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, 1999
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
incorporation or organization) Identification No.)
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
(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
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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 18, 1999, computed by reference to the closing sale price
on such date, was $97,459,937. As of the same date, 19,016,573 shares of Common
Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1999 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 1999 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
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<TABLE>
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Item No. Page
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PART I
1. Description of Business............................................................................. 1
2. Properties.......................................................................................... 8
3. Legal Proceedings................................................................................... 8
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 Operations............... 10
7a. Quantitative and Qualitative Disclosures About Market Risk............................................ 10
8. Financial Statements and Supplementary Data........................................................... 10
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 11
PART III
10. Directors and Executive Officers of the Registrant................................................. 11
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
</TABLE>
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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 1999" are to the Company's fiscal year
ended March 31, 1999.
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 $2,500 through 385 offices in South
Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri,
and New Mexico as of June 18, 1999. 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.
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. During fiscal 1999, the Company opened 26 new offices. Three
other offices were purchased and 10 offices were closed, merged into other
existing offices, or sold due to their inability to grow to profitable levels.
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:
<TABLE>
<CAPTION>
At March 31,
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At June 18,
STATE 1992 1993 1994 1995 1996 1997 1998 1999 1999
- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South Carolina........ 52 53 56 59 62 68 64 63 63
Georgia............... 34 35 35 38 39 45 49 49 49
Texas................. 62 66 81 93 104 131 128 131 132
Oklahoma.............. 23 27 31 33 39 40 41 40 41
Louisiana (1)......... 5 10 12 15 20 18 21 20 20
Tennessee (2)......... - - 2 6 18 24 28 30 33
Illinois (3).......... - - - - - 3 11 20 20
Missouri (4).......... - - - - - 1 9 16 16
New Mexico (5)........ - - - - - 6 9 10 11
---- ---- ----- ----- ----- ----- ---- ---- ----
Total............ 176 191 217 244 282 336 360 379 385
==== ==== ===== ===== ===== ===== ==== ==== ====
</TABLE>
(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 1999, the
Company's average originated loan size and term were approximately $518 and nine
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, 1999,
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 27% to 205% 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,
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Louisiana and Tennessee, non-file fees, which are collected by the Company and
paid as premiums to an unaffiliated insurance company for non-recording
insurance.
The Company, as an agent for an unaffiliated insurance company, markets
and sells credit life, credit accident and health, 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,
Louisiana, Oklahoma and New Mexico and plans to introduce the program in
Illinois and Missouri in the summer of 1999. 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 1992 through 1999:
<TABLE>
<CAPTION>
At March 31,
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State 1992 1993 1994 1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Carolina........... 38% 37% 37% 35% 33% 26% 23% 22%
Georgia.................. 13 14 14 13 13 13 14 16
Texas.................... 39 38 38 38 35 39 35 31
Oklahoma................. 8 8 7 7 8 7 7 7
Louisiana (1)............ 2 3 3 4 5 3 4 4
Tennessee (2)............ - - 1 3 6 10 11 12
Illinois (3)............. - - - - - - 2 3
Missouri (4)............. - - - - - - 1 2
New Mexico (5)........... - - - - - 2 3 3
---- ----- ----- ----- ----- ---- ---- ----
Total................ 100% 100% 100% 100% 100% 100% 100% 100%
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</TABLE>
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(1) The Company commenced operations in Louisiana in May 1991.
(2) The Company commenced operations in Tennessee in April 1993.
(3) The Company commenced operations in Illinois in September 1996.
(4) The Company commenced operations in Missouri in August 1996.
(5) The Company commenced operations in New Mexico in December 1996.
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The following table sets forth the total number of loans and the average
loan balance by state at March 31, 1999:
<TABLE>
<CAPTION>
Total Number Average Gross Loan
of Loans Balance
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<S> <C> <C>
South Carolina..................... 69,940 472
Georgia............................ 36,550 663
Texas.............................. 131,473 358
Oklahoma........................... 24,223 418
Louisiana.......................... 12,965 402
Tennessee.......................... 28,768 645
Illinois........................... 9,716 437
Missouri........................... 6,607 449
New Mexico......................... 9,133 459
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Total.......................... 329,375
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</TABLE>
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 1999, 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 1997, 1998, and 1999, the percentages of the
Company's loan originations that were refinancings of existing loans were 81.8%,
79.1%, and 78.5% 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 1999, the captive insurance
subsidiary reinsured less than 9.7% of the credit insurance sold by the Company
and contributed approximately $1,093,000 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 1999, advertising expenses were
approximately 4.4% 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.
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
6
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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 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
7
<PAGE>
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, 1999, the Company had approximately 1,299
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 (and other
business experience for executive officers who have served as such for less than
five years) are set forth below. The term of office for each executive officer
expires upon the earlier of the appointment and qualification of a successor or
such officers' death, resignation, retirement or removal.
<TABLE>
<CAPTION>
Period of Service as Executive Officer and
Pre-executive Officer Experience (if an
Name and Age Position Executive Officer for Less Than Five Years)
- ------------ --------- -------------------------------------------
<S> <C> <C>
Charles D. Walters (60) Chairman and Chief Chairman since July 1991; President
Executive Officer; since July 1986; CEO since July 1991;
Director Director since April 1989
A. Alexander McLean, III (48) 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 (43) Senior Vice President, Since January 1996; Senior Vice President -
Eastern Division Operations Support, Fleet Finance, in Atlanta,
Georgia, from January 1993 to January 1996
Casey K. Johnson (38) Senior Vice President, Since April 1998; Vice President, Operations -
Western Division West Texas since June 1994; Supervisor of
North Oklahoma since August 1989
</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 18, 1999, the
Company had 385 branch offices, most of which are leased pursuant to short-term
operating leases. During the fiscal year ended March 31, 1999, total lease
expense was approximately $3.2 million, or an average of approximately $8,526
per office. The Company's leases generally provide for an initial three- to
five-year term with renewal options. The Company's branch offices are typically
located in shopping centers, malls and the first floors of downtown buildings.
Branch offices generally have a uniform physical layout and range in size from
800 to 1,200 square feet.
ITEM 3. LEGAL PROCEEDINGS
Since April 1995, the Company and several of its subsidiaries have been
parties to litigation challenging the Company's non-filing insurance practices.
Non-filing insurance is an insurance product that lenders like the Company can
purchase in lieu of filing a UCC financing statement covering the collateral of
their borrowers. The litigation against the Company has been consolidated with
other litigation against other finance companies, jewelry and furniture
retailers, and insurance companies in a purported nationwide class action in the
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).
8
<PAGE>
On November 11, 1998, the Company and its subsidiaries named in the action
entered into a settlement agreement. Pursuant to the settlement agreement, which
is subject to the court's approval, the Company has agreed to settle all claims
alleged in the litigation involving it and its subsidiaries for an aggregate
cash payment of $5 million. In addition, the terms of the settlement will
curtail certain non-filing practices by the Company and its subsidiaries and
will allow the court to approve criteria defining those circumstances in which
the Company's subsidiaries can make non-filing insurance claims going forward.
As a result of the settlement, non-filing insurance fees charged to borrowers
will be reduced by 25%. The settlement agreement, which includes the settlement
by several other defendants in the litigation, including the Company's insurer,
is subject to the court's approval because the settlement concerns a class
action.
The Company has recorded an accrual for settlement costs, including the
expected expenses to comply with the terms of the settlement, of $5.4 million in
the fiscal year ended March 31, 1999. Of this total accrual, $5.1 million has
been paid to an escrow account, pending distribution to class participants.
Going forward, the Company expects that the settlement will limit and reduce the
coverage for the types of losses with respect to which its subsidiaries will
submit claims. The Company cannot predict the amount of this reduction, but
believes that the settlement will negatively impact the Company in the near
term, but should not have a material adverse effect of the Company's results of
operations over time.
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. The Company and numerous other consumer finance
companies have brought suit to enjoin enforcement by the Oklahoma Attorney
General of its recent interpretation of this provision of the Oklahoma Consumer
Credit Code. In May 1999, the Oklahoma Supreme Court upheld the Attorney
General's interpretation on a prospective basis. The Company and the other
consumer finance companies party to the proceeding against the Attorney General
have petitioned the Oklahoma Supreme Court for a rehearing on this matter. 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 the prior regulatory practice followed by the Company. Because
of this recent legislation, the Company expects that the purported class-action
lawsuit, even if decided adversely to the Company, would not materially affect
the Company's refinancing practices in Oklahoma going forward, although such an
adverse decision could possibly involve a material monetary award. The Company
intends to defend this action vigorously.
This report on Form 10-K, including "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A") and other information
incorporated herein by reference, may contain various "forward-looking
statements," within the meaning of Section 21E of the Securities Exchange Act of
1934, that are based on management's belief and assumptions, as well as
information currently available to management. Specifically, management's
statements of expectations with respect to the litigation and pending settlement
(the "Settlement") and the other litigation in Oklahoma (the "Oklahoma
Litigation") described above and in MD&A and the matters discussed in "Year
2000" in MD&A may be deemed forward-looking statements. When used in this
document, the words "anticipate," "estimate," "expect," and similar expressions
may identify forward-looking statements. Although the Company believes that the
expectations reflected in any such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Any such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, the Company's actual financial results, performance
or financial condition may vary materially from those anticipated, estimated or
expected. Among the key factors that could cause the Company's actual financial
results, performance or condition to differ from the expectations expressed or
implied in such forward-looking statements are the following: changes in
interest rates; risks inherent in making loans, including repayment risks and
value of collateral; recently-enacted or
9
<PAGE>
proposed legislation; whether, and the terms upon which, court approval of the
Settlement is obtained; the occurrence of non-filing claims at historical levels
in circumstances validated by the Settlement; the timing and amount of revenues
that may be recognized by the Company; the outcome of the Oklahoma Litigation;
changes in current revenue and expense trends (including trends affecting
charge-offs); changes in the Company's markets and general changes in the
economy (particularly in the markets served by the Company); the ability of the
Company and third parties with whom the Company deals to achieve year 2000
compliance; the unpredictable nature of litigation; and other matters discusses
in this Report and the Company's other filings with the Securities and Exchange
Commission.
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 in which damages in various amounts are claimed. Although the Company
believes that it is not presently a party to any such other pending legal
proceedings that would have a material adverse effect on its financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders during
the fourth fiscal quarter ended March 31, 1999.
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 18,
1999, there were 162 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's outstanding debt under the Revolving Credit Facility was
$57.2 million at March 31, 1999. Interest on borrowings under this facility is
based, at the Company's option, on the prime rate or LIBOR plus 1.60%. Based on
the outstanding balance at March 31, 1999, a change of 1% in the interest rate
would cause a change in interest expense of approximately $572,000 on an annual
basis.
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.
10
<PAGE>
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."
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 18, 1999" and "Ownership of Common Stock of
Management as of June 18, 1999" 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, 1999 and 1998
Consolidated Statements of Operations for the years ended March 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended March 31,
1999, 1998 and 1997
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>
<CAPTION>
Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
-----------------------------------------------------------------------------------------------------------------
<S> <C> <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 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
June 30, 1997, between Harris Trust and Savings Bank, the 10-Q
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
1997, between Jefferson-Pilot Life Insurance Company and the 10-Q
Company
4.6# Amended and Restated Note Agreement, dated as of June 30, 4.6 9-30-97
1997, between Principal Mutual Life Insurance Company and the 10-Q
Company
4.7 Note Agreement, dated as of June 30, 1997, between Principal 4.7 9-30-97
Mutual Life Insurance Company and the Company re: 10% Senior 10-Q
Subordinated Secured Notes
4.8 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97
of Trust, dated as of June 30, 1997, between the Company and 10-Q
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 Settlement Agreement dated as of April 1, 1999, between the * N/A
Company and R. Harold Owens
10.4 Securityholders' Agreement dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 1999 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
Company's Registration Statements on Form S-8 * NA
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 28, 1999
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 28, 1999
/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 28, 1999
/s/ Ken R. Bramlett, Jr.
- ----------------------------------------------------------
Ken R. Bramlett, Jr., Director
Date: June 28, 1999
/s/ William S. Hummers, III
- ---------------------------------------------------------
William S. Hummers, III, Director
Date: June 28, 1999
14
SETTLEMENT AGREEMENT
AND MUTUAL RELEASE OF CLAIMS
This SETTLEMENT AGREEMENT AND MUTUAL RELEASE OF CLAIMS is made and
entered into as of the 1st day of April 1999, by and between WORLD ACCEPTANCE
CORPORATION, a South Carolina corporation with its principal place of business
in Greenville, South Carolina, ("the Company"), and R. HAROLD OWENS
("Employee").
STATEMENT OF PURPOSE
Employee has served as an officer, director and employee of the
Company. Effective April 1, 1999, Employee has ended his employment with the
Company. In order to resolve any and all claims between the parties hereto, and
for the good and valuable consideration otherwise set forth herein, the parties
have entered into this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the Company and
Employee hereby agree as follows:
1. Date of Termination. Employee's employment with the Company and/or
the Company's subsidiaries is hereby ended as of April 1, 1999. Employee hereby
tenders Employee's resignation from any and all positions, including as a
director, now held with the Company and/or its subsidiaries, all such
resignations to be effective as of April 1, 1999.
2. Separation Payments and Other Benefits. (a) SALARY CONTINUATION.
Subject to Employee's full compliance with the terms of this Agreement,
including the conditions set forth below, the Company shall continue to pay the
current base salary of Employee ($189,414 per year) from the date of termination
set forth in paragraph 1 above through April 30, 2000. All separation payments
set forth herein shall be payable at a time and in accord with the regular
payroll practices of the Company with respect to its executive officers. All
such amounts shall be subject to and reduced by any applicable federal and state
withholding taxes.
(b) COMPANY CAR. Subject to Employee not then being in
material breach of any provision set forth in this Agreement, the Company - no
later than ten (10) business days following the complete execution of this
Agreement -- shall assign to Employee the title to the Company automobile that
he is currently driving (1997 Lincoln Continental), free and clear of any liens
or encumbrances.
(c) STOCK OPTIONS. Subject to Employee not then being in
material breach of any provision set forth in this Agreement, the Company shall
take all necessary steps to grant to Employee options to purchase 50,000 shares
of the Company's common stock pursuant to the Company's 1994 Stock Option Plan.
The exercise price for each option shall be the fair market value of a share on
the date of grant. Such options shall be granted to Employee within 10 (ten)
business days following
<PAGE>
complete execution hereof. All stock options which have been granted to Employee
prior to April 1, 1999, together with the options to be granted to Employee
pursuant to this subparagraph, shall be deemed fully vested and exercisable as
of April 1, 1999. Employee shall be entitled to exercise all such options,
according to the terms thereof, at any time prior to June 26, 2001.
(d) ANNUAL INCENTIVE AWARD. Subject to Employee not then being
in material breach of any provision set forth in this Agreement, Employee shall
be entitled to the full amount of the award payable to him pursuant to the terms
of the Executive Incentive Plan of the Company for the fiscal year ended March
31, 1999. This amount (estimated by Employee to be $205,000) will be paid to
Employee simultaneous with payments made under the Executive Incentive Plan to
other executives of the Company, and shall be reduced by any applicable
withholding taxes.
3. Benefit Plans and Fringe Benefits. From and after the employment
termination date set forth in paragraph 1 above, and through and including April
30, 2000, Employee shall be entitled to receive medical, dental, disability and
life insurance benefits on the same terms as provided to other executive
officers of the Company. Provided, however, that the provision of dental,
disability and life insurance benefits to Employee shall be subject to
underwriter approval of the insurers associated with such plans, and the Company
shall exercise its best efforts to obtain underwriter approval on Employee's
behalf. Employee agrees to cooperate in any reasonable underwriting
requirements, including providing any documentation requested by the insurer as
a part of such underwriting process. If such underwriter approval is not
forthcoming with respect to any such plan participation, the Company shall
either, at its option, (i) provide for comparable coverage at the Company's
expense or (ii) pay to Employee a sum, less any applicable withholding taxes,
which is equivalent to the amount the Company would have otherwise had to pay
with respect to Employee's participation in such group plan from the date of
termination set forth in paragraph 1 above through April 30, 2000. Any dispute
concerning such payment or provision of benefits hereunder shall be settled by
final, conclusive and binding arbitration before and according to the rules then
prevailing of the American Arbitration Association in Greenville County, South
Carolina. Provided further, that all benefits hereunder shall cease and Employee
shall be furnished notice of continuation coverage under COBRA as of April 30,
2000. Except for the foregoing, and after April 30, 2000, Employee shall not
have the right to participate in or receive any benefit under any employee
benefit plan of the Company, any fringe benefit plan of the Company, or any
other plan, policy or arrangement of the Company providing benefits or
perquisites to employees of the Company generally or individually. Provided,
however, that Employee shall be entitled to elect the payment of benefits to
which Employee is entitled under any employee pension benefit plan of the
Company as provided under the terms of any such plan.
4. Vacation Pay. Upon the first regularly scheduled payday following
the execution hereof, the Company shall pay to Employee four (4) days of
vacation pay, which Employee and the Company agree constitutes all such accrued
and unused vacation pay.
5. Return of Company Property. All records, files, lists, including
computer-generated lists, drawings, notes, notebooks, letters, handbooks,
blueprints, manuals, sketches, specifications, formulas, financial documents,
sales and business plans, customer lists, lists of customer contacts, pricing
information, computers, software, cellular phones, credit cards, keys, equipment
and similar items relating to the Company's business, together with any other
property of the
-2-
<PAGE>
Company or property which the Employee received in the course of Employee's
employment with the Company, shall be returned to the Company immediately.
Employee further represents that Employee will not copy or cause to be copied,
print out or cause to be printed out any software, documents or other materials
originating with or belonging to the Company.
6. Confidentiality and Nondisparagement. (a) Employee agrees not to
make any statement, written or oral (including but not limited to any media
source or to any other party) regarding any of the following subjects: (i) the
investigation by the special committee of the Board of Directors of the Company
into allegations concerning Employee, including without limitation the subject
matter thereof; (ii) any of the circumstances leading up to or surrounding
Employee's departure from the Company; (iii) any allegations made by Employee or
others concerning alleged improprieties or conduct of other employees, officers
or directors of the Company or (iv) the terms of this Agreement. The Company
agrees to instruct and take all reasonable and necessary steps to prevent any
officer or director of the Company from making any statement, written or oral
(including but not limited to any media source or to any third party) regarding
any of the following subjects: (a) the investigation by the special committee of
the Board of Directors of the Company into allegations concerning Employee,
including without limitation the subject matter thereof; (b) any of the
circumstances leading up to or surrounding Employee's departure from the
Company; (c) any allegations concerning any alleged improprieties of Employee or
(d) the terms of this Agreement. Provided, however, it shall not constitute a
breach of this subparagraph for Employee to disclose the terms of this Agreement
to Employee's spouse, legal counsel, tax accountant, medical provider or
licensed counselor, provided Employee obtains the agreement of such person to
keep the terms hereof confidential. Provided further that neither party hereto
shall violate this subparagraph if otherwise required to disclose the terms of
this Agreement by law, including without limitation by any provision of or
regulation under the Securities Exchange Act of 1934.
(b) Furthermore, Employee, for the good and valuable
consideration furnished herein, agrees not to disparage, bring into disrepute or
make any negative statement concerning the Company or any of its employees,
officers or directors or make any other statement that would disrupt, impair or
affect adversely the reputation, business interests, or profitability of the
Company, or its employees, officers or directors, or place the Company or such
individuals in any negative light. The Company, for the good and valuable
consideration furnished by Employee herein, agrees to instruct and take all
reasonable and necessary steps to prevent any officer or director of the Company
or any employee of the Company with material involvement or knowledge concerning
the investigation by the Special Committee of the Board of Directors from
disparaging, bringing into disrepute or making any negative statement concerning
Employee to or in the presence or hearing of any third party or from making any
other statement in the presence or hearing of any third party that would
disrupt, impair or affect adversely the reputation of Employee, or place
Employee in any negative light. Any breach of this paragraph by the parties
shall constitute a material breach of this Agreement, and shall entitle such
nonbreaching party to any and all remedies provided by law for the material
breach of contract, including such remedies, if otherwise available by law,
which permit such party to suspend any performance hereunder otherwise owed to
the other party hereto. Provided, however, that notwithstanding the provisions
hereof, it shall not constitute a breach of this Agreement for either party
hereto to testify truthfully about any subject when compelled to do so by
properly issued legal process. The parties hereto agree that the Company shall
issue a press release concerning Employee's departure
-3-
<PAGE>
in the form attached hereto as Exhibit A and further agree that it shall not
constitute a breach or violation of this Agreement for any party to state that
Employee's departure from the Company was due to philosophical or personality
differences, or words substantially to that effect.
7. Admissions. Employee acknowledges that the payment by the Company of
the benefits described herein shall never for any purpose be considered an
admission of liability on the part of the Company, by whom liability is
expressly denied, and no past or present wrongdoing on the part of the Company
shall be implied by such payment. Similarly, no admission of past or present
wrongdoing on the part of Employee shall be implied by virtue of his resignation
from the Company.
8. Release. (a) As consideration for the payments to be made by the
Company to Employee pursuant to paragraph 2 hereof, Employee agrees for Employee
and for Employee's heirs, executors, administrators and assigns, to release and
forever discharge the Company and all of its parent and subsidiary corporations,
together with each of their respective agents, officers, employees, directors
and attorneys, from and to waive any and all rights with respect to all manner
of claims, actions, causes of action, suits, judgments, rights, demands, debts,
damages, or accountings of whatever nature, legal, equitable or administrative,
whether the same are now known or unknown, which Employee ever had, now has or
may claim to have, upon or by reason of the occurrence of any matter, cause or
thing whatsoever up to the date of this Settlement Agreement and Mutual Release
of Claims, including without limitation: (i) any claim whatsoever (whether under
federal or state statutory or common law) arising from or relating to Employee's
employment or changes in Employee's employment relationship with the Company,
including Employee's separation, termination or resignation therefrom; (ii) all
claims and rights for additional compensation or benefits of whatever nature;
(iii) any claim for breach of contract, implied or express, impairment of
economic opportunity, intentional or negligent infliction of emotional distress,
wage or benefit claim, prima facie tort, defamation, libel, slander, negligent
termination, wrongful discharge, or any other tort, whether intentional or
negligent; (iv) all claims and rights under Title VII of the Civil Rights Act of
1964, the Civil Rights Acts of 1866, 1871, or 1991, the Age Discrimination in
Employment Act, the Employee Retirement Income Security Act, the Americans With
Disabilities Act of 1993, the Family and Medical Leave Act, all as amended, or
any other federal, state, county or municipal statute or ordinance relating to
any condition of employment or employment discrimination; and (v) all claims
under Employee's Employment Agreement with the Company. Provided, however, this
Release shall not (i) include any claims relating to the obligations of the
Company, its officers, directors, employees or agents under this Agreement, (ii)
operate to release Employee's ownership of any common stock of the Company, or
(iii) affect Employee's vested and accrued rights as a participant in the
Company's 401(k) plan. Provided, however, that in the event any legal action is
commenced hereafter against Employee by any individual released by Employee
herein, and provided that such legal action arises out of facts or circumstances
prior to the date hereof, the release by Employee in favor of such individual
(and only such individual) shall be null and void.
(b) As consideration for the releases and other obligations of
Employee set forth herein, the Company, for itself and all of its parent and
subsidiary corporations, and for all of their respective officers, directors and
employees in their official or representative capacities, agrees to release and
forever discharge from and waive any and all rights with respect to all manner
of claims, actions, causes of action, suits, judgments, rights, demands, debts,
damages, or accountings of
-4-
<PAGE>
whatever nature, legal, equitable or administrative, whether the same are now
known or unknown, which the Company, or any of its parent or subsidiary
corporations ever had, now has or may claim to have, upon or by reason of the
occurrence of any matter, cause or thing whatsoever up to the date of this
Settlement Agreement and Mutual Release of Claims, including without limitation:
(i) any claim whatsoever (whether under federal or state statutory or common
law) arising from or relating to Employee's employment or changes in Employee's
employment relationship with the Company, including Employee's separation,
termination or resignation therefrom, (ii) all claims and rights for additional
compensation or benefits of whatever nature; (iii) any claim for breach of
contract, implied or express, impairment of economic opportunity, intentional or
negligent infliction of emotional distress, assault, battery, sexual, racial or
other unlawful harassment, wage or benefit claim, prima facie tort, defamation,
libel, slander, or any other tort, whether intentional or negligent; (iv) all
claims and rights under any federal, state, county or municipal statute or
ordinance relating to any condition of employment or employment discrimination;
and (v) all claims under Employee's Employment Agreement with the Company.
Provided, however, this Release shall not include any claims relating to the
obligations of Employee under this Agreement or release Employee in the event of
Employee's theft or defalcation of any Company funds or property.
9. Disclosure of Confidential Information. For a period of two (2)
years from the date of this Agreement, Employee shall not disclose to anyone any
confidential or proprietary information of the Company. For purposes of this
paragraph, "confidential and proprietary information" shall mean information not
generally known to the public that was created by, disclosed or made available
to Employee in the course of Employee's employment by the Company, and shall
include, but not be limited to all nonpublic information concerning the affairs,
business, clients, customers and other relationships of the Company, as well as
all confidential and proprietary financial and marketing information of the
Company, including without limitation sales methods, information concerning
principals or customers, advertising methods, financial affairs or methods of
procurement, marketing and business plans, strategies, projections, business
opportunities, client lists, sales and cost information and financial results
and performance.
10. Governing Law and Forum Selection. Employee and the Company agree
that any claim against the Employee or Company or any of its affiliates or their
employees, officers or directors ("the Company Parties") arising out of or
relating in any way to this Agreement or to Employee's employment with the
Company shall be brought exclusively in the Circuit Court of Greenville County,
South Carolina, or the United States District Court for the District of South
Carolina, and in no other forum. Employee and the Company hereby irrevocably
consent to the personal and subject matter jurisdiction of these courts for the
purpose of adjudicating any claims subject to this forum selection clause.
Employee and the Company also agree that any dispute of any kind arising out of
or relating to this Agreement or to Employee's employment (including without
limitation any claim released herein by Employee) shall at either the Employee's
or the Company Parties' sole election or demand be submitted to final,
conclusive and binding arbitration before and according to the rules then
prevailing of the American Arbitration Association in Greenville County, South
Carolina, which election or demand may be made at any time prior to the last day
to answer and/or respond to a summons and/or complaint or counterclaim made by
Employee or the Company. The results of any such arbitration proceeding shall be
final and binding both upon the Company Parties and upon Employee, and shall be
subject to judicial confirmation as provided by the Federal Arbitration Act,
which is incorporated herein
-5-
<PAGE>
by reference. Provided, however, that nothing in this paragraph 10 shall
preclude either party, if otherwise entitled by law, from obtaining preliminary
or emergency injunctive relief in the Circuit Court of Greenville County or the
United States District Court for the District of South Carolina to restrain any
violation of the provisions of paragraphs 6, 9 or 14 hereof.
11. Entire Agreement. This Agreement contains the entire agreement
between the Company and Employee and supersedes all prior agreements relating to
the subject matter hereof, and may be changed only by a writing signed by the
parties hereto. Any and all prior representations, statements and discussions
regarding the subject matter of this Agreement have been merged into and/or
replaced by the terms of this Agreement.
12. Return of Employee's Property. Employee's property presently in the
possession of the Company, whether at Employee's office or otherwise, shall be
promptly returned to him and facilitated by Employee's secretary.
13. Severability. If any of the provisions set forth in this Agreement
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. Provided, however, that
this provision shall not affect in any way the obligations of Employee set forth
in paragraph 12 above, or affect Employee's ability to ratify any provision of
this Agreement.
14. Noncompetition. From the date hereof, through and including April
30, 2000 (such period not to include any period(s) of violation of period(s) of
time required for litigation to enforce the covenants of this paragraph),
Employee shall not:
(a) Become employed by (as an officer, director, employee,
consultant, principal or otherwise), or otherwise become commercially
interested in or affiliated with (whether through direct, indirect,
actual or beneficial ownership or through a financial interest), a
COMPETITOR, unless Employee accepts employment with a COMPETITOR in an
area of the COMPETITOR'S business which does not compete in any
significant way with the Company. For purposes of this Agreement, a
COMPETITOR shall be defined as any person or entity operating in the
small-loan consumer finance industry (I.E., lenders who generally make
loans of less than $1,000 with maturities of fifteen months or less).
(b) Solicit or attempt to solicit, for competitive purposes,
the business of any of the Company's clients or customers, or solicit
or attempt to solicit, for competitive purposes, the business of any of
the Company's prospective customers or clients, or otherwise induce
such customers or clients or prospective customers or clients to
reduce, terminate, or restrict or alter their business relationships
with the Company in any fashion.
(c) In recognition of the broad geographic scope of the
Company's business and of the ease of competing with the Company's
business in any part of the
-6-
<PAGE>
United States, the restrictions on competition set forth in items (a)
and (b) above are intended to cover the following geographic areas: (i)
each and every county and each and every state in which the Company or
any of its affiliates has an office or place of business; (ii) each and
every county and each and every state in which the Company or any of
its affiliates has any customers; (iii) each and every county and each
and every state in which the Company or any of its affiliates
participates in or is licensed to engage in any small loan consumer
finance business; (iv) the states of South Carolina, Georgia, Texas,
Oklahoma, Louisiana, Tennessee, Illinois, Missouri and New Mexico.
(d) In addition, from the date hereof until March 31, 2001,
Employee shall not induce or attempt to induce any employee of the
Company to leave the Company for the purpose of engaging in any
business operation, including without limitation any business operation
that is substantially competitive with the Company's current business.
15. Voluntary Agreement. Employee hereby represents that Employee has
carefully read and completely understands the provisions of this Agreement and
that Employee has entered into this Agreement voluntarily and without any
coercion whatsoever, and in order to receive benefits the Company contends are
not otherwise owed to Employee by the Company. Employee represents that he has
been advised of his right to secure counsel to assist in his reviewing this
Agreement, that he has had sufficient time to review carefully each of the
provisions hereto with his counsel, and that his execution hereof is the product
of his own free will and volition. The Company hereby represents that it has
entered into this Agreement voluntarily and that due corporate authority has
been obtained for entry into this Agreement.
16. Assistance and Cooperation. Employee agrees to cooperate with and
provide assistance to the Company and its legal counsel in connection with any
litigation (including arbitration or administrative hearings) or investigation
affecting the Company, in which, in the reasonable judgment of the Company's
counsel, Employee's assistance or cooperation is needed. Employee shall, when
requested by the Company, provide testimony or other assistance and shall travel
at the Company's request in order to fulfill this obligation. Provided, however,
that, in connection with such litigation or investigation, the Company shall
attempt to accommodate Employee's schedule, shall provide him with reasonable
notice in advance of the times in which his cooperation or assistance is needed,
and shall reimburse Employee for any reasonable expenses and loss of income
incurred in connection with such matters. In addition, during the time he is
receiving the payments set forth in paragraph 2 herein, Employee agrees to
cooperate fully with the Company on all matters relating to his employment and
the conduct of the Company's business. This obligation to cooperate, however,
shall not be considered to prohibit or restrict other employment by the
Employee, except as is set forth in paragraph 14 herein.
17. Waiver, Dependent Conditions and Fees. Any waiver or consent from
the Company or Employee with respect to any term or provision of this Agreement
or any other aspect of Employee's or the Company's conduct shall be effective
only in the specific instance and for the specific purpose for which given and
shall not be deemed, regardless of frequency given, to be a further or
continuing waiver or consent. The failure or delay of the Company or Employee at
any time or times to require performance of, or to exercise any of its powers,
rights
-7-
<PAGE>
or remedies with respect to, any term or provision of this Agreement or any
other aspect of Employee's or the Company's conduct shall not affect the
Company's or Employee's right at a later time to enforce any such term or
provision. In addition thereto, the failure of Employee or the Company to
perform or satisfy any material obligation set forth herein shall give the
Company or Employee, if otherwise allowed by law, the right to suspend any
obligation otherwise owed to the other party hereto. In the event the Company or
Employee prevails in any legal action to enforce its or his rights hereunder,
the Company or Employees, as the case may be, shall be entitled to recover its
or his reasonable attorney's fees and expenses from the other, nonprevailing
party.
18. Indemnification. The Company agrees to indemnify Employee for acts
and omissions preceding the date hereof to the full extent permitted under the
Articles of Incorporation and Bylaws of the Company. The Company further agrees
to obtain for Employee, with respect to acts and omissions preceding the date
hereof, directors' and officers' liability insurance with the same limits as
pertain to the Company's other officers and directors.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or caused this Agreement to be duly executed by their authorized
representatives as of the day and year first above written.
WORLD ACCEPTANCE CORPORATION
By: /s/ Ken R. Bramlett, Jr.
------------------------
Position: Director
-----------------
/s/ R. Harold Owens
------------------------
R. Harold Owens
WITNESS:
/s/ Patricia K. Owens
- ----------------------
-8-
<PAGE>
EXHIBIT A
FOR IMMEDIATE RELEASE
Contact: A. Alexander McLean, III
Executive Vice President and Chief
Financial Officer
(864) 298-9800
WORLD ACCEPTANCE CORPORATION ANNOUNCES RESIGNATION OF
CHIEF OPERATING OFFICER
GREENVILLE, S.C., April 4, 1999 -- World Acceptance Corporation (Nasdaq:WRLD)
announced today that R. Harold Owens, World's President and Chief Operating
Officer, has resigned from the Company to pursue other business interests.
Charles D. Walters, Chairman and CEO, commented on Mr. Owens departure. "We
thank Harold for his years of service to the company," said Walters. "He made
many positive contributions to our company, and we all wish him well in his new
endeavors."
World Acceptance Corporation is one of the largest small-loan consumer finance
companies, operating 383 offices in nine states. It is also the parent company
of ParaData Financial Systems, a provider of computer software solutions for the
consumer finance industry.
-9-
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Years Ended March 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Interest and fee income................................. $ 80,677 $ 71,873 $ 64,820 $ 58,326 $ 51,257
Insurance commissions and other income................. 11,085 8,754 7,863 9,608 5,871
------ --------- --------- --------- ---------
Total revenues....................................... 91,762 80,627 72,683 67,934 57,128
------ --------- --------- --------- ---------
Provision for loan losses............................... 11,707 9,609 9,480 7,255 4,699
Legal expense........................................... 5,845 441 645 477 160
Other general and administrative expenses............... 57,788 53,029 46,201 40,546 35,142
Interest expense........................................ 5,534 5,541 4,322 3,498 3,598
-------- --------- --------- --------- ---------
Total expenses....................................... 80,874 68,620 60,648 51,776 43,599
-------- --------- --------- --------- ---------
Income before income taxes.............................. 10,888 12,007 12,035 16,158 13,529
Income taxes............................................ 3,568 3,909 3,952 5,602 4,910
-------- --------- --------- --------- ---------
Net income (1).......................................... $ 7,320 $ 8,098 $ 8,083 $ 10,556 $ 8,619
======== ========= ========= ========= =========
Net income per common share (diluted) (1)............... $ .38 $ .42 $ .41 $ .49 $ .41
======== ========= ========= ========= =========
Diluted weighted average common
equivalent shares.................................... 19,213 19,172 19,833 21,653 20,787
======== ========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Loans receivable........................................ $ 117,339 $ 103,385 $ 89,539 $ 79,624 $ 71,527
Allowance for loan losses............................... (8,769) (8,444) (6,283) (5,007) (4,364)
------- --------- -------- --------- --------
Loans receivable, net............................ 108,570 94,941 83,256 74,617 67,163
Total assets............................................ 133,470 118,382 104,486 90,572 83,558
Total debt.............................................. 71,632 64,182 58,682 38,232 37,882
Shareholders' equity.................................... 54,692 47,301 38,963 44,880 35,758
OTHER OPERATING DATA:
As a percentage of average loans receivable:
Provision for loan losses............................ 10.4% 9.9% 11.1% 9.4% 7.2%
Net charge-offs...................................... 9.7% 9.4% 10.6% 8.6% 5.8%
Number of offices open at year-end...................... 379 360 336 282 244
</TABLE>
(1) The Company recorded a legal settlement of $5.4 million in fiscal 1999.
Excluding this settlement, net of the income tax benefit, net income and net
income per diluted common share would have been $10.8 million and $.56,
respectively.
- --------------------------------------------------------------------------------
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, 1994,
gross loans receivable have increased at a 15.6% annual compounded rate from
$72.4 million to $149.6 million at March 31, 1999. 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 217
offices to 379 offices as of March 31, 1999. The Company plans to open or
acquire at least 25 new offices in each of the next two fiscal years.
The Company continues to identify new products and services for marketing
to its customer base. In addition to 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 into seven states, with further
expansion into the remaining two states expected within the next several months.
During fiscal 1999, loan volume from this program increased to $4.4 million, a
39.2% increase over fiscal 1998 volume. As of the end of the fiscal year, the
sales finance portfolio amounted to $4.0 million, or 2.7% of the total loans
outstanding. The Company plans to continue to aggressively market these
products, which have provided positive contributions in prior years and are
expected to continue to enhance revenues in fiscal 2000 and beyond.
The Company's ParaData Financial Systems subsidiary provides data
processing systems to 111 separate finance companies, including World, and
currently supports approximately 988 individual branch offices in 43 states.
During fiscal 1999, ParaData increased net revenues on system sales and support
to approximately $2.4 million, a 63.4% increase over fiscal 1998 net revenues.
This increase resulted in a pretax contribution to the Company of $792,000.
Additionally, and more important, ParaData continued to provide state-of-the-art
data processing support for the Company's in-house integrated computer system.
Beginning in fiscal 1997, the Company expanded its product line on a
limited basis to include larger balance, lower risk and lower yielding,
individual consumer loans. Since that time, the Company has acquired five larger
loan offices and several bulk purchases of larger loans receivable.
Additionally, the Company has converted five of its traditional small-loan
offices into those offering the larger loan products. As of March 31, 1999, the
larger class of loans amounted to approximately $8.4 million, a 30.5% increase
over the balance outstanding at the end of the prior fiscal year. Even with this
growth, the $8.4 million in larger balances represented only 5.6% of the total
loan portfolio at the end of the fiscal year. Management believes that these
offices can support much larger asset balances with lower expense and loss
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 continue expanding the larger loan product line into additional offices
during the current fiscal year.
- --------------------------------------------------------------------------------
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,
1999 1998 1997
---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average gross loans receivable (1).................................... $ 144,203 $ 125,094 $ 109,206
Average loans receivable (2).......................................... 112,273 97,285 85,445
Expenses as a percentage of total revenue:
Provision for loan losses......................................... 12.8% 11.9% 13.0%
General and administrative(3)..................................... 63.5% 66.3% 64.5%
Total interest expense............................................ 6.0% 6.9% 5.9%
Operating margin (4).................................................. 23.8% 21.8% 22.5%
Return on average assets (5).......................................... 8.4% 7.2% 8.2%
Offices opened and acquired, net...................................... 19 24 54
Total offices (at period end)......................................... 379 360 336
</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) Excludes $5.4 million expense for pending legal settlement for the
year ended March 31, 1999. Including this one time charge, the ratio
would have been 69.3% for the annual period.
(4) Operating margin is computed as total revenues less provision for
loan losses and general and administrative expenses (excluding the
legal settlement change), as a percentage of total revenues.
Including the $5.4 million charge for the pending legal settlement,
the operating margin for the year ended March 31, 1999 would have
been 17.9%.
(5) Excludes $5.4 legal settlement, net of tax benefit, for the year
ended March 31, 1999. Including this one time change, the ratio would
have been 5.7% for the annual period.
COMPARISON OF FISCAL 1999 VERSUS FISCAL 1998
Net income for the fiscal year ended March 31, 1999 was $7.3 million. The
results for the year were greatly affected by legal expenses resulting from a
pending settlement of certain litigation (See Pending Legal Settlement). The
total costs of this settlement is expected to be $5.4 million including the
expense of complying with the terms of the settlement. Excluding the settlement
related expenses, as well as the related income tax benefit, net income amounted
to $10.8 million, an increase of $2.7 million, or 33.0%, over fiscal 1998. This
increase resulted from an increase in operating income (revenues less the
provision for loan losses and general and administrative expenses) of $4.3
million, or 24.4%. This increase was offset by an increase in income taxes.
Total revenues amounted to $91.8 million during fiscal 1999, an increase of
$11.1 million, or 13.8%, over fiscal 1998. Revenues from the 311 offices that
were open throughout both fiscal years increased by 8.9%. At March 31, 1999, the
Company had 379 offices in operation, a net increase of 19 offices during the
fiscal year.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
During fiscal 1999, interest and fee income increased by $8.8 million, or
12.4%, over the previous fiscal year. This increase resulted primarily from an
increase in average loans receivable of $15.0 million, or 15.4%, over the two
fiscal years. The Company continued to see a decline in the overall yield on the
loan portfolio as the volume of larger loans and sales finance loans increased
over prior year levels.
Insurance commissions and other income increased by $2.3 million, or 26.6%,
over the two fiscal years. Insurance commissions increased by $533,000, or
10.1%, as a result of increased loans outstanding in the four states where
credit insurance is sold in conjunction with the Company's loan products. Other
income increased by $1.8 million, or 51.9%, primarily as a result of increased
volume by the Company's sales finance program and greatly increased revenue by
the Company's computer subsidiary, ParaData Financial Systems. The gross profit
from the sales finance program, referred to as the "World Class Buying Club"
increased by $339,000, or 21.7%, over the two fiscal years, as the program was
expanded into two additional states during the year. As of the end of the fiscal
year, this program was offered to the Company's customers in seven of the nine
states where the Company currently operates. ParaData's gross profits increased
by $925,000, or 63.4%, during fiscal 1999, primarily as a result of several new
systems that were installed for new customers during the year. At the end of the
fiscal year, ParaData had 111 customers and supported 988 branch offices,
including the Company's 379 offices. Additionally, increased sales of other
ancillary products, such as Motor Club Memberships and Accidental Death &
Disability Insurance, further enhanced other income during the current fiscal
year.
The provision for loan losses increased by $2.1 million, or 21.8%, when
comparing the past two fiscal years. This increase resulted from an increase in
the allowance for losses of $325,000, or 3.8%, combined with an increase in net
charge-offs of $1.7 million, or 18.6%. As a percentage of average loans
receivable, net charge-offs increased slightly from 9.4% during fiscal 1998 to
9.7% during fiscal 1999.
General and administrative expenses, excluding the pending legal
settlement, increased by $4.8 million, or 8.9%, during the current year when
compared to fiscal 1998. As a percentage of total revenues, these expenses
decreased from 66.3% in fiscal 1998 to 63.5% in the most recent year. The
Company's expense ratios have benefited from the sale or combination of 10
unprofitable offices during the year, as well as a reduction in the number of
new offices that were opened during this period. Excluding the expenses related
to the legal settlement and those associated with ParaData, overall general and
administrative expenses, when divided by average open offices increased by 3.3%.
Interest expense remained level over the two fiscal years. While the
Company's average level of debt outstanding increased by approximately 7.3% over
the past two fiscal years, the Company benefited from a reduction in interest
rates during this period as prime dropped from 8.5% at the beginning of the
fiscal year to 7.75% at March 31, 1999.
The Company's effective income tax rate increased slightly to 32.8% in
fiscal 1999 from 32.6% in fiscal 1998 as a result of reduced benefits from the
Company's captive insurance subsidiary.
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 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.
- --------------------------------------------------------------------------------
8 WORLD ACCEPTANCE CORPORATION
<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%.
The provision for loan losses during fiscal 1998 increased by $487,000, or
4%, from the previous year. This increase resulted from an increase in the
general allowance for loan losses, offset by a reduction in loan losses. As a
percentage of average loans receivable, net charge-offs decreased to 9.4% during
fiscal 1998 from 10.6% during fiscal 1997. This decrease represents the first
decline in the charge-off ratios in several years. 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 a 20% increase in average borrowings outstanding over the two fiscal years 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.
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, 1999, 1998, and 1997 and the credit
loss experience over the indicated periods:
<TABLE>
<CAPTION>
At or for the
Years Ended March 31,
-------------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Allowance for loan losses........................................... $ 8,769 $ 8,444 $ 6,283
Percentage of loans receivable...................................... 7.5% 8.2% 7.0%
Provision for loan losses........................................... $ 11,707 $ 9,609 $ 9,480
Net charge-offs..................................................... $ 10,863 $ 9,158 $ 9,077
Net charge-offs as a percentage of average loans receivable (1)..... 9.7% 9.4% 10.6%
(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, 1999, 1998, and 1997:
<CAPTION>
At March 31,
------------------------------------
1999 1998 1997
--------- --------- ---------
(Dollars in thousands)
Recency basis:
<S> <C> <C> <C> <C> <C>
60 - 89 days past due............................................. $ 2,163 $ 1,901 $ 1,812
90 - 179 days past due............................................ 1,047 712 640
------- ------- ------
Total........................................................... $ 3,210 $ 2,613 $ 2,452
======= ======= ======
Percentage of period end gross loans receivable..................... 2.1% 2.0% 2.2%
Contractual basis:
60 - 89 days past due............................................. $ 2,766 $ 2,360 $ 2,227
90 - 179 days past due............................................ 2,609 1,952 1,912
------- ------- ------
Total........................................................... $ 5,375 $ 4,312 $ 4,139
======= ======= ======
Percentage of period end gross loans receivable..................... 3.6% 3.3% 3.6%
</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 during fiscal
years 1998 and 1999.
<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,
1997 1997 1997 1998 1998 1998 1998 1999
--------- ---------- --------- --------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues....... $ 18,386 $ 19,302 $ 20,720 $ 22,218 $ 20,734 $ 21,682 $ 23,836 $ 25,510
Provision for
loan losses....... 2,098 2,867 3,562 1,082 2,360 3,112 4,262 19,734
General and
administrative
expenses.......... 12,624 12,843 14,317 13,685 13,925 19,696 15,012 15,000
Net income (loss).... 1,651 1,469 893 4,086 2,133 (1,670) 2,054 4,803
Gross loans
receivable........ $ 115,916 $ 125,930 $ 143,315 $ 130,559 $ 136,061 $ 141,133 $ 166,479 $ 149,571
Number of
offices open...... 350 359 360 360 366 374 383 379
</TABLE>
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The Company does not anticipate that adoption of SFAS 133 will have a material
effect on its financial statements.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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, to repurchase its common stock and, during this past
fiscal year, to fund the pending legal settlement. As the Company's gross loans
receivable increased from $99.4 million at March 31, 1996, to $149.6 million at
March 31, 1999, net cash provided by operating activities for fiscal years 1997,
1998, and 1999 was $20.6 million, $19.0 million, and $20.7 million,
respectively.
The Company's primary ongoing cash requirements relate to the funding of
new offices and acquisitions, the overall growth of loans outstanding, the
repayment of long-term indebtedness and the repurchase of its common stock. The
Company repurchased 1,986,000 shares of its common stock under its repurchase
program, for an aggregate purchase price of approximately $16.0 million, between
February 1996 and October 1996. 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
1999. 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 three offices and a number of loan portfolios from
competitors in eight states in 21 separate transactions during fiscal 1999.
Gross loans receivable purchased in these transactions were approximately $5.9
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, 1998, the Company
paid the fourth 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 $4.0 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 the final principal payment
to be made on December 1, 1999.
The Company has a $65.0 million revolving credit facility with a syndicate
of banks. The credit facility will expire on September 30, 2000. The maximum
amount that could be borrowed under this credit facility was raised to $77.0
million during the period December 1, 1998 to March 15, 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, 1999, the interest rate on borrowings under the revolving
credit facility was 6.63%. 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, 1999, $57.1 million was outstanding
under this facility, and there was $7.9 million of unused borrowing availability
under the borrowing base limitations.
- --------------------------------------------------------------------------------
12 WORLD ACCEPTANCE CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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 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. The
Company needs to increase the borrowing limits under its revolving credit
facility from time to time and does not anticipate this to be a problem,
however, there can be no assurance that this additional funding will be
available when needed.
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.
PENDING LEGAL SETTLEMENT
Since April 1995, the Company and several of its subsidiaries have been
parties to litigation challenging the Company's non-filing insurance practices.
Non-filing insurance is an insurance product that lenders like the Company can
purchase in lieu of filing a UCC financing statement covering the collateral of
their borrowers. The litigation against the Company has been consolidated with
other litigation against other finance companies, jewelry and furniture
retailers, and insurance companies in a purported nationwide class action in the
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).
On November 11, 1998, the Company and its subsidiaries named in the action
entered into a settlement agreement. Pursuant to the settlement agreement, which
is subject to the court's approval, the Company has agreed to settle all claims
alleged in the litigation involving it and its subsidiaries for an aggregate
cash payment of $5 million. In addition, the terms of the settlement will
curtail certain non-filing practices by the Company and its subsidiaries and
will allow the court to approve criteria defining those circumstances in which
the Company's subsidiaries can make non-filing insurance claims going forward.
As a result of the settlement, non-filing insurance fees charged to borrowers
will be reduced by 25%. The settlement agreement, which includes the settlement
by several other defendants in the litigation, including the Company's insurer,
is subject to the court's approval because the settlement concerns a class
action.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Company has recorded an accrual for settlement costs, including the
expected expenses to comply with the terms of the settlement, of $5.4 million in
the fiscal year ended March 31, 1999. Of this total accrual, $5.1 million has
been paid to an escrow account, pending distribution to class participants.
Going forward, the Company expects that the settlement will limit and reduce the
coverage for the types of losses with respect to which its subsidiaries will
submit claims. The Company cannot predict the amount of this reduction, but
believes that the settlement will negatively impact the Company in the near
term, but should not have a material adverse effect of the Company's results of
operations over time.
YEAR 2000
The Company recognizes that there is a business risk in computerized
systems and products as the calendar rolls over into the next century. Failure
of these systems and products to correctly process the date could cause
miscalculations, unpredictable or inconsistent results, or complete system
failures. This problem is commonly called the "year 2000 problem." In
particular, in the Company's line of business, the year 2000 problem could cause
results such as miscalculations of interest on loans or other significant
problems.
The Company has determined that its primary software package, the "Loan
Manager System" developed and maintained by its wholly owned 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 of 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
1999 to ensure the accuracy of information to the extent possible. The Company
believes that its total costs of addressing the year 2000 problem has been, and
will continue to be, immaterial.
The Company believes the most reasonably likely worst case year 2000
scenario would be the failure of key suppliers (e.g. utility providers, phone
and data communication vendors, banks, etc.) to achieve year 2000 compliance,
resulting in lost revenues due to forced office closings or loss of
communications for extended periods of time. Currently, based on responses
obtained from third parties to date, the Company is not aware of any material
third parties that do not expect to be year 2000 compliant. However, due to the
uncertainty surrounding the readiness of third parties, the Company is unable to
determine whether the consequences of year 2000 failures will materially affect
the Company's financial condition or results of operations. The Company
maintains a contingency plan that allows individual offices to operate in a
manual environment for short periods of time; however, these alternatives would
not be sufficient should year 2000 failures cause blackouts for extended
periods.
The year 2000 disclosure set forth above should be read in connection with
"Forward-Looking Information," which follows.
OTHER MATTERS
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
- --------------------------------------------------------------------------------
14 WORLD ACCEPTANCE CORPORATION
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
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. The Company and numerous other consumer
finance companies have brought suit to enjoin enforcement by the Oklahoma
Attorney General of its recent interpretation of this provision of the Oklahoma
Consumer Credit Code. In May 1999, the Oklahoma Supreme Court upheld the
Attorney General's interpretation on a prospective basis. The Company and the
other consumer finance companies party to the proceeding against the Attorney
General have petitioned the Oklahoma Supreme Court for a rehearing on this
matter. 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 the prior regulatory practice followed by the
Company. Because of this recent legislation, the Company expects that the
purported class-action lawsuit, even if decided adversely to the Company, would
not materially affect the Company's refinancing practices in Oklahoma going
forward, although such an adverse decision could possibly involve a material
monetary award. The Company intends to defend this action vigorously.
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
This report on Form 10-K, including "Management's Discussion and Analysis
of Financial Condition and Results of Operations," may contain various
"forward-looking statements," within the meaning of Section 21E of the
Securities Exchange Act of 1934, that are based on management's belief and
assumptions, as well as information currently available to management.
Specifically, management's statements of expectations with respect to the
litigation and pending settlement (the "Settlement") described above in "Pending
Legal Settlement", the litigation described above in "Other Matters," and the
matters discussed above in "Year 2000," may be deemed forward-looking
statements. When used in this document, the words "anticipate," "estimate,"
"expect," and similar expressions may identify forward-looking statements.
Although the Company believes that the expectations reflected in any such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to be correct. Any such statements are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should underlying assumptions prove incorrect,
the Company's actual financial results, performance or financial condition may
vary materially from those anticipated, estimated or expected. Among the key
factors that could cause the Company's actual financial results, performance or
condition to differ from the expectations expressed or implied in such
forward-looking statements are the following: changes in interest rates; risks
inherent in making loans, including repayment risks and value of collateral;
recently-enacted or proposed legislation; whether, and the terms upon which,
court approval of the Settlement is obtained; the occurrence of non-filing
claims at historical levels in circumstances validated by the Settlement; the
timing and amount of revenues that may be recognized by the Company; changes in
current revenue and expense trends (including trends affecting charge-offs);
changes in the Company's markets and general changes in the economy
(particularly in the markets served by the Company); the ability of the Company
and third parties with whom the Company deals to achieve year 2000 compliance;
the unpredictable nature of litigation; and other matters discusses in this
Report and the Company's other filings with the Securities and Exchange
Commission.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 15
<PAGE>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
-------------------------------------
1999 1998
--------------- --------------
ASSETS
<S> <C> <C>
Cash............................................................................ $ 1,236,207 1,212,611
Gross loans receivable.......................................................... 149,570,861 130,559,256
Less:
Unearned interest and deferred fees........................................ (32,231,831) (27,173,845)
Allowance for loan losses.................................................. (8,769,367) (8,444,563)
------------- -------------
Loans receivable, net.................................................. 108,569,663 94,940,848
Property and equipment, net..................................................... 6,299,662 6,424,757
Other assets, net............................................................... 7,536,987 6,193,300
Intangible assets, net.......................................................... 9,827,885 9,610,394
------------- -------------
$ 133,470,404 118,381,910
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable....................................................... 61,150,000 53,700,000
Subordinated notes payable................................................. 10,000,000 10,000,000
Other note payable......................................................... 482,000 482,000
Income taxes payable....................................................... 1,940,091 2,795,119
Accounts payable and accrued expenses...................................... 5,206,483 4,103,511
------------- -------------
Total liabilities...................................................... 78,778,574 71,080,630
------------- -------------
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 19,016,573 and 18,998,573 shares
at March 31, 1999, and 1998, respectively ............................. - -
Additional paid-in capital................................................. 935,921 864,968
Retained earnings.......................................................... 53,755,909 46,436,312
-------------- -------------
Total shareholders' equity............................................. 54,691,830 47,301,280
------------- -------------
Commitments and contingencies
$ 133,470,404 118,381,910
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
16 WORLD ACCEPTANCE CORPORATION
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------
1999 1998 1997
--------------- ------------- -------------
Revenues:
<S> <C> <C> <C>
Interest and fee income.................................... $ 80,676,687 71,872,739 64,820,096
Insurance commissions and other income..................... 11,085,548 8,753,768 7,863,196
------------- ------------- -------------
Total revenues.................................... 91,762,235 80,626,507 72,683,292
------------- ------------- -------------
Expenses:
Provision for loan losses.................................. 11,707,392 9,608,495 9,479,894
------------- ------------- -------------
General and administrative expenses:
Personnel.............................................. 37,055,930 32,922,691 28,161,923
Occupancy and equipment................................ 6,358,974 6,099,711 5,037,019
Data processing........................................ 1,437,421 1,309,845 1,027,590
Advertising ......................................... 4,063,755 4,179,616 2,897,659
Legal.................................................. 5,844,864 441,246 645,486
Amortization of intangible assets...................... 1,309,632 1,432,076 3,020,259
Other.................................................. 7,562,355 7,084,384 6,055,772
------------- ------------- -------------
63,632,931 53,469,569 46,845,708
------------- ------------- -------------
Interest expense........................................... 5,534,315 5,541,002 4,322,351
------------- ------------- -------------
Total expenses.................................... 80,874,638 68,619,066 60,647,953
------------- ------------- -------------
Income before income taxes...................................... 10,887,597 12,007,441 12,035,339
------------- ------------- -------------
Income taxes.................................................... 3,568,000 3,909,000 3,952,000
------------- ------------- -------------
Net income...................................................... $ 7,319,597 8,098,441 8,083,339
============= ============= =============
Net income per common share
Basic...................................................... $ .39 .43 .41
============= ============= =============
Diluted.................................................... $ .38 .42 .41
============= ============= =============
Weighted average common equivalent shares outstanding
Basic...................................................... 19,010,789 18,959,348 19,492,086
============= ============= =============
Diluted.................................................... 19,212,813 19,172,456 19,832,525
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Paid-in Retained
Capital Earnings Total
----------- ------------ ------------
<S> <C> <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........................................................ - 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
Proceeds from exercise of stock options (18,000 shares),
including tax benefits of $18,453.............................. 70,953 - 70,953
Net income........................................................ - 7,319,597 7,319,597
----------- ------------ ------------
Balances at March 31, 1999........................................ $ 935,921 53,755,909 54,691,830
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
18 WORLD ACCEPTANCE CORPORATION
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended March 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $7,319,597 8,098,441 8,083,339
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets .............................. 1,309,632 1,432,076 3,020,259
Amortization of loan costs and discounts........................ 119,741 73,636 80,841
Provision for loan losses....................................... 11,707,392 9,608,495 9,479,894
Depreciation .................................................. 1,428,619 1,456,052 1,319,667
Change in accounts:
Other assets, net............................................. (1,463,428) (1,742,179) (847,269)
Income taxes payable.......................................... (836,575) (322,645) (217,680)
Accounts payable and accrued expenses......................... 1,102,972 438,919 (334,850)
------------ ------------ ------------
Net cash provided by operating activities................... 20,687,950 19,042,795 20,584,201
------------ ------------ ------------
Cash flows from investing activities:
Increase in loans receivable, net................................. (21,064,511) (13,857,947) (5,511,878)
Net assets acquired from office acquisitions, primarily loans..... (4,311,115) (7,450,022) (12,688,099)
Increase in intangible assets from acquisitions................... (1,527,123) (1,925,437) (7,277,485)
Purchases of property and equipment, net.......................... (1,264,105) (1,763,684) (1,698,400)
------------ ------------ ------------
Net cash used by investing activities....................... (28,166,854) (24,997,090) (27,175,862)
------------ ------------ -----------
Cash flows from financing activities:
Proceeds (repayments) of senior revolving notes
payable, net................................................... 11,450,000 (500,000) 24,450,000
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........................... 52,500 180,833 192,825
Repurchase of common stock........................................ - - (14,258,838)
------------ ------------ -----------
Net cash provided by financing activities.................. 7,502,500 5,680,833 6,383,987
------------ ------------ ------------
Increase (decrease) in cash.......................................... 23,596 (273,462) (207,674)
Cash at beginning of year............................................ 1,212,611 1,486,073 1,693,747
------------ ------------ ------------
Cash at end of year.................................................. $ 1,236,207 1,212,611 1,486,073
============ ============ ============
</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 1999 and
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 for 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 net balance of loans deemed to be uncollectible is
charged against the loan loss allowance. 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, 1999 and 1998, 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 $232,930
and $352,671 at March 31, 1999 and 1998, 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 because of the short-term nature of these
instruments.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 premiums 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 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, property, or unemployment 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, 1999, 1998, and 1997, the Company paid
interest of $5,784,930, $5,391,147, and $4,302,473, respectively.
For the years ended March 31, 1999, 1998, and 1997, the Company paid
income taxes of $5,661,575, $5,406,645, and $5,343,680, respectively.
- --------------------------------------------------------------------------------
22 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Supplemental non-cash financing activities for the years ended March
31, 1999, 1998, and 1997, consist of:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Tax benefits from exercise of stock options.................. $ 18,453 58,543 66,469
</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.
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 1998 and
1997 to conform with fiscal 1999 presentation. There was no impact on
shareholders' equity or net income previously reported 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, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
Balance at the beginning of the year....................... $ 8,444,563 6,283,459 5,006,703
Provision for loan losses.................................. 11,707,392 9,608,495 9,479,894
Loan losses................................................ (12,256,626) (10,436,240) (10,025,203)
Recoveries................................................. 1,393,437 1,278,616 947,999
Allowance on acquired loans, net of specific charge-offs... (519,399) 1,710,233 874,066
------------ ----------- ------------
Balance at the end of the year............................. $ 8,769,367 8,444,563 6,283,459
============ =========== ============
</TABLE>
The allowance on accrued loans represents specific reserves established
on bulk loan purchases and is shown in the above roll-forward net of
subsequent charge-offs related to the same purchased loans.
(3) PROPERTY AND EQUIPMENT
Summaries of property and equipment follow:
<TABLE>
<CAPTION>
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Land.................................................................$ 250,443 325,443
Buildings and leasehold improvements................................. 2,550,763 2,788,518
Furniture and equipment.............................................. 9,600,998 8,296,239
------------ ------------
12,402,204 11,410,200
Less accumulated depreciation and amortization....................... 6,102,542 4,985,443
------------ ------------
Total........................................................... $ 6,299,662 6,424,757
============ ============
(4) INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, consist of:
<CAPTION>
March 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cost of acquiring existing customers................................. $ 1,994,782 1,150,626
Value assigned to noncompete agreements.............................. 6,228,480 6,564,982
Goodwill............................................................. 1,271,633 1,437,499
Other................................................................ 332,990 457,287
------------ ------------
Total........................................................... $ 9,827,885 9,610,394
============ ============
</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
$4,000,000 Senior Secured Term Notes -- These notes mature
December 1, 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, with $57.2 million outstanding
at March 31, 1999, subject to a borrowing base formula. The
maximum borrowings were temporarily increased to $77.0 million for
the period December 15, 1998, to March 15, 1999. The Company may
borrow, at its option, at the rate of prime or LIBOR plus 1.60%.
At March 31, 1999, the Company's interest rate was 6.63% and the
unused amount available under the revolver was $7,850,000. 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, 2000.
$10,000,000 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 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 September 2001.
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, 1999, approximately
$2,863,945 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, 1999, are as follows: 2000,
$4,000,000; 2001, $59,150,000; 2002, $2,482,000; 2003, $2,000,000;
2004, $2,000,000; thereafter, $2,000,000.
- --------------------------------------------------------------------------------
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, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Insurance premiums written................ $ 3,162,825 3,257,517 3,566,960
Recoveries on claims paid................. $ 367,756 334,812 315,112
Claims paid............................... $ (3,200,486) (3,267,005) (3,971,106)
</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, 1999, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000..................................................................... $ 2,817,962
2001..................................................................... 1,686,646
2002..................................................................... 786,966
2003 .................................................................... 459,749
2004 .................................................................... 191,597
Thereafter............................................................... 77,250
------------
Total future minimum lease payments............................. $ 6,020,171
============
Rental expense for cancelable and noncancelable operating leases for
the years ended March 31, 1999, 1998, and 1997 was $3,180,150,
$2,929,002, and $2,345,068, respectively.
<CAPTION>
(8) INCOME TAXES
Income tax expense for the years ended March 31, 1999, 1998, and 1997,
consists of:
1999 1998 1997
---------- ----------- -----------
Current:
<S> <C> <C> <C>
Federal.......................................................$ 4,538,000 4,845,000 4,834,000
State......................................................... 287,000 209,000 292,000
---------- ----------- -----------
Total..................................................... 4,825,000 5,054,000 5,126,000
--------- ----------- -----------
Deferred:
Federal....................................................... (1,179,000) (1,073,000) (1,107,000)
State......................................................... (78,000) (72,000) (67,000)
---------- ----------- -----------
Total..................................................... (1,257,000) (1,145,000) (1,174,000)
---------- ----------- -----------
$ 3,568,000 3,909,000 3,952,000
========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
26 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The income tax expense for the years ended March 31, 1999, 1998, and
1997 differs from the amount computed by applying the U.S. Federal
income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" income tax expense............................ $ 3,811,000 4,202,000 4,212,000
Increase resulting from:
State income tax, net of Federal benefit..................... 136,000 89,000 146,000
Amortization of goodwill..................................... 58,000 58,000 19,000
Insurance income exclusion................................... (162,000) (278,000) (235,000)
Other, net................................................... (275,000) (162,000) (190,000)
---------- ----------- -----------
Total income tax expense.......................................... $ 3,568,000 3,909,000 3,952,000
========== =========== ===========
<CAPTION>
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, 1999 and
1998, relate to the following:
1999 1998
----------- -----------
Deferred tax assets:
<S> <C> <C>
Allowance for doubtful accounts.............................. $ 3,200,000 3,082,000
Unearned insurance commissions............................... 1,176,000 617,000
Accounts payable and accrued expenses primarily
related to employee benefits............................. 370,000 189,000
Intangible assets............................................ 246,000 189,000
Tax over book accrued interest receivable.................... 536,000 537,000
Other........................................................ 211,000 94,000
------------- ------------
Gross deferred tax assets......................................... 5,739,000 4,708,000
Less valuation allowance.......................................... (211,000) (94,000)
------------- ------------
Net deferred tax assets........................................... 5,528,000 4,614,000
------------- ------------
Deferred tax liabilities:
Discount on purchased loans.................................. (151,000) (526,000)
Deferred net loan origination fees........................... (408,000) (379,000)
Other........................................................ (244,000) (241,000)
------------- ------------
Gross deferred tax liabilities.................................... (803,000) (1,146,000)
------------- ------------
Net deferred tax assets........................................... $ 4,725,000 3,468,000
============= ============
</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 has examined 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 following is a reconciliation of the numerators and denominators of
the basic and diluted EPS calculations.
<TABLE>
<CAPTION>
For the year ended March 31, 1999
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
BASIC EPS ------------- ------------- ---------
<S> <C> <C> <C>
Income available to common shareholders.................. $ 7,319,597 19,010,789 $ .39
======
EFFECT OF DILUTIVE SECURITIES
Options.................................................. $ - 202,024
---------- -----------
DILUTED EPS
Income available to common shareholders
plus assumed conversions............................... $ 7,319,597 19,212,813 $ .38
---------- ---------- ======
<CAPTION>
For the year ended March 31, 1998
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
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
---------- ----------- ======
<CAPTION>
For the year ended March 31, 1997
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
BASIC EPS ----------- ------------ ---------
<S> <C> <C> <C>
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
============ =========== ======
</TABLE>
Options to purchase 1,979,878, 1,938,669, and 1,672,669 shares of
common stock at various prices were outstanding during years ended
March 31, 1999, 1998 and 1997, 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, 1999.
- --------------------------------------------------------------------------------
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 $306,697,
$284,925, and $268,214 for the years ended March 31, 1999, 1998, and
1997, respectively.
STOCK OPTION PLANS
The Company has a 1992 Stock Option Plan and a 1994 Stock Option Plan
for the benefit of certain directors, officers, and key employees.
Under these plans, 3,750,000 shares of authorized common stock have
been reserved for issuance pursuant to grants approved by the Stock
Option Committee. The options have a maximum duration of 10 years, may
be subject to certain vesting requirements, and are priced at the
market value of the Company's common stock on the date of grant of the
option.
The Company applies APB Opinion 25 in accounting for the stock option
plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option
plans. Had compensation cost been recognized for the stock option plans
applying the fair-value-based method as prescribed by SFAS 123, the
Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
($ in thousands except per share amounts) 1999 1998 1997
----------- ----------- -----------
Net Income
<S> <C> <C> <C>
As reported................................................. $ 7,320 8,098 8,083
Pro forma................................................... $ 6,666 7,553 7,639
Basic earnings per share
As reported................................................. $ .39 .43 .41
====== ====== ======
Pro forma................................................... $ .35 .40 .39
====== ====== ======
Diluted earnings per share
As reported................................................. $ .38 .42 .41
====== ====== ======
Pro forma................................................... $ .35 .39 .39
====== ====== ======
</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 1999, 1998, and 1997, respectively:
dividend yield of zero; expected volatility of 51%, 43%, and 44%;
risk-free interest rate of 5.00%, 5.82%, and 6.63%; and expected lives
of 10 years for all plans in all three years.
- --------------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At March 31, 1999, the Company had the following options outstanding:
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 358,500 358,500 218,500 $ 2.92 October 20, 2002
January 20, 1993 30,000 30,000 - $ 5.04 January 20, 2003
April 7, 1993 90,000 90,000 4,000 $ 6.33 April 7, 2003
April 30, 1993 18,000 18,000 - $ 5.54 April 30, 2003
October 19, 1993 336,000 336,000 13,500 $ 6.88 October 19, 2003
April 30, 1994 24,000 24,000 - $ 5.75 April 30, 2004
October 13, 1994 504,000 407,400 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 45,000 - $ 11.33 June 26, 2005
October 31, 1995 113,500 69,300 - $ 13.00 October 31, 2005
January 23, 1996 15,000 9,000 - $ 10.25 January 23, 2006
April 1, 1996 196,177 196,179 - $ 10.75 April 1, 2006
April 1, 1996 36,900 36,900 - $ 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 187,000 74,800 - $ 6.69 October 25, 2006
January 27, 1997 36,000 14,400 - $ 5.94 January 27, 2007
March 31, 1997 31,100 20,733 - $ 5.41 March 31, 2007
April 1, 1997 78,662 52,443 - $ 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 227,500 45,500 - $ 5.19 October 28, 2007
April 1, 1998 73,309 24,436 - $ 6.69 April 1, 2008
April 1, 1998 42,200 14,067 - $ 6.69 April 1, 2008
April 30, 1998 24,000 24,000 - $ 6.50 April 30, 2008
November 23, 1998 275,000 - - $ 5.25 November 23, 2008
----------- ----------- ---------
Total 3,268,140 2,386,950 248,000
========= ========= =========
</TABLE>
Subsequent to March 31, 1999, the Company granted options for
additional shares under the plans: April 1, 1999, 150,000 shares to
certain executives; April 1, 1999, 46,900 shares to certain branch
managers; April 30, 1999, 24,000 shares to non-management directors;
and May 11, 1999, 15,000 shares to a certain executive. After giving
affect of the above grants, there remain 245,960 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 1999, the Company purchased the net assets of 21 consumer
loan offices for a total consideration of $5,909,134. Total net loans
receivable acquired amounted to $4,271,696, and the Company paid
$1,527,123 for non-compete agreements with predecessor owners and other
intangible assets. Eighteen of the 21 offices acquired were merged into
existing offices.
During fiscal 1998, the Company purchased the net assets of 27 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 27 offices acquired were merged into
existing offices.
During fiscal 1997, the Company purchased the net assets of 46 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 46 offices acquired were merged into
existing offices.
The impact of these purchases does not have a material effect on the
results of operations as reported.
(12) QUARTERLY INFORMATION (UNAUDITED)
The following sets forth selected quarterly operating data:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
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............................. $ 20,734 21,682 23,836 25,510 18,386 19,302 20,720 22,218
Provision for loan losses.................. 2,360 3,112 4,262 1,973 2,098 2,867 3,562 1,082
General and administrative expenses........ 13,925 19,696 15,012 15,000 12,624 12,843 14,317 13,685
Interest expense........................... 1,216 1,411 1,456 1,451 1,181 1,383 1,453 1,523
Income tax expense ........................ 1,100 (867) 1,052 2,283 832 740 495 1,842
-------- -------- ------- ------ ------- ------- ------- ------
Net income............................ $ 2,133 (1,670) 2,054 4,803 1,651 1,469 893 4,086
======== ======= ======= ====== ======= ======= ======= ======
Earnings per share:
Basic................................. $ .11 (.09) .11 .26 .09 .08 .05 .22
======== ======= ======= ====== ======== ======== ======= ======
Diluted............................... $ .11 (.09) .11 .25 .09 .08 .05 .21
======== ======= ======= ====== ======= ======= ======= ======
</TABLE>
- ----------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION 31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
(13) LITIGATION
Since April 1995, the Company and several of its subsidiaries have been
parties to litigation challenging the Company's non-filing insurance
practices. Non-filing insurance is an insurance product that lenders
like the Company can purchase in lieu of filing a UCC financing
statement covering the collateral of their borrowers. The litigation
against the Company has been consolidated with other litigation against
other finance companies, jewelry and furniture retailers, and insurance
companies in a purported nationwide class action in the 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).
On November 11, 1998, the Company and its subsidiaries named in the
action entered into a settlement agreement. Pursuant to the settlement
agreement, which is subject to the court's approval, the Company has
agreed to settle all claims alleged in the litigation involving it and
its subsidiaries for an aggregate cash payment of $5 million. In
addition, the terms of the settlement will curtail certain non-filing
practices by the Company and its subsidiaries and will allow the court
to approve criteria defining those circumstances in which the Company's
subsidiaries can make non-filing insurance claims going forward. As a
result of the settlement, non-filing insurance fees charged to
borrowers will be reduced by 25%. The settlement agreement, which
includes the settlement by several other defendants in the litigation,
including the Company's insurer, is subject to the court's approval
because the settlement concerns a class action.
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. The Company
and numerous other consumer finance companies have brought suit to
enjoin enforcement by the Oklahoma Attorney General of its recent
interpretation of this provision of the Oklahoma Consumer Credit Code.
In May 1999, the Oklahoma Supreme Court upheld the Attorney General's
interpretation on a prospective basis. The Company and the other
consumer finance companies party to the proceeding against the Attorney
General have petitioned the Oklahoma Supreme Court for a rehearing on
this matter. 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 the prior regulatory
practice followed by the Company. Because of this recent legislation,
the Company expects that the purported class-action lawsuit, even if
decided adversely to the Company, would not materially affect the
Company's refinancing practices in Oklahoma going forward, although
such an adverse decision could possibly involve a material monetary
award. 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
- ----------------------------------------------------------------------------
32 WORLD ACCEPTANCE CORPORATION
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------------
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, 1999, the Company and certain of its subsidiaries have
been named as defendants in various other legal actions arising from
their normal business activities in which damages in various amounts
are claimed. Although the amount of any ultimate liability with respect
to such other matters cannot be determined, in the opinion of
management, and based upon the advice of counsel, any such liability
will not have a material adverse effect on the Company's consolidated
financial statements taken as a whole.
(14) COMMITMENTS
The Company has entered into employment agreements with certain key
executive employees. The employment agreements have terms of three
years and call for aggregate minimum annual base salaries of $386,046,
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1999, in conformity with generally accepted
accounting principles.
Greenville, South Carolina
April 22, 1999
- ----------------------------------------------------------------------------
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 18, 1999, 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 19,016,573 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 18, 1999,
was $5.50.
MARKET PRICE OF COMMON STOCK
Fiscal 1998
----------------------------------------
Quarter High Low
------- ---- ---
First $ 7.00 $ 5.13
Second 7.00 5.75
Third 6.50 4.78
Fourth 7.81 4.94
Fiscal 1999
----------------------------------------
Quarter High Low
------- ---- ---
First $ 7.94 $ 5.63
Second 6.94 4.75
Third 6.50 4.56
Fourth 6.75 5.19
- ----------------------------------------------------------------------------
WORLD ACCEPTANCE CORPORATION
Exhibit 21
SUBSIDIARIES
of
WORLD ACCEPTANCE CORPORATION
Jurisdiction of Incorporation
Corporate Name or Organization
- -------------- ---------------
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
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
World Acceptance Corporation
We consent to 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 22, 1999, relating to the consolidated balance sheets of World
Acceptance Corporation and subsidiaries as of March 31, 1999 and 1998, 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, 1999, which
report appears in the March 31, 1999 annual report on Form 10-K of World
Acceptance Corporation.
Greenville, South Carolina KPMG LLP
June 29, 1999
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