open at least two of the
larger loan offices in each of the next two fiscal years
The Company's operations are regulated under state laws which establish the
maximum loan amounts and interest rates and the types and maximum amounts of
fees, insurance premiums, and other costs that may be charged. Consistent with
industry practice, the Company generally charges the maximum allowable interest
rates, fees, and other costs in all states in which it operates.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
Years Ended March 31,
1997 1996 1995
-------- -------- --------
(Dollars in thousands)
Average gross loans receivable (1) $109,206 $ 97,302 $ 82,786
Average loans receivable (2) 85,445 77,037 65,379
Expenses as a percentage of total revenue:
Provision for loan losses 16.1% 13.2% 9.9%
General and administrative 62.2% 58.7% 60.6%
Total interest expense 5.7% 5.0% 6.2%
Operating margin (3) 21.7% 28.1% 29.4%
Return on average assets 8.2% 11.9% 10.8%
Offices opened and acquired, net 54 38 27
Total offices (at period end) 336 282 244
- -------------------
(1) Average gross loans receivable have been determined by averaging
month-end gross loans receivable over the indicated period.
(2) Average loans receivable has 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 FISCAL 1997 VERSUS FISCAL 1996
Net income amounted to $8.1 million during fiscal 1997, a 23.4% decrease
from the $10.6 million earned during fiscal 1996. This decrease resulted from a
decrease in operating income (revenues less the provision for loan losses and
general and administrative expenses) of $3.3 million, or 16.8%, and an increase
in interest expense of $824,000, or 23.5%. These reductions to net income were
partially offset by a $1.7 million decrease in income tax expense.
During fiscal 1997, interest and fee income increased by $7.2 million, or
11.9%, over the previous fiscal year. This increase resulted primarily from an
increase in average loans receivable of $8.4 million, or 10.9%, between the two
fiscal years. In addition to the larger loan base, the increase in interest and
fee income also resulted from a slight increase in the loan yields over the two
fiscal years. The overall yield increased from 78.2% in fiscal 1996 to 78.9%
during the most recent fiscal year.
Insurance commissions and other income decreased by $1.7 million, or 18.2%,
over the two fiscal years. Insurance commissions increased by 2.2%, or $102,000,
reflecting the increase in loan activity in those states where the Company is
allowed to sell credit insurance. This increase was more than offset by the $1.8
million decrease in other income, which was primarily the result of the reduced
net revenue generated by ParaData over the two fiscal years. ParaData's net
revenue decreased from $3.4 million in fiscal 1996 to $1.4 million during the
most recent fiscal year. The fiscal 1996 results were exceptionally high due to
a single large customer and are unlikely to occur on an ongoing basis. Total
revenues increased to $75.3 million during fiscal 1997, an increase of $5.4
million, or 7.8%, over the $69.9 million in fiscal 1996. Revenues from the 244
offices open throughout both fiscal years decreased slightly by .39%. At March
31, 1997, the Company had 336 offices in operation, an increase of 54 net new
offices from March 31, 1996.
The provision for loan losses increased to $12.1 million during fiscal
1997, representing a $2.9 million, or 31.8% increase over the $9.2 million
recorded during fiscal 1996. This increase resulted from both an increase in the
general allowance for loan losses as well as increased levels of loans
charged-off. As a percentage of loans receivable outstanding, the allowance for
loan losses increased to 7.0% at March 31, 1997, compared to 6.3% at March 31,
1996. Net charge-offs for the current fiscal year amounted to $11.7 million, a
35.2% increase over the $8.7 million charged-off during fiscal 1996, and net
charge-offs as a percentage of average loans increased to 13.7% for the current
fiscal year from 11.2% for fiscal 1996. The continued rise in the level of loan
losses that the Company has experienced over the last two fiscal years remains
the number one challenge to the Company's management. Management believes that
these increases are consistent with a national trend affecting all phases of the
consumer financial services industry, which was brought about by increased
competition in the Company's market segment and the resulting increased
availability of credit to the Company's customer base. While the Company's
recent results reflect some signs that these trends may be dissipating, until
charge-offs return to historical levels, the results of operations of the
Company's small-loan business will be negatively affected.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
General and administrative expenses increased by $5.8 million, or 14.2%,
during fiscal 1997 compared to the previous fiscal year. This increase was
primarily the result of the 54 net new offices that were opened or acquired
during the fiscal year as well as management's decision to increase the middle
management of the Company, reducing the number of offices per supervisor to a
lower level. Overall, however, the average general and administrative expense
per open office decreased by .20% when comparing the latest two fiscal years. As
a percent of total revenues, general and administrative expenses increased from
58.7% in fiscal 1996 to 62.2% in fiscal 1997.
Interest expense increased by 23.5% to $4.3 million during fiscal 1997 from
$3.5 million in fiscal 1996. This increase was due to the increased level of
debt outstanding over the two fiscal years, primarily as a result of the $16
million spent on the Company's stock repurchase program as well as other growth.
The Company's effective income tax rate declined to 32.8% during fiscal
1997 from 34.7% during fiscal 1996. This decrease resulted from reduced state
income taxes following a Company reorganization completed during fiscal 1996, on
which the Company received a full benefit during the current fiscal year.
COMPARISON OF FISCAL 1996 VERSUS FISCAL 1995
Net income amounted to $10.6 million during fiscal 1996, a 22.5% increase
over the $8.6 million earned during fiscal 1995. This increase resulted
primarily from an increase in operating income of $2.5 million, or 14.8%, and a
decrease in interest expense of $100,000, or 2.8%. The additions to net income
were partially offset by an increase in total income tax expense.
Interest and fee income during fiscal 1996 increased by $7.9 million, or
15.1%, over fiscal 1995. This increase resulted from an increase of $11.6
million, or 17.8%, in average loans receivable between the two years. The
increase in interest and fee income resulting from the larger loan base was
partially offset by a decrease in the loan yields over the two fiscal years.
Overall, interest and fee income as a percentage of average loans receivable
decreased from 80.1% in fiscal 1995 to 78.2% during fiscal 1996. This decrease
in yield resulted from higher growth in Tennessee and Louisiana during fiscal
1996, which are lower yielding states.
Insurance commissions and other income increased by $3.7 million, or 63.7%,
over the two fiscal years. Insurance commissions increased by $571,000, or
13.7%, as a result of the increase in loan volume in states where credit
insurance may be sold. Other income increased by $3.2 million, or 186.3%, as a
result of the $2.5 million increase in net revenue generated by ParaData, as
well as an increase of $475,000 in gross profit from the Company's World Class
Buying Club program, which was implemented during the fourth quarter of fiscal
1995. ParaData's contribution to other income in fiscal 1996 was unusually
large, as the fiscal 1996 contribution included the results of a major sale of
the ParaData System to one large customer. Total revenues increased to $69.9
million in fiscal 1996, an increase of $11.7 million, or 20.0%, over the $58.2
million in fiscal 1995. Revenues from the 217 offices open throughout both years
increased approximately 10.8%. At March 31, 1996, the Company had 282 offices in
operation, an increase of 38 offices from March 31, 1995.
The provision for loan losses during fiscal 1996 increased by $3.4 million,
or 59.0%, from the previous year. This increase resulted from a combination of
increases in both the general allowance for loan losses and the amount of loans
charged off. As a percentage of loans receivable outstanding, the allowance for
loan losses increased slightly to 6.3% at March 31, 1996, compared to 6.1% at
March 31, 1995. Net charge-offs for fiscal 1996 amounted to $8.7 million, a
75.4% increase over the $4.9 million charged off during fiscal 1995, and net
charge-offs as a percentage of average loans increased to 11.2% for fiscal 1996
from 7.5% for the previous fiscal year.
General and administrative expenses during fiscal 1996 increased by $5.7
million, or 16.2%, over the previous fiscal year. This increase was due
primarily to costs associated with the 38 new offices opened or acquired during
the fiscal year. Excluding the expenses associated with ParaData, general and
administrative expenses, when divided by average open offices, increased by less
than 1% when comparing the two fiscal years and, overall, general and
administrative expenses as a percent of total revenues, decreased from 60.6% in
fiscal 1995 to 58.7% during fiscal 1996.
Interest expense decreased despite the overall growth in assets by
$100,000, or 2.8%, during fiscal 1996, as compared to the previous fiscal year.
This decrease was due to the Company's continuing ability to generate excess
cash and a slight reduction in overall interest rates during the current fiscal
year.
The Company's effective income tax rate declined to 34.7% during fiscal
1996 from 36.3% during the previous fiscal year. This decrease resulted
primarily from reduced state income taxes following a Company reorganization
accomplished during fiscal 1996 and the reduced amortization of nondeductible
goodwill.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
CREDIT LOSS EXPERIENCE
Delinquency is computed on the basis of the date of the last full
contractual payment on a loan (known as the recency method) and on the basis of
the amount past due in accordance with original payment terms of a loan (known
as the contractual method). Management closely monitors portfolio delinquency
using both methods to measure the quality of the Company's loan portfolio and
the potential for credit losses.
The Company maintains an allowance for loan losses in an amount that, in
management's opinion, is adequate to cover losses inherent in the existing loan
portfolio. The Company charges against current earnings, as a provision for loan
losses, amounts added to the allowance to maintain it at levels expected to
cover future losses of principal. The Company's policy is to charge off loans on
which a full contractual installment has not been received during the prior 180
days, or sooner if the loan is deemed uncollectible. Collection efforts on
charged-off loans continue until the obligation is satisfied or until it is
determined such obligation is not collectible or the cost of continued
collection efforts will exceed the potential recovery. Recoveries of previously
charged-off loans are credited to the allowance for loan losses.
The following table sets forth the Company's allowance for loan losses at
the end of the fiscal years ended March 31, 1997, 1996, and 1995 and the credit
loss experience over the indicated periods:
<TABLE>
<CAPTION>
At or for the
Years Ended March 31,
1997 1996 1995
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for loan losses $ 6,283 $ 5,007 $ 4,364
Percentage of loans receivable 7.0% 6.3% 6.1%
Provision for loan losses $12,114 $ 9,194 $ 5,783
Net charge-offs $11,712 $ 8,664 $ 4,940
Net charge-offs as a percentage of average loans receivable (1) 13.7% 11.2% 7.5%
</TABLE>
The following table classifies the gross loans receivable of the Company
that were delinquent on a recency and contractual basis for at least 60 days
at March 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
At March 31,
1997 1996 1995
------- ------- -------
(Dollars in thousands)
Recency basis:
<S> <C> <C> <C>
60 - 89 days past due $ 1,812 $ 1,704 $ 1,440
90 - 179 days past due 640 439 518
------- ------- -------
Total $ 2,452 $ 2,143 $ 1,958
======= =======
Percentage of period end gross loans receivable 2.2% 2.2% 2.2%
Contractual basis:
60 - 89 days past due $ 2,227 $ 2,172 $ 1,775
90 - 179 days past due 1,912 1,662 1,396
------- ------- -------
Total $ 4,139 $ 3,834 $ 3,171
======= ======= =======
Percentage of period end gross loans receivable 3.6% 3.9% 3.6%
</TABLE>
- ------------------
(1)Average loans receivable have been determined by averaging month-end gross
loans receivable less unearned interest and deferred fees over the indicated
period.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTERLY INFORMATION AND SEASONALITY
The Company's loan volume and corresponding loans receivable follow
seasonal trends. The Company's highest loan demand typically occurs from October
through December, its third fiscal quarter. Loan demand has generally been the
lowest and loan repayment highest from January to March, its fourth fiscal
quarter. Loan volume and average balances typically remain relatively level
during the remainder of the year. This seasonal trend affects quarterly
operating performance through corresponding fluctuations in interest and fee
income and insurance commissions earned and the provision for loan losses
recorded, as well as fluctuations in the Company's cash needs. Consequently,
operating results for the Company's third fiscal quarter generally are
significantly lower than in other quarters and operating results for its fourth
fiscal quarter significantly higher than in other quarters.
The following table sets forth certain items included in the Company's
unaudited consolidated financial statements and the offices open for the period
indicated.
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1995 1995 1995 1996 1996 1996 1996 1997
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 15,861 $ 17,391 $ 18,053 $ 18,568 17,307 17,995 19,169 20,847
Provision for
loan losses 1,639 2,526 3,248 1,781 2,246 3,028 4,198 2,642
General and
administrative
expenses 9,965 10,003 11,147 9,908 11,007 10,998 12,415 12,426
Net income 2,208 2,530 1,754 4,064 2,064 1,931 922 3,166
Gross loans
receivable 92,327 97,537 109,296 99,426 103,832 107,692 128,182 113,439
Number of
offices open 274 275 276 282 297 306 342 336
</TABLE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" which provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. Those standards are based on
consistent application of the financial components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. This statement is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996, and is to be applied prospectively. In
December 1996, the FASB issued SFAS 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125," which defers for one year the
applications of certain requirements under SFAS 125. The Company does not expect
SFAS 125 to have a significant impact on its financial condition or results of
operations.
In February 1997, the FASB issued SFAS No. 128, Earnings per Share, which
is effective for both interim and annual periods ending after December 15, 1997.
This statement supersedes Accounting Principles Board Opinion No. 15, Earnings
per Share. The purpose of this statement is to simplify current reporting and
make U. S. reporting comparable to international standards. The statement
requires dual presentation of basic and diluted earnings per share ("EPS") by
entities with complex capital structures (as defined by the statement). The
Company anticipates that adoption of this standard will not have a material
affect on EPS.
Also, in February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure," which is effective for financial
statements for periods ending after December 15, 1997. This statement applies to
both public and nonpublic entities. The new statement requires no change for
entities subject to the existing requirements. The Company anticipates that
adoption of the standard will not have a material affect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, acquisitions and office expansion
through cash flow from operations and borrowings under its revolving credit
agreement. The Company has generally applied its cash flow from operations to
fund its increasing loan volume, to fund acquisitions, to repay long-term
indebtedness and, more recently, to repurchase its common stock. As the
Company's gross loans receivable increased from $61.7 million at March 31, 1993
to $113.4 million at March 31, 1997, net cash provided by operating activities
for fiscal years 1995, 1996, and 1997 was $18.2 million, $21.7 million, and
$23.2 million, respectively.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company's primary ongoing cash requirements relate to the funding of
new offices, acquisitions, and overall growth of loans outstanding and the
repayment of long-term indebtedness. Through the end of fiscal 1997, the Company
had repurchased 1,986,000 shares of its common stock under its repurchase
program, for an aggregate purchase price of approximately $16.0 million. Because
of certain loan agreement restrictions, the Company temporarily suspended its
stock repurchases, but believes stock repurchases to be a viable long-term
strategy and an excellent use of excess cash at attractive market prices. In
addition, the Company plans to open or acquire at least 30 new offices in each
of the next two fiscal years. Expenditures by the Company to open and furnish
new offices generally averaged approximately $15,000 per office during fiscal
1997. The Company believes that new offices have also required from $100,000 to
$400,000 to fund outstanding loans receivable originated during their first 12
months of operation. New offices typically have achieved monthly operating
profitability within 12 to 24 months after opening.
The Company has $12.0 million remaining principal balance of 8.5% senior
secured notes due December 1, 1999 (the "Term Notes"). The Term Notes provide
for interest payments to be made semi-annually with equal principal payments to
be made annually on each December 1.
The Company has a $50.0 million revolving credit facility with a syndicate
of banks, with a $25.0 million overline facility for the period November 30,
1996 to April 15, 1997. The credit facility will expire on November 30, 1998.
Funds borrowed under the revolving credit facility bear interest, at the
Company's option, at either the agent bank's prime rate per annum or the LIBOR
rate plus 1.60% per annum. At March 31, 1997, the interest rate on borrowings
under the revolving credit facility was 7.28%. The Company pays a commitment fee
equal to 0.375% of the daily unused portion of the revolving credit facility.
Amounts outstanding under the revolving credit facility may not exceed specified
percentages of eligible loans receivable. On March 31, 1997, $46.2 million was
outstanding under this facility, and there was $28.8 million of unused borrowing
availability under the borrowing base limitations. As of June 20, 1997, however,
the overline facility had expired and the Company's unused borrowing
availability was $3.3 million. Borrowings under the revolving credit facility
and Term 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's credit agreements contain a number of financial covenants,
including minimum net worth and fixed charge coverage requirements. The credit
agreements also contain certain other covenants, including covenants that impose
limitations on the Company with respect to (i) declaring or paying dividends or
making distributions on or acquiring common or preferred stock or warrants or
options, (ii) redeeming or purchasing or prepaying principal of or interest on
subordinated debt, (iii) incurring additional indebtedness and (iv) entering
into a merger, consolidation or sale of substantial assets or subsidiaries. The
Term Notes are also subject to a prepayment penalty. The Company believes that
it is in material compliance with these agreements and does not believe that
these agreements will materially limit its business and expansion strategy.
Subsequent to March 31, 1997, the Company entered into a commitment to
borrow $10.0 million through the issuance of senior subordinated notes. This
transaction is expected to be completed in June 1997, and the proceeds will be
used to repay a portion of the revolving credit facility. These notes will
mature in five annual installments of $2.0 million beginning June 1, 2000, and
ending June 1, 2004, and bear interest at 10.0% payable quarterly. The notes
will be issued at a discounted price equal to 99.6936%, and may be prepaid
subject to certain prepayment penalties.
Additionally, the Company has received a commitment from an additional
primary bank for an additional $15 million in availability under the revolving
credit facility under the existing terms. This increase should be effective at
the same time as the funding of the subordinated notes.
If these transactions close as anticipated, the Company will have unused
borrowing availability of $28.3 million on a proforma basis. There can be no
assurance, however, that these transactions will close, and if either does not
close, the Company may be required to seek other alternative sources of capital.
The Company acquired 46 offices from competitors in five states in 16
separate transactions during fiscal 1997. Gross loans receivable purchased in
these transactions were approximately $14.7 million in the aggregate at the
dates of purchase. The Company believes that attractive opportunities to acquire
new offices or receivables from its competitors or to acquire offices in
communities not currently served by the Company will continue to become
available as conditions in local economies and the financial circumstances of
owners change. On December 1, 1996, the Company paid the second installment on
its 8 1/2% Senior Term Notes of $4.0 million. The Company financed the
acquisitions and the Term Note repayment with borrowings under its revolving
credit facility.
The Company believes that cash flow from operations, borrowings under its
revolving credit facility, as amended, and the anticipated proceeds of the
subordinated debt will be adequate to fund the expected cost of opening or
acquiring new offices, including funding initial operating losses of new offices
and funding loans receivable originated by those offices and the Company's other
offices and the scheduled repayment of the Term Notes.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 nine states in which the
Company 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 in those states, which could offset the potential increase in
operating costs due to inflation.
OTHER MATTERS
The Company and its Georgia subsidiary are named as co-defendants with a
number of other finance companies, jewelry and furniture retailers, and
insurance companies in a consolidated nationwide class action, currently pending
in 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). The
consolidated action involves the defendants' non-file insurance practices. The
complaint alleges, among other things, that the defendants' non-file insurance
coverages do not constitute true insurance, and that the defendants' practices
with respect to non-file insurance constitute alleged federal truth-in-lending,
RICO and antitrust violations. The complaint has been certified as a nationwide
class action and seeks to recover money damages and injunctive relief. The
complaint was filed on April 18, 1995, the Company has filed an answer, and the
parties are in the discovery process. The Company has been advised that certain
of the defendants in the case have agreed to settle the claims made against them
by paying money damages to the plaintiffs. The Company has also been advised
that certain of the settling defendants have agreed to change their non-file
insurance practices. If the Company's non-file insurance practices are found to
be improper, the Company could be required to refund non-file insurance fees,
pay other significant damages to the plaintiffs, and change its non-file
insurance practices going forward, and the Company could experience a reduction
in future income. The Company disputes the allegations made in the complaint,
and intends to continue to defend itself vigorously.
Management's statement of expectation with respect to this litigation may
be deemed a forward-looking statement, within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"), and no assurance can be
given that management's expectation will prove correct, as such expectation is
subject to certain risks, uncertainties and assumptions based on the preliminary
nature of the case and the vagaries of litigation generally. Should one or more
of these risks materialize or should underlying assumptions prove incorrect, the
actual outcome of this litigation could differ materially from management's
expectation (See Note 6 of Notes to Consolidated Financial Statements).
FORWARD-LOOKING STATEMENTS
In addition to "Other Matters" above, the remaining portions of this
"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 Exchange Act, 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, actual results, performance or
financial condition may vary materially from those anticipated, estimated or
expected. Among the key factors that may have a direct bearing on the Company's
results, performance or financial condition are changes in economic and industry
conditions; changes in interest rates; risks inherent in making loans including
repayment risks and value of collateral; and recently-enacted or proposed
legislation.
12
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
Cash $ 1,486,073 1,693,747
Gross loans receivable 113,439,027 99,425,915
Less:
Unearned interest and deferred fees (23,899,194) (19,802,649)
Allowance for loan losses (6,283,459) (5,006,703)
-------------- --------------
Loans receivable, net 83,256,374 74,616,563
Property and equipment, net 6,102,125 5,643,120
Other assets, net 2,201,757 2,609,329
Intangible assets, net 9,117,033 4,859,807
-------------- --------------
$ 102,163,362 89,422,566
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable 58,200,000 37,750,000
Other note payable 482,000 482,000
Income taxes payable 853,307 2,311,456
Accounts payable and accrued expenses 3,664,592 3,999,442
-------------- --------------
Total liabilities 63,199,899 44,542,898
============== ==============
Shareholders' equity:
Preferred stock, no par value
Authorized 5,000,000 shares -- --
Common stock, no par value
Authorized 95,000,000 shares;
issued and outstanding 18,936,573 and 20,686,573 shares
at March 31, 1997, and 1996, respectively -- --
Additional paid-in capital 625,592 14,625,136
Retained earnings 38,337,871 30,254,532
-------------- --------------
Total shareholders' equity 38,963,463 44,879,668
-------------- --------------
Commitments and contingencies
$ 102,163,362 89,422,566
============= =============
See accompanying notes to consolidated financial statements.
13
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended March 31,
1997 1996 1995
------------- ----------- -----------
Revenues:
Interest and fee income $ 67,454,576 60,265,321 52,340,734
Insurance commissions and other income 7,863,196 9,608,177 5,870,823
------------ ----------- ----------
Total revenues 75,317,772 69,873,498 58,211,557
------------ ----------- ----------
Expenses:
Provision for loan losses 12,114,374 9,194,422 5,783,017
------------ ----------- ----------
General and administrative expenses:
Personnel 28,161,923 24,808,100 21,944,832
Occupancy and equipment 5,037,019 4,278,456 3,519,150
Data processing 1,027,590 948,542 850,224
Advertising 2,897,659 2,576,112 1,886,383
Amortization of intangible assets 3,020,259 2,723,580 2,932,645
Other 6,701,258 5,687,731 4,168,228
------------ ----------- ----------
46,845,708 41,022,521 35,301,462
------------ ----------- ----------
Interest expense 4,322,351 3,498,497 3,598,366
------------ ----------- ----------
Total expenses 63,282,433 53,715,440 44,682,845
------------ ----------- ----------
Income before income taxes 12,035,339 16,158,058 13,528,712
Income taxes 3,952,000 5,602,000 4,910,000
------------ ----------- ----------
Net income $ 8,083,339 10,556,058 8,618,712
============ =========== ==========
Net income per common share
Primary $ .41 .49 .41
============ =========== ==========
Fully diluted $ .41 .49 .41
============ =========== ==========
Weighted average common equivalent shares outstanding
Primary 19,832,525 21,653,096 20,787,195
============ =========== ==========
Fully diluted 19,839,942 21,702,817 20,787,195
============ =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional
Paid-in Retained
Capital Earnings Total
------------ ----------- -----------
<S> <C> <C> <C>
Balances at March 31, 1994 $ 15,778,016 11,079,762 26,857,778
Tax benefit from vesting of 45,000 restricted shares
of common stock 33,293 -- 33,293
Proceeds from exercise of stock options (54,000 shares),
including tax benefits of $84,744 248,183 -- 248,183
Net income -- 8,618,712 8,618,712
------------- ---------- ------------
Balances at March 31, 1995 16,059,492 19,698,474 35,757,966
Proceeds from exercise of stock options (45,000 shares),
including tax benefits of $124,140 326,168 -- 326,168
Common stock repurchases (176,000 shares) (1,760,524) -- (1,760,524)
Net income -- 10,556,058 10,556,058
------------- ---------- ------------
Balances at March 31, 1996 14,625,136 30,254,532 44,879,668
Proceeds from exercise of stock options (60,000 shares),
including tax benefits of $66,469 259,294 -- 259,294
Common stock repurchases (1,810,000 shares) (14,258,838) -- (14,258,838)
Net income -- 8,083,339 8,083,339
------------- ---------- ------------
Balances at March 31, 1997 $ 625,592 38,337,871 38,963,463
============= ========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996 1995
------------ ---------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 8,083,339 10,556,058 8,618,712
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets 3,020,259 2,723,580 2,932,645
Amortization of loan costs and discounts 80,841 86,054 205,996
Provision for loan losses 12,114,374 9,194,422 5,783,017
Depreciation 1,319,667 1,063,772 875,346
Change in accounts:
Other assets, net 326,731 (421,812) 25,316
Income taxes payable (1,391,680) (1,836,459) (235,816)
Accounts payable and accrued expenses (334,850) 371,976 (28,955)
------------ ------------ ------------
Net cash provided by operating activities 23,218,681 21,737,591 18,176,261
------------ ------------ ------------
Cash flows from investing activities:
Increase in loans receivable, net (8,146,358) (14,870,228) (17,707,816)
Net assets acquired from office acquisitions, primarily loans (12,688,099) (1,839,174) (505,536)
Increase in intangible assets from acquisitions (7,277,485) (973,500) (200,715)
Costs of organizing new subsidiaries -- (96,360) --
Purchases of property and equipment, net (1,698,400) (2,247,785) (1,831,981)
------------ ------------ ------------
Net cash used by investing activities (29,810,342) (20,027,047) (20,246,048)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from senior revolving notes payable, net 24,450,000 4,350,000 7,650,000
Repayment of senior term notes payable (4,000,000) (4,000,000) --
Repayment of senior subordinated notes payable -- -- (5,900,000)
Proceeds from exercise of stock options 192,825 202,028 163,439
Repurchase of common stock (14,258,838) (1,760,524) --
------------ ------------ ------------
Net cash provided by (used in) financing activities 6,383,987 (1,208,496) 1,913,439
------------ ------------ ------------
Increase (decrease) in cash (207,674) 502,048 (156,348)
Cash at beginning of year 1,693,747 1,191,699 1,348,047
------------ ------------ ------------
Cash at end of year $ 1,486,073 1,693,747 1,191,699
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company's accounting and reporting policies are in accordance with
generally accepted accounting principles and conform to general
practices within the finance company industry. The following is a
description of the more significant of these policies used in preparing
the consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of World
Acceptance Corporation and its wholly owned subsidiaries (the Company).
Subsidiaries consist of operating entities in various states, ParaData
Financial Systems, a software company acquired during fiscal 1994, and
WAC Holdings Ltd., a captive reinsurance company established in fiscal
1994. All significant intercompany balances and transactions have been
eliminated in consolidation.
LOANS AND INTEREST INCOME
The Company is licensed to originate direct cash consumer loans in the
states of Georgia, South Carolina, Texas, Oklahoma, Louisiana,
Tennessee, Missouri, Illinois, and New Mexico. During fiscal 1997, the
Company originated loans generally ranging up to $1,500, with terms of
15 months or less. Experience indicates that a majority of the direct
cash consumer loans are renewed.
Fees received and direct costs incurred for the origination of loans
are deferred and amortized to interest income over the contractual
lives of the loans. Unamortized amounts are recognized in income at the
time that loans are renewed or paid in full.
Loans are carried at the gross amount outstanding reduced by unearned
interest and insurance income, net deferred origination fees and direct
costs, and an allowance for loan losses. Unearned interest is deferred
at the time the loans are made and accreted to income on a collection
method, which approximates the level yield method. Charges for late
payments are credited to income when collected.
The Company generally offers its loans at the prevailing statutory
rates at terms not to exceed 15 months. Management believes that the
carrying value approximates the fair value of its loan portfolio.
ALLOWANCE FOR LOAN LOSSES
Additions to the allowance for loan losses are based on management's
evaluation of the loan portfolio under current economic conditions, the
volume of the loan portfolio, overall portfolio quality, review of
specific loans, charge-off experience, and such other factors which, in
management's judgment, deserve recognition in estimating loan losses.
Loans are charged off at the earlier of when such loans are deemed to
be uncollectible or when six months have elapsed since the date of the
last payment. The gross balance of loans deemed to be uncollectible is
charged against the loan loss allowance and any unearned income on the
loans is recognized at that time. Recoveries of previously charged-off
loans are credited to the allowance for loan losses. While management
uses the best information available to make evaluations, future
adjustments to the allowance may be necessary if conditions differ
substantially from the assumptions used in making the calculations.
At March 31, 1997 and 1996, there were no concentrations of loans in
any local economy, type of property, or to any one borrower.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements
are amortized using the straight-line method over the shorter of the
lease term or estimated useful life of the asset.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
OTHER ASSETS
Other assets include costs incurred in connection with originating
long-term debt. Such remaining unamortized costs aggregated $104,351
and $123,692 at March 31, 1997 and 1996, respectively, and are
amortized as interest expense over the life of the respective
indebtedness.
INTANGIBLE ASSETS
Intangible assets include the cost of acquiring existing customers, the
value assigned to noncompete agreements, costs incurred in connection
with the acquisition of loan offices, and goodwill (the excess cost
over the fair value of the net assets acquired). These assets are being
amortized on a straight-line basis over the estimated useful lives of
the respective assets as follows: 8 to 10 years for customer lists, 5
to 10 years for noncompete agreements and acquisition costs, and 10
years for goodwill. Management periodically evaluates the
recoverability of the unamortized balances of these assets and adjusts
them as necessary.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 107, "Disclosures about the Fair Value
of Financial Instruments" ("SFAS 107") in December 1991. SFAS 107
requires disclosures about the fair value of all financial instruments
whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices
are not available, fair values are based on estimates using present
value or other valuation techniques. The carrying amount of financial
instruments included in the financial statements are deemed reasonable
estimates of their fair value. The Company adopted the provisions of
SFAS 107 in 1996.
INSURANCE PREMIUMS
Insurance premiums for credit life, accident and health, and property
insurance written in connection with certain loans, net of refunds and
applicable advance insurance commissions retained by the Company, are
remitted monthly to an insurance company. All commissions are credited
to unearned insurance commissions and recognized as income over the
life of the related insurance contracts, using a method similar to that
used for the recognition of interest income.
NON-FILE INSURANCE
Non-file fees are charged on certain loans at inception and renewal in
lieu of recording and perfecting the Company's security interest in the
assets pledged on certain loans and are remitted as premiums to a third
party insurance company for non-file insurance coverage. Such insurance
and the related insurance premiums, claims, and recoveries are not
reflected in the accompanying consolidated financial statements (see
note 6).
Certain losses related to such loans, which are not recoverable through
life, accident and health, or property insurance claims are reimbursed
through non-file insurance claims subject to policy limitations. Any
remaining losses are charged to the allowance for loan losses.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INCOME TAXES
The Company uses the asset and liability method of accounting for
income taxes required by SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
Under the asset and liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended March 31, 1997, 1996, and 1995, the Company paid
interest of $4,302,473, $3,473,149, and $3,350,028, respectively.
For the years ended March 31, 1997, 1996, and 1995, the Company paid
income taxes of $5,343,680, $6,981,463, and $5,145,816, respectively.
Supplemental non-cash financing activities for the years ended March
31, 1997, 1996, and 1995, consist of:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ------------ ------------
<S> <C> <C> <C>
Tax benefits from issuance of restricted executive stock $ - - 33,293
Tax benefits from exercise of stock options 66,469 124,140 84,744
</TABLE>
EARNINGS PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period using the treasury stock
method. On August 31, 1995, the Company effected a three-for-one stock
split, which was paid in the form of a share dividend of two shares of
common stock for each outstanding share. Prior period average shares
outstanding and net income per share have been restated to reflect this
stock split.
STOCK-BASED COMPENSATION
SFAS 123, "Accounting for Stock-Based Compensation," issued in October
1995, allows a company to either adopt the fair value method of
valuation or continue using the intrinsic valuation method presented
under Accounting Principles Board ("APB") Opinion 25 to account for
stock-based compensation. The fair value method recommended in SFAS 123
requires a company to recognize compensation expense based on the fair
value of the option on the grant date. The intrinsic value method
measures compensation expense as the difference between the quoted
market price of the stock and the exercise price of the option on the
date of grant. The Company has elected to continue using APB Opinion 25
and has disclosed in the footnotes pro forma net income and earnings
per share information as if the fair value method had been applied.
RECLASSIFICATION
Certain reclassification entries have been made for fiscal 1996 and
1995 to conform with fiscal 1997 presentation. There was no impact on
shareholders' equity or net income as a result of these
reclassifications.
(2) ALLOWANCE FOR LOAN LOSSES
The following is a summary of the changes in the allowance for loan
losses for the years ended March 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------
1997 1996 1995
-------------- ------------ -----------
<S> <C> <C> <C>
Balance at the beginning of the year $ 5,006,703 4,363,612 3,479,077
Provision for loan losses 12,114,374 9,194,422 5,783,017
Loan losses (12,659,683) (9,345,509) (5,252,343)
Recoveries 947,999 681,030 312,595
Allowance on acquired loans 874,066 113,148 41,266
------------- ----------- -----------
Balance at the end of the year $ 6,283,459 5,006,703 4,363,612
============== =========== ===========
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Summaries of property and equipment follow: March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land $ 269,443 269,443
Buildings and leasehold improvements 2,367,432 1,743,896
Furniture and equipment 7,342,971 6,305,207
----------- -----------
9,979,846 8,318,546
Less accumulated depreciation and amortization 3,877,721 2,675,426
----------- -----------
Total $ 6,102,125 5,643,120
=========== ===========
(4) INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of: March 31,
--------------------------
1997 1996
----------- -----------
Cost of acquiring existing customers $ 390,804 2,567,326
Value assigned to noncompete agreements 6,587,458 1,894,876
Goodwill 1,603,364 --
Other 535,407 397,605
----------- -----------
Total $ 9,117,033 4,859,807
=========== ===========
</TABLE>
(5) NOTES PAYABLE
Summaries of the Company's notes payable follow:
SENIOR CREDIT FACILITIES
$12,000,000 Senior Secured Term Notes -- These notes mature in three
annual installments of $4,000,000 due December 1, 1997, 1998 and
1999, and bear interest at 8.5%, payable semi-annually. The notes may
be prepaid subject to certain prepayment penalties.
$50,000,000 Revolving Credit Facility - This facility provides for
borrowings of up to $50 million (increased from $20 million to $25
million in September 1994, to $35 million in September 1995, and to
$50 million in June 1996), subject to a borrowing base formula. The
maximum borrowings were temporarily increased to $75 million for the
period November 30, 1996, to April 15, 1997. The Company may borrow,
at its option, at the rate of prime or LIBOR plus 1.60%. At March 31,
1997, the Company's interest rate was 7.28% and the unused amount
available under the revolver was $28,800,000. The revolving credit
facility has a commitment fee of 3/8 of 1% on the unused portion of
the commitment, except for the $25 million temporary increase in the
commitment, which has a commitment fee of 1/4 of 1% on the unused
portion. Borrowings under the revolving credit facility mature on
November 30, 1998.
Subsequent to March 31, 1997, the Company entered into a commitment
to borrow $10.0 million through the issuance of senior subordinated
notes. This transaction is expected to be completed in June 1997.
These notes mature in five annual installments of $2.0 million
beginning June 1, 2000 and ending June 1, 2004, and bear interest at
10.0%, payable quarterly. The notes will be issued at a discounted
price equal to 99.6936% and may be prepaid subject to certain
prepayment penalties.
Additionally, the Company has received a commitment from an
additional bank for an additional $15 million in availability under
the revolving credit facility under the existing terms. This increase
should be effective at the same time as the funding of the
subordinated notes.
Substantially all of the Company's assets are pledged as collateral
for borrowings under senior credit agreements. If the senior
subordinated notes are closed, the Company's assets will also be
pledged as collateral for those notes on a subordinated basis.
OTHER NOTE PAYABLE
The Company also has a $482,000 note payable to an unaffiliated
insurance company, bearing interest at 10%, payable annually, which
matures in June 1999.
The various debt agreements contain restrictions on the amounts of
permitted indebtedness, investments, working capital, repurchases of
common stock and cash dividends. At March 31, 1997, approximately
$14,558,000 was available under these covenants for the payment of cash
dividends, or the repurchase of the Company's common stock. In
addition, the agreements restrict liens on assets and the sale or
transfer of subsidiaries. The Company was in compliance with the
various debt covenants for all periods presented.
The aggregate annual maturities of the notes payable for each of the
fiscal years subsequent to March 31, 1997, are as follows: 1998,
$4,000,000; 1999, $50,200,000; 2000, $4,482,000.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) NON-FILE INSURANCE
The Company maintains non-file insurance coverage with an unaffiliated
insurance company. Premiums, claims paid, and recoveries under this
coverage are not included in the accompanying financial statements. The
following is a summary of the non-file insurance activity for the years
ended March 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Insurance premiums written $ 3,566,960 3,787,289 3,512,106
Recoveries on claims paid $ 315,112 313,703 236,827
Claims paid $ (3,971,106) (4,228,665) (3,240,856)
</TABLE>
(7) LEASES
The Company conducts most of its operations from leased facilities,
except for its owned corporate office building. It is expected that in
the normal course of business expiring leases will be renewed at the
Company's option or replaced by other leases or acquisitions of other
properties.
The future minimum lease payments under noncancellable operating leases
as of March 31, 1997, are as follows:
1998 $2,133,077
1999 1,452,978
2000 843,730
2001 367,221
2002 61,005
Thereafter 725
-----------
Total future minimum lease payments $ 4,858,736
===========
Rental expense for cancellable and noncancellable operating leases for
the years ended March 31, 1997, 1996, and 1995 was $2,345,068,
$2,000,352, and $1,674,860, respectively.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) INCOME TAXES
Income tax expense for the years ended March 31, 1997, 1996, and 1995,
consists of:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- ----------- -----------
Current:
<S> <C> <C> <C>
Federal $ 4,834,000 6,084,000 5,368,000
State 292,000 627,000 750,000
-------------- ----------- -----------
Total 5,126,000 6,711,000 6,118,000
-------------- ----------- -----------
Deferred:
Federal (1,107,000) (1,047,000) (1,084,000)
State (67,000) (62,000) (124,000)
-------------- ----------- -----------
Total (1,174,000) (1,109,000) (1,208,000)
--------------- ------------ ------------
$ 3,952,000 5,602,000 4,910,000
================ ============ ============
</TABLE>
The income tax expense for the years ended March 31, 1997, 1996, and
1995 differs from the amount computed by applying the U.S. Federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- -----------
<S> <C> <C> <C>
Computed "expected" income tax expense $ 4,212,000 5,655,000 4,735,000
Increase resulting from:
State income tax, net of Federal benefit 146,000 368,000 407,000
Amortization of goodwill 19,000 13,000 50,000
Insurance income exclusion (235,000) (238,000) (239,000)
Other, net (190,000) (196,000) (43,000)
------------ ---------- -----------
Total income tax expense $ 3,952,000 5,602,000 4,910,000
============ ========== ===========
</TABLE>
Temporary differences between the financial statement carrying amounts
and tax basis of assets and liabilities that give rise to significant
portions of the deferred tax asset (liability) at March 31, 1997 and
1996, and 1995, relate to the following:
<TABLE>
<CAPTION>
Deferred tax assets: 1997 1996 1995
----------- ---------- ---------
<S> <C> <C> <C>
Allowance for doubtful accounts $ 2,293,000 1,953,000 1,658,000
Unearned insurance commissions 501,000 465,000 395,000
Accounts payable and accrued expenses primarily
related to employee benefits 193,000 213,000 139,000
Accrued state taxes -- 55,000 99,000
Other 110,000 29,000 41,000
----------- ----------- ---------
Gross deferred tax assets 3,097,000 2,715,000 2,332,000
Less valuation allowance (30,000) (29,000) (41,000)
----------- ----------- ----------
Net deferred tax assets $ 3,067,000 2,686,000 2,291,000
----------- ----------- ----------
Deferred tax liabilities:
Intangible assets -- (1,051,000) (1,853,000)
Deferred net loan origination fees (325,000) (323,000) (287,000)
Purchase accounting adjustments (115,000) -- --
Other (304,000) (163,000) (111,000)
----------- ----------- -----------
Gross deferred tax liabilities (744,000) (1,537,000) (2,251,000)
----------- ----------- -----------
Net deferred tax assets $ 2,323,000 1,149,000 40,000
=========== =========== ===========
</TABLE>
A valuation allowance is established for any portion of the gross
deferred tax asset that is not more likely than not to be realized. The
realization of net deferred tax assets is based on utilization of loss
carrybacks to prior taxable periods, anticipation of future taxable
income and the utilization of tax planning strategies. Management has
determined that it is more likely than not that the net deferred tax
asset can be realized based upon these criteria.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) BENEFIT PLANS
RETIREMENT PLAN
The Company provides a defined contribution employee benefit plan
(401(k) plan) covering full-time employees, whereby employees can
invest up to 15% of their gross pay. The Company makes a matching
contribution equal to 50% of the employees' contributions for the first
6% of gross pay. The Company's expense under this plan was $268,214,
$258,240, and $257,822 for the years ended March 31, 1997, 1996, and
1995, respectively.
STOCK OPTION PLANS
The Company has a 1992 Stock Option Plan and a 1994 Stock Option Plan
for the benefit of certain directors, officers, and key employees.
Under these plans, 3,750,000 shares of authorized common stock have
been reserved for issuance pursuant to grants approved by the Stock
Option Committee. The options have a maximum duration of 10 years, may
be subject to certain vesting requirements, and are priced at the
market value of the Company's common stock on the date of grant of the
option.
The Company applies APB Opinion 25 in accounting for the stock-based
option plans which are described in the preceding paragraph.
Accordingly, no compensation expense has been recognized for the
stock-based option plans. Had compensation cost been recognized for the
stock-based option plans applying the fair-value-based method as
prescribed by SFAS 123, the Company's net income and earning per share
would have been reduced to the pro forma amounts indicated below:
($ in thousands except per share amounts)
1997 1996
Net Income
As reported $ 8,083 10,556
Pro forma 7,639 10,338
Primary earnings per share
As reported $ .41 .49
========== ======
Pro forma $ .39 .48
========== ======
Fully diluted earnings per share
As reported $ .41 .49
========== ======
Pro forma $ .39 .48
========== ======
The effects of applying SFAS 123 may not be representative of the
effects on reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1997 and 1996: dividend yield of zero;
expected volatility of 44%; risk-free interest rate of 6.63%; and
expected lives of 10 years for all plans in both years.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 1997, the Company had the following options outstanding:
<TABLE>
<CAPTION>
SHARES SHARES SHARES PRICE EXPIRATION
GRANT DATE GRANTED EXERCISABLE EXERCISED PER SHARE DATE
---------- ------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
April 22, 1992 150,000 120,000 - $ 2.98 April 22, 2002
April 30, 1992 24,000 24,000 6,000 $ 3.04 April 30, 2002
October 20, 1992 361,500 297,000 138,500 $ 2.92 October 20, 2002
January 20, 1993 36,000 21,600 - $ 5.04 January 20, 2003
April 7, 1993 90,000 54,000 4,000 $ 6.33 April 7, 2003
April 30, 1993 18,000 18,000 - $ 5.54 April 30, 2003
October 19, 1993 373,500 228,300 13,500 $ 6.88 October 19, 2003
April 30, 1994 24,000 24,000 - $ 5.75 April 30, 2004
October 13, 1994 591,000 238,200 6,000 $ 7.48 October 13, 2004
April 1,1995 211,692 141,128 - $ 8.63 April 1, 2005
April 30, 1995 24,000 24,000 - $ 9.50 April 30, 2005
June 26, 1995 75,000 15,000 - $11.33 June 26, 2005
October 31, 1995 150,500 30,100 - $13.00 October 31, 2005
January 23, 1996 15,000 - - $10.25 January 23, 2006
April 1, 1996 196,177 65,392 - $10.75 April 1, 2006
April 1, 1996 45,300 - - $10.75 April 1, 2006
April 30, 1996 24,000 24,000 - $10.06 April 30, 2006
July 18, 1996 14,600 14,600 - $6.75 July 18, 2006
October 25, 1996 227,000 - - $6.96 October 25, 2006
January 27, 1997 36,000 - - $5.94 January 27, 2007
March 31, 1997 38,300 - - $5.41 March 31, 2007
---------- -------- -------
Total 2,725,569 1,339,320 168,000
========= ========= =======
</TABLE>
On April 1, 1997, and on April 29, 1997, the Company granted options
for an additional 78,662 shares and 24,000 shares, respectively, under
the plans to certain executives and on April 30, 1997, an additional
24,000 shares under the plans were granted to non-management directors
pursuant to the terms of the plan, leaving 897,769 shares of common
stock available for future grants. No expense has been recorded
relative to stock options granted to date.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) ACQUISITIONS
During fiscal 1997, the Company purchased the net assets of forty-six
consumer loan offices for a total consideration of $17,282,138. Total
net loans receivable acquired amounted to $10,051,841, and the Company
paid $7,292,652 for non-compete agreements with predecessor owners and
other intangible assets. Nine of the forty-six offices acquired were
merged into existing offices.
During fiscal 1996, the Company purchased the net assets of twenty-one
consumer loan offices for a total consideration of $2,817,090. Total
net loans receivable acquired amounted to $1,777,441, and the Company
paid $973,500 for non-compete agreements with predecessor owners and
other intangible assets. Thirteen of the twenty-one offices acquired
were merged into existing offices.
During fiscal 1995, the Company purchased the net assets of eight
consumer loan offices for a total consideration of $707,051. Total net
loans receivable acquired amounted to $490,536, and the Company paid
$200,715 for non-compete agreements with predecessor owners and other
intangible assets. Six of the eight offices acquired were merged into
existing Company offices.
(11) PARADATA SUBSIDIARY
The Company operates a wholly owned subsidiary doing business as
ParaData Financial Systems (ParaData). ParaData has developed and
markets a proprietary data processing software package for use in the
finance industry. The Company completed the conversion of substantially
all of its consumer finance offices to this new system in April 1994.
The following statements of operations data for ParaData were included
in the Consolidated Statements of Operations for the fiscal years ended
March 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Years Ended March 31,
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
Sales and system support $ 1,689,204 6,632,897 1,537,411
Cost of sales 253,584 3,209,818 360,688
----------- ------------ -----------
Net margin 1,435,620 3,423,079 1,176,723
----------- ------------ -----------
General and administrative expenses:
Personnel 1,026,172 974,299 756,829
Occupancy and equipment 276,342 256,843 241,707
Advertising 7,601 5,729 2,799
Amortization of intangibles 28,756 28,754 28,748
Other 181,575 214,819 147,921
----------- ------------ -----------
1,520,446 1,480,444 1,178,004
Interest expense -- 23,898 15,294
----------- ------------ -----------
Net income (loss) before income taxes $ (84,826) 1,918,737 (16,575)
=========== ============ ===========
</TABLE>
Included in sales and system support is $278,000 of data
processing fees that were charged to the parent for fiscal 1995.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) QUARTERLY INFORMATION (UNAUDITED)
The following sets forth selected quarterly operating data:
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
First Second Third Fourth First Second Third Fourth
------- ------ ------ ------- ------ ------- ------ ------
(in thousands, except earnings per share date)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $17,307 17,995 19,169 20,847 15,861 17,391 18,053 18,568
Provision for loan losses 2,246 3,028 4,198 2,642 1,639 2,526 3,248 1,781
General and administrative expenses 11,007 10,998 12,415 12,426 9,965 10,003 11,147 9,908
Interest expense 880 997 1,138 1,308 799 917 899 883
Income tax expense 1,110 1,041 496 1,305 1,250 1,415 1,005 1,932
------- ------ ------ ------ ------ ------ ------ ------
Net income 2,064 1,931 922 3,166 2,208 2,530 1,754 4,064
======= ====== ====== ====== ====== ====== ====== ======
Fully diluted per share data:
Earnings per share $ .10 .10 .05 .16 .10 .12 .08 .19
======= ====== ====== ====== ====== ====== ====== ======
Weighted average shares outstanding 20,812 20,085 19,325 19,138 21,660 21,908 21,661 21,582
======= ====== ====== ====== ====== ====== ====== ======
</TABLE>
(13) LITIGATION
The Company and its Georgia subsidiary are named as co-defendants with
a number of other finance companies, jewelry and furniture retailers,
and insurance companies in a consolidated nationwide class action,
currently pending in 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). The consolidated action
involves the defendants' non-file insurance practices. The complaint
alleges, among other things, that the defendants' non-file insurance
coverages do not constitute true insurance, and that the defendants'
practices with respect to non-file insurance constitute alleged federal
truth-in-lending, RICO and antitrust violations. The complaint has been
certified as a nationwide class action and seeks to recover money
damages and injunctive relief. The complaint was filed on April 18,
1995, the Company has filed an answer, and the parties are in the
discovery process. The Company has been advised that certain of the
defendants in the case have agreed to settle the claims made against
them by paying money damages to the plaintiffs. The Company has also
been advised that certain of the settling defendants have agreed to
change their non-file insurance practices. If the Company's non-file
insurance practices are found to be improper, the Company could be
required to refund non-file insurance fees, pay other significant
damages to the plaintiffs, and change its non-file insurance practices
going forward, and the Company could experience a reduction in future
income. The Company disputes the allegations made in the complaint, and
intends to continue to defend itself vigorously.
Management's statement of expectation with respect to this litigation
may be deemed a forward-looking statement, within the meaning of
Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act"), and no assurance can be given that management's expectation will
prove correct, as such expectation is subject to certain risks,
uncertainties and assumptions based on the preliminary nature of the
case and the vagaries of litigation generally. Should one or more of
these risks materialize or should underlying assumptions prove
incorrect, the actual outcome of this litigation could differ
materially from management's expectation.
At March 31, 1997, the Company and certain of its subsidiaries have
been named as defendants in various other legal actions arising from
their normal business activities in which damages in various amounts
are claimed. Although the amount of any ultimate liability with respect
to such other matters cannot be determined, in the opinion of
management, and based upon the advice of counsel, any such liability
will not have a material adverse effect on the Company's consolidated
financial statements taken as a whole.
(14) COMMITMENTS
The Company has entered into employment agreements with certain key
executive employees. The employment agreements have terms of three
years and call for aggregate minimum annual base salaries of $504,000,
adjusted annually as determined by the Company's Compensation
Committee. The agreements also provide for annual incentive bonuses,
which are based on the achievement of certain predetermined operational
goals.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
World Acceptance Corporation
Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of World
Acceptance Corporation and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1997. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of World
Acceptance Corporation and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1997, in conformity with generally accepted
accounting principles.
Greenville, South Carolina
April 23, 1997
27
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C>
Standing: Seated:
William S. Hummers III R. Harold Owens
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF OPERATING OFFICER
CAROLINA FIRST CORPORATION WORLD ACCEPTANCE CORPORATION
Ken R. Bramlett Jr. Charles D. Walters
SENIOR VICE PRESIDENT AND GENERAL COUNSEL CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PERSONNEL GROUP OF AMERICA, INC. WORLD ACCEPTANCE CORPORATION
James R. Gilreath A. Alexander McLean III
ATTORNEY EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
JAMES R. GILREATH, P.A. WORLD ACCEPTANCE CORPORATION
Charles D. Way
CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
RYAN'S FAMILY STEAK HOUSES, INC.
COMPANY OFFICERS
Charles D. Walters Harley E. Carlton
CHAIRMAN AND CHIEF EXECUTIVE OFFICER VICE PRESIDENT OF OPERATIONS
OKLAHOMA AND MISSOURI
R. Harold Owens Jimmy T. Galloway
PRESIDENT AND CHIEF OPERATING OFFICER VICE PRESIDENT OF OPERATIONS, GEORGIA
A. Alexander McLean III Charles F. Gardner, Jr.
EXECUTIVE VICE PRESIDENT VICE PRESIDENT OF OPERATIONS
AND CHIEF FINANCIAL OFFICER SOUTHWEST TEXAS AND NEW MEXICO
Mark C. Roland Casey K. Johnson
SENIOR VICE PRESIDENT, EASTERN DIVISION VICE PRESIDENT OF OPERATIONS, WEST TEXAS
Jeffrey W. Ohly Tommy E. Marr
SENIOR VICE PRESIDENT, SECRETARY AND TREASURER VICE PRESIDENT OF OPERATIONS, EAST TEXAS
James J. Rosenauer William M. Strange
PRESIDENT, PARADATA FINANCIAL SYSTEMS VICE PRESIDENT OF OPERATIONS, SOUTH CAROLINA
Iris E. Snow Jeff L. Tinney
VICE PRESIDENT AND ASSISTANT SECRETARY VICE PRESIDENT OF OPERATIONS, LOUISIANA
B. Dale Hall J. Daniel Walters
VICE PRESIDENT, ADMINISTRATION VICE PRESIDENT OF OPERATIONS
TENNESSEE AND ILLINOIS
</TABLE>
28
<PAGE>
CORPORATE INFORMATION
Common Stock
World Acceptance Corporation's common stock trades on the NASDAQ Stock
Market under the symbol: WRLD. As of June 20, 1997, there were approximately 182
shareholders of record and approximately 4,500 persons or entities who hold
their stock in nominee or "street" names through various brokerage firms. On
this date there were 18,946,573 shares of common stock outstanding.
The table below reflects the stock prices published by NASDAQ by quarter
for the last three fiscal years. The last reported sale price on June 20, 1997,
was 6 1/8.
Market Price of Common Stock
Fiscal 1995*
Quarter High Low
First 6 2/3 5 1/2
Second 7 1/3 5 5/6
Third 8 6 5/8
Fourth 8 11/12 7
Fiscal 1996*
Quarter High Low
First 11 1/2 8 1/2
Second 16 1/4 11 1/6
Third 15 3/4 10
Fourth 11 3/8 8 3/4
Fiscal 1997
Quarter High Low
First 11 1/2 7 1/4
Second 8 5 5/8
Third 7 1/4 5 5/8
Fourth 7 5/8 5
*All market prices have been adjusted to reflect 3-for-1 stock split in
August 1995.
29
<PAGE>
SUBSIDIARIES
of
WORLD ACCEPTANCE CORPORATION
<TABLE>
<CAPTION>
Jurisdiction of Incorporation
Corporate Name or Organization
- ------------------------------------------------- -----------------------------
<S> <C>
World Acceptance Corporation South Carolina
World Finance Corporation of South Carolina, Inc. South Carolina
World Finance Corporation of Georgia Georgia
World Finance Corporation of Texas Texas
World Acceptance Corporation of Oklahoma, Inc. Oklahoma
World Finance Corporation of Louisiana Louisiana
World Acceptance Corporation of Missouri Missouri
World Finance Corporation of Tennessee Tennessee
World Acceptance Corporation of Alabama Alabama
WAC Insurance Company, Ltd. Turks & Caicos Islands
WFC Limited Partnership Texas, but not Inc.
WFC of South Carolina, Inc. South Carolina
World Finance Corporation of Illinois Illinois
World Finance Corporation of New Mexico New Mexico
</TABLE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
World Acceptance Corporation
We consent in incorporation by reference in registration statements (Nos.
33-52166 and 33-98938) on Form S-8 of World Acceptance Corporation of our report
dated April 23, 1997, relating to the consolidated balance sheets of World
Acceptance Corporation and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1997, which
report appears in the March 31, 1997 annual report on Form 10-K of World
Acceptance Corporation.
KPMG Peat Marwick LLP
Greenville, South Carolina
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,486
<SECURITIES> 0
<RECEIVABLES> 89,539
<ALLOWANCES> 6,283
<INVENTORY> 0
<CURRENT-ASSETS> 84,742
<PP&E> 6,102
<DEPRECIATION> 0
<TOTAL-ASSETS> 102,163
<CURRENT-LIABILITIES> 4,518
<BONDS> 58,682
0
0
<COMMON> 38,963
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 102,163
<SALES> 0
<TOTAL-REVENUES> 75,317
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 46,846
<LOSS-PROVISION> 12,114
<INTEREST-EXPENSE> 4,322
<INCOME-PRETAX> 12,035
<INCOME-TAX> 3,952
<INCOME-CONTINUING> 8,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,083
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
