Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K
-----------------
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission file number 0-19599
WORLD ACCEPTANCE
CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 570425114
------------------------------ ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
108 Frederick Street
Greenville, South Carolina 29607
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(864) 298-9800
-----------------------------------------------------
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of June 18, 1999, computed by reference to the closing sale price
on such date, was $97,459,937. As of the same date, 19,016,573 shares of Common
Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1999 Annual Report ("the Annual Report") furnished to the
Commission pursuant to Rule 14a-3(b) and the Notice of Annual Meeting of
Shareholders and definitive Proxy Statement pertaining to the 1999 Annual
Meeting of Shareholders ("the Proxy Statement") and filed pursuant to Regulation
14A are incorporated herein by reference into Parts II and IV, and Part III,
respectively.
WORLD ACCEPTANCE CORPORATION
FORM 10-K REPORT
TABLE OF CONTENTS
------------------
Item No. Page
- ------- ----
PART I
1. Description of Business............................................................................. 1
2. Properties.......................................................................................... 8
3. Legal Proceedings................................................................................... 8
4. Submission of Matters to a Vote of Security Holders................................................. 10
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................... 10
6. Selected Financial Data............................................................................. 10
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 10
7a. Quantitative and Qualitative Disclosures About Market Risk............................................ 10
8. Financial Statements and Supplementary Data........................................................... 10
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 11
PART III
10. Directors and Executive Officers of the Registrant................................................. 11
11. Executive Compensation............................................................................. 11
12. Security Ownership of Certain Beneficial Owners and Management..................................... 11
13. Certain Relationships and Related Transactions..................................................... 11
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 11
INTRODUCTION
World Acceptance Corporation, a South Carolina corporation, operates a
small-loan consumer finance business in nine states. As used herein, the
"Company" includes World Acceptance Corporation and each of its subsidiaries,
except that when used with reference to the Common Stock or other securities
described herein and in describing the positions held by management or
agreements of the Company, it includes only World Acceptance Corporation. All
references in this report to "fiscal 1999" are to the Company's fiscal year
ended March 31, 1999.
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL. The Company is engaged in the small-loan consumer finance
business, offering short-term loans, related credit insurance and ancillary
products and services to individuals. The Company generally offers standardized
installment loans of between $130 to $2,500 through 385 offices in South
Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri,
and New Mexico as of June 18, 1999. The Company generally serves individuals
with limited access to other sources of consumer credit from banks, savings and
loans, other consumer finance businesses and credit cards.
Small-loan consumer finance companies operate in a highly structured
regulatory environment. Consumer loan offices are individually licensed under
state laws, which establish allowable interest rates, fees and other charges on
small loans made to consumers and, in many states, the maximum principal amounts
and maturities of these loans. The Company believes that virtually all
participants in the small-loan consumer finance industry charge the maximum
rates permitted under applicable state laws.
The small-loan consumer finance industry is a highly fragmented segment of
the consumer lending industry. Small-loan consumer finance companies generally
make loans to individuals of up to $1,000 with maturities of one year or less.
These companies approve loans on the basis of the personal creditworthiness of
their customers and maintain close contact with borrowers to encourage the
repayment or refinancing of loans. By contrast, commercial banks, savings and
loans and other consumer finance businesses typically make loans of more than
$1,000 with maturities of more than one year. Those financial institutions
generally approve consumer loans on the security of qualifying personal property
pledged as collateral or impose more stringent credit requirements than those of
small-loan consumer finance companies. As a result of their higher credit
standards and specific collateral requirements, commercial banks, savings and
loans and other consumer finance businesses typically charge lower interest
rates and fees and experience lower delinquency and charge-off rates than do
small-loan consumer finance companies. Small-loan consumer finance companies
generally charge higher interest rates and fees to compensate for the greater
credit risk of delinquencies and charge-offs and increased loan administration
and collection costs.
The lending activities of small-loan consumer finance companies also
differ from those of pawnshops. Pawnshops generally make smaller loans with
shorter original maturities than small-loan consumer finance companies.
Pawnshops also extend loans based exclusively on the assessed value of the
personal property that is pledged to secure their loans rather than on the
personal creditworthiness of the borrower. Pawnshops experience default or
forfeiture rates on their loans that are significantly greater than those
experienced by small-loan consumer finance companies and, as a result, derive a
large portion of their revenues from the sale of forfeited collateral in the
ordinary course of their operations.
EXPANSION. During fiscal 1999, the Company opened 26 new offices. Three
other offices were purchased and 10 offices were closed, merged into other
existing offices, or sold due to their inability to grow to profitable levels.
The Company plans to open or acquire at least 25 new offices in each of the next
two fiscal years by increasing the number of offices in its existing market
areas and in new states where it believes demographic profiles and state
regulations are attractive. The Company's ability to expand operations into new
states is dependent upon its ability to obtain necessary regulatory approvals
and licenses, and there can be no assurance that the Company will be able to
obtain any such approvals or consents.
1
The Company's expansion is also dependent upon its ability to identify
attractive locations for new offices and hire suitable personnel to staff,
manage and supervise new offices. In evaluating a particular community, the
Company examines several factors, including the demographic profile of the
community, the existence of an established small-loan consumer finance market
and the availability of suitable personnel to staff, manage and supervise the
new offices. The Company generally locates new offices in communities already
served by at least one small-loan consumer finance company.
The small-loan consumer finance industry is highly fragmented in the nine
states in which the Company currently operates. The Company believes that its
competitors in these markets are principally independent operators with fewer
than 20 offices. The Company also believes that attractive opportunities to
acquire offices from competitors in its existing markets and to acquire offices
in communities not currently served by the Company will become available as
conditions in the local economies and the financial circumstances of the owners
change.
The following table sets forth the number of offices of the Company at the
dates indicated:
At March 31,
---------------------------------------------------------------------------------------
At June 18,
STATE 1992 1993 1994 1995 1996 1997 1998 1999 1999
- ----- ---- ---- ---- ---- ---- ---- ---- ---- ----
South Carolina........ 52 53 56 59 62 68 64 63 63
Georgia............... 34 35 35 38 39 45 49 49 49
Texas................. 62 66 81 93 104 131 128 131 132
Oklahoma.............. 23 27 31 33 39 40 41 40 41
Louisiana (1)......... 5 10 12 15 20 18 21 20 20
Tennessee (2)......... - - 2 6 18 24 28 30 33
Illinois (3).......... - - - - - 3 11 20 20
Missouri (4).......... - - - - - 1 9 16 16
New Mexico (5)........ - - - - - 6 9 10 11
---- ---- ----- ----- ----- ----- ---- ---- ----
Total............ 176 191 217 244 282 336 360 379 385
==== ==== ===== ===== ===== ===== ==== ==== ====
(1) The Company commenced operations in Louisiana in May 1991.
(2) The Company commenced operations in Tennessee in April 1993.
(3) The Company commenced operations in Illinois in September 1996.
(4) The Company commenced operations in Missouri in August 1996.
(5) The Company commenced operations in New Mexico in December 1996.
LOAN AND OTHER PRODUCTS. In each state in which it operates, the Company
offers loans that are standardized by amount and maturity in an effort to reduce
documentation and related processing costs. Substantially all of the Company's
loans are payable in monthly installments with terms of four to fifteen months,
and all loans are prepayable at any time without penalty. In fiscal 1999, the
Company's average originated loan size and term were approximately $518 and nine
months, respectively. State laws regulate lending terms, including the maximum
loan amounts and interest rates and the types and maximum amounts of fees,
insurance premiums and other costs that may be charged. As of March 31, 1999,
the annual percentage rates on loans offered by the Company, which include
interest, fees and other charges as calculated for the purposes of federal
consumer loan disclosure requirements, ranged from 27% to 205% depending on the
loan size, maturity and the state in which the loan is made. In addition, in
certain states, the Company sells credit insurance in connection with its loans
as agent for an unaffiliated insurance company, which may increase its yields on
loans originated in those states.
Specific allowable charges vary by state and, consistent with industry
practice, the Company generally charges the maximum rates allowable under
applicable state law. Statutes in Texas, Oklahoma and South Carolina allow for
indexing the maximum loan amounts to the Consumer Price Index. Fees charged by
the Company include origination and account maintenance fees, monthly handling
charges and, in South Carolina, Georgia,
2
Louisiana and Tennessee, non-file fees, which are collected by the Company and
paid as premiums to an unaffiliated insurance company for non-recording
insurance.
The Company, as an agent for an unaffiliated insurance company, markets
and sells credit life, credit accident and health, credit property, and
unemployment insurance in connection with its loans in states where the sale of
such insurance is permitted by law. Credit life insurance provides for the
payment in full of the borrower's credit obligation to the lender in the event
of death. Credit accident and health insurance provides for repayment of loan
installments to the lender that come due during the insured's period of income
interruption resulting from disability from illness or injury. Credit property
insurance insures payment of the borrower's credit obligation to the lender in
the event that the personal property pledged as security by the borrower is
damaged or destroyed. Unemployment insurance provides for repayment of loan
installments to the lender that come due during the insured's period of
involuntary unemployment. The Company requires each customer to obtain credit
insurance in the amount of the loan for all loans originated in South Carolina,
and Georgia, and encourages customers to obtain credit insurance for loans
originated in Tennessee and Louisiana. Customers in those states typically
obtain such credit insurance through the Company. Charges for such credit
insurance are made at maximum authorized rates and are stated separately in the
Company's disclosure to customers, as required by the Truth-in-Lending Act. In
the sale of insurance policies, the Company as agent writes policies only within
limitations established by its agency contracts with the insurer. The Company
does not sell credit insurance to non-borrowers.
The Company also markets automobile club memberships to its borrowers in
Georgia, Tennessee and Louisiana as an agent for an unaffiliated automobile
club. Club memberships entitle members to automobile breakdown and towing
insurance and related services. The Company is paid a commission on each
membership sold, but has no responsibility for administering the club, paying
insurance benefits or providing services to club members. The Company generally
does not market automobile club memberships to non-borrowers. In fiscal 1995 the
Company implemented its World Class Buying Club, and began marketing certain
electronic products and appliances to its Texas borrowers. Since implementation,
the Company has expanded this program to Georgia, Tennessee, South Carolina,
Louisiana, Oklahoma and New Mexico and plans to introduce the program in
Illinois and Missouri in the summer of 1999. Borrowers participating in this
program can purchase a product from a catalog available at a branch office and
finance the purchase with a retail installment sales loan provided by the
Company. Products sold through this program are shipped directly by the
suppliers to the Company's customers and, accordingly, the Company is not
required to maintain any inventory to support the program.
LOAN ACTIVITY AND SEASONALITY. The following table sets forth the
composition of the Company's gross loans receivable by state at March 31 of each
year from 1992 through 1999:
At March 31,
-------------------------------------------------------------------------
State 1992 1993 1994 1995 1996 1997 1998 1999
----- ---- ---- ---- ---- ---- ---- ---- ----
South Carolina........... 38% 37% 37% 35% 33% 26% 23% 22%
Georgia.................. 13 14 14 13 13 13 14 16
Texas.................... 39 38 38 38 35 39 35 31
Oklahoma................. 8 8 7 7 8 7 7 7
Louisiana (1)............ 2 3 3 4 5 3 4 4
Tennessee (2)............ - - 1 3 6 10 11 12
Illinois (3)............. - - - - - - 2 3
Missouri (4)............. - - - - - - 1 2
New Mexico (5)........... - - - - - 2 3 3
---- ----- ----- ----- ----- ---- ---- ----
Total................ 100% 100% 100% 100% 100% 100% 100% 100%
==== ===== ===== ===== ===== ==== ==== ====
_______________________________
(1) The Company commenced operations in Louisiana in May 1991.
(2) The Company commenced operations in Tennessee in April 1993.
(3) The Company commenced operations in Illinois in September 1996.
(4) The Company commenced operations in Missouri in August 1996.
(5) The Company commenced operations in New Mexico in December 1996.
3
The following table sets forth the total number of loans and the average
loan balance by state at March 31, 1999:
Total Number Average Gross Loan
of Loans Balance
-------- -------
South Carolina..................... 69,940 472
Georgia............................ 36,550 663
Texas.............................. 131,473 358
Oklahoma........................... 24,223 418
Louisiana.......................... 12,965 402
Tennessee.......................... 28,768 645
Illinois........................... 9,716 437
Missouri........................... 6,607 449
New Mexico......................... 9,133 459
--------
Total.......................... 329,375
--------
The Company's highest loan demand occurs generally from October through
December, its third fiscal quarter. Loan demand is generally lowest and loan
repayment highest from January to March, its fourth fiscal quarter.
Consequently, the Company experiences significant seasonal fluctuations in its
operating results and cash needs. Operating results from the Company's third
fiscal quarter are generally significantly lower than in other quarters and
operating results for its fourth fiscal quarter are generally higher than in
other quarters.
LENDING AND COLLECTION OPERATIONS. The Company seeks to provide short-term
loans to the segment of the population that has limited access to other sources
of credit. In evaluating the creditworthiness of potential customers, the
Company primarily examines the individual's discretionary income, length of
current employment, duration of residence and prior credit experience. Loans are
made to individuals on the basis of the customer's discretionary income and
other factors and are limited to amounts that the customer can reasonably be
expected to repay from that income. All of the Company's new customers are
required to complete standardized credit applications in person or by telephone
at local Company offices. Each of the Company's local offices is equipped to
perform immediate background, employment and credit checks and approve loan
applications promptly, often while the customer waits. The Company's employees
verify the applicant's employment and credit histories through telephone checks
with employers, other employment references and a variety of credit services.
Substantially all new customers are required to submit a listing of personal
property that will be pledged as collateral to secure the loan, but the Company
does not rely on the value of such collateral in the loan approval process and
generally does not perfect its security interest in that collateral.
Accordingly, if the customer were to default in the repayment of the loan, the
Company may not be able to recover the outstanding loan balance by resorting to
the sale of collateral. The Company generally approves less than 50% of
applications for loans to new customers.
The Company believes that the development and continual reinforcement of
personal relationships with customers improve the Company's ability to monitor
their creditworthiness, reduce credit risk and generate repeat loans. It is not
unusual for the Company to have made a number of loans to the same customer over
the course of several years, many of which were refinanced with a new loan after
two or three payments. In determining whether to refinance existing loans, the
Company typically requires loans to be current on a recency basis, and repeat
customers are generally required to complete a new credit application if they
have not completed one within the prior two years.
In fiscal 1999, approximately 88% of the Company's loans were generated
through refinancings of outstanding loans and the origination of new loans to
previous customers. A refinancing represents a new loan transaction with a
present customer in which a portion of the new loan is used to repay the balance
of an existing loan and the remaining portion is advanced to the customer. The
Company actively markets the opportunity to refinance existing loans prior to
maturity, thereby increasing the amount borrowed and increasing the fees and
other income realized. For fiscal 1997, 1998, and 1999, the percentages of the
Company's loan originations that were refinancings of existing loans were 81.8%,
79.1%, and 78.5% respectively.
4
The Company allows refinancing of delinquent loans on a case-by-case basis
for those customers who otherwise satisfy the Company's credit standards. Each
such refinancing is carefully examined before approval to avoid increasing
credit risk. A delinquent loan may generally be refinanced only if the customer
has made payments which, together with any credits of insurance premiums or
other charges to which the customer is entitled in connection with the
refinancing, reduce the balance due on the loan to an amount equal to or less
than the original cash advance made in connection with the loan. The Company
does not allow the amount of the new loan to exceed the original amount of the
existing loan. The Company believes that refinancing delinquent loans for
certain customers who have made periodic payments allows the Company to increase
its average loans outstanding and its interest, fee and other income without
experiencing a material increase in loan losses. These refinancings also provide
a resolution to temporary financial setbacks for these borrowers and sustains
their credit rating.
To reduce late payment risk, local office staff encourage customers to
inform the Company in advance of expected payment problems. Local office staff
also promptly contact delinquent customers following any payment due date and
thereafter remain in close contact with such customers through phone calls,
letters or personal visits to the customer's residence or place of employment
until payment is received or some other resolution is reached. When
representatives of the Company make personal visits to delinquent customers, the
Company's policy is to encourage the customers to return to the Company's office
to make payment. Company employees are instructed not to accept payment outside
of the Company's offices except in unusual circumstances. In Georgia and
Oklahoma, the Company is permitted under state laws to garnish customers' wages
for repayment of loans, but the Company does not otherwise generally resort to
litigation for collection purposes, and rarely attempts to foreclose on
collateral.
INSURANCE-RELATED OPERATIONS. In Georgia, Louisiana, South Carolina,
Tennessee, and on a limited basis, New Mexico, the Company sells credit
insurance to customers in connection with its loans as an agent for an
unaffiliated insurance company. These insurance policies provide for the payment
of the outstanding balance of the Company's loan upon the occurrence of an
insured event. The Company earns a commission on the sale of such credit
insurance, which is based in part on the claims experience of the insurance
company on policies sold on its behalf by the Company.
The Company has a wholly owned captive insurance subsidiary, which
reinsures a portion of the credit insurance sold in connection with loans made
by the Company. Certain coverages currently sold by the Company on behalf of the
unaffiliated insurance carrier are ceded by the carrier to the captive insurance
subsidiary, providing the Company with an additional source of income derived
from the earned reinsurance premiums. In fiscal 1999, the captive insurance
subsidiary reinsured less than 9.7% of the credit insurance sold by the Company
and contributed approximately $1,093,000 to the Company's total revenues.
The Company typically does not perfect its security interest in collateral
securing its loans by filing Uniform Commercial Code financing statements.
Statutes in Georgia, Louisiana, South Carolina and Tennessee permit the Company
to charge a non-file or non-recording insurance fee in connection with loans
originated in these states. These fees are equal in aggregate amount to the
premiums paid by the Company to purchase non-file insurance coverage from an
unaffiliated insurance company. Under its non-file insurance coverage, the
Company is reimbursed for losses on loans resulting from its policy not to
perfect its security interest in collateral pledged to secure the loans.
MONITORING AND SUPERVISION. The Company's loan operations are organized
into Eastern and Western Divisions, with the Eastern Division consisting of
South Carolina, Georgia, Tennessee and Illinois and the Western Division
consisting of Louisiana, Texas, Oklahoma, Missouri and New Mexico. Several
levels of management monitor and supervise the operations of each of the
Company's offices. Branch managers are directly responsible for the performance
of their respective offices and must approve all credit applications. District
supervisors are responsible for the performance of eight to ten offices in their
districts, typically communicate with the branch managers of each of their
offices at least weekly and visit the offices monthly. Each of the state Vice
Presidents of Operations monitor the performance of all offices within their
states (or partial state in the case of Texas), primarily through communication
with district supervisors. These Vice Presidents of Operations typically
communicate with the district supervisors of each of their districts weekly and
visit each office in their states quarterly.
5
Senior management receives daily delinquency loan volume, charge-off, and
other statistical reports consolidated by state and has access to these daily
reports for each branch office. At least monthly, district supervisors audit the
operations of each office in their geographic area and submit standardized
reports detailing their findings to the Company's senior management. At least
once every nine months, each office undergoes an audit by the Company's internal
auditors. These audits include an examination of cash balances and compliance
with Company loan approval, review and collection procedures and federal and
state laws and regulations.
In fiscal 1994 the Company converted all of its loan offices to a new
computer system following its acquisition of Paradata Financial Systems, Inc., a
small software company located near St. Louis, Missouri. This system uses a
proprietary data processing software package developed by Paradata, and has
enabled the Company to fully automate all loan account processing and collection
reporting. The system also provides significantly enhanced management
information and control capabilities. The Company also markets the system to
other finance companies, but there can be no assurance that revenues from sales
of the system to third parties will be material.
STAFF AND TRAINING. Local offices are generally staffed with three
employees. The branch manager supervises operations of the office and is
responsible for approving all loan applications. Each office generally has one
assistant manager, who contacts delinquent customers, reviews loan applications
and prepares operational reports and one customer service representative, who
takes and processes loan applications and payments and assists in the
preparation of operational reports and collection and marketing activities.
Large offices may employ additional assistant managers and service
representatives.
New employees are required to review a detailed training manual that
outlines the Company's operating policies and procedures. The Company tests each
employee on the training manual during the first year of employment. In
addition, each branch provides in-office training sessions once every week and
training sessions outside the office for one full day every two months.
COMPENSATION. The Company administers a performance-based compensation
program for all of its district supervisors and branch managers. The Company
annually reviews the performance of branch managers and adjusts their base
salaries based upon a number of factors, including office loan growth,
delinquencies and profitability. Branch managers also receive incentive
compensation based upon office profitability and delinquencies. In addition,
branch managers are paid a cash bonus for training personnel who are promoted to
branch manager positions. Assistant managers and service representatives are
paid a base salary and incentive compensation based primarily upon their
office's loan volume and delinquency ratio.
ADVERTISING. The Company actively advertises through direct mail,
targeting both its present and former customers and potential customers who have
used other sources of consumer credit. The Company creates mailing lists from
public records of collateral filings by other consumer credit sources, such as
furniture retailers and other consumer finance companies and obtains or acquires
mailing lists from other sources. In addition to the general promotion of its
loans for vacations, back-to-school needs and other uses, the Company advertises
extensively during the October through December holiday season and in connection
with new office openings. The Company believes its advertising contributes
significantly to its ability to compete effectively with other providers of
small-loan consumer credit. In fiscal 1999, advertising expenses were
approximately 4.4% of total revenues.
COMPETITION. The small-loan consumer finance industry is highly
fragmented, with numerous competitors. The majority of the Company's competitors
are independent operators with fewer than 20 offices. Pawnshops also provide
competition in most of the communities served by the Company. Competition from
nationwide consumer finance businesses is limited because these companies
typically do not make loans of less than $1,000.
The Company believes that competition between small-loan consumer finance
companies occurs primarily on the basis of the strength of customer
relationships, customer service and reputation in the local community, rather
than pricing, as participants in this industry generally charge comparable
interest rates and fees. The Company believes that its relatively larger size
affords it a competitive advantage over smaller companies by increasing its
access to, and reducing its cost of, capital.
Most of the states in which the Company currently operates limit the size of
loans made by small-loan consumer finance companies and prohibit the extension
of more than one loan to a customer by any one company. As a result, many
customers borrow from more than one finance company, enabling the Company to
obtain information on the
6
credit history of specific customers from other consumer finance companies. The
Company generally seeks to open new offices in communities already served by at
least one other small-loan consumer finance company.
GOVERNMENT REGULATION. Small-loan consumer finance companies are subject
to extensive regulation, supervision and licensing under various federal and
state statutes, ordinances and regulations. In general, these statutes establish
maximum loan amounts and interest rates and the types and maximum amounts of
fees, insurance premiums and other costs that may be charged. In addition, state
laws regulate collection procedures, the keeping of books and records and other
aspects of the operation of small-loan consumer finance companies. Generally,
state regulations also establish minimum capital requirements for each local
office. State agency approval is required to open new branch offices.
Accordingly, the ability of the Company to expand by acquiring existing offices
and opening new offices will depend in part on obtaining the necessary
regulatory approvals.
A Texas regulation requires the approval of the Texas Consumer Credit
Commissioner for the acquisition, directly or indirectly, of more than 10% of
the voting or common stock of a consumer finance company. A Louisiana statute
prohibits any person from acquiring control of 50% or more of the shares of
stock of a licensed consumer lender, such as the Company, without first
obtaining a license as a consumer lender. The overall effect of these laws, and
similar laws in other states, is to make it more difficult to acquire a consumer
finance company than it might be to acquire control of a nonregulated
corporation.
Each of the Company's branch offices is separately licensed under the laws
of the state in which the office is located. Licenses granted by the regulatory
agencies in these states are subject to renewal every year and may be revoked
for failure to comply with applicable state and federal laws and regulations. In
the states in which the Company currently operates, licenses may be revoked only
after an administrative hearing.
The Company and its operations are regulated by several state agencies,
including the Industrial Loan Division of the Office of the Georgia Insurance
Commissioner, the Consumer Finance Division of the South Carolina Board of
Financial Institutions, the South Carolina Department of Consumer Affairs, the
Texas Office of the Consumer Credit Commission, the Oklahoma Department of
Consumer Credit, the Louisiana Office of Financial Institutions the Tennessee
Department of Financial Institutions, the Missouri Division of Finance, the
Illinois Consumer Credit Division, Department of Financial Institutions, and the
Consumer Credit Bureau of the New Mexico Financial Institutions Division. These
state regulatory agencies audit the Company's local offices from time to time
and each state agency performs an annual compliance audit of the Company's
operations in that state.
The Company is also subject to state regulations governing insurance
agents in the states in which it sells credit insurance. State insurance
regulations require that insurance agents be licensed, govern the commissions
that may be paid to agents in connection with the sale of credit insurance and
limit the premium amount charged for such insurance. The Company's captive
insurance subsidiary is regulated by the insurance authorities of the Turks and
Caicos Islands of the British West Indies, where the subsidiary is organized and
domiciled.
The Company is subject to extensive federal regulation as well, including
the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit
Reporting Act and the regulations thereunder and the Federal Trade Commission's
Credit Practices Rule. These laws require the Company to provide complete
disclosure of the principal terms of each loan to every prospective borrower,
prohibit misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices. Among the principal disclosure
items under the Truth-in-Lending Act are the terms of repayment, the final
maturity, the total finance charge and the annual percentage rate charged on
each loan. The Equal Credit Opportunity Act prohibits creditors from
discriminating against loan applicants on the basis of race, color, sex, age or
marital status. Pursuant to Regulation B promulgated under the Equal Credit
Opportunity Act, creditors are required to make certain disclosures regarding
consumer rights and advise consumers whose credit applications are not approved
of the reasons for the rejection. The Fair Credit Reporting Act requires the
Company to provide certain information to consumers whose credit applications
are not approved on the basis of a report obtained from a consumer reporting
agency. The Credit Practices Rule limits the types of property a creditor may
accept as collateral to secure a consumer loan. Violations of the statutes and
regulations described above may result in actions for damages, claims for refund
of payments made, certain fines and penalties, injunctions against certain
practices and the potential forfeiture of rights to repayment of loans.
Consumer finance companies are affected by changes in state and federal
statutes and regulations. The Company actively participates in trade
associations and in lobbying efforts in the states in which it operates.
Although the Company is not aware of any pending or proposed legislation that
would have a material adverse effect
7
on the Company's business, there can be no assurance that future regulatory
changes will not adversely affect the Company's lending practices, operations,
profitability or prospects.
EMPLOYEES. As of March 31, 1999, the Company had approximately 1,299
employees, none of whom were represented by labor unions. The Company considers
its relations with its personnel to be good. The Company seeks to hire people
who will become long-term employees. The Company experiences a high level of
turnover among its entry-level personnel, which the Company believes is typical
of the small-loan consumer finance industry.
EXECUTIVE OFFICERS. The names and ages, positions, terms of office and
periods of service of each of the Company's executive officers (and other
business experience for executive officers who have served as such for less than
five years) are set forth below. The term of office for each executive officer
expires upon the earlier of the appointment and qualification of a successor or
such officers' death, resignation, retirement or removal.
Period of Service as Executive Officer and
Pre-executive Officer Experience (if an
Name and Age Position Executive Officer for Less Than Five Years)
- ------------ --------- -------------------------------------------
Charles D. Walters (60) Chairman and Chief Chairman since July 1991; President
Executive Officer; since July 1986; CEO since July 1991;
Director Director since April 1989
A. Alexander McLean, III (48) Executive Vice President; Executive Vice President since August 1996;
Chief Financial Officer; Senior Vice President since July 1992;
Director CFO and Director since June 1989
Mark C. Roland (43) Senior Vice President, Since January 1996; Senior Vice President -
Eastern Division Operations Support, Fleet Finance, in Atlanta,
Georgia, from January 1993 to January 1996
Casey K. Johnson (38) Senior Vice President, Since April 1998; Vice President, Operations -
Western Division West Texas since June 1994; Supervisor of
North Oklahoma since August 1989
ITEM 2. PROPERTIES
The Company owns its headquarters facility of approximately 14,000 square
feet in Greenville, South Carolina, and all of the furniture, fixtures and
computer terminals located in each branch office. As of June 18, 1999, the
Company had 385 branch offices, most of which are leased pursuant to short-term
operating leases. During the fiscal year ended March 31, 1999, total lease
expense was approximately $3.2 million, or an average of approximately $8,526
per office. The Company's leases generally provide for an initial three- to
five-year term with renewal options. The Company's branch offices are typically
located in shopping centers, malls and the first floors of downtown buildings.
Branch offices generally have a uniform physical layout and range in size from
800 to 1,200 square feet.
ITEM 3. LEGAL PROCEEDINGS
Since April 1995, the Company and several of its subsidiaries have been
parties to litigation challenging the Company's non-filing insurance practices.
Non-filing insurance is an insurance product that lenders like the Company can
purchase in lieu of filing a UCC financing statement covering the collateral of
their borrowers. The litigation against the Company has been consolidated with
other litigation against other finance companies, jewelry and furniture
retailers, and insurance companies in a purported nationwide class action in the
U.S. District Court in Alabama under the caption In re: Consolidated "Non-filing
Insurance" Fee Litigation (Multidistrict Litigation Docket No. 1130), U.S.
District Court, Middle District of Alabama, Northern Division).
8
On November 11, 1998, the Company and its subsidiaries named in the action
entered into a settlement agreement. Pursuant to the settlement agreement, which
is subject to the court's approval, the Company has agreed to settle all claims
alleged in the litigation involving it and its subsidiaries for an aggregate
cash payment of $5 million. In addition, the terms of the settlement will
curtail certain non-filing practices by the Company and its subsidiaries and
will allow the court to approve criteria defining those circumstances in which
the Company's subsidiaries can make non-filing insurance claims going forward.
As a result of the settlement, non-filing insurance fees charged to borrowers
will be reduced by 25%. The settlement agreement, which includes the settlement
by several other defendants in the litigation, including the Company's insurer,
is subject to the court's approval because the settlement concerns a class
action.
The Company has recorded an accrual for settlement costs, including the
expected expenses to comply with the terms of the settlement, of $5.4 million in
the fiscal year ended March 31, 1999. Of this total accrual, $5.1 million has
been paid to an escrow account, pending distribution to class participants.
Going forward, the Company expects that the settlement will limit and reduce the
coverage for the types of losses with respect to which its subsidiaries will
submit claims. The Company cannot predict the amount of this reduction, but
believes that the settlement will negatively impact the Company in the near
term, but should not have a material adverse effect of the Company's results of
operations over time.
The Company has been named as a defendant in an action, Turner v. World
Acceptance Corp., pending in district court for the Fourteenth Judicial
District, Tulsa County, Oklahoma (No. CJ-97-1921). The action commenced against
the Company on May 20, 1997, names numerous other consumer finance companies as
defendants, and seeks certification as a statewide class action. The action
alleges that the Company and other consumer finance defendants collected excess
finance charges in connection with refinancing certain consumer finance loans in
Oklahoma and seeks money damages and an injunction against further collection of
such charges. The Company has filed an answer in the action denying liability,
and discovery is proceeding. The plaintiff's claim is based on a recent opinion
of the Oklahoma Attorney General interpreting a provision of the Oklahoma
Consumer Credit Code with respect to the permitted amount of certain loan
refinance charges in a manner contrary to prior regulatory practice in existence
in Oklahoma since 1969. The Company and numerous other consumer finance
companies have brought suit to enjoin enforcement by the Oklahoma Attorney
General of its recent interpretation of this provision of the Oklahoma Consumer
Credit Code. In May 1999, the Oklahoma Supreme Court upheld the Attorney
General's interpretation on a prospective basis. The Company and the other
consumer finance companies party to the proceeding against the Attorney General
have petitioned the Oklahoma Supreme Court for a rehearing on this matter. In
addition, the State of Oklahoma has recently enacted legislation to clarify the
interpretation of the disputed provision of the Oklahoma Consumer Credit Code
consistent with the prior regulatory practice followed by the Company. Because
of this recent legislation, the Company expects that the purported class-action
lawsuit, even if decided adversely to the Company, would not materially affect
the Company's refinancing practices in Oklahoma going forward, although such an
adverse decision could possibly involve a material monetary award. The Company
intends to defend this action vigorously.
This report on Form 10-K, including "Management's Discussion and Analysis
of Financial Condition and Results of Operations" ("MD&A") and other information
incorporated herein by reference, may contain various "forward-looking
statements," within the meaning of Section 21E of the Securities Exchange Act of
1934, that are based on management's belief and assumptions, as well as
information currently available to management. Specifically, management's
statements of expectations with respect to the litigation and pending settlement
(the "Settlement") and the other litigation in Oklahoma (the "Oklahoma
Litigation") described above and in MD&A and the matters discussed in "Year
2000" in MD&A may be deemed forward-looking statements. When used in this
document, the words "anticipate," "estimate," "expect," and similar expressions
may identify forward-looking statements. Although the Company believes that the
expectations reflected in any such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Any such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, the Company's actual financial results, performance
or financial condition may vary materially from those anticipated, estimated or
expected. Among the key factors that could cause the Company's actual financial
results, performance or condition to differ from the expectations expressed or
implied in such forward-looking statements are the following: changes in
interest rates; risks inherent in making loans, including repayment risks and
value of collateral; recently-enacted or
9
proposed legislation; whether, and the terms upon which, court approval of the
Settlement is obtained; the occurrence of non-filing claims at historical levels
in circumstances validated by the Settlement; the timing and amount of revenues
that may be recognized by the Company; the outcome of the Oklahoma Litigation;
changes in current revenue and expense trends (including trends affecting
charge-offs); changes in the Company's markets and general changes in the
economy (particularly in the markets served by the Company); the ability of the
Company and third parties with whom the Company deals to achieve year 2000
compliance; the unpredictable nature of litigation; and other matters discusses
in this Report and the Company's other filings with the Securities and Exchange
Commission.
From time to time the Company is involved in other routine litigation
relating to claims arising out of its operations in the normal course of
business in which damages in various amounts are claimed. Although the Company
believes that it is not presently a party to any such other pending legal
proceedings that would have a material adverse effect on its financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the Company's security holders during
the fourth fiscal quarter ended March 31, 1999.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 26, 1991, the Company's Common Stock has traded on the
NASDAQ National Market System ("NASDAQ") under the symbol WRLD. As of June 18,
1999, there were 162 holders of record of Common Stock.
Since April 1989, the Company has not declared or paid any cash dividends
on its Common Stock. Its policy has been to retain earnings for use in its
business. In the future, the Company's Board of Directors will determine whether
to pay cash dividends based on conditions then existing, including the Company's
earnings, financial condition, capital requirements and other relevant factors.
In addition, the Company's credit agreements with its lenders impose
restrictions on the amount of cash dividends that may be paid on its capital
stock. Information contained under the caption "Corporate Information--Common
Stock" in the Annual Report is incorporated herein by reference in further
response to this Item 5.
ITEM 6. SELECTED FINANCIAL DATA
Information contained under the caption "Selected Consolidated Financial
and Other Data" in the Annual Report is incorporated herein by reference in
response to this Item 6.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Annual Report
is incorporated herein by reference in response to this Item 7.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's outstanding debt under the Revolving Credit Facility was
$57.2 million at March 31, 1999. Interest on borrowings under this facility is
based, at the Company's option, on the prime rate or LIBOR plus 1.60%. Based on
the outstanding balance at March 31, 1999, a change of 1% in the interest rate
would cause a change in interest expense of approximately $572,000 on an annual
basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements for the Company and the Independent
Auditors' Report thereon are contained in the Annual Report and are incorporated
by reference in response to this Item 8.
10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company had no disagreements on accounting or financial disclosure
matters with its independent certified public accountants to report under this
Item 9.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information contained under the caption "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement
is incorporated herein by reference in response to this Item 10. The information
in response to this Item 10 regarding the executive officers of the Company is
contained in Item 1, Part I hereof under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information contained under the caption "Executive Compensation" in the
Proxy Statement, except for the information therein under the subcaption "Joint
Report of the Compensation Committee and the Stock Option Committee," is
incorporated herein by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained under the captions "Ownership of Shares by Certain
Beneficial Owners as of June 18, 1999" and "Ownership of Common Stock of
Management as of June 18, 1999" in the Proxy Statement is incorporated by
reference herein in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained under the heading "Compensation Committee Interlocks
and Insider Participation" in the Proxy Statement is incorporated herein by
reference in response to this Item 13.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(1) The following consolidated financial statements of the Company and
Independent Auditors' Report are contained in the Annual Report and are
incorporated herein by reference.
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at March 31, 1999 and 1998
Consolidated Statements of Operations for the years ended March 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended
March 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended March 31,
1999, 1998 and 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
(2) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions, are inapplicable, or the required
information is included elsewhere in the consolidated financial
statements.
11
(3) Exhibits
The following exhibits are filed as part of this report or, where so
indicated, have been previously filed and are incorporated herein by
reference.
Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
-----------------------------------------------------------------------------------------------------------------
3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K
Company
3.2 First Amendment to Second Amended and Restated Articles of 3.2 1995 10-K
Incorporation
3.3 Amended Bylaws of the Company 3.4 33-42879
4.1 Specimen Share Certificate 4.1 33-42879
4.2 Articles 3, 4 and 5 of the Form of Company's Second Amended 3.1, 3.2 1995 10-K
and Restated Articles of Incorporation (as amended)
4.3 Article II, Section 9 of the Company's Second Amended and 3.2 1995 10-K
Restated Bylaws
4.4 Amended and Restated Revolving Credit Agreement, dated as of 4.4 9-30-97
June 30, 1997, between Harris Trust and Savings Bank, the 10-Q
Banks signatory thereto from time to time and the Company
4.5 Amended and Restated Note Agreement, dated as of June 30, 4.5 9-30-97
1997, between Jefferson-Pilot Life Insurance Company and the 10-Q
Company
4.6# Amended and Restated Note Agreement, dated as of June 30, 4.6 9-30-97
1997, between Principal Mutual Life Insurance Company and the 10-Q
Company
4.7 Note Agreement, dated as of June 30, 1997, between Principal 4.7 9-30-97
Mutual Life Insurance Company and the Company re: 10% Senior 10-Q
Subordinated Secured Notes
4.8 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97
of Trust, dated as of June 30, 1997, between the Company and 10-Q
Harris Trust and Savings Bank, as Security Trustee
10.1+ Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K
1994
10.2+ Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K
April 1, 1994
10.3 Settlement Agreement dated as of April 1, 1999, between the * N/A
Company and R. Harold Owens
10.4 Securityholders' Agreement dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
12
Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
-----------------------------------------------------------------------------------------------------------------
10.5+ 1992 Stock Option Plan of the Company 4 33-52166
10.6+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.7+ The Company's Executive Incentive Plan 10.6 1994 10-K
10.8+ The Company's Executive Strategic Incentive Plan 10.8 1995 10-K
10.9+ Amendment No. 1, dated as of April 1, 1996, to the Executive 10.9 1996 10-K
Strategic Incentive Plan
13 Excerpts from 1999 Annual Report of the Company, with respect * NA
to those portions incorporated by reference into this report
21 Schedule of Company's subsidiaries * NA
23 Consent of KPMG Peat Marwick LLP in connection with the
Company's Registration Statements on Form S-8 * NA
27 Financial Data Schedule * NA
+ Management Contract or other compensatory plan required to be
filed under Item 14(c) of this report and Item 601 of Regulation S-K of
the Securities and Exchange Commission.
# Omitted from filing - substantially identical to immediately preceding
exhibit, except for the parties thereto and the principal amount involved.
(4) Reports on Form 8-K
During the most recent fiscal quarter, there were no reports filed on Form
8-K.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WORLD ACCEPTANCE CORPORATION
By: /s/ A. Alexander McLean, III
----------------------------------
A. Alexander McLean, III
Executive Vice President and CFO
Date: June 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
---------
/s/ Charles D. Walters
- -------------------------------------------------------
Charles D. Walters, Chairman and Chief Executive Officer
(principal executive officer); Director
Date: June 28, 1999
/s/ A. Alexander McLean, III
- ------------------------------------------------------------
A. Alexander McLean, III, Executive Vice President and Chief
Financial Officer (principal financial officer and principal
accounting officer); Director
Date: June 28, 1999
/s/ Ken R. Bramlett, Jr.
- ----------------------------------------------------------
Ken R. Bramlett, Jr., Director
Date: June 28, 1999
/s/ William S. Hummers, III
- ---------------------------------------------------------
William S. Hummers, III, Director
Date: June 28, 1999
14