10-Q/A 1 0001.txt WORLD ACCEPTANCE CORPORATION 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, 2000 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 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, August 11, 2000. Common Stock, no par value 18,627,573 ----------------------------------- ---------------------- (Class) (Outstanding) WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page Item 1. Consolidated Financial Statements (unaudited): Consolidated Balance Sheets as of June 30, 2000 and March 31, 2000 3 Consolidated Statements of Operations for the three months ended June 30, 2000 and June 30, 1999 4 Consolidated Statements of Shareholders' Equity for the year ended March 31, 2000 and the three months ended June 30, 2000 5 Consolidated Statements of Cash Flows for the three months ended June 30, 2000 and June 30, 1999 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial 9 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II - OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities 14 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 2 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, March 31, 2000 2000 ------------- ------------- ASSETS Cash $ 2,623,340 1,690,676 Gross loans receivable 196,303,038 173,609,123 Less: Unearned interest and fees (44,240,200) (37,949,381) Allowance for loan losses (11,270,735) (10,008,257) ------------- ------------- Loans receivable, net 140,792,103 125,651,485 Property and equipment, net 6,814,041 6,752,791 Other assets, net 8,712,080 8,269,399 Intangible assets, net 12,281,268 11,108,477 ------------- ------------- Total assets $ 171,222,832 153,472,828 ============= ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Senior notes payable 88,700,000 67,900,000 Subordinated notes payable 8,000,000 10,000,000 Other note payable 482,000 482,000 Income taxes payable 657,040 2,059,441 Accounts payable and accrued expenses 3,382,602 4,839,001 ------------- ------------- Total liabilities 101,221,642 85,280,442 ------------- ------------- Shareholders' equity: Common stock, no par value - - Additional paid-in capital - 267,958 Retained earnings 70,001,190 67,924,428 ------------- ------------- Total shareholders' equity 70,001,190 68,192,386 ------------- ------------- $ 171,222,832 153,472,828 ============= ============= See accompanying notes to consolidated financial statements. 3 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended June 30, ------------------------- 2000 1999 ---- ---- Revenues: Interest and fee income $22,851,229 20,552,669 Insurance and other income 4,091,403 3,774,399 ----------- ----------- Total revenues 26,942,632 24,327,068 ----------- ----------- Expenses: Provision for loan losses 3,912,303 3,038,820 General and administrative expenses: Personnel 10,868,721 10,021,087 Occupancy and equipment 1,789,458 1,621,281 Data processing 324,953 363,692 Advertising 621,573 917,290 Amortization of intangible assets 423,660 348,655 Other 2,372,687 2,028,673 ----------- ----------- 16,401,052 15,300,678 Interest expense 1,760,066 1,356,341 ----------- ----------- Total expenses 22,073,421 19,695,839 ----------- ----------- Income before income taxes 4,869,211 4,631,229 Income taxes 1,680,000 1,575,000 ----------- ----------- Net income $ 3,189,211 3,056,229 =========== =========== Net income per common share: Basic $ .17 .16 =========== =========== Diluted $ .17 .16 =========== =========== Weighted average common equivalent shares outstanding: Basic 18,775,375 19,016,573 =========== =========== Diluted 18,905,743 19,174,710 =========== ===========
See accompanying notes to consolidated financial statements. 4 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
Additional Paid-in Retained Capital Earnings Total ----------- ----------- ----------- Balances at March 31, 1999 $ 935,921 53,755,909 54,691,830 Proceeds from exercise of stock options (15,000 shares), including tax benefit of $11,932 55,682 - 55,682 Common stock repurchases (144,000 shares) (723,645) - (723,645) Net income - 14,168,519 14,168,519 ----------- ----------- ----------- Balances at March 31, 2000 $ 267,958 67,924,428 68,192,386 Proceeds from exercise of stock options (15,000 shares), including tax benefit of $9,756 53,506 - 53,506 Common stock repurchases (275,000 shares) (321,464) (1,112,449) (1,433,913) Net income - 3,189,211 3,189,211 ----------- ----------- ----------- Balances at June 30, 2000 $ - 70,001,190 70,001,190 =========== =========== ===========
See accompanying notes to consolidated financial statements. 5 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended June 30, ---------------------------- 2000 1999 ------------ ------------ Cash flows from operating activities: Net income $ 3,189,211 3,056,229 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 3,912,303 3,038,820 Amortization of intangible assets 423,660 348,655 Amortization of loan costs and discounts 13,276 29,523 Depreciation 390,702 339,698 Change in accounts: Other assets, net (455,957) 16,514 Accounts payable and accrued expenses (1,456,399) (1,230,033) Income taxes payable (1,392,645) 995,044 ------------ ------------ Net cash provided by operating activities 4,624,151 6,594,450 ------------ ------------ Cash flows from investing activities: Increase in loans, net (9,884,537) (8,539,327) Net assets acquired from office acquisitions, primarily loans (9,175,884) (1,108,770) Purchases of premises and equipment (444,452) (368,656) Purchases of intangible assets (1,596,451) (553,500) ------------ ------------ Net cash used by investing activities (21,101,324) (10,570,253) ------------ ------------ Cash flows from financing activities: Proceeds from senior notes payable, net 20,800,000 3,850,000 Repayment of senior subordinated notes (2,000,000) - Repurchase of common stock (1,433,913) - Proceeds from exercise of stock options 43,750 - ------------ ------------ Net cash provided by financing activities 17,409,837 3,850,000 ------------ ------------ Increase (decrease) in cash 932,664 (125,803) Cash, beginning of period 1,690,676 1,236,207 ------------ ------------ Cash, end of period $ 2,623,340 1,110,404 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest expense $ 1,624,079 1,396,729 Cash paid for income taxes 3,092,157 579,956 Supplemental schedule of noncash financing activities: Tax benefits from exercise of stock options 9,756 -
See accompanying notes to consolidated financial statements. 6 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of the Company at June 30, 2000, 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, 2000, and the results of operations and cash flows for the period then ended, have been included. The results for the period ended June 30, 2000 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 2000 to conform with fiscal 2001 presentation. These reclassifications had no impact on shareholders' equity or net income. The preparation of financial statements in conformity with generally accepted accounting principals 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 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, 2000, included in the Company's 2000 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, 2000 1999 ------------ ------------ Balance at beginning of period $ 10,008,257 8,769,367 Provision for loan losses 3,912,303 3,038,820 Loan losses (3,914,850) (3,086,443) Recoveries 349,402 332,799 Allowance on acquired loans, net of specific charge-offs 915,623 (15,621) ------------ ------------ Balance at end of period $ 11,270,735 9,038,922 ============ ============ 7 NOTE 4 - LITIGATION The Company was named as a defendant in an action, Turner v. World Acceptance Corp., filed in the district court for the Fourteenth Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20, 1997. That action (the "Tulsa Case") named the Company and numerous other consumer finance companies as defendants, and sought certification as a statewide class action. The Tulsa Case 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 Tulsa Case also challenged the constitutionality of the provisions of the Oklahoma Consumer Credit Code ("OCCC") under which the Company operates. The Company filed an answer in the action denying the allegations. On March 16, 1999, the District Court granted summary judgment in favor of the Company and the other consumer finance companies and dismissed the Tulsa Case. The plaintiffs in the Tulsa Case appealed that order, and their appeal remains pending before the Oklahoma Court of Appeals. The Tulsa Case is based on an opinion of the Oklahoma Attorney General issued on February 20, 1997, interpreting a provision of the OCCC with respect to the permitted amount of certain loan refinance charges in a manner contrary to regulatory practice that had been in existence in Oklahoma since 1969. On the basis of that opinion the Administrator of the Oklahoma Department of Consumer Credit (the "Department") notified the Company and the other consumer finance companies that the Department would begin enforcing the provisions of the OCCC, as interpreted by the Attorney General's opinion on March 3, 1997. In response to the Attorney General's opinion and the Department's threat, the Company and numerous other consumer finance companies brought suit (the "Administrator's Case") to enjoin enforcement by the Department of the OCCC as interpreted by the Attorney General. Shortly thereafter, the Oklahoma Legislature enacted amendments to the relevant provision of the OCCC, which became effective on August 29, 1997, and which negated the effect of the Attorney General's interpretation. Although the Company and the other consumer finance companies were successful at the trial court level in the Administrator's Case, in May 1999, the Oklahoma Supreme Court upheld the Attorney General's interpretation. The Oklahoma Supreme Court's decision expressly limited the application of the Attorney General's interpretation of the OCCC to the period between March 3, 1997, and August 29, 1997, and it expressly refrained from reaching the issue of whether refunds of charges assessed during that period were required. The Attorney General subsequently directed the Department to proceed with administratively ordering refunds. The Company and several of the other consumer finance companies contend that for numerous reasons, the Department lacks both the authority and the legal basis to order refunds. The Company and the other consumer finance companies attempted to open discussions with the Department and the Attorney General with the goal of resolving both the issues concerning an attempted administrative order of refunds and the issues that remain pending in the Tulsa Case. On August 9, 2000, the Oklahoma Administrator presented to the Commission his proposed order for effecting refunds of alleged overcharges on renewal loans made during the period from March 3, 1997 through August 28, 1997. After requiring certain modifications the Commission approved the Administrator's proposal and directed him to proceed to issue an administrative order (the "Administrative Order"). Although the Company has not made a final decision on whether to voluntarily comply with or to oppose the Administrative Order and has not yet determined the actual cost of voluntarily complying with the Administrative Order, the Company preliminarily estimates that the cost of voluntary compliance, depending on the exact language of the Administrative Order as ultimately issued and upon other factors that go into the calculation of the amount to be refunded and the method of accomplishing the refunds, could range between an insignificant amount and $800,000. Whether the Company voluntarily complies with or opposes the Administrative Order, the pending Tulsa Case remains unresolved. The Company is continuing to explore settlement possibilities in the Tulsa Case; however, the results of those negotiations cannot be predicted at this time. Because of the 1997 amendments to the OCCC, the Company expects that even if both the Tulsa Case and the Department's attempts at administratively ordering refunds are decided adversely to the Company, those results would not materially affect the Company's refinancing practices in Oklahoma going forward. 8 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): Three months ended June 30, ----------------- 2000 1999 ---- ---- (Dollars in thousands) Average gross loans receivable (1) $ 175,922 151,654 Average loans receivable (2) 135,561 117,492 Expenses as a % of total revenue: Provision for loan losses 14.5% 12.5% General and administrative 60.9% 62.9% Total interest expense 6.5% 5.6% Operating margin (3) 24.6% 24.6% Return on average assets (annualized) 7.9% 8.9% Offices opened or acquired, net 7 8 Total offices (at period end) 417 387 -------------- (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 revenue. Comparison of Three Months Ended June 30, 2000, Versus Three Months Ended June 30, 1999 Net income rose to $3.2 million for the three months ended June 30, 2000, a 4.4% increase over the $3.1 million earned during the corresponding three-month period of the previous year. This increase resulted from an increase in operating income (revenues less provision for loan losses and general and administrative expenses) of approximately $642,000, or 10.7%, and was partially offset by increases in interest expense and income taxes. Interest and fee income for the quarter ended June 30, 2000, increased by $2.3 million, or 11.2%, over the same period of the prior year. This increase resulted from an $18.1 million increase, or 15.4%, in average loans receivable over the two corresponding periods, offset partially by a reduction in yields on the loan portfolio. This yield reduction was due to the expansion of the larger loans program in several states. The larger loans have stricter credit underwriting guidelines, greater collateral, and fewer expected losses; however, they generally carry lower interest rates than the traditional small loan. Insurance commissions and other income increased by $317,000 million, or 8.4%, over the two quarters primarily as a result of the increase in insurance commissions. This increase resulted from the growth in loans in 9 WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Comparison of Three Months Ended June 30, 2000, Versus Three Months Ended June 30, 1999, continued those states where insurance products may be sold, primarily South Carolina, Georgia, and Tennessee. The expansion of the larger loan portfolio in these three states has also led to increased insurance commissions as well as the acquisitions in Kentucky, which also allows the sale of credit related insurance products. Total revenues rose to $26.9 million during the quarter ended June 30, 2000, a 10.8% increase over the $24.3 million for the corresponding quarter of the previous year. Revenues from the 379 offices open throughout both quarters increased by approximately 4.0%, primarily due to increased balances of loans receivable in those offices. At June 30, 2000, the Company had 417 offices in operation, an increase of 7 offices from March 31, 2000. The provision for loan losses during the quarter ended June 30, 2000, increased by $873,000, or 28.7%, from the same quarter last year. This increase resulted from a combination of increases in both the general allowance for loan losses due to loan growth and the amount of loans charged off. Net charge-offs for the current quarter amounted to $3,565,000, a 29.5% increase over the $2,754,000 charged off during the same quarter of fiscal 2000. As a percentage of average loans receivable, net charge-offs increased from 9.4% on an annualized basis from three months ended June 30, 1999, to 10.5% annualized for the most recent quarter. General and administrative expenses for the quarter ended June 30, 2000, increased by $1.1 million, or 7.2%, over the same quarter of fiscal 2000. This increase resulted from the additional general and administrative expenses associated with the 30 net new offices opened or acquired between June 30, 1999 and 2000. Overall, general and administrative expenses, when divided by average open offices, decreased by approximately 0.7% when comparing the two periods; and, as a percentage of total revenue, decreased from 62.9% during the prior year quarter to 60.9% during the most recent quarter. Interest expense increased by $404,000, or 29.8%, primarily as a result of the additional debt incurred to fund the increase in loans receivable during the prior year, to fund recent acquisitions, and to repurchase common stock, combined with an increase in interest rates over the two periods. The Company's effective income tax rate increased slightly from 34.0% when comparing the two quarters due to reduced tax benefits from the captive insurance subsidiary. 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 an $85.0 million revolving credit agreement, (temporarily increased to $100.0 million), and $8.0 million of subordinated notes. The revolving credit facility expires on September 30, 2002, and bears interest, at the Company's option, at the agent's prime rate or LIBOR plus 1.60%. At June 30, 2000, the average interest rate under the facility was 8.42%, and the Company's outstanding balance was $88.7 million, leaving $11.3 million in borrowing availability under existing borrowing base limitations (based on eligible loans receivable). The Company has received a temporary increase in availability under the revolving credit facility of $15.0 million for the period beginning June 28, 2000 through March 31, 2001. 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. 10 WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED 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, to fund the principal payments due under the subordinated notes, to repurchase its common stock on a limited basis, and to fund 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 nine 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. 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. Forward-Looking Information This report on Form 10-Q, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," may contain various "forward-looking statements," within the meaning of Section 21E of the Securities Exchange Act of 1934, that are based on management's belief and assumptions, as well as information currently available to management. Specifically, management's statements of expectations with respect to the matters described below in "Legal Proceedings," may be deemed forward-looking statements. When used in this document, the words "anticipate," "estimate," "expect," and similar expressions may identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual financial results, performance or financial condition may vary materially from those anticipated, estimated or expected. Among the key factors that could cause the Company's actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements are the following: changes in interest rates, risks inherent in making loans, including repayment risks and value of collateral; recently-enacted or proposed legislation; the timing and amount of revenues that may be recognized by the Company; changes in current revenue and expense trends (including trends affecting charge-offs); changes in the Company's markets and general changes in the economy (particularly in the markets served by the Company); the precise language and application of the Administrative Order in Oklahoma; the unpredictable nature of litigation; and other matters discussed in this Report and the Company's other filings with the Securities and Exchange Commission. Legal Proceedings: The Company is a party to certain legal proceedings. See Part II, Item I. 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's outstanding debt under the Revolving Credit Facility was $88.7 million at June 30, 2000. 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 June 30, 2000, a change of 1% in the interest rate would cause a change in interest expense of approximately $887,000 on an annual basis. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company was named as a defendant in an action, Turner v. World Acceptance Corp., filed in the district court for the Fourteenth Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20, 1997. That action (the "Tulsa Case") named the Company and numerous other consumer finance companies as defendants, and sought certification as a statewide class action. The Tulsa Case 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 Tulsa Case also challenged the constitutionality of the provisions of the Oklahoma Consumer Credit Code ("OCCC") under which the Company operates. The Company filed an answer in the action denying the allegations. On March 16, 1999, the District Court granted summary judgment in favor of the Company and the other consumer finance companies and dismissed the Tulsa Case. The plaintiffs in the Tulsa Case appealed that order, and their appeal remains pending before the Oklahoma Court of Appeals. The Tulsa Case is based on an opinion of the Oklahoma Attorney General issued on February 20, 1997, interpreting a provision of the OCCC with respect to the permitted amount of certain loan refinance charges in a manner contrary to regulatory practice that had been in existence in Oklahoma since 1969. On the basis of that opinion the Administrator of the Oklahoma Department of Consumer Credit (the "Department") notified the Company and the other consumer finance companies that the Department would begin enforcing the provisions of the OCCC, as interpreted by the Attorney General's opinion on March 3, 1997. In response to the Attorney General's opinion and the Department's threat, the Company and numerous other consumer finance companies brought suit (the "Administrator's Case") to enjoin enforcement by the Department of the OCCC as interpreted by the Attorney General. Shortly thereafter, the Oklahoma Legislature enacted amendments to the relevant provision of the OCCC, which became effective on August 29, 1997, and which negated the effect of the Attorney General's interpretation. Although the Company and the other consumer finance companies were successful at the trial court level in the Administrator's Case, in May 1999, the Oklahoma Supreme Court upheld the Attorney General's interpretation. The Oklahoma Supreme Court's decision expressly limited the application of the Attorney General's interpretation of the OCCC to the period between March 3, 1997, and August 29, 1997, and it expressly refrained from reaching the issue of whether refunds of charges assessed during that period were required. The Attorney General subsequently directed the Department to proceed with administratively ordering refunds. The Company and several of the other consumer finance companies contend that for numerous reasons, the Department lacks both the authority and the legal basis to order refunds. The Company and the other consumer finance companies attempted to open discussions with the Department and the Attorney General with the goal of resolving both the issues concerning an attempted administrative order of refunds and the issues that remain pending in the Tulsa Case. On August 9, 2000, the Oklahoma Administrator presented to the Commission his proposed order for effecting refunds of alleged overcharges on renewal loans made during the period from March 3, 1997 through August 28, 1997. After requiring certain modifications the Commission approved the Administrator's proposal and directed him to proceed to issue an administrative order (the "Administrative Order") 12 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES Although the Company has not made a final decision on whether to voluntarily comply with or to oppose the Administrative Order and has not yet determined the actual cost of voluntarily complying with the Administrative Order, the Company preliminarily estimates that the cost of voluntary compliance, depending on the exact language of the Administrative Order as ultimately issued and upon other factors that go into the calculation of the amount to be refunded and the method of accomplishing the refunds, could range between an insignificant amount and $800,000. Whether the Company voluntarily complies with or opposes the Administrative Order, the pending Tulsa Case remains unresolved. The Company is continuing to explore settlement possibilities in the Tulsa Case; however, the results of those negotiations cannot be predicted at this time. Because of the 1997 amendments to the OCCC, the Company expects that even if both the Tulsa Case and the Department's attempts at administratively ordering refunds are decided adversely to the Company, those results would not materially affect the Company's refinancing practices in Oklahoma going forward. 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 (other than the previously reported legal proceedings, to the extent discussed in the Company's Annual Report on Form 10-K for the year ended March 31, 2000) that would have a material adverse effect on its financial condition. Item 2. Changes in Securities The Company's credit agreements contain certain restrictions on the payment of cash dividends on its capital stock. 13 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION, CONTINUED Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
Previous Company Exhibit Exhibit Registration Number Description 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 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 Settlement Agreement dated as of April 1, 1999, between the 10.3 1999 10-K Company and R. Harold Owens 10.5 Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879 between the Company and certain of its securityholders
14
10.6 World Acceptance Corporation Supplemental 10.7 2000 10-K Income Plan 10.7 Board of Directors Deferred Compensation Plan 10.6 2000 10-K 10.8 1992 Stock Option Plan of the Company 4 33-52166 10.9 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K 10.10 The Company's Executive Incentive Plan 10.6 1994 10-K 10.11 World Acceptance Corporation Retirement Savings Plan 4.1 333-14399 27 Financial Data Schedules (for SEC purposes only)
# Omitted from filing - substantially identical to immediately preceding exhibits, except for the parties thereto and the principal amount involved. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended June 30, 2000. 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: August 14, 2000 ------------------------------------------ C. D. Walters, Chairman, and Chief Executive Officer Dated: August 14, 2000 ------------------------------------------ A. A. McLean III, Executive Vice President and Chief Financial Officer 16 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: August 14, 2000 /s/ C. D. Walters ----------------------------------------- C. D. Walters, Chairman, and Chief Executive Officer Dated: August 14, 2000 /s/ A. A. McLean III ----------------------------------------- A. A. McLean III, Executive Vice President and Chief Financial Officer 16