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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission file number 0-19599
WORLD ACCEPTANCE
CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 570425114
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
108 Frederick Street
Greenville, South Carolina 29607
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(Address of principal executive offices) (Zip Code)
(864) 298-9800
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(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
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(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. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 19, 1998, computed by reference to the closing sale price
on such date, was $99,354,068. As of the same date, 19,004,573 shares of Common
Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1998 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 1998 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.
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WORLD ACCEPTANCE CORPORATION
FORM 10-K REPORT
TABLE OF CONTENTS
Item No. Page
PART I
1. Description of Business............................................................................. 1
2. Properties.......................................................................................... 8
3. Legal Proceedings................................................................................... 9
4. Submission of Matters to a Vote of Security Holders................................................. 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................... 10
6. Selected Financial Data............................................................................. 10
7. Management's Discussion and Analysis of Financial Condition and Results of Operation................ 10
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............................................................................. 11
12. Security Ownership of Certain Beneficial Owners and Management..................................... 11
13. Certain Relationships and Related Transactions..................................................... 11
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 11
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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 1998" are to the Company's fiscal year
ended March 31, 1998.
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 $1,350 through 365 offices in South
Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri,
and New Mexico as of June 19, 1998. The Company generally serves 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.
EXPANSION. The Company opened or acquired 24 new offices (net) during
fiscal 1998. The Company plans to open or acquire at least 25 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.
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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 independent operators 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:
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At March 31,
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At June 19,
STATE 1991 1992 1993 1994 1995 1996 1997 1998 1998
- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
South Carolina........ 52 52 53 56 59 62 68 64 64
Georgia............... 31 34 35 35 38 39 45 49 49
Texas................. 58 62 66 81 93 104 131 128 128
Oklahoma.............. 21 23 27 31 33 39 40 41 41
Louisiana (1)......... - 5 10 12 15 20 18 21 21
Tennessee (2)......... - - - 2 6 18 24 28 30
Illinois (3).......... - - - - - - 3 11 14
Missouri (4).......... - - - - - - 1 9 9
New Mexico (5)........ - - - - - - 6 9 9
---- ---- ----- ----- ----- ----- ---- ---- ----
Total............ 162 176 191 217 244 282 336 360 365
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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 1998, the
Company's average originated loan size and term were approximately $488 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,
1998, 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 36% to 204% 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.
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.
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The Company, as an agent for an unaffiliated insurance company, markets
and sells credit life, credit accident and health, credit property, and
unemployment 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 provides for repayment of loan
installments to the lender that come due during the insured's period of income
interruption 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. Unemployment insurance provides for repayment of loan
installments to the lender that come due during the insured's period of
involuntary unemployment. The Company requires each customer to obtain credit
insurance in the amount of the loan for all loans originated in South Carolina,
and Georgia, and encourages customers to obtain credit insurance for loans
originated in Tennessee and 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.
The Company also markets 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, South Carolina, and
Louisiana and plans to introduce the program in Oklahoma and New Mexico in the
summer of 1998. 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 suppliers 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 1998:
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At March 31,
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State 1991 1992 1993 1994 1995 1996 1997 1998
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South Carolina........... 40% 38% 37% 37% 35% 33% 26% 23%
Georgia.................. 13 13 14 14 13 13 13 14
Texas.................... 39 39 38 38 38 35 39 35
Oklahoma................. 8 8 8 7 7 8 7 7
Louisiana (1)............ - 2 3 3 4 5 3 4
Tennessee (2)............ - - - 1 3 6 10 11
Illinois (3)............. - - - - - - - 2
Missouri (4)............. - - - - - - - 1
New Mexico (5)........... - - - - - - 2 3
---- ----- ----- ----- ----- ---- ---- ----
Total................ 100% 100% 100% 100% 100% 100% 100% 100%
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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.
3
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The following table sets forth the total number of loans and the average
loan balance by state at March 31, 1998:
Total Number Average Gross Loan
of Loans Balance
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South Carolina..................... 70,730 431
Georgia............................ 36,432 513
Texas.............................. 129,970 354
Oklahoma........................... 24,404 378
Louisiana.......................... 12,055 394
Tennessee.......................... 25,322 555
Illinois........................... 5,193 418
Missouri........................... 3,767 279
New Mexico......................... 7,569 549
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Total.......................... 315,442
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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.
Substantially all new customers are 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 resorting to
the sale of collateral. The Company 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 1998, approximately 88% 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
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 1996, 1997, and 1998, the percentages of the
Company's loan originations that were refinancings of existing loans were 80.0%,
81.8%, and 79.1% respectively.
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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. These refinancings also provide
a resolution to temporary financial setbacks for these borrowers and sustains
their credit rating.
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,
Tennessee, and on a limited basis, New Mexico, 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 1998, the captive insurance
subsidiary reinsured less than 11% of the credit insurance sold by the Company
and contributed approximately $927,000 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.
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Senior management receives daily delinquency loan volume, charge-off, and
other statistical 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 customer service representative, who
takes and processes loan applications and payments and assists in the
preparation of operational reports and collection and marketing activities.
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 1998, advertising expenses were
approximately 5.0% of total revenues.
COMPETITION. The small-loan consumer finance industry is highly
fragmented, with numerous competitors. The majority of the Company's competitors
are independent operators with fewer than 20 offices. Pawnshops also provide
competition in most of the communities served by the Company. 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 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, rather
than pricing, as participants in this industry generally charge comparable
interest rates and fees. 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
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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 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 the Tennessee
Department of Financial Institutions, the Missouri Division of Finance, the
Illinois Consumer Credit Division, Department of Financial Institutions, and the
Consumer Credit Bureau of the New Mexico Financial Institutions Division. 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
7
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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.
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, 1998, the Company had approximately 1,237
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>
<S> <C>
Name and Age Position Period of Service as Executive Officer
Charles D. Walters (59) Chairman and Chief Chairman since July 1991; President
Executive Officer; since July 1986; CEO since July 1991;
Director Director since April 1989
R. Harold Owens (50) President and Chief President since August 1996;
Operating Officer; Director Executive Vice President since June 1995;
Director since August 1995
A. Alexander McLean, III (47) Executive Vice President; Executive Vice President since August 1996;
Chief Financial Officer; Senior Vice President since July 1992;
Director CFO and Director since June 1989
Mark C. Roland (42) Senior Vice President, Since January 1996
Eastern 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 19, 1998, the
Company had 365 branch offices, most of which are leased pursuant to short-term
operating leases. During the fiscal year ended March 31, 1998, total lease
expense was approximately $2.9 million, or an average of approximately $8,275
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.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company and several of its subsidiaries are named as co-defendants with
a number of other finance companies, jewelry and furniture retailers, and
insurance companies in a purported nationwide class action, that has been
consolidated with similar lawsuits 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 Act and RICO violations. The complaint is
seeking certification 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, the discovery process is largely completed, and the
court is considering the plaintiffs' motion for class certification and motion
for partial summary judgement on the Truth-in-Lending Act claims. 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's
future earnings could be affected. The Company disputes the allegations made in
the complaint, and intends to continue to defend itself vigorously.
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 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 the Company 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 is proceeding. 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 existence
in Oklahoma since 1969. 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. The
Company intends to defend this action 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, 1998, 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.
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.
9
<PAGE>
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, 1998.
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 19,
1998, there were 169 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.
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
"Section 16(a) Beneficial Ownership Reporting Compliance" 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."
10
<PAGE>
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 19, 1998" and "Ownership of Common Stock of
Management as of June 19, 1998" 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 heading "Compensation Committee Interlocks
and Insider Participation" in the Proxy Statement is incorporated herein by
reference in response to this Item 13.
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, 1998 and 1997
Consolidated Statements of Operations for the years ended March 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended March 31,
1998, 1997 and 1996
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.
11
<PAGE>
(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>
<S> <C>
Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
---------------------------------------------------------------------------------------------------------------
3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K
Company
3.2 First Amendment to Second Amended and Restated Articles 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
4.2 Articles 3, 4 and 5 of the Form of Company's Second Amended 3.1, 3.2 1995 10-K
and Restated Articles of Incorporation (as amended)
4.3 Article II, Section 9 of the Company's Second Amended and 3.2 1995 10-K
Restated Bylaws
4.4 Amended and Restated Revolving Credit Agreement, dated as of 4.4 9-30-97 10-Q
June 30, 1997, between Harris Trust and Savings Bank, the
Banks signatory thereto from time to time and the Company
4.5 Amended and Restated Note Agreement, dated as of June 30, 4.5 9-30-97 10-Q
1997, between Jefferson-Pilot Life Insurance Company and the
Company
4.6# Amended and Restated Note Agreement, dated as of June 30, 4.6 9-30-97 10-Q
1997, between Principal Mutual Life Insurance Company and the
Company
4.7 Note Agreement, dated as of June 30, 1997, between Principal 4.7 9-30-97 10-Q
Mutual Life Insurance Company and the Company re: 10% Senior
Subordinated Secured Notes
4.8 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97 10-Q
of Trust, dated as of June 30, 1997, between the Company and
Harris Trust and Savings Bank, as Security Trustee
10.1+ Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K
1994
10.2+ Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K
April 1, 1994
10.3+ Employment Agreement of R. Harold Owens, effective June 26, 10.3 1995 10-K
1995
10.4 Securityholders' Agreement dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
12
<PAGE>
<CAPTION>
Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
---------------------------------------------------------------------------------------------------------------
10.5+ 1992 Stock Option Plan of the Company 4 33-52166
10.6+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.7+ The Company's Executive Incentive Plan 10.6 1994 10-K
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
Strategic Incentive Plan
13 Excerpts from 1998 Annual Report of the Company, with respect * NA
to 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 * NA
Company's 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
Executive Vice President and CFO
Date: June 29, 1998
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 29, 1998
/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 29, 1998
/s/ R. Harold Owens
- -----------------------------------------------------------
R. Harold Owens, President and Chief
Operating Officer (principal operating officer); Director
Date: June 29, 1998
/s/ Ken R. Bramlett, Jr.
- -----------------------------------------------------------
Ken R. Bramlett, Jr., Director
Date: June 29, 1998
14
FINANCIAL REVIEW
(The following information is listed in graphs as follows:)
Contents
5 Selected Consolidated Financial and Other Data
6 Management's Discussion and Analysis of Financial
Condition and Results of Operations
16 Consolidated Balance Sheets
17 Consolidated Statements of Operations
18 Consolidated Statements of Shareholders' Equity
19 Consolidated Statements of Cash Flows
20 Notes to Consolidated Financial Statements
34 Independent Auditors' Report
94 95 96 97 98
$0.28 $0.41 $0.49 $0.41 $0.42
Diluted Earnings Per Share
94 95 96 97 98
$5.83 $8.71 $11.13 $5.63 $6.63
Market Price Per Common Share at Year End
94 95 96 97 98
$50.7 $58.2 $69.9 $75.3 $83.6
(millions)
Total Revenues
94 95 96 97 98
$55.3 $65.4 $77.0 $85.4 $97.3
(millions)
Average Loans Receivable
4 WORLD ACCEPTANCE CORPORATION
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996 1995 1994
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest and fee income................................. $ 74,865 $ 67,454 $ 60,265 $ 52,341 $ 45,870
Insurance commissions and other income................. 8,754 7,863 9,608 5,871 4,798
---------- --------- --------- --------- ---------
Total revenues....................................... 83,619 75,317 69,873 58,212 50,668
---------- --------- --------- --------- ---------
Provision for loan losses............................... 12,601 12,114 9,194 5,783 4,275
General and administrative expenses..................... 53,470 46,846 41,023 35,302 33,497
Interest expense........................................ 5,541 4,322 3,498 3,598 3,719
---------- --------- --------- --------- ---------
Total expenses....................................... 71,612 63,282 53,715 44,683 41,491
---------- --------- --------- --------- ---------
Income before income taxes.............................. 12,007 12,035 16,158 13,529 9,177
Income taxes............................................ $ 3,909 3,952 5,602 4,910 3,390
---------- --------- --------- --------- ---------
Net income.............................................. $ 8,098 $ 8,083 $ 10,556 $ 8,619 $ 5,787
========== ======== ========= ========= ========
Net income per common share (diluted)................... $ .42 $ .41 $ .49 $ .41 $ .28
========== ======== ======== ======== ========
Diluted weighted average common
equivalent shares.................................... 19,172 19,833 21,653 20,787 20,760
========== ========= ========= ====== ======
BALANCE SHEET DATA (END OF PERIOD):
Loans receivable........................................ $ 103,385 $ 89,539 $ 79,624 $ 71,527 $ 58,227
Allowance for loan losses............................... (8,444) (6,283) (5,007) (4,364) (3,479)
---------- -------- --------- ------ ---------
Loans receivable, net............................ 94,941 83,256 74,617 67,163 54,748
Total assets............................................ 118,382 104,486 90,572 83,558 73,200
Total debt.............................................. 64,182 58,682 38,232 37,882 36,082
Shareholders' equity.................................... 47,301 38,963 44,880 35,758 26,858
OTHER OPERATING DATA:
As a percentage of average loans receivable:
Provision for loan losses............................ 13.0% 14.2% 11.9% 8.8% 7.7%
Net charge-offs...................................... 12.5% 13.7% 11.2% 7.5% 6.8%
Number of offices open at year-end...................... 360 336 282 244 217
</TABLE>
WORLD ACCEPTANCE CORPORATION 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,
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 $130.6 million at March 31, 1998. This represents in excess of 16% compounded
rate of growth in receivables over the five-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. During this same five-year period, the Company has grown from 191
offices to 360 offices as of March 31, 1998. The Company plans to open or
acquire at least 25 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. A large part of these intangibles 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, the "World Class Buying Club," began in
Texas in February 1995 and has since been expanded to include Georgia,
Tennessee, South Carolina, and Louisiana, with further expansion into New Mexico
and Oklahoma expected within the next several months. The Company plans to
continue to aggressively market these products, which have provided positive
contributions during the past two fiscal years and is expected to continue to
enhance revenues in fiscal 1999 and beyond.
The Company's ParaData Financial Systems subsidiary provides data
processing systems to 103 separate finance companies, including World, and
currently supports approximately 920 individual branch offices in 42 states.
During fiscal 1998, ParaData contributed a small net profit to the company's
operations, but more important, continued to provide state-of-the-art data
processing support for the Company's in-house integrated computer system. At the
end of the fiscal year, the Company upgraded its software systems, which
provided additional functions and features and should help control operating
cost during fiscal 1999 and beyond.
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. The Company acquired two larger loan offices, one in Georgia in
May 1996, and the other in Tennessee in February 1997. During fiscal 1998, the
Company further expanded this product line with three additional acquisitions
and several bulk purchases of receivables. The Company also converted three of
its traditional small-loan offices into larger loan offices. As of March 31,
1998, the Company had approximately $9.5 million of larger loans outstanding,
representing approximately 7.3% of the total loan portfolio. Management believes
that these offices can 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 from its small-loan business, it does intend
to open additional larger loan offices in future 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 on its small loans in all states in which it
operates.
6 WORLD ACCEPTANCE CORPORATION
<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.
<TABLE>
<CAPTION>
Years Ended March 31,
1998 1997 1996
---------- ----------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Average gross loans receivable (1).................................... $ 125,094 $ 109,206 $ 97,302
Average loans receivable (2).......................................... 97,285 85,445 77,037
Expenses as a percentage of total revenue:
Provision for loan losses 15.1% 16.1% 13.2%
General and administrative........................................ 63.9% 62.2% 58.7%
Total interest expense............................................ 6.6% 5.7% 5.0%
Operating margin (3).................................................. 21.0% 21.7% 28.1%
Return on average assets.............................................. 7.2% 8.2% 11.9%
Offices opened and acquired, net...................................... 24 54 38
Total offices (at period end)......................................... 360 336 282
</TABLE>
(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 1998 VERSUS FISCAL 1997
Net income was $8.1 million in fiscal 1998, approximately the same as the
amount earned during fiscal 1997. Operating income (revenues less the provision
for loan losses and general and administrative expenses) was $17.5 million in
fiscal 1998, an increase of $1.2 million, or 7.3%, over the $16.3 million in
fiscal 1997. This increase was primarily offset by an increase in interest
expense.
Interest and fee income during fiscal 1998 increased by $7.4 million, or
11.0%, over fiscal 1997. This increase resulted primarily from an increase of
$11.8 million, or 13.9%, 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.
Both the larger loan portfolio and the sales finance portfolio carry
substantially reduced interest rates from the small-loan portfolio, resulting in
the reduced overall yield during the fiscal year. Interest and fee income as a
percentage of average loans outstanding decreased in fiscal 1998 to 77.0% from
78.9% in fiscal 1997.
WORLD ACCEPTANCE CORPORATION 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Insurance commissions and other income increased by $891,000, or 11.3%,
over the two fiscal years. Insurance commissions increased by $445,000, or 9.2%,
as a result of the corresponding increase in loan volume in states where credit
insurance can be sold. Other income increased by $446,000, or 14.8%, primarily
as a result of increased sales and profits from the Company's "World Class
Buying Club" program, which was expanded to five states during fiscal 1998.
Total revenues were $83.6 million during fiscal 1998, an $8.3 million increase,
or 11.0%, over the $75.3 million reported during fiscal 1997. Revenues from the
269 offices that were open throughout both fiscal years decreased by
approximately 2.5%. At March 31, 1998, the Company had 360 offices in operation,
a net increase of 24 offices during the fiscal year.
The provision for loan losses during fiscal 1998 increased by $487,000, or
4%, from the previous year. This increase resulted primarily from an increase in
net charge-offs over the previous fiscal year. As a percentage of average loans
receivable, net charge-offs decreased to 12.5% during fiscal 1998 from 13.7%
during fiscal 1997. This decrease represents the first decline in the charge-off
ratios in several years, and contributed greatly to the positive results during
the fourth quarter of the fiscal year. As a percentage of loans receivable
outstanding, the allowance for loan losses increased to 8.2% at March 31, 1998,
compared to 7.0% at March 31, 1997. This increase resulted primarily from
reserves on acquired loans that were purchased at significant discounts during
the fiscal year.
General and administrative expenses during fiscal 1998 increased by $6.6
million, or 14.1%, over the previous fiscal year. This increase was due to the
cost associated with the 78 net new offices that have been opened or acquired
over the two year period beginning March 31, 1996. This increase was partially
offset by a decline of $1.6 million of intangible amortization, due to certain
intangible assets becoming fully amortized during the fiscal year. Total general
and administrative expenses, when divided by average open offices, increased by
only .2% when comparing the two fiscal years and as a percentage of total
revenues, increased from 62.2% in fiscal 1997 to 63.9% during the most recent
fiscal year.
Interest expense increased by $1.2 million during fiscal 1998 as a result
of increased borrowings outstanding as well as the increased interest rate on
the $10.0 million in subordinated debt that was issued during the year.
The Company's effective income tax rate decreased slightly to 32.6% during
fiscal 1998 from 32.8% the prior fiscal year. The Company continues to benefit
from reduced state taxes resulting from a reorganization in fiscal 1996, as well
as certain tax benefits from a reinsurance subsidiary.
COMPARISON OF FISCAL 1997 VERSUS FISCAL 1996
Net income was $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 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% in
fiscal year 1997.
8 WORLD ACCEPTANCE CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 sale during the period. 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 1997 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 1997
fiscal year from 11.2% for the prior year.
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 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
$16.0 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 fiscal year.
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.
WORLD ACCEPTANCE CORPORATION 9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, 1998, 1997, and 1996 and the credit
loss experience over the indicated periods:
<TABLE>
<CAPTION>
At or for the
Years Ended March 31,
1998 1997 1996
--------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for loan losses........................................... $ 8,444 $ 6,283 $ 5,007
Percentage of loans receivable...................................... 8.2% 7.0% 6.3%
Provision for loan losses........................................... $ 12,601 $ 12,114 $ 9,194
Net charge-offs..................................................... $ 12,150 $ 11,712 $ 8,664
Net charge-offs as a percentage of average loans receivable (1)..... 12.5% 13.7% 11.2%
</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.
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, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
At March 31,
1998 1997 1996
--------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Recency basis:
60 - 89 days past due............................................. $ 1,901 $ 1,812 $ 1,704
90 - 179 days past due............................................ 712 640 439
-------- ------- ------
Total........................................................... $ 2,613 $ 2,452 $ 2,143
======== ======= =====
Percentage of period end gross loans receivable..................... 2.0% 2.2% 2.2%
Contractual basis:
60 - 89 days past due............................................. $ 2,360 $ 2,227 $ 2,172
90 - 179 days past due............................................ 1,952 1,912 1,662
-------- ------- ------
Total........................................................... $ 4,312 $ 4,139 $ 3,834
======== ======= ======
Percentage of period end gross loans receivable..................... 3.3% 3.6% 3.9%
</TABLE>
10 WORLD ACCEPTANCE CORPORATION
<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 periods
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,
1996 1996 1996 1997 1997 1997 1997 1998
--------- -------- -------- -------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $17,307 $17,995 $19,169 $20,847 $18,983 $20,134 $21,624 $22,878
Provision for
loan losses....... 2,246 3,028 4,198 2,642 2,696 3,698 4,465 1,742
General and
administrative
expenses.......... 11,007 10,998 12,415 12,426 12,624 12,843 14,318 13,685
Net income........... 2,064 1,931 922 3,166 1,650 1,469 893 4,086
Gross loans
receivable........ 103,832 107,692 128,182 113,439 115,916 125,930 143,315 130,559
Number of
offices open...... 297 306 342 336 350 359 360 360
</TABLE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130. Reporting
Comprehensive Income (Statement 130). Statement 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. Enterprises are required to classify
items of "other comprehensive income" by their nature in the financial statement
and display the balance of other comprehensive income separately in the equity
section of a statement of financial position. Statement 130 is effective for
fiscal years beginning after December 15, 1997. Earlier application is
permitted. Comparative financial statements provided for earlier periods are
required to be reclassified to reflect the provisions of this statement. The
Company will adopt Statement 130 effective April 1, 1998.
WORLD ACCEPTANCE CORPORATION 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Also, in June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information (Statement 131). Statement 131
establishes standards for the way public business enterprises are to report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. Statement 131 is effective for
financial statements for periods beginning after December 15, 1997. Earlier
application is encouraged. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impractical to do
so. Statement 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application shall be reported in financial statements for
interim periods in the second year of application. It is not anticipated that
his standard will materially effect the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations, acquisitions and office expansion
through a combination of cash flow from operations and borrowings from its
institutional lenders. 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 $130.6 million at March 31, 1998, net cash provided by operating
activities for fiscal years 1996, 1997, and 1998 was $21.7 million, $23.2
million, and $22.0 million, respectively.
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 suspended its stock
repurchases in October 1996, but believes stock repurchases to be a viable
component of the Company's long-term financial strategy and an excellent use of
excess cash when the opportunity arises. In addition, the Company plans to open
or acquire at least 25 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 1998. New offices have also
required from $100,000 to $400,000 to fund outstanding loans receivable
originated during their first 12 months of operation.
The Company acquired 9 offices and several loan packages from competitors
in eight states in 21 separate transactions during fiscal 1998. Gross loans
receivable purchased in these transactions were approximately $11.2 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, 1997, the Company paid the third
installment on its 8.5% 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 has $8.0 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.
12 WORLD ACCEPTANCE CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company has a $65.0 million revolving credit facility with a syndicate
of banks. The credit facility will expire on September 30, 1999. 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, 1998, the interest rate on borrowings under the revolving
credit facility was 7.36%. 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, 1998, $45.7 million was outstanding
under this facility, and there was $19.3 million of unused borrowing
availability under the borrowing base limitations.
On June 30, 1997, the Company issued $10.0 million of Senior Subordinated
Secured Notes. These notes mature in five annual installments of $2.0 million
beginning June 30, 2000, and ending June 30, 2004, and bear interest at 10.0%,
payable quarterly. The notes were issued at a discounted price equal to 99.6936%
and may be prepaid subject to certain prepayment penalties. Borrowings under the
revolving credit facility, the Term Notes, and the subordinated notes are
secured by a lien on substantially all the tangible and intangible assets of the
Company and its subsidiaries pursuant to various security agreements.
The Company'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 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 and Senior Subordinated Notes are also subject to prepayment
penalties. 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.
The Company believes that cash flow from operations and borrowings under
its revolving credit facility 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.
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.
WORLD ACCEPTANCE CORPORATION 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR 2000
The Company recognizes that there is a business risk in computerized
systems as the calendar rolls over into the next century. If the computer
systems misinterpret the date, items such as interest calculations on loans may
be incorrect. This problem is commonly called the "year 2000 problem."
The Company has determined that its primary software package, the "Loan
Manager System" developed and maintained by its subsidiary, ParaData Financial
Systems, is year 2000 compliant.
The Company is also dependent upon several outside vendors for processing
information such as payroll, general ledger, benefits administration, etc.
Inquiries have been made and assurances received from each of these providers
that these systems are also prepared for the year 2000. Nevertheless, the
Company intends to conduct tests of all primary and secondary systems during the
next 18 months to ensure accuracy of information to the extent possible. The
Company believes that the total costs of preparing for the year 2000 are
minimal.
OTHER MATTERS
The Company and several of its subsidiaries are named as co-defendants
with a number of other finance companies, jewelry and furniture retailers, and
insurance companies in a purported nationwide class action, that has been
consolidated with similar lawsuits 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 Act and RICO violations. The complaint is
seeking certification 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, the discovery process is largely completed, and the
court is considering the plaintiffs' motion for class certification and motion
for partial summary judgement on the Truth-in-Lending Act claims. 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's
future earnings could be affected. The Company disputes the allegations made in
the complaint, and intends to continue to defend itself vigorously (See Note 6
of Notes to Consolidated Financial Statements).
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 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 the Company 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 is proceeding. 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 existence
in Oklahoma since 1969. 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. The
Company intends to defend this action vigorously.
14 WORLD ACCEPTANCE CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's statement of expectation with respect to the litigation
described herein 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.
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.
WORLD ACCEPTANCE CORPORATION 15
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
-------------------------------------
1998 1997
ASSETS
<S> <C> <C>
Cash............................................................................ $ 1,212,611 1,486,073
Gross loans receivable.......................................................... 130,559,256 113,439,027
Less:
Unearned interest and deferred fees........................................ (27,173,845) (23,899,194)
Allowance for loan losses.................................................. (8,444,563) (6,283,459)
------------- --------------
Loans receivable, net.................................................. 94,940,848 83,256,374
Property and equipment, net..................................................... 6,424,757 6,102,125
Other assets, net............................................................... 6,193,300 4,524,757
Intangible assets, net.......................................................... 9,610,394 9,117,033
------------- -------------
$ 118,381,910 104,486,362
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable....................................................... 53,700,000 58,200,000
Subordinated notes payable................................................. 10,000,000 -
Other note payable......................................................... 482,000 482,000
Income taxes payable....................................................... 2,795,119 3,176,307
Accounts payable and accrued expenses...................................... 4,103,511 3,664,592
------------- -------------
Total liabilities...................................................... 71,080,630 65,522,899
------------- -------------
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 18,998,573 and 18,936,573 shares
at March 31, 1998, and 1997, respectively ............................. - -
Additional paid-in capital................................................. 864,968 625,592
Retained earnings.......................................................... 46,436,312 38,337,871
-------------- -------------
Total shareholders' equity............................................. 47,301,280 38,963,463
------------- -------------
Commitments and contingencies
$ 118,381,910 104,486,362
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
16 WORLD ACCEPTANCE CORPORATION
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Interest and fee income.................................... $ 74,865,275 67,454,576 60,265,321
Insurance commissions and other income..................... 8,753,768 7,863,196 9,608,177
------------ ------------- -------------
Total revenues................................. 83,619,043 75,317,772 69,873,498
------------ ------------- -------------
Expenses:
Provision for loan losses.................................. 12,601,031 12,114,374 9,194,422
------------ ------------- -------------
General and administrative expenses:
Personnel.............................................. 32,922,691 28,161,923 24,808,100
Occupancy and equipment......................................... 6,099,711 5,037,019 4,278,456
Data processing................................................. 1,309,845 1,027,590 948,542
Advertising .................................................. 4,179,616 2,897,659 2,576,112
Amortization of intangible assets...................... 1,432,076 3,020,259 2,723,580
Other.................................................. 7,525,630 6,701,258 5,687,731
------------ ------------- -------------
53,469,569 46,845,708 41,022,521
------------ ------------- ----------
Interest expense........................................... 5,541,002 4,322,351 3,498,497
------------ ------------- -------------
Total expenses.................................... 71,611,602 63,282,433 53,715,440
------------ ------------- -------------
Income before income taxes...................................... 12,007,441 12,035,339 16,158,058
Income taxes.................................................... 3,909,000 3,952,000 5,602,000
------------ ------------- -------------
Net income...................................................... $ 8,098,441 8,083,339 10,556,058
============ ============= =============
Net income per common share
Basic...................................................... $ .43 .41 .51
============ ============= =============
Diluted.................................................... $ .42 .41 .49
============= ============= =============
Weighted average common equivalent shares outstanding
Basic...................................................... 18,959,348 19,492,086 20,817,917
============== ============= =============
Diluted.................................................... 19,172,456 19,832,525 21,653,096
============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
WORLD ACCEPTANCE CORPORATION 17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Additional
Paid-in Retained
Capital Earnings Total
<S> <C> <C> <C> <C> <C>
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
Proceeds from exercise of stock options (62,000 shares),
including tax benefits of $58,543.............................. 239,376 - 239,376
Net income........................................................ - 8,098,441 8,098,441
----------- ------------ ------------
Balances at March 31, 1998........................................ $ 864,968 46,436,312 47,301,280
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
18 WORLD ACCEPTANCE CORPORATION
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------------------------
1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net income ...................................................... $8,098,441 8,083,339 10,556,058
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets .............................. 1,432,076 3,020,259 2,723,580
Amortization of loan costs and discounts............................. 73,636 80,841 86,054
Provision for loan losses............................................ 12,601,031 12,114,374 9,194,422
Depreciation ....................................................... 1,456,052 1,319,667 1,063,772
Change in accounts:
Other assets, net............................................. (1,742,179) (847,269) (1,530,812)
Income taxes payable................................................. (322,645) (217,680) (727,459)
Accounts payable and accrued expenses................................ 438,919 (334,850) 371,976
------------ ------------ ------------
Net cash provided by operating activities................. 22,035,331 23,218,681 21,737,591
------------ ------------ ------------
Cash flows from investing activities:
Increase in loans receivable, net................................. (16,850,483) (8,146,358) (14,870,228)
Net assets acquired from office acquisitions, primarily loans..... (7,450,022) (12,688,099) (1,839,174)
Increase in intangible assets from acquisitions................... (1,925,437) (7,277,485) (973,500)
Costs of organizing new subsidiaries.............................. - - (96,360)
Purchases of property and equipment, net.......................... (1,763,684) (1,698,400) (2,247,785)
------------ ------------ ------------
Net cash used by investing activities................................ (27,989,626) (29,810,342) (20,027,047)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds (repayments) of senior revolving notes
payable, net................................................... (500,000) 24,450,000 4,350,000
Repayment of senior term notes payable............................ (4,000,000) (4,000,000) (4,000,000)
Proceeds from senior subordinated notes........................... 10,000,000 - -
Proceeds from exercise of stock options........................... 180,833 192,825 202,028
Repurchase of common stock........................................ - (14,258,838) (1,760,524)
------------ ----------- ------------
Net cash provided by (used in) financing activities......... 5,680,833 6,383,987 (1,208,496)
------------ ------------ -------------
Increase (decrease) in cash.......................................... (273,462) (207,674) 502,048
Cash at beginning of year............................................ 1,486,073 1,693,747 1,191,699
------------ ------------ ------------
Cash at end of year.................................................. $ 1,212,611 1,486,073 1,693,747
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
WORLD ACCEPTANCE CORPORATION 19
<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 1998, 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.
20 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At March 31, 1998 and 1997, 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 less accumulated depreciation
and amortization. Depreciation is recorded using the straight-line
method over the estimated useful life of the related asset as follows:
building, 40 years; furniture and fixtures, 5 to 10 years; equipment, 3
to 7 years; and vehicles, 3 years. Amortization of leasehold
improvements is recorded using the straight-line method over the lesser
of the estimated useful life of the asset or the term of the lease.
Additions to premises and equipment and major replacements or
betterments are added at cost. Maintenance, repairs, and minor
replacements are charged to operating expense as incurred. When assets
are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income.
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 $352,671
and $104,351 at March 31, 1998 and 1997, 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.
WORLD ACCEPTANCE CORPORATION 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INSURANCE PREMIUMS
Insurance premiums for credit life, accident and health, property and
unemployment 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.
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, 1998, 1997, and 1996, the Company paid
interest of $5,391,147, $4,302,473, and $3,473,149, respectively.
For the years ended March 31, 1998, 1997, and 1996, the Company paid
income taxes of $5,406,645, $5,343,680, and $6,981,463, respectively.
22 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Supplemental non-cash financing activities for the years ended March
31, 1998, 1997, and 1996, consist of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- --------
<S> <C> <C> <C>
Tax benefits from exercise of stock options.................. $ 58,543 66,469 124,140
</TABLE>
EARNINGS PER SHARE
Earnings per share are computed in accordance with SFAS No. 128,
"Earnings per Share". SFAS No. 128 replaces Accounting Principles Board
(APB) Opinion 15, "Earnings Per Share," and simplifies the computation
of earnings per share (EPS) by replacing the presentations of primary
EPS with a presentation of basic EPS. Basic EPS includes no dilution
and is computed by dividing income available to common shareholders by
the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of the Company. Common stock equivalents
included in the diluted EPS computation consist of stock options which
are computed using the treasury stock method. Share and per share data
have been restated to reflect all 5% stock distributions.
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 1997 and
1996 to conform with fiscal 1998 presentation. There was no impact on
shareholders' equity or net income as a result of these
reclassifications.
WORLD ACCEPTANCE CORPORATION 23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1998, 1997, and 1996: March 31,
<TABLE>
<CAPTION>
1998 1997 1996
------------ ----------- --------
<S> <C> <C> <C>
Balance at the beginning of the year....................... $ 6,283,459 5,006,703 4,363,612
Provision for loan losses.................................. 12,601,031 12,114,374 9,194,422
Loan losses................................................ (13,428,776) (12,659,683) (9,345,509)
Recoveries................................................. 1,278,616 947,999 681,030
Allowance on acquired loans................................ 1,710,233 874,066 113,148
------------ ----------- ------------
Balance at the end of the year............................. $ 8,444,563 6,283,459 5,006,703
============ =========== ============
</TABLE>
(3) PROPERTY AND EQUIPMENT
Summaries of property and equipment follow:
<TABLE>
<CAPTION>
March 31,
1998 1997
------------ ---------
<S> <C> <C>
Land.................................................................$ 325,443 269,443
Buildings and leasehold improvements................................. 2,788,518 2,367,432
Furniture and equipment.............................................. 8,296,239 7,342,971
------------ ------------
11,410,200 9,979,846
Less accumulated depreciation and amortization....................... 4,985,443 3,877,721
------------ ------------
Total........................................................... $ 6,424,757 6,102,125
============ ============
</TABLE>
(4) INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of:
<TABLE>
<CAPTION>
March 31,
1998 1997
------------ ---------
<S> <C> <C>
Cost of acquiring existing customers................................. $ 1,150,626 390,804
Value assigned to noncompete agreements.............................. 6,564,982 6,587,458
Goodwill............................................................. 1,437,499 1,603,364
Other................................................................ 457,287 535,407
------------ ------------
Total........................................................... $ 9,610,394 9,117,033
============ ============
</TABLE>
24 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) NOTES PAYABLE
Summaries of the Company's notes payable follow:
SENIOR CREDIT FACILITIES
$8,000,000 Senior Secured Term Notes -- These notes mature in two
annual installments of $4,000,000 due December 1, 1998 and 1999,
and bear interest at 8.5%, payable semi-annually. The notes may be
prepaid subject to certain prepayment penalties.
$65,000,000 Revolving Credit Facility - This facility provides for
borrowings of up to $65.0 million (increased from $20.0 million to
$25.0 million in September 1994, to $35.0 million in September
1995, to $50.0 million in June 1996, and $65.0 million in July
1997), subject to a borrowing base formula. The maximum borrowings
were temporarily increased to $70.0 million for the period
December 15, 1997, to February 15, 1998. The Company may borrow,
at its option, at the rate of prime or LIBOR plus 1.60%. At March
31, 1998, the Company's interest rate was 7.36% and the unused
amount available under the revolver was $19,300,000. The revolving
credit facility has a commitment fee of 3/8 of 1% on the unused
portion of the commitment. Borrowings under the revolving credit
facility mature on September 30, 1999.
On June 30, 1997, the Company issued $10.0 million of Senior
Subordinated Secured Notes. These notes mature in five annual
installments of $2.0 million beginning June 30, 2000 and ending
June 30, 2004, and bear interest at 10.0%, payable quarterly. The
notes were issued at a discounted price equal to 99.6936% and may
be prepaid subject to certain prepayment penalties.
Substantially all of the Company's assets are pledged as
collateral for borrowings under the senior credit agreements. The
Company's assets are also be pledged as collateral for the senior
subordinated 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, 1998, approximately
$4,387,000 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, 1998, are as follows: 1999,
$4,000,000; 2000, $50,182,000; 2001, $2,000,000; 2002, $2,000,000;
2003, $2,000,000; thereafter, $4,000,000.
WORLD ACCEPTANCE CORPORATION 25
<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, 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- --------
<S> <C> <C> <C>
Insurance premiums written................ $ 3,257,517 3,566,960 3,787,289
Recoveries on claims paid................. $ 334,812 315,112 313,703
Claims paid............................... $ (3,267,005) (3,971,106) (4,228,665)
</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 noncancelable operating leases
as of March 31, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999..................................................................... $ 2,525,839
2000..................................................................... 1,757,468
2001..................................................................... 866,566
2002 .................................................................... 339,170
2003 .................................................................... 149,797
Thereafter............................................................... 132,725
Total future minimum lease payments............................. $ 5,771,566
=========
</TABLE>
Rental expense for cancelable and noncancelable operating leases for
the years ended March 31, 1998, 1997, and 1996 was $2,929,002,
$2,345,068, and $2,000,352, respectively.
(8) INCOME TAXES
Income tax expense for the years ended March 31, 1998, 1997, and 1996,
consists of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- --------
<S> <C> <C> <C>
Current:
Federal.......................................................$ 4,845,000 4,834,000 6,084,000
State......................................................... 209,000 292,000 627,000
---------- ----------- -----------
Total..................................................... 5,054,000 5,126,000 6,711,000
---------- ----------- -----------
Deferred:
Federal....................................................... (1,073,000) (1,107,000) (1,047,000)
State......................................................... (72,000) (67,000) (62,000)
---------- ----------- -----------
Total..................................................... (1,145,000) (1,174,000) (1,109,000)
---------- ----------- -----------
$ 3,909,000 3,952,000 5,602,000
========== =========== ===========
</TABLE>
26 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) INCOME TAXES, CONTINUED
The income tax expense for the years ended March 31, 1998, 1997, and
1996 differs from the amount computed by applying the U.S. Federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- --------
<S> <C> <C> <C>
Computed "expected" income tax expense............................ $ 4,202,000 4,212,000 5,655,000
Increase resulting from:
State income tax, net of Federal benefit..................... 89,000 146,000 368,000
Amortization of goodwill..................................... 58,000 19,000 13,000
Insurance income exclusion................................... (278,000) (235,000) (238,000)
Other, net................................................... (162,000) (190,000) (196,000)
---------- ----------- -----------
Total income tax expense.......................................... $ 3,909,000 3,952,000 5,602,000
========== =========== ===========
</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, 1998 and
1997, and 1996, relate to the following:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ----------- --------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 3,082,000 2,293,000 1,953,000
Unearned insurance commissions............................... 617,000 501,000 465,000
Accounts payable and accrued expenses primarily
related to employee benefits............................. 189,000 193,000 213,000
Accrued state taxes.......................................... - - 55,000
Tax over book accrued interest receivable.................... 537,000 333,000 -
Other........................................................ 283,000 110,000 29,000
---------- ----------- -----------
Gross deferred tax assets......................................... 4,708,000 3,430,000 2,715,000
Less valuation allowance.......................................... (94,000) (30,000) (29,000)
---------- ---------- ----------
Net deferred tax assets........................................... 4,614,000 3,400,000 2,686,000
---------- ----------- -----------
Deferred tax liabilities:
Discount on purchased loans.................................. (526,000) - -
Intangible assets............................................ - - (1,051,000)
Deferred net loan origination fees........................... (379,000) (325,000) (323,000)
Purchase accounting adjustments.............................. - (448,000) -
Other........................................................ (241,000) (304,000) (163,000)
---------- ----------- -----------
Gross deferred tax liabilities.................................... (1,146,000) (1,077,000) (1,537,000)
---------- ----------- -----------
Net deferred tax assets........................................... $ 3,468,000 2,323,000 1,149,000
========== =========== ===========
</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.
The Internal Revenue Service is examining the Company's federal income
tax returns for the fiscal years 1994 through 1996. Tax returns for
fiscal 1997 and subsequent years are subject to examination by the
taxing authorities.
WORLD ACCEPTANCE CORPORATION 27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" (EPS), for the years ended March
31, 1998, 1997 and 1996. The presentation of primary and fully-diluted
EPS have been replaced with a presentation of basic and diluted EPS.
All prior-period EPS data has been restated to reflect the adoption of
SFAS No. 128. The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS calculations.
<TABLE>
<CAPTION>
For the year ended March 31, 1998
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
BASIC EPS
Income available to common shareholders.................. $ 8,098,441 18,959,348 .43
====
EFFECT OF DILUTIVE SECURITIES
Options.................................................. $ - 213,108
---------- -----------
DILUTED EPS
Income available to common shareholders
plus assumed conversions............................... $ 8,098,441 19,172,456 .42
========== =========== ====
For the year ended March 31, 1997
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
BASIC EPS
Income available to common shareholders.................. $ 8,083,339 19,492,086 .41
====
EFFECT OF DILUTIVE SECURITIES
Options.................................................. $ - 340,439
---------- -----------
DILUTED EPS
Income available to common shareholders
plus assumed conversions............................... $ 8,083,339 19,832,525 .41
========== =========== ====
For the year ended March 31, 1996
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
BASIC EPS
Income available to common shareholders.................. $ 10,556,058 20,817,917 .51
====
EFFECT OF DILUTIVE SECURITIES
Options.................................................. $ - 835,179
----------- -----------
DILUTED EPS
Income available to common shareholders
plus assumed conversions............................... $ 10,556,058 21,653,096 .49
========== =========== ====
</TABLE>
Options to purchase 1,938,669, 1,672,669 and 1,953,192 shares of common
stock at various prices were outstanding during years ended March 31,
1998, 1997 and 1996, respectively, but were not included in the
computation of diluted EPS because the option exercise price was
greater than the average market price of the common shares. The
options, which expire on various dates, were still outstanding as of
March 31, 1998.
28 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) 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 $284,925,
$268,214, and $258,240 for the years ended March 31, 1998, 1997, and
1996, respectively.
STOCK OPTION PLANS
The Company has a 1992 Stock Option Plan and a 1994 Stock Option Plan
for the benefit of certain directors, officers, and key employees.
Under these plans, 3,750,000 shares of authorized common stock have
been reserved for issuance pursuant to grants approved by the Stock
Option Committee. The options have a maximum duration of 10 years, may
be subject to certain vesting requirements, and are priced at the
market value of the Company's common stock on the date of grant of the
option.
The Company applies APB Opinion 25 in accounting for the stock option
plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option
plans. Had compensation cost been recognized for the stock option plans
applying the fair-value-based method as prescribed by SFAS 123, the
Company's net income and earning per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
($ in thousands except per share amounts) 1998 1997 1996
----------- ----------- --------
<S> <C> <C> <C>
Net Income
As reported................................................. $ 8,098 8,083 10,556
Pro forma................................................... 7,553 7,639 10,338
Basic earnings per share
As reported................................................. $ .43 .41 .51
=== === ======
Pro forma................................................... $ .40 .39 .50
=== === ======
Diluted earnings per share
As reported................................................. $ .42 .41 .49
=== === ======
Pro forma................................................... $ .39 .39 .48
=== === ======
</TABLE>
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 1998, 1997 and 1996, respectively:
dividend yield of zero; expected volatility of 43%, 44% and 44%;
risk-free interest rate of 5.82%, 6.63% and 6.63%; and expected lives
of 10 years for all plans in all three years.
WORLD ACCEPTANCE CORPORATION 29
<PAGE>
STOCK OPTION PLANS, CONTINUED
At March 31, 1998, the Company had the following options outstanding:
<TABLE>
<CAPTION>
SHARES SHARES SHARES PRICE
GRANT DATE GRANTED EXERCISABLE EXERCISED PER SHARE EXPIRATION DATE
<S> <C> <C> <C> <C> <C>
April 22, 1992 150,000 150,000 - $ 2.98 April 22, 2002
April 30, 1992 24,000 24,000 6,000 $ 3.04 April 30, 2002
October 20, 1992 358,500 358,500 200,500 $ 2.92 October 20, 2002
January 20, 1993 30,000 30,000 - $ 5.04 January 20, 2003
April 7, 1993 90,000 72,000 4,000 $ 6.33 April 7, 2003
April 30, 1993 18,000 18,000 - $ 5.54 April 30, 2003
October 19, 1993 373,500 301,800 13,500 $ 6.88 October 19, 2003
April 30, 1994 24,000 24,000 - $ 5.75 April 30, 2004
October 13, 1994 534,000 328,800 6,000 $ 7.48 October 13, 2004
April 1,1995 211,692 211,692 - $ 8.63 April 1, 2005
April 30, 1995 24,000 24,000 - $ 9.50 April 30, 2005
June 26, 1995 75,000 30,000 - $ 11.33 June 26, 2005
October 31, 1995 123,500 51,200 - $ 13.00 October 31, 2005
January 23, 1996 15,000 6,000 - $ 10.25 January 23, 2006
April 1, 1996 196,177 130,785 - $ 10.75 April 1, 2006
April 1, 1996 40,200 26,800 - $ 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 204,500 40,900 - $ 6.69 October 25, 2006
January 27, 1997 36,000 7,200 - $ 5.94 January 27, 2007
March 31, 1997 33,000 11,000 - $ 5.41 March 31, 2007
April 1, 1997 78,662 26,221 - $ 5.41 April 1, 2007
April 29, 1997 24,000 24,000 - $ 5.18 April 29, 2007
April 30, 1997 24,000 24,000 - $ 5.16 April 30, 2007
October 28, 1997 260,000 - - $ 5.19 October 28, 2007
---------- ---------- ---------
Total 2,986,331 1,959,498 230,000
========= ========= =========
</TABLE>
On April 1, 1998, the Company granted options for an additional 73,309
shares under the plans to certain executives and 44,100 shares to
certain branch managers and on April 30, 1998, an additional 24,000
shares under the plans were granted to non-management directors
pursuant to the terms of the plan, leaving 622,260 shares of common
stock available for future grants. No expense has been recorded
relative to stock options granted to date.
30 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) ACQUISITIONS
During fiscal 1998, the Company purchased the net assets of
twenty-seven consumer loan offices for a total consideration of
$9,338,522. Total net loans receivable acquired amounted to $7,450,022,
and the Company paid $1,925,437 for non-compete agreements with
predecessor owners and other intangible assets. Eighteen of the
twenty-seven offices acquired were merged into existing offices.
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.
(12) 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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales and system support............................ $ 1,892,231 1,760,270 6,632,897
Cost of sales....................................... 433,289 324,650 3,209,818
----------- ------------ -----------
Net margin...................................... 1,458,942 1,435,620 3,423,079
--------- ------------ -----------
General and administrative expenses:
Personnel....................................... 973,302 1,026,172 974,299
Occupancy and equipment......................... 278,124 276,342 256,843
Advertising..................................... 9,449 7,601 5,729
Amortization of intangibles..................... 28,733 28,756 28,754
Other........................................... 155,909 181,575 214,819
----------- ------------ -----------
1,445,517 1,520,446 1,480,444
Interest expense.................................... - - 23,898
----------- ------------ -----------
Net income (loss) before income taxes............... $ 13,425 (84,826) 1,918,737
=========== ============ ===========
</TABLE>
WORLD ACCEPTANCE CORPORATION 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) QUARTERLY INFORMATION (UNAUDITED)
The following sets forth selected quarterly operating data:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ---------------------------------
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............................. $ 18,983 20,134 21,624 22,878 17,307 17,995 19,169 20,847
Provision for loan losses.................. 2,696 3,698 4,465 1,742 2,246 3,028 4,198 2,642
General and administrative expenses........ 12,624 12,843 14,318 13,685 11,007 10,998 12,415 12,426
Interest expense........................... 1,181 1,384 1,453 1,523 880 997 1,138 1,308
Income tax expense ........................ 832 740 495 1,842 1,110 1,041 496 1,305
-------- ------- ------- ------ ------- ------- ------- ------
Net income............................ 1,650 1,469 893 4,086 2,064 1,931 922 3,166
======== ======= ======= ====== ======= ======= ======= ======
Earnings per share:
Basic................................. $ .09 .08 .05 .22 .10 .10 .05 .17
========= ======== ======= ====== ======= ======= ======= ======
Diluted............................... $ .09 .08 .05 .21 .10 .10 .05 .17
======== ======= ======= ====== ======= ======= ======= ======
</TABLE>
(14) LITIGATION
The Company and several of its subsidiaries are named as co-defendants
with a number of other finance companies, jewelry and furniture
retailers, and insurance companies in a purported nationwide class
action, that has been consolidated with similar lawsuits 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 Act and RICO
violations. The complaint is seeking certification 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, the discovery process is largely completed, and the court is
considering the plaintiffs' motion for class certification and motion
for partial summary judgement on the Truth-in-Lending Act claims. 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's future earnings could be affected. The Company disputes the
allegations made in the complaint, and intends to continue to defend
itself vigorously (See Note 6 of Notes to Consolidated Financial
Statements).
32 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 the Company 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 is proceeding. 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 existence in Oklahoma since 1969. 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. The
Company intends to defend this action 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, 1998, 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.
(15) 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 $545,400,
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.
WORLD ACCEPTANCE CORPORATION 33
<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, 1998 and 1997, 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, 1998. 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 audit 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1998, in conformity with generally accepted
accounting principles.
Greenville, South Carolina
April 23, 1998
34 WORLD ACCEPTANCE CORPORATION
<PAGE>
CORPORATE INFORMATION
COMMON STOCK
World Acceptance Corporation's common stock trades on the NASDAQ Stock
Market under the symbol: WRLD. As of June 19, 1998, there were approximately 169
shareholders of record and approximately 2,500 persons or entities who hold
their stock in nominee or "street" names through various brokerage firms. On
this date there were 19,004,573 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 19, 1998,
was 5 13/16.
MARKET PRICE OF COMMON STOCK*
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
Fiscal 1998
--------------------------------------
Quarter High Low
First $ 7 $ 5 1/8
Second 7 5 3/4
Third 6 1/2 4 25/32
Fourth 7 26/32 4 15/16
*All market prices have been adjusted
to reflect 3-for1 stock split in August 1995.
Exhibit 21
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, 1998, relating to the consolidated balance sheets of World
Acceptance Corporation and subsidiaries as of March 31, 1998 and 1997 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, 1998, which
report appears in the March 31, 1998 annual report on Form 10-K of World
Acceptance Corporation.
KPMG Peat Marwick LLP
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998 MAR-31-1998 MAR-31-1998
<PERIOD-START> APR-01-1997 APR-01-1997 APR-01-1997 APR-01-1997
<PERIOD-END> JUN-30-1997 SEP-30-1997 DEC-31-1997 MAR-31-1998
<CASH> 2,251 2,283 1,302 1,213
<SECURITIES> 0 0 0 0
<RECEIVABLES> 90,864 98,819 111,649 103,385
<ALLOWANCES> 6,434 7,527 8,398 8,445
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 86,681 93,575 104,553 96,153
<PP&E> 6,249 6,714 6,485 6,425
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 103,804 113,724 124,632 118,382
<CURRENT-LIABILITIES> 2,554 3,230 3,609 6,899
<BONDS> 60,582 68,332 77,932 64,182
0 0 0 0
0 0 0 0
<COMMON> 40,668 42,162 43,091 47,301
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 103,804 113,724 124,632 118,382
<SALES> 0 0 0 0
<TOTAL-REVENUES> 18,984 39,117 60,741 83,619
<CGS> 0 0 0 0
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 12,624 25,467 39,785 53,470
<LOSS-PROVISION> 2,696 6,394 10,859 12,601
<INTEREST-EXPENSE> 1,181 2,565 4,018 5,541
<INCOME-PRETAX> 2,483 4,691 6,079 12,007
<INCOME-TAX> 832 1,572 2,067 3,909
<INCOME-CONTINUING> 1,651 3,119 4,012 8,098
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,651 3,119 4,012 8,098
<EPS-PRIMARY> 0.09<F1> 0.16<F1> 0.21<F1> 0.43<F1>
<EPS-DILUTED> 0.09 0.16 0.21 0.42
<FN>
<F1> EPS-BASIC
</FN>
</TABLE>
