UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1999 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT of 1934 For the transition period from to ---------------------- --------------------- Commission File Number: 0-19599 WORLD ACCEPTANCE CORPORATION ------------------------------------------------------- (Exact name of registrant as specified in its charter.) South Carolina 57-0425114 --------------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 108 Frederick Street Greenville, South Carolina 29607 ---------------------------------------- (Address of principal executive offices) (Zip Code) (864) 298-9800 ---------------------------------------------------- (registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate the number of shares outstanding of each of issuer's classes of common stock, as of the latest practicable date, February 9, 2000. Common Stock, no par value 19,025,573 - ------------------------------ ---------------------- (Class) (Outstanding) 1
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION PAGE <S> <C> <C> Item 1. Consolidated Financial Statements (unaudited): Consolidated Balance Sheets as of December 31, 1999, and March 31, 1999 3 Consolidated Statements of Operations for the three-month periods and nine-month periods ended December 31, 1999, and December 31, 1998 4 Consolidated Statements of Shareholders' Equity for the year ended March 31, 1999, and the nine-month period ended December 31, 1999 5 Consolidated Statements of Cash Flows for the three-month periods and nine-month periods ended December 31, 1999, and December 31, 1998 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the three-month periods and nine-month periods ended December 31, 1999, and December 31, 1998 8 Item 3. Quantitive and Qualitative Disclosures about market risk 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 13 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 16 </TABLE> 2
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> December 31, March 31, 1999 1999 ------------- --------- ASSETS (Unaudited) <S> <C> <C> Cash $ 3,027,347 1,236,207 Gross loans receivable 182,899,686 149,570,861 Less: Unearned interest and fees (41,184,665) (32,231,831) Allowance for loan losses (10,465,721) (8,769,367) -------------- -------------- Loans receivable, net 131,249,300 108,569,663 Property and equipment, net 6,761,016 6,299,662 Other assets, net 8,281,177 7,536,987 Intangible assets, net 10,040,929 9,827,885 ------------ ------------- $ 159,359,769 133,470,404 ============ =========== LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Senior notes payable 90,250,000 71,150,000 Other note payable 482,000 482,000 Income taxes payable 292,950 1,940,091 Accounts payable and accrued expenses 4,839,399 5,206,483 ---------- ------------- Total liabilities 95,864,349 78,778,574 ------------ ------------- Shareholders' equity: Common stock, no par value - - Additional paid-in capital 968,666 935,921 Retained earnings 62,526,754 53,755,909 ------------ ------------- Total shareholders' equity 63,495,420 54,691,830 ------------ ------------- $ 159,359,769 133,470,404 ============ ============= </TABLE> See accompanying notes to consolidated financial statements. 3
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) <TABLE> <CAPTION> Three months ended Nine months ended December 31, December 31, ------------------------------- ------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Interest and fee income $ 22,701,793 20,784,775 64,728,962 58,524,057 Insurance and other income 4,228,754 3,051,166 12,041,417 7,727,586 ------------ ------------- ------------ ------------- Total revenues 26,930,547 23,835,941 76,770,379 66,251,643 ------------ ------------- ------------ ------------- Expenses: Provision for loan losses 5,540,330 4,261,642 13,152,128 9,733,276 ------------ ------------- ------------ ------------- General and administrative expenses: Personnel 9,605,213 9,013,178 29,111,530 26,965,675 Occupancy and equipment 1,745,307 1,629,300 5,154,222 4,821,281 Data processing 387,004 344,975 1,117,031 1,065,645 Advertising 1,660,173 1,643,864 3,226,004 3,376,122 Legal 175,451 98,288 352,421 5,785,468 Amortization of intangible assets 378,153 335,007 1,092,756 962,084 Other 1,934,255 1,947,729 5,855,837 5,656,821 ------------ ------------- ------------ ------------- 15,885,556 15,012,341 45,909,801 48,633,096 ------------ ------------- ------------ ------------- Interest expense 1,582,876 1,456,033 4,401,605 4,083,371 ------------ ------------- ------------ ------------- Total expenses 23,008,762 20,730,016 63,463,534 62,449,743 ------------ ------------- ------------ ------------- Income before income taxes 3,921,785 3,105,925 13,306,845 3,801,900 Income taxes 1,336,000 1,052,000 4,536,000 1,285,000 ------------ ------------- ------------ ------------- Net income $ 2,585,785 2,053,925 8,770,845 2,516,900 ============ ============= ============ ============= Net income per common share: Basic $ .14 .11 .46 .13 ============ ============= ============ ============= Diluted $ .14 .11 .46 .13 ============ ============= ============ ============= Weighted average common shares outstanding: Basic 19,019,703 19,016,573 19,017,616 19,008,861 ============ ============= ============ ============= Diluted 19,140,205 19,181,261 19,177,901 19,206,356 ============ ============= ============ ============= </TABLE> See accompanying notes to consolidated financial statements. 4
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) <TABLE> <CAPTION> Additional Paid-in Retained Capital Earnings Total ----------- --------- -------- <S> <C> <C> <C> Balances at March 31, 1998 $ 864,968 46,436,312 47,301,280 Proceeds from exercise of stock options (18,000 shares), including tax benefit 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 ----------- ---------- ---------- Proceeds from exercise of stock options (9,000 shares), including tax benefit of $6,495 32,745 - 32,745 Net income for the nine months - 8,770,845 8,770,845 ----------- ------------ ----------- Balances at December 31, 1999 $ 968,666 62,526,754 63,495,420 =========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements. 5
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> Three months ended Nine months ended December 31, December 31, -------------------------- ------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Cash flows from operating activities: <S> <C> <C> <C> <C> Net income $ 2,585,785 2,053,925 8,770,845 2,516,900 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 5,540,330 4,261,642 13,152,128 9,733,276 Amortization of intangible assets 378,153 335,007 1,092,756 962,084 Amortization of loan costs and discounts 24,076 29,524 73,918 90,217 Depreciation 390,039 344,058 1,095,649 1,054,302 Change in accounts: Other assets, net (156,588) 104,880 (818,108) 19,960 Income taxes payable (562,970) 1,736,291 (1,640,646) - Accounts payable and accrued expenses 547,655 (719,341) (367,084) 2,849,046 ----------- ------------ ------------ ----------- Net cash provided by operating activities 8,746,480 8,145,986 21,359,458 17,225,785 ----------- ----------- ----------- ----------- Cash flows from investing activities: Increase in loans, net (18,234,709) (18,969,750) (32,608,353) (30,206,973) Net assets acquired from office acquisitions, primarily loans (706,473) (2,655,063) (3,256,510) (3,640,338) Purchases of premises and equipment (357,464) (314,100) (1,523,905) (1,315,177) Purchases of intangible assets (185,000) (895,298) (1,305,800) (1,272,748) ----------- ----------- ----------- ----------- Net cash used by investing activities (19,483,646) (22,834,211) (38,694,568) (36,435,236) ----------- ----------- ------------ ----------- Cash flows from financing activities: Proceeds of senior notes payable, net 16,200,000 18,900,000 23,100,000 23,450,000 Repayment of senior term notes (4,000,000) (4,000,000) (4,000,000) (4,000,000) Proceeds from exercise of stock options 26,250 - 26,250 52,500 ----------- ----------- ----------- ----------- Net cash provided by financing activities 12,226,250 14,900,000 19,126,250 19,502,500 ----------- ----------- ----------- ----------- Increase in cash 1,489,084 211,775 1,791,140 293,049 Cash, beginning of period 1,538,263 1,293,885 1,236,207 1,212,611 ----------- ----------- ----------- ----------- Cash, end of period $ 3,027,347 1,505,660 3,027,347 1,505,660 =========== =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest expense $ 1,226,879 1,474,498 4,075,510 4,248,206 Cash paid for income taxes 1,898,970 295,500 6,176,646 4,048,885 Supplemental schedule of noncash financing activities: Tax benefits from exercise of stock options 6,495 - 6,495 18,453 </TABLE> See accompanying notes to consolidated financial statements. 6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of the Company at December 31, 1999, and for the periods then ended were prepared in accordance with the instructions for Form 10-Q and are unaudited; however, in the opinion of management, all adjustments (consisting only of items of a normal recurring nature) necessary for a fair presentation of the financial position at December 31, 1999, and the results of operations and cash flows for the three and nine-month periods then ended, have been included. The results for the three and nine-month periods ended December 31, 1999, are not necessarily indicative of the results that may be expected for the full year or any other interim period. These consolidated financial statements do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the Company's audited financial statements and related notes for the year ended March 31, 1999, included in the Company's 1999 Annual Report to Shareholders. NOTE 2 - COMPREHENSIVE INCOME The Company applies the provision of Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income." The Company has no items of other comprehensive income; therefore, net income equals comprehensive income. NOTE 3 - ALLOWANCE FOR LOAN LOSSES The following is a summary of the changes in the allowance for loan losses for the periods indicated (unaudited): <TABLE> <CAPTION> Three months Nine months ended December 31, ended December 31, --------------------------- -------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Balance at beginning of period $ 9,602,961 8,908,102 8,769,367 8,444,563 Provision for loan losses 5,540,330 4,261,642 13,152,128 9,733,276 Loan losses (5,046,411) (3,450,666) (12,518,389) (8,930,531) Recoveries 332,346 317,770 975,775 972,288 Allowance on acquired loans, net of specific charge-offs 36,495 38,467 86,840 (144,281) ----------- ---------- ----------- ----------- Balance at end of period $ 10,465,721 10,075,315 10,465,721 10,075,315 =========== ========== ========== ========== </TABLE> 7
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets, as well as operating data and ratios, for the periods indicated (unaudited): <TABLE> <CAPTION> Three months Nine months ended December 31, ended December 31, ------------------ -------------------- 1999 1998 1999 1998 ---- ---- ---- ---- (Dollars in thousands) <S> <C> <C> <C> <C> Average gross loans receivable (1) $ 169,244 150,585 161,532 141,326 Average loans receivable (2) 130,663 116,578 124,930 109,938 Expenses as a % of total revenue: Provision for loan losses 20.6% 17.9% 17.1% 14.7% General and administrative (3) 59.0% 63.0% 59.8% 73.4% Total interest expense 5.9% 6.1% 5.7% 6.2% Operating margin (4) 20.4% 19.1% 23.1% 11.9% Return on average assets (annualized) 6.8% 6.1% 8.1% 2.6% Offices opened or acquired, net 5 9 25 23 Total offices (at period end) 404 383 404 383 </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) Includes $5.4 million charge for a legal settlement for the nine-month period ended December 31, 1998. Excluding this one time charge, the ratio would have been 65.3% for the nine-month period. (4) Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses, as a percentage of total revenues. Excluding the $5.4 million charge for the legal settlement, the operating margin for the nine-month period ended December 31, 1998 would have been 20.1%. Comparison of Three Months Ended December 31, 1999, Versus Three Months Ended December 31, 1998 Net income amounted to $2.6 million for the three months ended December 31, 1999, a 25.9% increase over the $2.1 million earned during the corresponding three-month period of the previous year. This increase resulted from an increase in operating income (revenues less provision for loan losses and general and administrative expenses) of $943,000 , or 20.7% offset by an increase in interest expense and income taxes. Interest and fee income for the quarter ended December 31, 1999, increased by $1.9 million, or 9.2%, over the same period of the prior year. This increase resulted primarily from the $14.1 million increase, or 12.1%, in average loans receivables over the two corresponding periods. The increase in interest and fees was slightly less than the increase in average balances outstanding due to a slight reduction in the overall yield in the loan portfolio, which was due to lower interest rates charged on larger loans made in select offices of the Company. Insurance commissions and other income increased by $1.2 million, or 38.6%, when comparing the two quarterly periods. Insurance commissions increased by $678,000, or 46.0%, primarily due to the growth in the larger loan portfolio, which generally has various credit related insurance products offered in conjunction with these loans. Other income increased by 31.7% primarily as a result of improved performance from the ParaData subsidiary, whose gross profit increased from $483,000 for the quarter ended December 31, 1998, to $914,000 during the most recent quarter. 8
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Total revenues rose to $26.9 million during the quarter ended December 31, 1999, a 13.0% increase over the $23.8 million in total revenues for the same quarter of the prior year. Revenues from the 346 offices open throughout both three-month periods increased by approximately 6.2%. At December 31, 1999, the Company had 404 offices in operation, a net increase of 5 offices during the current quarter, and 25 offices since the beginning of the fiscal year. The provision for loan losses amounted to $5.5 million during the quarter ended December 31, 1999, representing a 30.0% increase over the $4.3 million during the same quarter of the prior fiscal year. The increase resulted primarily from increased levels of net loans charged off. During the quarter ended December 31, 1999, net charge-offs as a percentage of average net loans increased to 14.4% on an annualized basis from 10.7% from the corresponding quarter of the prior year. Although the Company's management remains concerned over the rise in the level of charge-offs and continues to focus on strict adherence to the Company's lending and collection guidelines and policies by all branch personnel, there can be no assurance that this trend will not continue, or that earnings will not be negatively affected as a result in future quarters. General and administrative expenses for the quarter ended December 31, 1999, increased by $873,000, or 5.8%, over the same quarter of fiscal 1999. This increase resulted primarily from the additional expenses associated with the 29 new offices opened or acquired between December 31, 1998, and December 31, 1999. During the same 12-month period, the Company has also sold or merged 8 offices with other existing offices. These were offices that had not grown as expected to a profitable size within a reasonable period of time. As a percentage of total revenues, total general and administrative expenses decreased from 63.0% for the quarter ended December 31, 1998, to 59.0% for the most recent quarter. Additionally, excluding the expenses associated with ParaData, overall general and administrative expenses when divided by the average open offices decreased by .3% when comparing the two periods. Interest expense increased by $127,000, or 8.7%, when comparing the two corresponding quarterly periods. This increase resulted from an increase in the level of debt, which grew from $83.6 million at December 31, 1998, to $90.7 million at December 31, 1999. Comparison of Nine Months Ended December 31, 1999, Versus Nine Months Ended December 31, 1998 For the nine-month period ended December 31, 1999, net income amounted to $8.8 million. The results for the prior year period were greatly affected by an accrual for legal expenses resulting from a settlement of certain litigation (see Legal Proceedings). Excluding the effects of this $5.4 million legal settlement and related income tax benefit, net income amounted to $6.0 million for the nine-month period ended December 31, 1998. This represents a $2.8 million, or 47.0% increase over the two corresponding nine-month periods. Operating income, excluding the prior year legal settlement, increased by $4.4 million, or 33.3%, over the two periods. This increase was offset by increases in both interest expense and income taxes. Total revenues amounted to $76.8 million during the current nine-month period, an increase of $10.5 million, or 15.9%, over the prior-year period. This increase resulted from an increase in interest and fee income of 10.6% combined with an increase in insurance and other income of 55.8%. Revenues from the 346 offices open throughout both nine-month periods increased approximately 9.3%. Interest and fee income rose by $6.2 million, or 10.6%, during the two corresponding nine-month periods primarily as a result of increases in loan balances outstanding. Average loans receivable were $124.9 million during the nine months ended December 31, 1999, representing a 13.6% increase over the average balances of the prior year. Other income increased by 55.8% due to increased insurance commissions, as well as increased gross profits from ParaData ($1.7 million or 123%). The provision for loan losses increased by $3.4 million, or 35.1%, during the current nine-month period when compared to the same period of fiscal 1999. This increase is due primarily to the increased level of loan charge-offs experienced during recent quarters. As a percentage of average loans receivable, net charge-offs on an annualized basis increased from 9.7% for the nine-months ended December 31, 1998 to 12.3% for the most recent nine-month period. Addressing this rise in loan losses remain a high priority within the Company, but should this trend continue, earnings will be adversely affected in future quarters. 9
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED General and administrative expenses, excluding the legal settlement from the prior year period, increased by $2.7 million, or 6.2%, during the most recent nine-month period. As a percentage of total revenues, these expenses decreased from 65.3% during the prior year nine-month period to 59.8% during the current period. The Company's expense ratios have benefited from the merger or sale of eight unprofitable offices during the year, as well as excellent same office revenue growth during the current fiscal year. Excluding the expenses associated with ParaData, overall general and administrative expenses, when divided by the average open offices, increased by only .1% when comparing the two nine-month periods. Interest expense increased by $318,000 when comparing the two nine-month periods, an increase of 7.8%. This increase reflects the 8.5% increase in the level of debt outstanding when comparing the two December period ending dates. The effective income tax rate increased slightly during the current nine-month period to 34.1% from 33.8% for the prior year period primarily as a result of the legal settlement in the prior period. Liquidity and Capital Resources The Company's primary sources of funds are cash flow from operations and borrowings under its revolving credit agreement. The Company's primary ongoing cash requirements are funding the opening and operation of new offices, funding overall growth of loans outstanding (including acquisitions), the repurchase of its common stock and the repayment of existing debt. The Company has a $85.0 million revolving credit agreement, and $10.0 million of subordinated notes. The revolving credit facility expires on September 30, 2001, and bears interest, at the Company's option, at the agent's prime rate or LIBOR plus 1.60%. At December 31, 1999, the interest rate under the facility was 8.03%, and the Company's outstanding balance was $80.25 million, leaving $4.75 million in borrowing availability under existing borrowing base limitations (based on eligible loans receivable). The subordinated notes provide for interest payments to be made quarterly at a fixed rate of 10.0%. Annual principal payments of $2.0 million will be due beginning June 1, 2000, with a final maturity date of June 1, 2004. Borrowings under the revolving credit agreement, the senior term notes, and the subordinated notes are secured by a lien on substantially all the tangible and intangible assets of the Company and its subsidiaries pursuant to various security agreements. The Company believes that cash flow from operations and borrowings under its revolving credit facility will be adequate to fund the principal payments due under the subordinated notes and to fund any anticipated common stock repurchases, as well as funding the expected costs of opening and operating new offices, including funding initial operating losses of new offices, and funding loans receivable originated by those offices and the Company's other offices. Inflation The Company does not believe that inflation has a material adverse effect on its financial condition or results of operations. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. While increases in operating costs would adversely affect the Company's operations, the consumer lending laws of three of the six states in which the Company currently operates allow indexing of maximum loan amounts to the Consumer Price Index. These provisions will allow the Company to make larger loans at existing interest rates, which could partially offset the effect of inflationary increases in operating costs. 10
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Quarterly Information and Seasonality The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand occurs each year from October through December, its third fiscal quarter. Loan demand is generally the lowest and loan repayment is highest from January to March, its fourth fiscal quarter. Loan volume and average balances remain relatively level during the remainder of the year. This seasonal trend causes fluctuations in the Company's cash needs and quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned, since unearned interest and insurance income are accreted to income on a collection method. Consequently, operating results for the Company's third fiscal quarter are significantly lower than in other quarters and operating results for its fourth fiscal quarter are generally higher than in other quarters. 11
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Forward-Looking Information This report on Form 10-Q, 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 described below in "Legal Proceedings," 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 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 unpredictable nature of litigation; and other matters discussed in this Report and the Company's other filings with the Securities and Exchange Commission. The Company is a party to certain legal proceedings. See Part II, Item 1. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's outstanding debt under its revolving credit facility was $80.25 million at December 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 December 31, 1999, a change of 1% in the interest rate would cause a change in interest expense of approximately $802,500 on an annual basis. 12
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. 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 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 this action entered into a settlement agreement (the "Settlement"). Pursuant to the Settlement, the Company agreed to settle all claims alleged in the litigation involving it and its subsidiaries for an aggregate cash payment of $5 million, which was funded in the fourth quarter of fiscal 1999. In addition, the terms of the Settlement will curtail certain non-filing practices by the Company and its subsidiaries and allows 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, which includes the settlement by several other defendants in the litigation, including the Company's insurer, was approved by the court on July 16, 1999, as fair and reasonable to the plaintiff class. The Company is named as a defendant in an action, TURNER V. WORLD ACCEPTANCE CORP. ET. AL., filed May 20, 1997, in the Fourteenth Judicial District, Tulsa County, Oklahoma (CJ-97-1921), hereinafter referred to as the "Tulsa Case." The Company is also a co-plaintiff in an action, INDEPENDENT FINANCE INSTITUTE, ET. AL., filed February 27, 1997, in the District Court of Oklahoma County, Oklahoma (CJ-97-1394) hereinafter referred to as the "Administrator's Case." The Tulsa Case challenges the validity of the Oklahoma Consumer Credit Code (OCCC) provisions under which the Company operates and alleges that the Company and other consumer finance defendants have collected excess finance charges in connection with refinanced loans. In the Administrator's Case, the Company and other members of the consumer finance industry sought a declaratory judgement invalidating and enjoining the application of an opinion by the Oklahoma Attorney General regarding consumer loan refinancing under the OCCC. Summary judgement favorable to the Company was issued in both cases and both cases were appealed to the Oklahoma Supreme Court. While the cases were pending in the lower courts, the Oklahoma Legislature enacted legislation, effective August 29, 1999, which validates the prior practices followed by the Company and which should eliminate challenges to the Company's practice from that point forward. On May 11, 1999, the Oklahoma Supreme Court issued an opinion in the Administrator's Case reversing the summary judgement issued by the trial court. That opinion included language regarding the decision's retroactive applicability that, if allowed to stand, could have resulted in extremely adverse consequences in the Tulsa Case. The Company and other consumer finance companies sought relief by way of reconsideration from the Oklahoma Supreme Court and, on November 4, 1999, that Court issued its Order modifying favorably to the Company that portion of the Court's original decision that related to its retroactive application. The decision in the Administrator's case, as now modified, limits its applicability to the period from March 3, 1999, through August 29, 1999. The appeal from the Tulsa case remains pending before the Oklahoma Supreme Court. Because of these recent developments, the Company expects that, even if the appeal in the Tulsa Case is decided adversely, the results, although possibly including a material monetary award, would not materially affect the Company's financing practices in Oklahoma. The Company intends to continue to defend itself vigorously in the Tulsa Case. From time to time the Company is involved in other routine litigation relating to claims arising out of its operations in the normal course of business. The Company believes that it is not presently a party to any such other pending legal proceedings that would have a material adverse effect on its financial condition. Item 2. Changes in Securities The Company's credit agreements contain certain restrictions on the payment of cash dividends on its capital stock. 13
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION, CONTINUED Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: <TABLE> <CAPTION> Filed Herewith (*) or Previous Company Exhibit Exhibit Registration Number Description 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 3.2 1995 10-K of Incorporation 3.3 Amended Bylaws of the Company 3.4 33-42879 4.1 Specimen Share Certificate 4.1 33-42879 4.2 Articles 3, 4 and 5 of the Form of Company's Second 3.1, 3.2 1995 10-K Amended and Restated Articles of Incorporation (as amended) 4.3 Article II, Section 9 of the Company's Second Amended 3.2 1995 10-K and Restated Bylaws 4.4 Amended and Restated Revolving Credit Agreement, dated as 4.4 9-30-97 10-Q of June 30, 1997, between Harris Trust and Savings Bank, the Banks signatory thereto from time to time and the Company 4.5 Amended and Restated Note Agreement, dated as of June 30, 1997, 4.5 9-30-97 10-Q between Jefferson-Pilot Life Insurance Company and the Company 4.6# Amended and Restated Note Agreement, dated as of June 30, 1997, 4.6 9-30-97 10-Q between Principal Mutual Life Insurance Company and the Company 4.7 Note Agreement, dated as of June 30, 1997, between Principal 4.7 9-30-97 10-Q Mutual Life Insurance Company and the Company re: 10% Senior Subordinated Secured Notes 4.8 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97 10-Q of Trust, dated as of June 30, 1997, between the Company and Harris Trust and Savings Bank, as Security Trustee 10.1 Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K 1994 10.2 Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K April 1, 1994 10.3 Employment Agreement of Douglas R. Jones, effective August * 16, 1999 10.4 Settlement Agreement dated as of April 1, 1999, between the 10.3 1999 10-K Company and R. Harold Owens, 14
10.5 Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879 between the Company and certain of its securityholders 10.6 1992 Stock Option Plan of the Company 4 33-52166 10.7 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K 10.8 The Company's Executive Incentive Plan 10.6 1994 10-K 27 Financial Data Schedule (for SEC purposes only) </TABLE> # Omitted from filing -- substantially identical to immediately preceding exhibits, except for the parties thereto and the principal amount involved. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended December 31, 1999. 15
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WORLD ACCEPTANCE CORPORATION Dated: February 9, 2000 /s/ C. D. Walters --------------------- C. D. Walters, Chief Executive Officer Dated: February 9, 2000 /s/ A. A. McLean III ------------------------ A. A. McLean III, Executive Vice President and Chief Financial Officer 16