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, 2001 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 14, 2002. Common Stock, no par value 18,779,159 - ----------------------------------- ----------------------------------- (Class) (Outstanding)
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS <TABLE> <CAPTION> PART I - FINANCIAL INFORMATION Page <S> <C> Item 1. Consolidated Financial Statements (unaudited): Consolidated Balance Sheets as of December 31, 2001, and March 31, 2001 3 Consolidated Statements of Operations for the three-month periods and nine-month periods ended December 31, 2001, and December 31, 2000 4 Consolidated Statements of Shareholders' Equity for the year ended March 31, 2001, and the nine-month period ended December 31, 2001 5 Consolidated Statements of Cash Flows for the three-month periods and nine-month periods ended December 31, 2001, and December 31, 2000 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, 2001, and December 31, 2000 8 Item 3. Quantitative 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, 2001 2001 ------------- ------------- (Unaudited) <S> <C> <C> ASSETS Cash $ 3,785,011 3,292,504 Gross loans receivable 257,243,573 210,893,604 Less: Unearned interest and fees (63,223,179) (48,504,582) Allowance for loan losses (14,846,481) (12,031,622) ------------ ------------- Loans receivable, net 179,173,913 150,357,400 Property and equipment, net 6,996,187 6,538,131 Other assets, net 10,298,390 9,834,117 Intangible assets, net 14,143,437 13,138,307 ------------ ------------- $ 214,396,938 183,160,459 ============ ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Senior notes payable 110,300,000 83,150,000 Subordinated notes payable 6,000,000 8,000,000 Other note payable 482,000 482,000 Income taxes payable (receivable) (929,851) 3,038,113 Accounts payable and accrued expenses 5,512,927 5,763,812 ------------ ------------- Total liabilities 121,365,076 100,433,925 ------------ ------------- Shareholders' equity: Common stock, no par value - - Additional paid-in capital 251,127 313,655 Retained earnings 92,780,735 82,412,879 ------------ ------------- Total shareholders' equity 93,031,862 82,726,534 ------------ ------------- $ 214,396,938 183,160,459 ============ ============= </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, ------------------------------- ------------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Interest and fee income $ 30,326,909 26,265,723 84,831,265 74,043,425 Insurance and other income 4,437,658 3,614,595 11,651,559 11,389,997 ------------ ------------- ------------ ------------- Total revenues 34,764,567 29,880,318 96,482,824 85,433,422 ------------ ------------- ------------ ------------- Expenses: Provision for loan losses 8,571,870 7,038,705 20,677,551 16,106,118 ------------ ------------- ------------ ------------- General and administrative expenses: Personnel 12,356,922 10,566,842 35,368,746 31,836,793 Occupancy and equipment 1,999,989 1,931,412 5,939,927 5,622,941 Data processing 428,097 393,668 1,262,017 1,097,677 Advertising 2,282,279 1,848,957 4,031,508 3,315,532 Amortization of intangible assets 537,084 476,682 1,450,253 1,322,574 Other 2,672,521 2,338,167 7,456,282 7,088,120 ------------ ------------- ------------ ------------- 20,276,892 17,555,728 55,508,733 50,283,637 ------------ ------------- ------------ ------------- Interest expense 1,243,662 2,303,843 4,363,684 6,217,342 ------------ ------------- ------------ ------------- Total expenses 30,092,424 26,898,276 80,549,968 72,607,097 ------------ ------------- ------------ ------------- Income before income taxes 4,672,143 2,982,042 15,932,856 12,826,325 Income taxes 1,633,000 1,007,000 5,565,000 4,400,000 ------------ ------------- ------------ ------------- Net income $ 3,039,143 1,975,042 10,367,856 8,426,325 ============ ============= ============ ============= Net income per common share: Basic $ .16 .11 .55 .45 ============ ============= ============ ============= Diluted $ .16 .11 .54 .45 ============ ============= ============ ============== Weighted average common shares outstanding: Basic 18,771,555 18,627,573 18,780,498 18,676,840 ============ ============= ============ ============= Diluted 19,229,989 18,748,298 19,375,945 18,804,146 ============ ============= ============ ============= </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, 2000 $ 267,958 67,924,428 68,192,386 Proceeds from exercise of stock options (76,400 shares), including tax benefit of $41,355 367,161 - 367,161 Common stock repurchases (275,000 shares) (321,464) (1,112,449) (1,433,913) Net income - 15,600,900 15,600,900 ----------- ----------- ----------- Balances at March 31, 2001 $ 313,655 82,412,879 82,726,534 Proceeds from exercise of stock options (321,419 shares), including tax benefit of $364,855 1,982,221 - 1,982,221 Common stock repurchases (232,500 shares) (2,044,749) - (2,044,749) Net income for the nine months - 10,367,856 10,367,856 ----------- ----------- ----------- Balances at December 31, 2001 $ 251,127 92,780,735 93,031,862 =========== =========== =========== </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, -------------------------- --------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Cash flows from operating activities: Net income $ 3,039,143 1,975,042 10,367,856 8,426,325 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 8,571,870 7,038,705 20,677,551 16,106,118 Amortization of intangible assets 537,084 476,682 1,450,253 1,322,574 Amortization of loan costs and discounts 26,885 17,342 109,398 44,580 Depreciation 400,860 397,917 1,176,697 1,179,900 Change in accounts: Other assets, net (498,918) 110,993 (573,671) (697,434) Income taxes payable (2,329,002) (192,707) (3,603,109) (502,526) Accounts payable and accrued expenses 1,221,365 519,951 (250,885) (106,180) ----------- ----------- ----------- ----------- Net cash provided by operating activities 10,969,287 10,343,925 29,354,090 25,773,357 ----------- ----------- ----------- ----------- Cash flows from investing activities: Increase in loans, net (25,193,133) (24,739,997) (39,585,185) (41,134,291) Net assets acquired from office acquisitions, primarily loans (1,924,393) (263,648) (10,009,513) (15,653,874) Purchases of premises and equipment (415,322) (265,568) (1,534,119) (1,164,610) Purchases of intangible assets (548,235) (237,687) (2,455,383) (3,901,035) ----------- ----------- ----------- ----------- Net cash used by investing activities (28,081,083) (25,506,900) (53,584,200) (61,853,810) ----------- ----------- ----------- ----------- Cash flows from financing activities: Proceeds of senior notes payable, net 17,350,000 12,450,000 27,150,000 39,500,000 Repayment of term notes - - (2,000,000) (2,000,000) Proceeds from exercise of stock options 116,495 - 1,617,366 43,750 Common stock repurchases - - (2,044,749) (1,433,913) ----------- ----------- ----------- ----------- Net cash provided by financing activities 17,466,495 12,450,000 24,722,617 36,109,837 ----------- ----------- ----------- ----------- Increase (decrease) in cash 354,699 (2,712,975) 492,507 29,384 Cash, beginning of period 3,430,312 4,433,035 3,292,504 1,690,676 ----------- ----------- ----------- ----------- Cash, end of period $ 3,785,011 1,720,060 3,785,011 1,720,060 =========== =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest expense $ 1,381,468 2,215,446 4,277,249 5,719,655 Cash paid for income taxes 3,962,002 1,199,707 9,168,109 4,902,526 Supplemental schedule of noncash financing activities: Tax benefits from exercise of stock options 23,965 - 364,855 9,756 </TABLE> See accompanying notes to consolidated financial statements. 6
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 NOTE 1 - BASIS OF PRESENTATION - ------------------------------ The consolidated financial statements of the Company at December 31, 2001, 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, 2001, 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, 2001, 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, 2001, included in the Company's 2001 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, --------------------------- -------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Balance at beginning of period $ 13,871,217 12,589,573 12,031,622 10,008,257 Provision for loan losses 8,571,870 7,038,705 20,677,551 16,106,118 Loan losses (8,090,814) (6,340,570) (20,086,049) (15,387,615) Recoveries 458,001 355,270 1,343,671 1,065,853 Allowance on acquired loans, net of specific charge-offs 36,206 (615,697) 879,686 1,234,668 ----------- ----------- ----------- ---------- Balance at end of period $ 14,846,481 13,027,281 14,846,481 13,027,281 =========== ========== =========== ========== </TABLE> NOTE 4 - INCOME TAXES PAYABLE (RECEIVABLE) - ------------------------------------------ The decrease in income taxes payable is due to the timing of estimated payments made. 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, ------------------ ------------------ 2001 2000 2001 2000 ---- ---- ---- ---- (Dollars in thousands) <S> <C> <C> <C> <C> Average gross loans receivable (1) $ 239,148 218,017 226,839 201,123 Average loans receivable (2) 180,169 165,945 171,711 154,054 Expenses as a % of total revenue: Provision for loan losses 24.7% 23.6% 21.4% 18.9% General and administrative 58.3% 58.8% 57.5% 58.9% Total interest expense 3.6% 7.7% 4.5% 7.3% Operating margin (3) 17.0% 17.7% 21.0% 22.3% Return on average assets (annualized) 5.9% 4.2% 7.1% 6.4% Offices opened or acquired, net 7 2 21 16 Total offices (at period end) 441 426 441 426 </TABLE> _____________________ /(1)/ Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period. /(2)/ Average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period. /(3)/ Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses, as a percentage of total revenues. Comparison of Three Months Ended December 31, 2001, Versus - ---------------------------------------------------------- Three Months Ended December 31, 2000 - ------------------------------------ Net income amounted to $3.0 million for the three months ended December 31, 2001, a 53.9% increase from the $2.0 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 $630,000, or 11.9%, combined with a decrease in interest expense and offset by an increase in income taxes. Interest and fee income for the quarter ended December 31, 2001, increased by $4.1 million, or 15.5%, over the same period of the prior year. This increase resulted primarily from the $14.2 million increase, or 8.6%, in average loans receivables over the two corresponding periods. The increase in interest and fee income was also aided by favorable changes in state laws and regulations in three states during the past 18 months. In Tennessee, on loans less than $1,000, the interest and fees allowed were substantially increased, while the sale of credit insurance and other ancillary products was eliminated. In Texas, the $10 initial charge was made non-refundable. In Georgia, there was an increase in the monthly maintenance charge and the allowed late charge, as well as a change in the restricted period on loan renewals. All of these changes contributed to an increase in loan yields when comparing the two quarterly periods. Insurance commissions and other income increased by $823,000, or 22.8%, over the two quarters primarily as a result of the expansion of the loan portfolio in Kentucky where credit insurance and other ancillary products may be sold in conjunction with a loan. Insurance commissions increased by $259,000 or 12.4% and other income increased by $564,000, or 36.8% when comparing the two quarterly periods. 8
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED ----------------------------------------------- Total revenues rose to $34.8 million during the quarter ended December 31, 2001, a 16.3% increase over the $29.9 million in total revenues for the same quarter of the prior year. Revenues from the 399 offices open throughout both three-month periods increased by approximately 12.4%. At December 31, 2001, the Company had 441 offices in operation, a net increase of 7 offices during the current quarter, and 21 offices since the beginning of the fiscal year. The provision for loan losses amounted to $8.6 million during the quarter ended December 31, 2001, representing a 21.8% increase over the $7.0 million during the same quarter of the prior fiscal year. This increase resulted from an increase in net loans charged off during the quarter due primarily to the growth in the loan portfolio. As a percentage of average loans receivable outstanding, net charge-offs increased to 16.9% during the quarter ended December 31, 2001, compared to 14.4% during the prior year third fiscal quarter. This increase was due to the maturing of the larger loan portfolio, resulting in higher losses in this category as well as an increase in overall losses due primarily to the decline in the economy. Although the Company's management remains concerned over the rise in 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 by this factor in future quarters. General and administrative expenses for the quarter ended December 31, 2001, increased by $2.7 million, or 15.5%, over the same quarter of fiscal 2001. This increase resulted primarily from the additional expenses associated with the 15 new offices opened or acquired between December 31, 2000, and December 31, 2001. During the same 12-month period, the Company has also sold or merged eight 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 58.8% for the quarter ended December 31, 2000, to 58.3% for the most recent quarter. Interest expense decreased by $1.1 million, or 46.0%, when comparing the two corresponding quarterly periods. This decrease resulted from the dramatic decrease in interest rates over the two periods. Comparison of Nine Months Ended December 31, 2001, - -------------------------------------------------- Versus Nine Months Ended December 31, 2000 - ------------------------------------------ For the nine month period ending December 31, 2001, net income amounted to $10.4 million. This represents an increase of $1.9 million, or 23.0% when comparing the two nine-month periods. Operating income rose by $1.3 million, or 6.6%, combined with a decrease in interest expense of $1.9 million, or 29.8%. These improvements to net earnings were partially offset by an increase in income taxes. Total revenues amounted to $96.5 million during the current nine-month period, an increase of $11.0 million, or 12.9%, over the prior-year period. This increase resulted from an increase in interest and fee income of 14.6%, combined with an increase in insurance and other income of 2.3%. Revenues from the 399 offices open throughout both nine-month periods increased approximately 9.8%. The provision for loan losses increased by $4.6 million, or 28.4%, during the current nine month period when compared to the same period of fiscal 2001. This increase was due primarily to the growth in the loan portfolio. As a percentage of average loans, net charge-offs on an annualized basis grew from 12.4% for the nine months ended December 31, 2000, to 14.6% for the most recent nine month period. 9
WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED ----------------------------------------------- General and administrative expenses increased by $5.2 million, or 10.4%, during the most recent nine-month period. As a percentage of total revenues, these expenses decreased from 58.9% during the prior year nine-month period to 57.5% during the current period. Excluding the expenses associated with ParaData, overall general and administrative expenses, when divided by the average open offices, increased by only 8.2% when comparing the two nine-month periods. Interest expense decreased by $1.9 million when comparing the two nine-month periods, a decrease of 29.8%. This decrease is due to the reduction in interest rates over the past 12 months. 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 repayment of existing debt and the repurchase of its common stock. The Company has a $105.0 million revolving credit agreement, (temporarily increased to $120.0 million), and $6.0 million of subordinated notes. The temporary increase of $15.0 million is consistent with the seasonality of our loan demand. The Company historically receives this increase in the third and fourth quarters of each fiscal year. The revolving credit facility expires on September 30, 2003, and bears interest, at the Company's option, at the agent's prime rate or LIBOR plus 1.75%. At December 31, 2001, the weighted average interest rate under the facility was 3.76%, and the Company's outstanding balance was $110.3 million, leaving $9.7 million in borrowing availability under existing borrowing base limitations (based on eligible loans receivable). The Company received a temporary increase in availability under the revolving credit facility of $15.0 million for the period beginning November 15, 2001, through March 31, 2002. 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 are due each June 1, with a final maturity date of June 1, 2004. Borrowings under the revolving credit agreement and the senior 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 continuing growth of the Company's loan portfolio, the principal payments due under the subordinated notes, the repurchase of the Company's common stock on a limited basis and the expected cost of opening and operating new offices, including funding initial operating losses of new offices and 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 ten 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. Impact of Recently Issued Accounting Standards - ---------------------------------------------- In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt the provisions of Statement 141 immediately, and Statement 142 effective April 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001, will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001, will continue to be amortized prior to the adoption of Statement 142. Statement 141 will require, upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and to make any necessary reclassifications in order to conform with the new criteria in Statement 141 for recognition apart form goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent in intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with the transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a 11
purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations. As of the date of adoption, the Company expects to have unamortized goodwill of approximately $1.6 million, and unamortized identifiable assets of approximately $12.1 million, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $166,000 and $130,000 for the year ended March 31, 2001, and the nine months ended December 31, 2001, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. 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. 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; 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); 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 $110.3 million at December 31, 2001. Interest on borrowings under this facility is based, at the Company's option, on the prime rate or LIBOR plus 1.75%. Based on the outstanding balance at December 31, 2001, a change of 1% in the interest rate would cause a change in interest expense of approximately $1.10 million on an annual basis. 12
WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings ----------------- 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 <TABLE> <CAPTION> Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Filed Herewith (*) or Previous Company Exhibit Exhibit Registration Number Description Number No. or Report - ---------------------------------------------------------------------------------------------------------------- <S> <C> <C> 3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K Company 3.2 First Amendment to Second Amended and Restated Articles 3.2 1995 10-K of Incorporation 3.3 Amended Bylaws of the Company 3.4 33-42879 4.1 Specimen Share Certificate 4.1 33-42879 4.2 Articles 3, 4 and 5 of the Form of Company's Second 3.1, 3.2 1995 10-K Amended and Restated Articles of Incorporation (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 Agreements, 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 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 4.6 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 10.3 12-31-99 10-Q August 16, 1999 10.4+ Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879 between the Company and certain of its securityholders 10.5+ World Acceptance Corporation Supplemental Income Plan 10.7 2000 10-K </TABLE> 14
<TABLE> <S> <C> <C> 10.6+ Board of Directors Deferred Compensation Plan 10.6 2000 10-K 10.7+ 1992 Stock Option Plan of the Company 4 33-52166 10.8+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K 10.9+ The Company's Executive Incentive Plan 10.6 1994 10-K 10.10+ World Acceptance Corporation Retirement Savings Plan 4.1 333-14399 10.11+ Executive Deferral Plan 10.12 2001 10-K </TABLE> + Management Contract or other compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation 5-K of the Securities and Exchange Commission. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended December 31, 2001. 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 14, 2002 /s/ C. D. Walters ------------------------------------------- C. D. Walters, Chief Executive Officer Dated: February 14, 2002 /s/ A. A. McLean III ------------------------------------------- A. A. McLean III, Executive Vice President and Chief Financial Officer 16