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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
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(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
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)
<TABLE>
<S> <C>
South Carolina 570425114
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
108 Frederick Street
Greenville, South Carolina 29607
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(Address of principal executive offices) (Zip Code)
</TABLE>
(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)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 19, 2000, computed by reference to the closing sale price
on such date, was $83,603,015. As of the same date, 18,627,573 shares of Common
Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 2000 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 2000 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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Item No. Page
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<S> <C>
PART I
1. Description of Business............................................................................. 1
2. Properties.......................................................................................... 9
3. Legal Proceedings................................................................................... 9
4. Submission of Matters to a Vote of Security Holders................................................. 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................... 10
6. Selected Financial Data............................................................................. 11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 11
7A. Quantitative and Qualitative Disclosures About Market Risk.......................................... 11
8. Financial Statements and Supplementary Data......................................................... 11
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..................................... 12
13. Certain Relationships and Related Transactions..................................................... 12
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 12
</TABLE>
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Introduction
World Acceptance Corporation, a South Carolina corporation, operates a
small-loan consumer finance business in ten 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 2000" are to the Company's fiscal year
ended March 31, 2000.
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 $3,000 through 412 offices in South
Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri,
New Mexico, and Kentucky as of June 19, 2000. 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, in many states, establish allowable interest rates, fees and
other charges on small loans made to consumers and 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 in those states with usury
limitations.
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.
Expansion. During fiscal 2000, the Company opened 23 new offices. Twelve
other offices were purchased and four 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.
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.
1
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The small-loan consumer finance industry is highly fragmented in the ten
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,
--------------------------------------------------------------------------
At June 19,
State 1993 1994 1995 1996 1997 1998 1999 2000 2000
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South Carolina........ 53 56 59 62 68 64 63 63 63
Georgia............... 35 35 38 39 45 49 49 48 48
Texas................. 66 81 93 104 131 128 131 135 134
Oklahoma.............. 27 31 33 39 40 41 40 43 43
Louisiana (1)......... 10 12 15 20 18 21 20 21 21
Tennessee (2)......... - 2 6 18 24 28 30 35 36
Illinois (3).......... - - - - 3 11 20 30 30
Missouri (4).......... - - - - 1 9 16 18 20
New Mexico (5)........ - - - - 6 9 10 13 13
Kentucky (6).......... - - - - - - - 4 4
---- ---- ---- ---- ---- ---- ---- ---- ----
Total............ 191 217 244 282 336 360 379 410 412
==== ==== ==== ==== ==== ==== ==== ==== ====
</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.
(6) The Company commenced operations in Kentucky in March 2000.
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 2000, the
Company's average originated loan size and term were approximately $555 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, 2000,
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 24% 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, Missouri and South Carolina
allow for indexing the maximum loan amounts to the Consumer Price Index. Fees
charged by the Company include origination and account maintenance fees, monthly
handling charges and, in South Carolina, Georgia, Louisiana and Tennessee,
non-file fees, which are collected by the Company and paid as premiums to an
unaffiliated insurance company for non-recording insurance.
2
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The Company, as an agent for an unaffiliated insurance company, markets
and sells credit life, credit accident and health, credit property, and
unemployment insurance in connection with its loans in states where the sale of
such insurance is permitted by law. Credit life insurance provides for the
payment in full of the borrower's credit obligation to the lender in the event
of death. Credit accident and health insurance provides for repayment of loan
installments to the lender that come due during the insured's period of income
interruption resulting from disability from illness or injury. Credit property
insurance insures payment of the borrower's credit obligation to the lender in
the event that the personal property pledged as security by the borrower is
damaged or destroyed. Unemployment insurance provides for repayment of loan
installments to the lender that come due during the insured's period of
involuntary unemployment. The Company requires each customer to obtain credit
insurance in the amount of the loan for all loans originated in Georgia, and
encourages customers to obtain credit insurance for loans originated in South
Carolina, Tennessee, Louisiana, and Kentucky and on a limited basis in Oklahoma,
Missouri, and New Mexico. 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 and Tennessee 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 seven
of the ten states where it operates and plans to introduce the program in the
remaining three states during fiscal 2001. Borrowers participating in this
program can purchase a product from a catalog available at a branch office or by
direct mail 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.
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 13 larger
loan offices and several bulk purchases of larger loans receivable.
Additionally, the Company has converted several of its traditional small-loan
offices into those offering the larger loan products, primarily in Georgia,
South Carolina and Tennessee. As of March 31, 2000, the larger class of loans
amounted to approximately $26.2 million, a 212.1% increase over the balance
outstanding at the end of the prior fiscal year. As a result of these efforts,
this portfolio has grown to 15.1% of the total balances as of 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.
During fiscal 1999, the Company tested in 40 offices an income tax return
preparation and refund anticipation loan program. Based on the results of this
test, the Company expanded this program into all offices where permitted by the
lease agreements or approximately 390 offices in fiscal 2000. Due to certain
systems and service bureau problems encountered during the first two weeks of
the filing season, the program was less successful than anticipated; however, in
spite of these problems, the Company completed and filed approximately 16,000
tax returns generating approximately $1 million in net revenue. The Company
believes that this is a beneficial service for its existing customer base due to
the earned income credit and believes that the program can become even more
profitable in fiscal 2001 and beyond.
3
<PAGE>
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 1993 through 2000:
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------------------------------
State 1993 1994 1995 1996 1997 1998 1999 2000
----- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
South Carolina........... 37% 37% 35% 33% 26% 23% 22% 21%
Georgia.................. 14 14 13 13 13 14 16 15
Texas.................... 38 38 38 35 39 35 31 28
Oklahoma................. 8 7 7 8 7 7 7 6
Louisiana (1)............ 3 3 4 5 3 4 4 3
Tennessee (2)............ - 1 3 6 10 11 12 13
Illinois (3)............. - - - - - 2 3 4
Missouri (4)............. - - - - - 1 2 3
New Mexico (5)........... - - - - 2 3 3 3
Kentucky (6)............. - - - - - - - 4
---- ---- ---- ---- ---- ---- ---- ----
Total................ 100% 100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ==== ====
</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.
(6) The Company commenced operations in Kentucky in March 2000.
The following table sets forth the total number of loans and the average loan
balance by state at March 31, 2000:
<TABLE>
<CAPTION>
Total Number Average Gross Loan
of Loans Balance
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<S> <C> <C>
South Carolina..................... 64,835 565
Georgia............................ 37,139 693
Texas.............................. 132,427 368
Oklahoma........................... 25,246 417
Louisiana.......................... 11,772 450
Tennessee.......................... 30,069 762
Illinois........................... 14,866 430
Missouri........................... 8,971 549
New Mexico......................... 11,280 443
Kentucky........................... 3,952 510
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Total.......................... 340,557
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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 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
4
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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 2000, 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 proceeds 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 1998, 1999, and 2000, the
percentages of the Company's loan originations that were refinancings of
existing loans were 79.1%, 78.5%, and 78.3%, respectively.
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 sustain
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, Oklahoma,
and Illinois, 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, Kentucky, and on a limited basis, New Mexico, Missouri and Oklahoma,
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 2000, the captive insurance
subsidiary reinsured less than 9.2% of the credit insurance sold by the Company
and contributed approximately $748,000 to the Company's total revenues.
5
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The Company typically does not perfect its security interest in collateral
securing its smaller loans by filing Uniform Commercial Code ("UCC") 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. The
Company generally perfects its security interest in collateral on larger loan
transactions (typically greater than $1,000) by filing UCC financing statements.
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, Illinois, and Kentucky 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.
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 compliance with
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, 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.
6
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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 2000, advertising expenses were
approximately 3.7% 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. 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.
Several of the states in which the Company currently operates limit the
size of loans made by small-loan consumer finance companies and prohibit the
extension of more than one loan to a customer by any one company. As a result,
many customers borrow from more than one finance company, enabling the Company
to obtain information on the credit history of specific customers from other
consumer finance companies. The Company generally seeks to open new offices in
communities already served by at least one other small-loan consumer finance
company.
Government Regulation. Small-loan consumer finance companies are subject
to extensive regulation, supervision and licensing under various federal and
state statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees, insurance premiums and other costs that may be charged. In addition, state
laws regulate collection procedures, the keeping of books and records and other
aspects of the operation of small-loan consumer finance companies. Generally,
state regulations also establish minimum capital requirements for each local
office. State agency approval is required to open new branch offices.
Accordingly, the ability of the Company to expand by acquiring existing offices
and opening new offices will depend in part on obtaining the necessary
regulatory approvals.
A Texas regulation requires the approval of the Texas Consumer Credit
Commissioner for the acquisition, directly or indirectly, of more than 10% of
the voting or common stock of a consumer finance company. A Louisiana statute
prohibits any person from acquiring control of 50% or more of the shares of
stock of a licensed consumer lender, such as the Company, without first
obtaining a license as a consumer lender. The overall effect of these laws, and
similar laws in other states, is to make it more difficult to acquire a consumer
finance company than it might be to acquire control of a nonregulated
corporation.
Each of the Company's branch offices is separately licensed under the laws
of the state in which the office is located. Licenses granted by the regulatory
agencies in these states are subject to renewal every year and may be revoked
for failure to comply with applicable state and federal laws and regulations. In
the states in which the Company currently operates, licenses may be revoked only
after an administrative hearing.
The Company and its operations are regulated by several state agencies,
including the Industrial Loan Division of the Office of the Georgia Insurance
Commissioner, the Consumer Finance Division of the South Carolina Board of
Financial Institutions, the South Carolina Department of Consumer Affairs, the
Texas Office of the Consumer Credit Commission, the Oklahoma Department of
Consumer Credit, the Louisiana Office of Financial Institutions, the Tennessee
Department of Financial Institutions, the Missouri Division of Finance, the
Illinois Consumer Credit Division, Department of Financial Institutions, the
Consumer Credit Bureau of the New Mexico Financial Institutions Division, and
the Kentucky Department of Financial Institutions. These state regulatory
agencies audit the Company's local offices from time to time and each state
agency performs an annual compliance audit of the Company's operations in that
state.
The Company is also subject to state regulations governing insurance
agents in the states in which it sells credit insurance. State insurance
regulations require that insurance agents be licensed, govern the commissions
that may be
7
<PAGE>
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 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, 2000, the Company had approximately 1,300
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 (61) Chairman and Chief Chairman since July 1991; President since July
Executive Officer; 1986; CEO since July 1991; Director since April
Director 1989
D. R. Jones (48) President and Chief Since August 1999; from October 1977 until
Operating Officer August 1999, various positions with Associates
Financial Services, Inc., with most recent being
Regional Operations Director
A. Alexander McLean, III (49) Executive Vice President Executive Vice President since August 1996;
Chief Financial Officer; Senior Vice President since July 1992; CFO and
Director Director since July 1989
Mark C. Roland (44) Senior Vice President, Since January 1996; Senior Vice President -
Eastern Division Operations Support, Fleet Finance, in Atlanta,
Georgia, from January 1993 to January 1996
Charles F. Gardner, Jr. (38) Senior Vice President, Since April 2000; Vice President, Operations -
Western Division Southeast Texas and Mexico since December 1996;
Supervisor of West Texas since July 1987
</TABLE>
8
<PAGE>
Item 2. Properties
The Company owns its headquarters facility of approximately 14,000 square
feet in Greenville, South Carolina, and all of the furniture, fixtures and
computer terminals located in each branch office. As of June 19, 2000, the
Company had 412 branch offices, most of which are leased pursuant to short-term
operating leases. During the fiscal year ended March 31, 2000, total lease
expense was approximately $3.5 million, or an average of approximately $8,938
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
From April 1995 through July 1999, the Company and several of its
subsidiaries were 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
was 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 which the Company 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 curtailed certain non-filing practices by the Company and its
subsidiaries and allowed the court to approve criteria defining those
circumstances in which the Company's subsidiaries could make non-filing
insurance claims going forward. As a result of the settlement, non-filing
insurance fees charged to borrowers were reduced by 25%. The settlement
agreement, which includes the settlement by several other defendants in the
litigation, including the Company's insurer, was approved by the Court.
The Company 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, $5.0 million was
paid to an escrow account and has been distributed to class participants and
$244 thousand in costs were incurred in completing the settlement. The remaining
$156 thousand of the accrual was reversed in fiscal 2000. The settlement limited
and reduced the coverage for the types of losses with respect to which its
subsidiaries submit claims. The Company does not believe that those limitations
and reductions will have a material adverse effect on the Company's results of
operations.
The Company was named as a defendant in an action, Turner v. World
---------------
Acceptance Corp., filed in the district court for the Fourteenth Judicial
---------------
District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20, 1997. That action
(the Tulsa Case) named the Company and numerous other consumer finance companies
as defendants, and sought certification as a statewide class action. The Tulsa
Case 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 Tulsa Case also challenged the constitutionality
of the provisions of the Oklahoma Consumer Credit Code ("OCCC") under which the
Company operates. The Company filed an answer in the action denying the
allegations. On March 16, 1999, the District Court granted summary judgment in
favor of the Company and the other consumer finance companies and dismissed the
Tulsa Case. The plaintiffs in the Tulsa Case appealed that order, and their
appeal remains pending before the Oklahoma Court of Appeals.
The Tulsa Case is based on an opinion of the Oklahoma Attorney General
issued on February 20, 1997, interpreting a provision of the OCCC with respect
to the permitted amount of certain loan refinance charges in a manner contrary
to regulatory practice that had been in existence in Oklahoma since 1969. On the
basis of that opinion the Administrator of the Oklahoma Department of Consumer
Credit (the "Department") notified the Company and the other consumer finance
companies that the Department would begin enforcing the provisions of the OCCC,
as interpreted by the Attorney General's opinion on March 3, 1997. In response
to the Attorney General's opinion and the Department's threat, the Company and
numerous other consumer finance companies brought suit (the "Administrator's
Case") to enjoin enforcement by the Department of the OCCC as interpreted by the
Attorney General. Shortly thereafter, the Oklahoma Legislature enacted
amendments to the relevant provision of the OCCC, which became effective on
August 29, 1997, and which negated the effect of the Attorney General's
interpretation.
9
<PAGE>
Although the Company and the other consumer finance companies were
successful at the trial court level in the Adminstrator's Case, in May 1999, the
Oklahoma Supreme Court upheld the Attorney General's interpretation. The
Oklahoma Supreme Court's decision expressly limited the application of the
Attorney General's interpretation of the OCCC to the period between March 3,
1997 and August 29, 1997, and it expressly refrained from reaching the issue of
whether refunds of charges assessed during that period were required.
The Attorney General has recently directed the Department to proceed with
administratively ordering refunds of those charges. The Company and several of
the other consumer finance companies contend that for numerous reasons, the
Department lacks both the authority and the legal basis to order refunds. The
Company and the other consumer finance companies are attempting to open
discussions with the Department and the Attorney General with the goal of
resolving both the issues concerning an attempted administrative order of
refunds and the issues that remain pending in the Tulsa Case. It is far too
early to predict whether those discussions, if they can be initiated, will be
successful. Nonetheless, because of the 1997 amendments to the OCCC, the Company
expects that even if both the Tulsa Case and the Department's attempts at
administratively ordering refunds are decided adversely to the Company, those
results would not materially affect the Company's refinancing practices in
Oklahoma going forward. Such adverse decisions could, however, involve a
material monetary award; however, in the opinion of management the likelihood of
such a material monetary award is not currently deemed to be probable. The
Company intends to continue to defend vigorously against both the Tulsa Case and
the Department's threat to administratively order refunds, while at the same
time, exploring every possibility of reaching a satisfactory non-judicial
resolution of all of the issues.
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. However, 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.
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 Tulsa Case and related
controversy with the Attorney General and Department (collectively, the
"Oklahoma Litigation") described above and 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 proposed legislation; 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 unpredictable
nature of litigation; and other matters discusses in this Report and the
Company's other filings with the Securities and Exchange Commission.
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, 2000.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Since November 26, 1991, the Company's Common Stock has traded on the
NASDAQ National Market System ("NASDAQ") under the symbol WRLD. As of June 19,
2000, there were 152 holders of record of Common Stock and approximately 2,000
persons or entities who hold their stock in nominee or "street" names through
various brokerage firms.
10
<PAGE>
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
Market risk reflects the risk of economic loss resulting from adverse
changes in market price and interest rates. The Company generally offers its
loans at the prevailing statutory rates for terms not to exceed 36 months.
Management believes that the carrying value approximates the fair value of its
loan portfolio. The Company's outstanding debt under its revolving credit
facility was $67.9 million at March 31, 2000. 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, 2000, a change of 1% in the
interest rate would cause a change in interest expense of approximately $679,000
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.
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.
11
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information contained under the captions "Ownership of Shares by Certain
Beneficial Owners as of June 19, 2000" and "Ownership of Common Stock of
Management as of June 19, 2000" 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, 2000 and 1999
Consolidated Statements of Operations for the years ended March 31,
2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended March 31,
2000, 1999 and 1998
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.
12
<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 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
4.6 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+ Employment Agreement of Douglas R. Jones effective August 16, 10.3 12-31-99
1999 10-Q
10.4+ Settlement Agreement dated as of April 1, 1999, between the 10.3 1999 10-K
Company and R. Harold Owens
</TABLE>
13
<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 Securityholders' Agreement dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
10.6+ Board of Directors Deferred Compensation Plan * N/A
10.7+ World Acceptance Corporation Supplemental Income Plan * N/A
10.8+ 1992 Stock Option Plan of the Company 4 33-52166
10.9+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.10+ The Company's Executive Incentive Plan 10.6 1994 10-K
10.11+ World Acceptance Corporation Retirement Savings Plan 4.1 333-14399
13 Excerpts from 2000 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 LLP in connection with the Company's * NA
Registration Statements on Form S-8
27 Financial Data Schedule * NA
</TABLE>
+ Management Contract or other compensatory plan required to be filed
under Item 14(c) of this report and Item 601 of Regulation S-K of the
Securities and Exchange Commission.
# Omitted from filing - substantially identical to immediately preceding
exhibit, except for the parties thereto and the principal amount involved.
(4) Reports on Form 8-K
During the most recent fiscal quarter, there were no reports filed on Form
8-K.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WORLD ACCEPTANCE CORPORATION
By:/s/ A. Alexander McLean, III
----------------------------
A. Alexander McLean, III
Executive Vice President and CFO
Date: June 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
---------
/s/ Charles D. Walters
---------------------------------------------------
Charles D. Walters, Chairman and Chief Executive Officer
(principal executive officer); Director
Date: June 29, 2000
/s/ A. Alexander McLean, III
---------------------------------------------------
A. Alexander McLean, III, Executive Vice President and Chief
Financial Officer (principal financial officer and principal
accounting officer); Director
Date: June 29, 2000
/s/ Charles D. Way
---------------------------------------------------
Charles D. Way, Director
Date: June 29, 2000
/s/ William S. Hummers, III
---------------------------------------------------
William S. Hummers, III, Director
Date: June 29, 2000
15
