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 September 30, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT of 1934 For the transition period from ____________________ to ________________________ Commission File Number: 0-19599 WORLD ACCEPTANCE CORPORATION ------------------------------------------------------- (Exact name of registrant as specified in its charter.) South Carolina 57-0425114 -------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 108 Frederick Street Greenville, South Carolina 29607 ----------------------------------------- (Address of principal executive offices) (Zip Code) (864) 298-9800 ------------------ (registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No ------ ------ Indicate the number of shares outstanding of each of issuer's classes of common stock, as of the latest practicable date, November 13, 1997. Common Stock, no par value 18,955,573 - ------------------------------ ----------------- (Class) (Outstanding) This Filing contains 16 pages. The Exhibit Index is on page 14.
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 September 30, 1997, and March 31, 1997 3 Consolidated Statements of Operations for the three-month periods and six-month periods ended September 30, 1997, and September 30, 1996 4 Consolidated Statements of Shareholders' Equity for the year ended March 31, 1997, and the six-month period ended September 30, 1997 5 Consolidated Statements of Cash Flows for the three-month periods and six-month periods ended September 30, 1997, and September 30, 1996 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the three-month periods and six-month periods ended September 30, 1997, and September 30, 1996 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 4. Submission of Matters to a Vote of Securityholders 12 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 16 </TABLE> 2
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) <TABLE> <CAPTION> September 30, March 31, 1997 1997 ------------------- -------------------- <S> <C> <C> ASSETS Cash $ 2,283,172 1,486,073 Gross loans receivable 125,929,613 113,439,027 Less: Unearned interest and fees (27,111,223) (23,899,194) Allowance for loan losses (7,526,452) (6,283,459) -------------- -------------- Loans receivable, net 91,291,938 83,256,374 Property and equipment, net 6,713,464 6,102,125 Other assets, net 4,027,419 2,201,757 Intangible assets, net 9,408,176 9,117,033 ------------ ------------- $ 113,724,169 102,163,362 ============ ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Senior notes payable 67,850,000 58,200,000 Other note payable 482,000 482,000 Accounts payable and accrued expenses 3,230,493 4,517,899 ---------- ------------- Total liabilities 71,562,493 63,199,899 ------------ ------------- Shareholders' equity: Common stock, no par value - - Additional paid-in capital 704,213 625,592 Retained earnings 41,457,463 38,337,871 ------------ ------------- Total shareholders' equity 42,161,676 38,963,463 ------------ ------------ $ 113,724,169 102,163,362 ============ ============= </TABLE> See accompanying notes to consolidated financial statements. 3
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> Three months ended Six months ended September 30, September 30, ------------------------------- --------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Interest and fee income $ 18,072,484 16,139,302 35,103,194 31,438,083 Insurance and other income 2,061,042 1,855,274 4,013,963 3,862,959 ------------ ------------- ------------ ------------- Total revenues 20,133,526 17,994,576 39,117,157 35,301,042 ------------ ------------- ------------ ------------- Expenses: Provision for loan losses 3,697,967 3,027,989 6,393,620 5,273,654 ------------ ------------- ------------ ------------- General and administrative expenses: Personnel 7,839,340 6,756,704 15,808,700 13,562,690 Occupancy and equipment 1,631,073 1,288,542 3,051,372 2,496,150 Data processing 303,639 259,896 599,701 520,961 Advertising 799,801 495,472 1,512,283 1,083,708 Amortization of intangible assets 300,320 697,298 785,793 1,390,741 Other 1,969,101 1,500,250 3,709,214 2,951,248 ------------ ------------- ------------ ------------- 12,843,274 10,998,162 25,467,063 22,005,498 ------------ ------------- ------------ ------------- Interest expense 1,383,406 996,850 2,564,882 1,876,374 ------------ ------------- ------------ ------------- Total expenses 17,924,647 15,023,001 34,425,565 29,155,526 ------------ ------------- ------------ ------------- Income before income taxes 2,208,879 2,971,575 4,691,592 6,145,516 Income taxes 740,000 1,041,000 1,572,000 2,151,000 ------------ ------------- ------------ ------------- Net income $ 1,468,879 1,930,575 3,119,592 3,994,516 ============ ============= ============ ============= Earnings per common share: Primary $ .08 .10 .16 .20 ============ ============= ============ ============= Fully diluted $ .08 .10 .16 .20 ============ ============= ============ ============= Weighted average common shares outstanding: Primary 19,202,676 20,084,688 19,176,115 20,448,466 ============ ============= ============ ============= Fully diluted 19,202,722 20,084,688 19,196,009 20,448,466 ============ ============= ============ ============= </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, 1996 $ 14,625,136 30,254,532 44,879,668 Proceeds from exercise of stock options (60,000 shares), including tax benefits of $66,469 259,294 - 259,294 Common stock repurchases (1,810,000 shares) (14,258,838) - (14,258,838) Net income for the year - 8,083,339 8,083,339 ----------- ------------ ----------- Balances at March 31, 1997 625,592 38,337,871 38,963,463 Proceeds from exercise of stock options (19,000 shares), including tax benefit of $23,204 78,621 - 78,621 Net income for the six months - 3,119,592 3,119,592 ----------- ------------ ----------- Balances at September 30, 1997 $ 704,213 41,457,463 42,161,676 =========== ========== ========== </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 Six months ended September 30, September 30, ------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Cash flows from operating activities: Net income $ 1,468,879 1,930,575 3,119,592 3,994,516 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,697,967 3,027,989 6,393,620 5,273,654 Amortization of intangible assets 300,320 697,298 785,793 1,390,741 Amortization of loan costs and discounts 31,258 8,210 57,468 16,420 Depreciation 363,649 328,244 718,271 643,434 Change in accounts: Other assets, net (1,953,420) 156,688 (1,883,130) (404,612) Accounts payable and accrued expenses 683,769 (933,367) (1,264,202) (1,771,428) ----------- ------------ ------------ ------------ Net cash provided by operating activities 4,592,422 5,215,637 7,927,412 9,142,725 ----------- ----------- ----------- ----------- Cash flows from investing activities: Increase in loans, net (5,844,123) (5,135,788) (9,406,632) (9,393,170) Net assets acquired from office acquisitions, primarily loans (4,730,288) (409,021) (5,037,552) (847,941) Purchases of premises and equipment (813,160) (238,746) (1,314,610) (1,036,536) Purchases of intangible assets (939,936) (245,999) (1,076,936) (644,333) ----------- ----------- ----------- ----------- Net cash used by investing activities (12,327,507) (6,029,554) (16,835,730) (11,921,980) ----------- ----------- ------------ ----------- Cash flows from financing activities: Proceeds (repayment) of senior notes payable, net (2,250,000) 4,100,000 (350,000) 12,850,000 Proceeds from senior subordinated notes 10,000,000 - 10,000,000 - Proceeds from exercise of stock options 17,500 - 55,417 4,380 Repurchase of common stock - (3,158,798) - (10,210,708) ----------- ------------ ------------ ------------- Net cash provided by financing activities 7,767,500 941,202 9,705,417 2,643,672 ----------- ----------- ----------- ----------- Increase (decrease) in cash 32,415 127,285 797,099 (135,583) Cash, beginning of period 2,250,757 1,430,879 1,486,073 1,693,747 ----------- ----------- ----------- ----------- Cash, end of period $ 2,283,172 1,558,164 2,283,172 1,558,164 =========== =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest expense $ 899,903 544,200 2,363,686 1,708,161 Cash paid for income taxes 1,979,435 2,770,303 3,678,770 4,260,921 Supplemental schedule of noncash financing activities: Tax benefits from exercise of stock options 7,786 - 23,204 3,451 </TABLE> See accompanying notes to consolidated financial statements. 6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of the Company at September 30, 1997, and for the periods then ended were prepared in accordance with the instructions for Form 10-Q and are unaudited; however, in the opinion of management, all adjustments (consisting only of items of a normal recurring nature) necessary for a fair presentation of the financial position at September 30, 1997, and the results of operations and cash flows for the period then ended, have been included. The results for the periods ended September 30, 1997, are not necessarily indicative of the results that may be expected for the full year or any other interim period. These consolidated financial statements do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the Company's audited financial statements and related notes for the year ended March 31, 1997, included in the Company's 1997 Annual Report to Shareholders. NOTE 2 - ALLOWANCE FOR LOAN LOSSES The following is a summary of the changes in the allowance for loan losses for the periods indicated (unaudited): <TABLE> <CAPTION> Three months Six months ended September 30, ended September 30, ------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- <S> <C> <C> <C> <C> Balance at beginning of period $ 6,433,534 5,230,171 6,283,459 5,006,703 Provision for loan losses 3,697,967 3,027,989 6,393,620 5,273,654 Loan losses (3,653,615) (3,024,344) (6,468,264) (5,259,719) Recoveries 245,802 199,822 498,829 388,946 Allowance on acquired loans 802,764 23,123 818,808 47,177 ----------- ---------- ---------- ---------- Balance at end of period $ 7,526,452 5,456,761 7,526,452 5,456,761 =========== ========= ========== ========= </TABLE> NOTE 3 - PARADATA FINANCIAL SYSTEMS (PARADATA) The following data for ParaData was included in the Consolidated Statements of Operations for the periods ended September 30, 1997 and 1996 (unaudited): <TABLE> <CAPTION> Three Months Ended Six Months Ended September 30, September 30, -------------------------- -------------------- 1997 1996 1997 1996 --------- -------- --------- ------ <S> <C> <C> <C> <C> Sales and system-support $ 463,486 431,925 870,855 938,024 Cost of sales 75,819 90,285 163,832 216,957 ---------- ---------- ---------- ---------- Net margin (included in other income) 387,667 341,640 707,023 721,067 ---------- ---------- ---------- ---------- General and administrative expenses Personnel 253,425 250,465 469,285 526,053 Occupancy and equipment 69,011 68,024 135,272 133,759 Advertising 2,575 (1,029) 2,825 3,042 Amortization of intangibles 7,189 7,189 14,378 14,378 Other 38,708 41,921 78,478 91,198 --------- -------- --------- -------- 370,908 366,570 700,238 768,430 Net income (loss) before income taxes $ 16,759 (24,930) 6,785 (47,363) ========= ======== ========= ======== </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 Six months ended September 30, ended September 30, ------------------- ------------------- 1997 1996 1997 1996 ---- ---- ---- ---- (Dollars in thousands) <S> <C> <C> <C> <C> Average gross loans receivable (1) $ 121,206 106,173 118,042 103,943 Average loans receivable (2) 90,086 83,175 91,811 81,682 Expenses as a % of total revenue: Provision for loan losses 18.4% 16.8% 16.3% 14.9% General and administrative 63.8% 61.1% 65.1% 62.3% Total interest expense 6.9% 5.5% 6.6% 5.3% Operating margin (3) 17.8% 22.1% 18.6% 22.7% Return on average assets (annualized) 5.4% 8.3% 5.9% 8.7% Offices opened or acquired, net 11 9 24 24 Total offices (at period end) 360 306 360 306 </TABLE> (1) Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period. (2) Average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period. (3) Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses, as a percentage of total revenues. Comparison of Three Months Ended September 30, 1997, Versus Three Months Ended September 30, 1996 Net income amounted to $1,469,000 for the three months ended September 30, 1997, a 23.9% decrease from the $1,931,000 earned during the corresponding three-month period of the previous year. This decrease resulted from a decrease in operating income (revenues less provision for loan losses and general and administrative expenses) of approximately $376,000, or 9.5%, combined with an increase in interest expense and offset by a decrease in income taxes. Interest and fee income for the quarter ended September 30, 1997, increased by $1,933,000, or 12.0%, over the same period of the prior year. This increase resulted primarily from the $10.9 million increase, or 13.1%, in average loans receivables over the two corresponding periods. The increase in interest and fees was less than the increase in average balances outstanding due to a slight reduction in the overall yield in the loan portfolio. This reduction is due to lower interest rates charged on larger loans being made in select offices of the Company. Insurance commissions and other income increased by $206,000, or 11.1%, when comparing the two quarterly periods. Insurance commissions increased by 8.0%, tracking the growth in loans in those states that allow the sale of credit insurance. Other income increased by $111,000, or 16.4%, primarily from increased gross profit from both our ParaData subsidiary, as well as our World Class Buying Club (WCBC) electronic sales. 8
9 WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Comparison of Three Months Ended September 30, 1997, Versus Three Months Ended September 30, 1996, continued Total revenues amounted to $20.1 million during the quarter ended September 30, 1997, representing an 11.9% increase over the $18.0 million in total revenues for the same quarter of the prior year. Revenues from the 273 offices open throughout both three-month periods decreased by approximately 3.9%. At September 30, 1997, the Company had 360 offices in operation, an increase of 10 offices during the current quarter, and 24 offices since the beginning of the fiscal year. The provision for loan losses amounted to $3,698,000 during the quarter ended September 30, 1997, representing a 22.1% increase over the $3,028,000 during the same quarter of fiscal 1997. This increase resulted from an increase in the general allowance for loan losses, as well as an increase in loan losses. Net charge-offs, during the quarter, increased by $606,000, or 21.6%, and as an annualized percentage of average loans increased from 13.5% for the quarter ended September 30, 1996, to 14.5% for the most recent quarter. The Company has seen increased levels of loan losses for the last several quarters, and management continues to focus attention to reversing this recent trend. Until delinquencies and charge-offs return to historical levels, the results of operations of the Company's small loan business will continue to be negatively affected. General and administrative expenses for the quarter ended September 30, 1997, increased by $1,845,000, or 16.8%, over the same quarter of fiscal 1996. This increase resulted primarily from the additional expenses associated with the 54 net new offices opened or acquired between September 30, 1996, and September 30, 1997. The Company has also sold or merged with other existing offices, 19 offices during the same 12 month period. These were offices that had not grown as expected to a profitable size within a reasonable period of time. Excluding the expenses associated with ParaData, overall general and administrative expenses when divided by the average open offices remained level when comparing the two periods. During the current quarter, the Company benefited from reduced intangible amortization as a result of a large intangible asset relating to the 1989 leveraged buyout becoming fully amortized in May 1997. However, excluding both the expenses relating to ParaData, as well as intangible amortization overall, general and administrative expenses when divided by average opened offices increased by only 4.3%. Interest expense increased by $387,000, or 38.8%, when comparing the two corresponding quarterly periods. This increase resulted primarily from the increased level of debt, which has grown from $50.6 million at September 30, 1996, to $67.9 million at September 30, 1997. This increase in outstanding debt resulted from the funding of $4.0 million in common stock repurchases in October 1996, and the funding of several acquisitions completed during the past year. The effective income tax rate decreased to 33.5% during the quarter ended September 30, 1997, from 35.0% during the prior year quarter. The current 33.5% reflects a more accurate annualized rate than the prior year quarter. The actual tax rate for fiscal 1997 was 32.8%. Comparison of Six Months Ended September 30, 1997, Versus Six Months Ended September 30, 1996 For the six-month period ended September 30, 1997, net income amounted to $3.1 million, a decrease of $875,000, or 21.9%, from the corresponding six-month period of the prior year. Operating income decreased by $765,000, or 9.5%, over the two periods. This decrease combined with an increase in interest expense was offset by a decrease in income taxes. Total revenues amounted to $39.1 million during the current six-month period, an increase of $3.8 million, or 10.8%, over the prior-year period. This increase resulted from an increase in interest and fee income of 11.7% combined with an increase in insurance and other income of 3.9%. Revenues from the 273 offices open throughout both six-month periods decreased approximately 3.9%. 9
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Comparison of Six Months Ended September 30, 1997, Versus Six Months Ended September 30, 1996, continued Interest and fee income rose by $3.7 million, or 11.7%, during the two corresponding six-month periods primarily as a result of increases in loan balances outstanding. Average loans receivable were $91.8 million during the six months ended September 30, 1997, representing a 12.4% increase over the average balances of the prior year. Other income increased by 3.9% due to increased insurance commissions, as well as increased gross profit from WCBC sales. The provision for loan losses increased by $1,120,000, or 21.2%, during the current six-month period when compared to the same period of fiscal 1997. This increase resulted in an increase in the general reserve for loan losses which is a function of gross loans outstanding, as well as an increase in loan losses. Net charge-offs increased by $1,099,000, or 22.6%, when comparing the two six-month periods. As an annualized percentage of average loans, this represented an increase to 13.0% during the current six-month period compared to 11.9% for the same period of the prior fiscal year. General and administrative expenses increased by $3,462,000, or 15.7%, during the most recent six-month period. As a percentage of total revenues, these expenses increased from 62.3% during the prior year six-month period to 65.1% during the current period. This increase resulted from the 54 net new offices opened or acquired during the past year. Excluding the expenses associated with ParaData, overall general and administrative expenses, when divided by the average open offices, decreased by 1.0% when comparing the two six-month periods. Interest expense increased by approximately $689,000 during the current six-month period as a result of the increase in the level of debt outstanding primarily due to the funds used to repurchase the Company's common stock and complete several key acquisitions during the previous 12 months. The effective income tax rate decreased to 33.5% during the six months ended September 30, 1997, from 35.0% for the same period ended September 30, 1996, which reflects a more accurate annualized income tax rate. Liquidity and Capital Resources The Company's primary sources of funds are cash flow from operations and borrowings under its revolving credit agreement. The Company's primary ongoing cash requirements are funding the opening and operation of new offices, the overall growth of loans outstanding and the repayment of existing debt. The Company has a $65.0 million revolving credit agreement, $12.0 million of senior term notes, and $10.0 million of subordinated notes. The revolving credit facility expires on September 30, 1999, and bears interest, at the Company's option, at the agent's prime rate or LIBOR plus 1.60%. At September 30, 1997, the interest rate under the facility was 7.33%, and the Company's outstanding balance was $45.9 million, leaving $19.1 million in borrowing availability under existing borrowing base limitations (based on eligible loans receivable). The senior term notes provide for interest payments to be made semi-annually at a fixed rate of 8.5% with annual principal payments of $4.0 million to be made each year (the next payment being due on December 1, 1997). The subordinated notes provide for interest payments to be made quarterly at a fixed rate of 10.0%. Annual principal payments of $2.0 million will be due beginning June 1, 19999, with a final maturity date of June 1, 2004. Borrowings under the revolving credit agreement, the senior term notes, and the subordinated notes are secured by a lien on substantially all the tangible and intangible assets of the Company and its subsidiaries pursuant to various security agreements. The Company believes that cash flow from operations and borrowings under its revolving credit facility will be adequate to fund the principal payment due under the term notes as well as fund the expected costs of opening and operating new offices, including funding initial operating losses of new offices, and funding loans receivable originated by those offices and the Company's other offices. 10
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Inflation The Company does not believe that inflation has a material adverse effect on its financial condition or results of operations. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. While increases in operating costs would adversely affect the Company's operations, the consumer lending laws of three of the six states in which the Company currently operates allow indexing of maximum loan amounts to the Consumer Price Index. These provisions will allow the Company to make larger loans at existing interest rates, which could offset the effect of inflationary increases in operating costs. Quarterly Information and Seasonality The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand occurs each year from October through December, its third fiscal quarter. Loan demand is generally the lowest and loan repayment is highest from January to March, its fourth fiscal quarter. Loan volume and average balances remain relatively level during the remainder of the year. This seasonal trend causes fluctuations in the Company's cash needs and quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned, since unearned interest and insurance income are accreted to income on a collection method. Consequently, operating results for the Company's third fiscal quarter are significantly lower than in other quarters and operating results for its fourth fiscal quarter are generally higher than in other quarters. Legal Proceedings The Company is a party to certain legal proceedings. See Part II, Item 1. 11
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company and its Georgia subsidiary are named as co-defendants with a number of other finance companies, jewelry and furniture retailers, and insurance companies in a consolidated action, currently pending in U.S. District Court in Alabama under the caption In re Consolidated "Non-filing Insurance" Fee Litigation (Multidistrict Litigation Docket No. 1130, U. S. District Court, Middle District of Alabama, Northern Division). The consolidated action involves the defendants' non-file insurance practices. The complaint alleges, among other things, that the defendants' non-file insurance coverages do not constitute true insurance, and that the defendants' practices with respect to non-file insurance constitute alleged federal truth-in-lending, RICO and antitrust violations. The complaint seeks certification of a nationwide class and seeks to recover money damages and injunctive relief. The complaint was filed on April 18, 1995, the Company has filed an answer and the parties are in the discovery process. The Company has been advised that certain of the defendants in the case have agreed to settle the claims made against them by paying money damages to the plaintiffs. The Company has also been advised that certain of the settling defendants have agreed to change their non-file insurance practices. If the Company's non-file insurance practices are found to be improper, the Company could be required to refund non-file insurance fees, pay other significant damages to the plaintiffs, and change its non-file insurance practices going forward and, as a result, the Company could experience a reduction in future income. The Company has been named as a defendant in an action, Turner v. World Acceptance Corp. pending in District Court for the Fourteenth Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921). The action was commenced against the company on May 20, 1997, names numerous other consumer finance companies as defendants, and seeks certification as a statewide class action. The action alleges that World and other consumer finance defendants collected excess finance charges in connection with refinancing certain consumer loans in Oklahoma and seeks money damages and an injunction against further collection of such charges. The Company has filed an answer in the action denying liability, and discovery has not commenced. The plaintiff's claim is based on a recent opinion of the Oklahoma Attorney General interpreting a provision of the Oklahoma Consumer Credit Code with respect to the permitted amount of certain loan refinance charges in a manner contrary to prior regulatory practice in Oklahoma. Enforcement of the Oklahoma Attorney General's opinion has been enjoined, and such action is currently pending before the Oklahoma Supreme Court. In addition, the State of Oklahoma has recently enacted legislation to clarify the interpretation of the disputed provision of the Oklahoma Consumer Credit Code consistent with prior regulatory practice. World intends to vigorously defend this action. From time to time the Company is involved in other routine litigation relating to claims arising out of its operations in the normal course of business. The Company believes that it is not presently a party to any such other pending legal proceedings that would have a material adverse effect on its financial condition. Any statement of management's expectation with respect to litigation may be deemed a forward-looking statement, within the meaning of Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and no assurance can be given that management's expectation will prove correct, as such expectation is subject to certain risks, uncertaintities and assumptions based on the preliminary nature of the actions and the vagaries of litigation generally. Should one or more of these risks materialize or should underlying assumptions prove incorrect, the actual outcome of this litigation could differ materially from management's expectation. Item 2. Changes in Securities None. The Company's credit agreements contain certain restrictions on the payment of cash dividends on its capital stock. 12
Item 4. Submission of Matters to a Vote of Securityholders (a) The 1997 Annual Meeting of Shareholders was held on August 6, 1997. (b) Pursuant to Instruction 3 to Item 4, this paragraph need not be answered. (c) At the 1997 Annual Meeting of Shareholders, the following two matters were voted upon and passed. The tabulation of votes was: (1) The election of seven Directors to serve until the 1997 Annual Meeting of Shareholders: <TABLE> <CAPTION> VOTES IN FAVOR WITHHOLD AUTHORITY* -------------- ------------------- IN PERSON AS PROXY IN PERSON AS PROXY --------- -------- --------- -------- <S> <C> <C> <C> <C> Ken R. Bramlett, Jr. 15,452,371 292,375 -------------- ------------ ------------- ----------- James R. Gilreath 15,452,371 292,375 -------------- ------------ ------------- ----------- William S. Hummers III 15,418,771 325,975 -------------- ------------- ------------- ----------- A. Alexander McLean III 15,452,371 292,375 -------------- ------------ ------------- ----------- R. Harold Owens 15,452,271 292,475 -------------- ------------ ------------- ----------- Charles D. Walters 15,450,371 294,375 -------------- ------------ ------------- ----------- Charles D. Way 15,452,371 292,375 -------------- ------------ ------------- ----------- </TABLE> (2) The ratification of the selection of KPMG Peat Marwick as Independent Auditors: <TABLE> <CAPTION> VOTES IN FAVOR VOTES AGAINST ABSTENTIONS* -------------- ------------- ------------ IN PERSON AS PROXY IN PERSON AS PROXY IN PERSON AS PROXY --------- -------- --------- -------- --------- -------- <S> <C> <C> <C> <C> <C> <C> 15,717,110 22,700 4,936 ------------- ------------- -------------- ------------- ------------- ----------- </TABLE> *There were no broker non votes on these routine items. 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 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 * 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, * between Jefferson-Pilot Life Insurance Company and the Company 4.6# Amended and Restated Note Agreement, dated as of June 30, 1997, between Principal Mutual Life Insurance Company and the Company 4.7 Note Agreement, dated as of June 30, 1997, between Principal * Mutual Life Insurance Company and the Company re: 10% Senior Subordinated Secured Notes 4.8 Amended and Restated Security Agreement, Pledge and Indenture * of Trust, dated as of June 30, 1997, between the Company and Harris Trust and Savings Bank, as Security Trustee 10.1+ Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K 1994 10.2+ Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K April 1, 1994 10.3+ Employment Agreement of R. Harold Owens, effective June 26, 10.3 1995 10-K 1995 14
10.4 Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879 between the Company and certain of its securityholders 10.5+ 1992 Stock Option Plan of the Company 4 33-52166 10.6+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K 10.7+ The Company's Executive Incentive Plan 10.6 1994 10-K 10.8+ The Company's Executive Strategic Incentive Plan 10.8 1995 10-K 10.9+ Amendment No. 1, dated as of April 1, 1996, to the Executive 10.9 1996 10-K Strategic Incentive Plan </TABLE> # Omitted from filing -- substantially identical to immediately preceding exhibits, except for the parties thereto and the principal amount involved. + Management contract or other compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation S-K. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended September 30, 1997. 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: November 13, 1997 /s/ C. D. Walters --------------------- C. D. Walters, Chief Executive Officer Dated: November 13, 1997 /s/ A. A. McLean III ------------------------ A. A. McLean III, Executive Vice President and Chief Financial Officer 16