WORLD ACCEPTANCE CORP - 10-Q Quarterly Report

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 EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

¨	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

57-0425114

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). x Yes ¨ No

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, August 5, 2004.


Common Stock, no par value		18,453,797
(Class)		(Outstanding)

WORLD ACCEPTANCE CORPORATION

AND SUBSIDIARIES

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):

	Consolidated Balance Sheets as of June 30, 2004 and March 31, 2004	3

	Consolidated Statements of Operations for the three months ended June 30, 2004 and June 30, 2003	4

	Consolidated Statements of Shareholders’ Equity for the year ended March 31, 2004 and the three months ended June 30, 2004	5

	Consolidated Statements of Cash Flows for the three months ended June 30, 2004 and June 30, 2003	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	14

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	14

Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	14

Item 6.	Exhibits and Reports on Form 8-K	15

Signatures		17

WORLD ACCEPTANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2004			March 31, 2004
ASSETS
Cash	$	2,791,907		4,314,107
Gross loans receivable		334,566,979		310,130,665
Less:
Unearned interest and fees		(80,483,282	)	(73,602,603	)
Allowance for loan losses		(18,644,931	)	(17,260,750	)

Loans receivable, net		235,438,766		219,267,312
Property and equipment, net		9,406,414		9,273,602
Other assets, net		14,726,881		13,600,296
Intangible assets, net		16,019,546		15,514,003

Total assets	$	278,383,514		261,969,320

LIABILITIES & SHAREHOLDERS’ EQUITY
Liabilities:
Senior notes payable		109,250,000		91,350,000
Subordinated notes payable		—		2,000,000
Other notes payable		1,482,000		1,682,000
Income taxes payable		3,353,595		383,009
Accounts payable and accrued expenses		7,672,267		9,973,974

Total liabilities		121,757,862		105,388,983

Shareholders’ equity:
Common stock, no par value		—		—
Authorized 95,000,000 shares; issued and outstanding 18,432,397 and 18,857,197 shares at June 30, 2004 and March 31, 2004, respectively
Additional paid-in capital		5,602,570		12,822,906
Retained earnings		151,023,082		143,757,431

Total shareholders’ equity		156,625,652		156,580,337

	$	278,383,514		261,969,320

See accompanying notes to consolidated financial statements.

WORLD ACCEPTANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended June 30,
	2004		2003
Revenues:
Interest and fee income	$	40,600,399	34,405,478
Insurance and other income		6,877,909	5,857,829

Total revenues		47,478,308	40,263,307

Expenses:
Provision for loan losses		8,627,408	7,929,357
General and administrative expenses:
Personnel		17,706,247	15,349,643
Occupancy and equipment		2,914,423	2,302,004
Data processing		467,981	476,652
Advertising		1,580,286	1,282,964
Amortization of intangible assets		631,313	555,342
Other		3,118,790	2,675,853

		26,419,040	22,642,458

Interest expense		989,209	991,001

Total expenses		36,035,657	31,562,816

Income before income taxes		11,442,651	8,700,491

Income taxes		4,177,000	3,089,000

Net income	$	7,265,651	5,611,491

Net income per common share:
Basic	$	0.39	0.32

Diluted	$	0.37	0.30

Weighted average common equivalent shares outstanding:
Basic		18,669,757	17,767,836

Diluted		19,489,314	18,759,787

See accompanying notes to consolidated financial statements.

WORLD ACCEPTANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)


	Additional Paid-in Capital			Retained Earnings	Total
Balances at March 31, 2003	$	1,048,721		114,992,309	116,041,030

Proceeds from exercise of stock options (1,238,146 shares), including tax benefit of $3,774,332		11,774,185		—	11,774,185
Net income		—		28,765,122	28,765,122

Balances at March 31, 2004	$	12,822,906		143,757,431	156,580,337

Proceeds from exercise of stock options (8,200 shares), including tax benefit of $31,634		90,143		—	90,143
Common stock repurchases (433,000 shares)		(7,310,479	)	—	(7,310,479	)
Net income		—		7,265,651	7,265,651

Balances at June 30, 2004	$	5,602,570		151,023,082	156,625,652

See accompanying notes to consolidated financial statements.

WORLD ACCEPTANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended June 30,
	2004			2003
Cash flows from operating activities:
Net income	$	7,265,651		5,611,491
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		8,627,408		7,929,357
Amortization of intangible assets		631,313		555,342
Amortization of loan costs and discounts		31,079		44,102
Depreciation		467,785		404,806
Change in accounts:
Other assets, net		(1,157,664	)	509,613
Accounts payable and accrued expenses		(2,301,707	)	(1,134,624	)
Income taxes payable		3,002,220		813,456

Net cash provided by operating activities		16,566,085		14,733,543

Cash flows from investing activities:
Increase in loans, net		(17,739,006	)	(13,046,568	)
Net assets acquired from office acquisitions, primarily loans		(7,152,538	)	(2,255,438	)
Purchases of premises and equipment		(507,915	)	(445,583	)
Purchases of intangible assets		(1,136,856	)	(398,606	)

Net cash used by investing activities		(26,536,315	)	(16,146,195	)

Cash flows from financing activities:
Proceeds from senior notes payable, net		17,900,000		1,000,000
Repayment of senior subordinated notes		(2,000,000	)	(2,000,000	)
Proceeds (repayment) of other notes payable, net		(200,000	)	1,200,000
Repurchase of common stock		(7,310,479	)	—
Proceeds from exercise of stock options		58,509		1,552,699

Net cash provided by financing activities		8,448,030		1,752,699

(Decrease) increase in cash		(1,522,200	)	340,047

Cash, beginning of period		4,314,107		4,022,686

Cash, end of period	$	2,791,907		4,362,733

Supplemental disclosure of cash flow information:
Cash paid for interest	$	920,476		952,501
Cash paid for income taxes		3,196,850		2,275,544
Supplemental schedule of noncash financing activities:
Tax benefits from exercise of stock options		31,634		455,394

See accompanying notes to consolidated financial statements.

WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of the Company at June 30, 2004, and for the three months 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 June 30, 2004, and the results of operations and cash flows for the period then ended, have been included. The results for the period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full year or any other interim period.

Certain reclassification entries have been made for fiscal 2004 to conform with fiscal 2005 presentation. These reclassifications had no impact on shareholders’ equity or net income.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

These consolidated financial statements do not include all disclosures required by accounting principles generally accepted in the United States and should be read in conjunction with the Company’s audited financial statements and related notes for the year ended March 31, 2004, included in the Company’s 2004 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):


	Three months ended June 30,
	2004			2003
Balance at beginning of period	$	17,260,750		15,097,780
Provision for loan losses		8,627,408		7,929,357
Loan losses		(8,685,779	)	(7,618,232	)
Recoveries		1,002,538		696,946
Purchase accounting acquisitions		440,014		141,811

Balance at end of period	$	18,644,931		16,247,662

For the quarters ended June 30, 2004 and 2003, the Company recorded adjustments of approximately $440,000 and $142,000, respectively, to the allowance for loan losses in connection with its acquisitions in accordance with generally accepted accounting principles. These adjustments represent the allowance for loan losses on acquired loans.

The Company records acquired loans at fair value based on current interest rates, less allowances for uncollectibility and collection costs. The Company normally records all acquired loans on its books; however, the acquired loan portfolios generally include some loans that the Company deems uncollectible but which do not have an allowance assigned to them. An allowance for loan losses is then estimated based on a review of the loan portfolio, considering delinquency levels, charge-offs, loan mix and other current economic factors. The Company then records the acquired loans at their gross value and records the related allowance for loan losses as an adjustment to their allowance for loan losses. This is reflected as purchase accounting acquisitions. Subsequent charge-offs related to acquired loans are reflected in the purchase accounting acquisition adjustment in the year of acquisition.

NOTE 4 – AVERAGE SHARE INFORMATION

The following is a summary of the basic and diluted average common shares outstanding:


	Three months ended June 30,
	2004	2003
Basic:
Average common shares outstanding (denominator)	18,669,757	17,767,836

Diluted:
Average common shares outstanding	18,669,757	17,767,836
Dilutive potential common shares	819,557	991,951

Average diluted shares outstanding (denominator)	19,489,314	18,759,787

The following options were outstanding at the period end presented but were excluded from the calculation of diluted earnings per share because of the exercise price was greater than the average market price of the common shares:


For the three months ended	Number of Shares	Range of Exercise Prices
June 30, 2004	50,000	$22.25
June 30, 2003	79,500	$13.00

NOTE 5 – STOCK-BASED COMPENSATION

SFAS No. 123, “Accounting for Stock-Based Compensation,” issued in October 1995, allows a company to either adopt the fair value method of valuation or continue using the intrinsic valuation method presented under Accounting Principles Board (APB) Opinion 25 to account for stock-based compensation. The fair value method recommended in SFAS No. 123 requires a company to recognize compensation expense based on the fair value of the option on the grant date. The intrinsic value method measures compensation expense as the difference between the quoted market price of the stock and the exercise price of the option on the date of grant. The Company has elected to continue using APB Opinion 25. Accordingly, no compensation expense has been recorded. Had compensation cost been recognized for the stock option plans applying the fair-value-based method as prescribed by SFAS 123, the Company’s net income and earnings per share

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