UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT of 1934
For the transition period from to
---------------------- ---------------------
Commission File Number: 0-19599
WORLD ACCEPTANCE CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter.)
South Carolina 57-0425114
- --------------- -----------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
108 Frederick Street
Greenville, South Carolina 29607
------------------------------------
(Address of principal executive offices)
(Zip Code)
(864) 298-9800
-------------------
(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period than the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
X Yes No
--- -----
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date, February 12, 1998.
Common Stock, no par value 18,985,573
-------------------------- ----------
(Class) (Outstanding)
This Filing contains 16 pages.
The Exhibit Index is on 14 page.
<PAGE>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Consolidated Financial Statements (unaudited):
Consolidated Balance Sheets as of December 31,
1997, and March 31, 1997 3
Consolidated Statements of Operations for the
three-month periods and nine-month periods ended
December 31, 1997, and December 31, 1996 4
Consolidated Statements of Shareholders' Equity
for the year ended March 31, 1997, and the nine-month
period ended December 31, 1997 5
Consolidated Statements of Cash Flows for the
three-month periods and nine-month periods ended
December 31, 1997, and December 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the three-month
periods and nine-month periods ended December 31, 1997,
and December 31, 1996 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 16
2
<PAGE>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1997
------------- ---------
ASSETS
<S> <C> <C>
Cash $ 1,486,073 1,301,985
Gross loans receivable 113,439,027 143,314,825
Less:
Unearned interest and fees (23,899,194) (31,665,682)
Allowance for loan losses (6,283,459) (8,398,348)
-------------- ---------------
Loans receivable, net 83,256,374 103,250,795
Property and equipment, net 6,102,125 6,485,410
Other assets, net 2,201,757 4,362,326
Intangible assets, net 9,117,033 9,231,348
--------------- -------------
$ 102,163,362 124,631,864
=============== =============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable 58,200,000 77,450,000
Other note payable 482,000 482,000
Accounts payable and accrued expenses 4,517,899 3,608,658
-------------- -----------
Total liabilities 63,199,899 81,540,658
============= ===========
Shareholders' equity:
Common stock, no par value - -
Additional paid-in capital 625,592 740,880
Retained earnings 38,337,871 42,350,326
-------------- ----------
Total shareholders' equity 38,963,463 43,091,206
-------------- ----------
$ 102,163,362 124,631,864
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
------ ---- ---- -----
<S> <C> <C> <C> <C>
Revenues:
Interest and fee income $ 19,143,971 17,031,185 54,247,165 48,469,268
Insurance and other income 2,480,096 2,137,419 6,494,059 6,000,378
------------ ----------- ----------- -----------
Total revenues 21,624,067 19,168,604 60,741,224 54,469,646
------------ ----------- ----------- -----------
Expenses:
Provision for loan losses 4,465,904 4,197,506 10,859,524 9,471,160
----------- ----------- ---------- -----------
General and administrative expenses:
Personnel 8,359,550 7,127,302 24,168,250 20,689,992
Occupancy and equipment 1,525,198 1,216,175 4,576,570 3,712,325
Data processing 354,153 241,368 953,854 762,329
Advertising 1,844,398 1,293,840 3,356,681 2,377,548
Amortization of intangible assets 321,329 744,431 1,107,122 2,135,172
Other 1,912,828 1,791,953 5,622,042 4,743,201
------------ ----------- ----------- -----------
14,317,456 12,415,069 39,784,519 34,420,567
------------ ----------- ----------- ------------
Interest expense 1,452,844 1,137,686 4,017,726 3,014,060
Total expenses 20,236,204 17,750,261 54,661,769 46,905,787
Income before income taxes 1,387,863 1,418,343 6,079,455 7,563,859
Income taxes 495,000 496,000 2,067,000 2,647,000
--------- --------- --------- ----------
Net income $ 892,863 922,343 4,012,455 4,916,859
=========== ======= ========= ==========
Net income per common share
Basic $ 0.05 0.05 0.21 0.25
=========== ======= ======== =========
Diluted $ 0.05 0.05 0.21 0.25
=========== ====== ======= =========
Weighted average shares outstanding
Basic 18,960,464 19,049,638 18,950,518 19,679,183
=========== ========== ========== ===========
Diluted 19,136,519 19,295,278 19,162,917 20,064,070
=========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
Additional
Paid-in Retained
Capital Earnings Total
--------- --------- -------
<S> <C> <C> <C>
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 for the year - 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 (29,000 shares),
including tax benefit of $30,705 115,288 - 115,288
Net income - 4,012,455 4,012,455
------------- ----------- -----------
Balances at December 31, 1997 $ 740,880 42,350,326 43,091,206
============= =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended Nine months ended
December 31, December 31,
-------------------------- ------------------------
1997 1996 1997 1996
----- ---- ----- -----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 892,863 922,343 4,012,455 4,916,859
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 4,465,904 4,197,506 10,859,524 9,471,160
Amortization of intangible assets 321,329 744,431 1,107,122 2,135,172
Amortization of loan costs and discounts 27,427 42,610 84,895 59,030
Depreciation 366,019 332,763 1,084,290 976,197
Change in accounts:
Other assets, net (362,334) (1,499,957) (2,245,464) (1,904,569)
Accounts payable and accrued expenses 385,666 1,397,905 (878,536) (373,523)
--------- ----------- ----------- -----------
Net cash provided by operating activities 6,096,874 6,137,601 14,024,286 15,280,326
----------- ---------- ---------- -----------
Cash flows from investing activities:
Increase in loans, net (16,226,522) (10,250,834) (25,633,154) (19,644,004)
Net assets acquired from office acquisitions,
primarily loans (198,239) (7,805,663) (5,235,791) (8,653,604)
Purchases of premises and equipment (137,965) (38,309) (1,452,575) (1,074,845)
Purchases of intangible assets (144,501) (5,510,653) (1,221,437) (6,154,986)
------------- ------------ ----------- -----------
Net cash used by investing activities (16,707,227) (23,605,459) (33,542,957) (35,527,439)
-------------- ------------- ------------- ------------
Cash flows from financing activities:
Proceeds from senior notes payable, net 13,600,000 25,900,000 13,250,000 38,750,000
Repayment of senior term notes (4,000,000) (4,000,000) (4,000,000) (4,000,000)
Proceeds from senior subordinated notes -- -- 10,000,000 --
Proceeds from exercise of stock options 29,166 70,001 84,583 74,381
Repurchase of common stock -- (4,048,130) -- (14,258,838)
-------------- ------------- ----------- -------------
Net cash provided by financing activities 9,629,166 17,921,871 19,334,583 20,565,543
-------------- ------------ ------------ ------------
Increase (decrease) in cash (981,187) 454,013 (184,088) 318,430
Cash, beginning of period 2,283,172 1,558,164 1,486,073 1,693,747
------------- ---------- --------- ----------
Cash, end of period $ 1,301,985 2,012,177 1,301,985 2,012,177
============ =========== ========= ==========
Supplemental disclosure of cash flow information:
Cash paid for interest expense $ 1,717,204 1,371,235 4,080,890 3,079,396
Cash paid for income taxes 882,919 734,357 4,561,689 4,995,278
Supplemental schedule of noncash financing activities:
Tax benefits from exercise of stock options 7,501 26,946 30,705 30,397
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of the Company at December 31,
1997, and for the periods then ended were prepared in accordance with the
instructions for Form 10-Q and are unaudited; however, in the opinion of
management, all adjustments (consisting only of items of a normal recurring
nature) necessary for a fair presentation of the financial position at December
31, 1997, and the results of operations and cash flows for the period then
ended, have been included. The results for the periods ended December 31, 1997,
are not necessarily indicative of the results that may be expected for the full
year or any other interim period.
These consolidated financial statements do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the Company's audited financial statements and related notes
for the year ended March 31, 1997, included in the Company's 1997 Annual Report
to Shareholders.
NOTE 2 - ALLOWANCE FOR LOAN LOSSES
The following is a summary of the changes in the allowance for loan
losses for the periods indicated (unaudited):
<TABLE>
<CAPTION>
Three months Nine months
ended December 31, ended December 31,
------------------------ ----------------------
1997 1996 1997 1996
------ ----- ------ ------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 7,526,452 5,456,761 6,283,459 5,006,703
Provision for loan losses 4,465,904 4,197,506 10,859,524 9,471,160
Loan losses (3,944,872) (3,899,972) (10,413,136) (9,159,691)
Recoveries 341,581 184,254 840,410 573,200
Allowance on acquired loans 9,283 734,860 828,091 782,037
------------ --------- ---------- ----------
Balance at end of period $ 8,398,348 6,673,409 8,398,348 6,673,409
============ =========== ========== =========
</TABLE>
NOTE 3 - PARADATA FINANCIAL SYSTEMS (PARADATA)
The following data for ParaData was included in the Consolidated
Statements of Operations for the periods ended December 31, 1997 and 1996
(unaudited):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------- ---------------------
1997 1996 1997 1996
---- ----- ----- -----
<S> <C> <C> <C> <C>
Sales and system-support 634,021 441,949 1,504,876 1,379,973
Cost of sales 188,646 36,627 352,478 253,584
--------- -------- ---------- ---------
Net margin (included in other income) 445,375 405,322 1,152,398 1,126,389
--------- -------- --------- ---------
General and administrative expenses
Personnel 280,344 259,639 749,629 785,692
Occupancy and equipment 72,137 67,790 207,409 201,549
Advertising 1,855 2,921 4,680 5,963
Amortization of intangibles 7,189 7,189 21,567 21,567
Other 38,095 40,801 116,573 131,999
-------- ------- ---------- --------
399,620 378,340 1,099,858 1,146,770
-------- ------- --------- ----------
Net income (loss) before income taxes 45,755 26,982 52,540 (20,381)
======= ======== ========== ===========
</TABLE>
7
<PAGE>
WORLD ACCEPTANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
NOTE 4 - ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
The Company has adopted Statement of Accounting Standards (SFAS No. 128,
"Earning Per Share" (EPS)), for the three and nine-month periods ended December
31, 1997. 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 three months ended For the three months ended
December 31, 1997 December 31, 1996
------------------- ---------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common
shareholders $ 892,863 18,960,464 0.05 $ 922,343 19,049,638 0.05
====== ---------- ---------- =======
Effect of Dilutive Securities
Options $ - 176,055 - $ 245,640
---------- ----------- ---------- ----------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $ 892,863 19,136,519 0.05 $ 922,343 19,295,278 0.05
========== =========== ===== ========= ============ =====
<CAPTION>
For the three months ended For the three months ended
December 31, 1997 December 31, 1996
------------------- ---------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common
shareholders $ 4,012,455 18,950,518 0.21 $ 4,916,859 19,679,183 0.25
------- ----------- --------- ----
Effect of Dilutive Securities
Options $ - 212,399 $ - 384,887
----------- ---------- ----------- ---------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $ 4,012,455 19,162,917 0.21 $ 4,916,859 20,064,070 0.25
============= ============ ======= =========== ============ ======
</TABLE>
Options to purchase 2,106,931 and 1,955,569 shares of common stock at various
prices were outstanding during three and nine month periods ended December 31,
1997 and December 31, 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 December 31, 1997.
8
<PAGE>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain information derived from the
Company's consolidated statements of operations and balance sheets, as well as
operating data and ratios, for the periods indicated (unaudited):
<TABLE>
<CAPTION>
Three months Nine months
ended December 31, ended Decemeber 31,
----------------------- ---------------------
1997 1996 1997 1996
----- ---- ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average gross loans receivable (1) $131,915 111,991 122,803 106,789
Average loans receivable (2) 102,295 87,290 95,402 83,666
Expenses as a % of total revenue:
Provision for loan losses 20.7% 21.9% 17.9% 17.4%
General and administrative 66.2% 64.8% 65.5% 63.2%
Total interest expense 6.7% 5.9% 6.6% 5.5%
Operating margin (3) 13.1% 13.3% 16.6% 19.4%
Return on average assets (annualized) 3.0% 3.6% 4.8% 6.7%
Offices opened or acquired, net - 36 24 60
Total offices (at period end) 360 342 360 342
</TABLE>
- --------------------------
(1) Average gross loans receivable have been determined by averaging
month-end gross loans receivable over the indicated period.
(2) Average loans receivable have been determined by averaging month-end
gross loans receivable less unearned interest and deferred fees over
the indicated period.
(3) Operating margin is computed as total revenues less provision for loan
losses and general and administrative expenses, as a percentage of
total revenues.
Comparison of Three Months Ended December 31, 1997, Versus
Three Months Ended December 31, 1996
Net income amounted to $893,000 for the three months ended December 31,
1997, a 3.2% decrease from the $922,000 earned during the corresponding
three-month period of the previous year. This decrease resulted primarily from
an increase in interest expense of $315,000 offset by an increase in operating
income (revenues less provision for loan losses and general and administrative
expenses) of approximately $285,000, or 11.1%.
Interest and fee income for the quarter ended December 31, 1997,
increased by $2,113,000, or 12.4%, over the same period of the prior year. This
increase resulted primarily from the $19.9 million increase, or 17.8%, in
average loans receivable over the two corresponding periods. The increase in
interest and fees was less than the increase in average balances outstanding due
to a reduction in the overall yield in the loan portfolio. This reduction is due
to lower interest rates charged on larger loans being made in select offices of
the Company. Insurance commissions and other income increased by $343,000, or
16.0%, when comparing the two quarterly periods. Insurance commissions increased
by 4.1%, approximating the growth in loans in those states that allow the sale
of credit insurance. Other income increased by $291,000, or 32.7%, primarily
from increased gross profit from our World Class Buying Club (WCBC) electronic
sales. This program generated gross profit of $405,000 during the most recent
quarter compared to $147,000 during the prior year quarter.
9
<PAGE>
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Comparison of Three Months Ended December 31, 1997, Versus
Three Months Ended December 31, 1996, continued
Total revenues amounted to $21.6 million during the quarter ended
December 31, 1997, representing an 12.8% increase over the $19.2 million in
total revenues for the same quarter of the prior year. Revenues from the 273
offices open throughout both three-month periods decreased by approximately
0.2%. At December 31, 1997, the Company had 360 offices in operation, the same
as the beginning of the current quarter, but an increase of 24 offices since the
beginning of the fiscal year.
The provision for loan losses amounted to $4,466,000 during the quarter
ended December 31, 1997, representing a 6.4% increase over the $4,198,000 during
the same quarter of fiscal 1997. This increase resulted from an increase in the
general allowance for loan losses, reflecting the increase in the overall loan
portfolio during the quarter. Net charge-offs during the quarter, decreased in
amount as well as on a percentage basis for the first time in several quarters.
Net charge-offs amounted to $3.6 million , a 3.0% decrease from the $3.7 million
charged-off during the quarter ended December 31, 1996. As an annualized
percentage of average loans, net charge-offs were 14.1% for the current quarter
compared to 17.0% for the prior year quarter. The Company is encouraged by the
reduction in loan losses, but continues to focus a great deal of attention on
this very important aspect of its business. Until charge-offs return to
historical levels, however, the results of operations of the Company's small
loan business will continue to be negatively affected.
General and administrative expenses for the quarter ended December 31,
1997, increased by $1,902,000, or 15.3%, over the same quarter of fiscal 1997.
This increase resulted primarily from the additional expenses associated with
the 24 net new offices opened or acquired during the current fiscal year. The
Company has also sold or merged with other existing offices, 11 offices during
the same period. These were offices that had not grown as expected to a
profitable size within a reasonable period of time. Excluding the expenses
associated with ParaData, overall general and administrative expenses when
divided by the average open offices increased by 1.4% when comparing the two
periods. During the current quarter, the Company benefited from reduced
intangible amortization as a result of a large intangible asset relating to the
1989 leveraged buyout becoming fully amortized in May, 1997. However, excluding
both the expenses relating to ParaData, as well as intangible amortization,
overall general and administrative expenses, when divided by average opened
offices, increased by only 5.6%.
Interest expense increased by $315,000, or 27.7%, when comparing the
two corresponding quarterly periods. This increase resulted from an increase in
both the amount of debt outstanding, as well as the rate on this debt. Average
debt outstanding during the two corresponding quarters increased by
approximately $13.8 million, or 24.3%, primarily from funding several
acquisitions as well as the internal growth in the loan portfolio. The increased
rate resulted from the higher coupon on the subordinated notes that were issued
in July, 1997.
The effective income tax rate increased to 35.7% during the quarter
ended December 31, 1997, from 35.0% during the prior year quarter. This slight
increase reflects a small adjustment to the expected annualized rate from 33.5%
to 34.0%.
Comparison of Nine Months Ended December 31, 1997,
Versus Nine Months Ended September 30, 1996
For the nine-month period ended December 31, 1997, net income amounted
to $4.0 million, a decrease of $904,000, or 21.9%, from the corresponding
nine-month period of the prior year. Operating income decreased by $481,000, or
4.5%, over the two periods. This decrease, combined with an increase in interest
expense, was offset by a decrease in income taxes.
Total revenues amounted to $60.7 million during the current nine-month
period, an increase of $6.3 million, or 11.5%, over the prior-year period. This
increase resulted from an increase in interest and fee income of 11.9% combined
with an increase in insurance and other income of 8.2%. Revenues from the 273
offices open throughout both nine-month periods decreased approximately 2.7%.
10
<PAGE>
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Comparison of Nine Months Ended December 31, 1997,
Versus Nine Months Ended December 31, 1996, continued
Interest and fee income rose by $5.8 million, or 11.9%, during the two
corresponding nine-month periods primarily as a result of increases in loan
balances outstanding. Average loans receivable were $95.4 million during the
nine months ended December 31, 1997, representing a 14.0% increase over the
average balances of the prior year. Other income increased by 8.2% due to
increased insurance commissions, as well as increased gross profit from WCBC
sales.
The provision for loan losses increased by $1,388,000, or 14.7%, during
the current nine-month period when compared to the same period of fiscal 1997.
This increase resulted in an increase in the general reserve for loan losses
which is a function of gross loans outstanding, as well as an increase in loan
losses. Net charge-offs increased by $986,000, or 11.5%, when comparing the two
nine-month periods. As an annualized percentage of average loans, this
represented an decrease to 13.4% during the current nine-month period from to
13.7% for the same period of the prior fiscal year.
General and administrative expenses increased by $5,364,000, or 15.6%,
during the most recent nine-month period. As a percentage of total revenues,
these expenses increased from 63.2% during the prior year nine-month period to
65.5% during the current period. This increase resulted from the 24 net, new
offices opened or acquired during the fiscal year. Excluding the expenses
associated with ParaData, overall general and administrative expenses, when
divided by the average open offices, decreased by 0.7% when comparing the two
nine-month periods.
Interest expense increased by approximately $1,004,000 during the
current nine-month period as a result of the increase in the level of debt
outstanding, primarily due to the funds used to complete several key
acquisitions during the previous 12 months and to fund the internal growth of
the loan portfolio.
The effective income tax rate decreased to 34.0% during the nine months
ended December 31, 1997, from 35.0% for the same period ended December 31, 1996,
which reflects a more accurate annualized income tax rate.
Liquidity and Capital Resources
The Company's primary sources of funds are cash flow from operations
and borrowings under its revolving credit agreement. The Company's primary
ongoing cash requirements are funding the opening and operation of new offices,
the overall growth of loans outstanding and the repayment of existing debt.
The Company has a $65.0 million revolving credit agreement, $8.0
million of senior term notes, and $10.0 million of subordinated notes.
The amount available under the revolving credit agreement was increased
by $5.0 million for the period December 15,1997, through February 15, 1998, to
cover expected increased seasonal borrowing needs.
The revolving credit facility expires on September 30, 1999, and bears
interest, at the Company's option, at the agent's prime rate or LIBOR plus
1.60%. At December 31, 1997, the interest rate under the facility was 7.63%, and
the Company's outstanding balance was $59.5 million, leaving $10.5 million in
borrowing availability under existing borrowing base limitations (based on
eligible loans receivable).
The senior term notes provide for interest payments to be made
semi-annually at a fixed rate of 8.5% with annual principal payments of $4.0
million to be made each year (the next payment being due on December 1, 1998).
The subordinated notes provide for interest payments to be made
quarterly at a fixed rate of 10.0%. Annual principal payments of $2.0 million
will be due beginning June 1, 19999, with a final maturity date of June 1, 2004.
Borrowings under the revolving credit agreement, the senior term notes,
and the subordinated notes are secured by a lien on substantially all the
tangible and intangible assets of the Company and its subsidiaries pursuant to
various security agreements.
The Company believes that cash flow from operations and borrowings
under its revolving credit facility will be adequate to fund the principal
payment due under the term notes as well as fund the expected costs of opening
and operating new offices, including funding initial operating losses of new
offices, and funding loans receivable originated by those offices and the
Company's other offices.
11
<PAGE>
WORLD ACCEPTANCE CORPORATION
MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED
Inflation
The Company does not believe that inflation has a material adverse
effect on its financial condition or results of operations. The primary impact
of inflation on the operations of the Company is reflected in increased
operating costs. While increases in operating costs would adversely affect the
Company's operations, the consumer lending laws of three of the six states in
which the Company currently operates allow indexing of maximum loan amounts to
the Consumer Price Index. These provisions will allow the Company to make larger
loans at existing interest rates, which could offset the effect of inflationary
increases in operating costs.
Quarterly Information and Seasonality
The Company's loan volume and corresponding loans receivable follow
seasonal trends. The Company's highest loan demand occurs each year from October
through December, its third fiscal quarter. Loan demand is generally the lowest
and loan repayment is highest from January to March, its fourth fiscal quarter.
Loan volume and average balances remain relatively level during the remainder of
the year. This seasonal trend causes fluctuations in the Company's cash needs
and quarterly operating performance through corresponding fluctuations in
interest and fee income and insurance commissions earned, since unearned
interest and insurance income are accreted to income on a collection method.
Consequently, operating results for the Company's third fiscal quarter are
significantly lower than in other quarters and operating results for its fourth
fiscal quarter are generally higher than in other quarters.
Legal Proceedings
The Company is a party to certain legal proceedings. See Part II, Item 1.
12
<PAGE>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries doing business in Georgia,
Tennessee, South Carolina, Louisiana and Missouri are named as co-defendants
with a number of other finance companies, jewelry and furniture retailers, and
insurance companies in a consolidated action currently pending in U.S. District
Court in Alabama under the caption In re Consolidated "Non-filing Insurance" Fee
Litigation (Multidistrict Litigation Docket No. 1130, U. S. District Court,
Middle District of Alabama, Northern Division). The consolidated action involves
the defendants' non-file insurance practices. The complaint alleges, among other
things, that the defendants' non-file insurance coverages do not constitute true
insurance or true non-file insurance, and that the defendants' practices with
respect to non-file insurance constitute alleged federal truth-in-lending and
RICO violations. The complaint seeks certification of a nationwide class and
seeks to recover money damages and injunctive relief. The complaint was filed on
April 18, 1995, and an amended compliant was filed on December 31, 1997, the
Company has filed an answer and the parties are in the discovery process. The
Company has been advised that certain of the defendants in the case have agreed
to settle the claims made against them by paying money damages to the
plaintiffs. The Company has also been advised that certain of the settling
defendants have agreed to change their non-file insurance practices. If the
Company's non-file insurance practices are found to be improper, the Company
could be required to refund non-file insurance fees, pay other significant
damages to the plaintiffs, and change its non-file insurance practices going
forward and, as a result, the Company could experience a reduction in future
income.
The Company has been named as a defendant in an action, Turner, et al.,
v. World Acceptance Corp., et al. pending in District Court for the Fourteenth
Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921). The action was
commenced against the company on May 20, 1997, names numerous other consumer
finance companies as defendants, and seeks certification as a statewide class
action. The action alleges that World and other consumer finance defendants
collected excess finance charges in connection with refinancing certain consumer
loans in Oklahoma and seeks money damages and an injunction against further
collection of such charges. The Company has filed an answer in the action
denying liability, and discovery has not commenced. The plaintiff's claim is
based on a recent opinion, February 20, 1997, 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 industry practice approved by regulatory authorities in Oklahoma.
Enforcement of the Oklahoma Attorney General's opinion has been enjoined, and
such action is currently pending before the Oklahoma Supreme Court in a separate
action titled Department of Consumer Credit v. Security Finance, et al. 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 practice. World intends to vigorously defend this action.
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.
Any statement of management's expectation with respect to 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, uncertaintities and assumptions based on the
preliminary nature of the actions and the vagaries of litigation generally.
Should one or more of these risks materialize or should underlying assumptions
prove incorrect, the actual outcome of this litigation could differ materially
from management's expectation.
Item 2. Changes in Securities
None. The Company's credit agreements contain certain restrictions on
the payment of cash dividends on its capital stock.
13
<PAGE>
<TABLE>
<CAPTION>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION, CONTINUED
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Filed
Herewith (*) or
Previous Company
Exhibit Exhibit Registration
Number Description Number No. or Report
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K
Company
3.2 First Amendment to Second Amended and Restated Articles 3.2 1995 10-K
of Incorporation
3.3 Amended Bylaws of the Company 3.4 33-42879
4.1 Specimen Share Certificate 4.1 33-42879
4.2 Articles 3, 4 and 5 of the Form of Company's Second 3.1, 3.2 1995 10-K
Amended and Restated Articles of Incorporation
4.3 Article II, Section 9 of the Company's Second Amended 3.2 1995 10-K
and Restated Bylaws
4.4 Amended and Restated Revolving Credit Agreement, dated as 4.4 9-30-97 10-Q
of June 30, 1997, between Harris Trust and Savings Bank,
the Banks signatory thereto from time to time and the Company
4.5 Amended and Restated Note 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
14
<PAGE>
<CAPTION>
(a) Exhibits:
Filed
Herewith (*) or
Previous Company
Exhibit Exhibit Registration
Number Description Number No. or Report
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.4 Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
10.5+ 1992 Stock Option Plan of the Company 4 33-52166
10.6+ 1994 Stock Option Plan of the Company, 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
</TABLE>
# Omitted from filing -- substantially identical to immediately preceding
exhibits, except for the parties thereto and the principal amount involved.
+ Management contract or other compensatory plan required to be filed under Item
14(c) of this report and Item 601 of Regulation S-K.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
December 31, 1997.
15
<PAGE>
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLD ACCEPTANCE CORPORATION
Dated: February 12, 1998 /s/ C.D. Walters
---------------------------------------
C.D. Walters, Chief Executive Officer
Dated: February 12, 1998 /s/ A.A. McLean III
-----------------------------------------
A.A. McLean III, Executive Vice President
and Chief Financial Officer
16
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,302
<SECURITIES> 0
<RECEIVABLES> 111,649
<ALLOWANCES> 8,398
<INVENTORY> 0
<CURRENT-ASSETS> 104,553
<PP&E> 6,485
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<TOTAL-ASSETS> 124,632
<CURRENT-LIABILITIES> 3,609
<BONDS> 77,932
0
0
<COMMON> 43,091
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<TOTAL-LIABILITY-AND-EQUITY> 124,632
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<OTHER-EXPENSES> 39,785
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