EX-13 3 ex-13_77550.txt EXHIBIT 13 EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA -------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts)
Years Ended March 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- --------- --------- --------- -------- Statement of Operations Data: Interest and fee income................................. $ 103,412 $ 89,052 $ 80,677 $ 71,873 $ 64,820 Insurance commissions and other income................. 17,132 16,224 11,085 8,754 7,863 ---------- --------- --------- --------- --------- Total revenues....................................... 120,544 105,276 91,762 80,627 72,683 ---------- --------- --------- --------- --------- Provision for loan losses............................... 19,749 15,697 11,707 9,609 9,480 Legal expense/(1)/...................................... 416 183 5,845 441 645 Other general and administrative expenses............... 67,848 61,652 57,788 53,029 46,201 Interest expense........................................ 8,260 6,015 5,534 5,541 4,322 ---------- --------- --------- --------- --------- Total expenses....................................... 96,273 83,547 80,874 68,620 60,648 ---------- --------- --------- --------- --------- Income before income taxes.............................. 24,271 21,729 10,888 12,007 12,035 Income taxes............................................ 8,670 7,560 3,568 3,909 3,952 ---------- --------- --------- --------- --------- Net income/(1)/......................................... $ 15,601 $ 14,169 $ 7,320 $ 8,098 $ 8,083 ========== ========= ========= ========= ========= Net income per common share (diluted)/(1)/.............. $ .83 $ .74 $ .38 $ .42 $ .41 ========== ========= ========= ========= ========= Diluted weighted average common equivalent shares.................................... $ 18,840 19,155 19,213 19,172 19,833 ========== ========= ========= ========= ========= Balance Sheet Data (end of period): Loans receivable........................................ $ 162,389 $ 135,660 $ 117,339 $ 103,385 $ 89,539 Allowance for loan losses............................... (12,032) (10,008) (8,769) (8,444) (6,283) ---------- --------- --------- --------- --------- Loans receivable, net............................ 150,357 125,652 108,570 94,941 83,256 Total assets............................................ 183,160 153,473 133,470 118,382 104,486 Total debt.............................................. 91,632 78,382 71,632 64,182 58,682 Shareholders' equity.................................... 82,727 68,192 54,692 47,301 38,963 Other Operating Data: As a percentage of average loans receivable: Provision for loan losses............................ 12.6% 12.3% 10.4% 9.9% 11.1% Net charge-offs...................................... 12.0% 12.0% 9.7% 9.4% 10.6% Number of offices open at year-end...................... 420 410 379 360 336
/(1)/ The Company recorded a legal settlement of $5.4 million in fiscal 1999. Excluding this settlement, net of the income tax benefit, net income and net income per diluted common share would have been $10.8 million and $.56, respectively. -------------------------------------------------------------------------------- World Acceptance Corporation 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- General The Company's financial performance continues to be dependent in large part upon the growth in its outstanding loan receivables, the ongoing introduction of new products and services for marketing to the customer base, the maintenance of loan quality and acceptable levels of operating expenses. Since March 31, 1996, gross loans receivable have increased at a 16.2% annual compounded rate from $99.4 million to $210.9 million at March 31, 2001. The increase reflects both the higher volume of loans generated through the Company's existing offices and the contribution of loans generated from new offices opened or acquired over the period. During this same five-year period, the Company has grown from 282 offices to 420 offices as of March 31, 2001. The Company plans to open or acquire at least 15 new offices in each of the next two fiscal years. The Company continues to identify new products and services for marketing to its customer base. In addition to new insurance-related products, which have been introduced in selected states over the last several years, the Company sells and finances electronic items and appliances to its existing customer base. This program, the "World Class Buying Club," began in Texas in February 1995 and has since been expanded into all 10 states where the Company operates. Total loan volume under this program amounted to $4.2 million during fiscal 2001, a 15.8% increase from the prior fiscal year. While this represents less than 1% of the Company's total loan volume, it remains a very profitable program, which the Company plans to continue to emphasize in fiscal 2002 and beyond. The Company's ParaData Financial Systems subsidiary provides data processing systems to separate finance companies, including the Company, and currently supports approximately 1,035 individual branch offices in 44 states. ParaData's revenue is highly dependent upon its ability to attract new customers, which often requires substantial lead time, and as a result its revenue may fluctuate greatly from year to year. During fiscal 2001, its net revenues from system sales and support amounted to $2.8 million, a 23.0% decrease from the $3.6 million in fiscal 2000, which was a 49.8% increase over fiscal 1999 net revenues. As a result, ParaData's pretax income contribution to the Company also fluctuates greatly and was $1.0 million, $1.8 million, and $0.8 million in fiscal 2001, fiscal 2000, and fiscal 1999, respectively. ParaData's net revenue and resulting net contribution to the Company will continue to fluctuate on a year to year basis, but should remain very profitable over the long term. Additionally, and more importantly, ParaData continues to provide state-of-the-art data processing support for the Company's in-house integrated computer system. Since fiscal 1997, the Company has expanded its product line to include larger balance, lower risk, and lower yielding individual consumer loans. These loans typically average $2,500 to $3,000 with terms of 18 to 24 months compared to $300 to $500 with 8 to 12 month terms for the smaller loans. The Company offers these loans in all states except Texas, where they are not profitable under our lending criteria and strategy. Additionally, the Company has purchased numerous larger loan offices and has made several bulk purchases of larger loans receivable. As of March 31, 2001, the larger class of loans amounted to approximately $55.1 million of gross loans receivable, a 110.1% increase over the balance outstanding at March 31, 2000. As a result of these efforts, this portfolio has grown to 26.1% of the total loan balances as of the end of the fiscal year. Management believes that these loans provide lower expense and loss ratios, thus providing positive contributions. While the Company does not intend to change its primary lending focus from its small-loan business, it does intend to continue expanding the larger loan product line as part of its ongoing growth strategy. In fiscal 1999, the Company tested in 40 offices an income tax return preparation and refund anticipation loan program. Based on the results of this test, the Company expanded this program into all offices where permitted by the lease agreements (approximately 390 offices) in fiscal 2000. Due to certain systems and service bureau problems encountered during the first two weeks of the filing season, the program was less successful than anticipated; however, in spite of these problems, the Company completed and filed approximately 16,000 tax returns, generating approximately $1 million in net revenue. During fiscal 2001, the Company did not experience any system problems and more than doubled the number of returns that were prepared and filed, and generated in excess of $2.7 million in net revenue. The Company believes that this is a beneficial service for its existing customer base and plans to promote and expand the program in the future. -------------------------------------------------------------------------------- 6 World Acceptance Corporation Management's Discussion and Analysis -------------------------------------------------------------------------------- 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.
Years Ended March 31, ----------------------------------------- 2001 2000 1999 ---------- ----------- ----------- (Dollars in thousands) Average gross loans receivable/(1)/................................... $ 204,789 163,786 144,203 Average loans receivable/(2)/......................................... 156,850 127,230 112,273 Expenses as a percentage of total revenue: Provision for loan losses......................................... 16.4% 14.9% 12.8% General and administrative/(3)/................................... 56.6% 58.7% 63.5% Total interest expense............................................ 6.9% 5.7% 6.0% Operating margin/(4)/................................................. 27.0% 26.4% 23.8% Return on average assets/(5)/......................................... 8.8% 9.7% 8.4% Offices opened and acquired, net...................................... 10 31 19 Total offices (at period end)......................................... 420 410 379
_____________ /(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)/ Excludes $5.4 million expense for legal settlement for the year ended March 31, 1999. Including this one-time charge, the ratio would have been 69.3% for the fiscal 1999 period. /(4)/ Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses (excluding the legal settlement charge in fiscal 1999), as a percentage of total revenues. Including the $5.4 million charge for the legal settlement, the operating margin for the year ended March 31, 1999 would have been 17.9%. /(5)/ Excludes $5.4 million legal settlement, net of tax benefit, for the year ended March 31, 1999. Including this one-time charge, the ratio would have been 5.7% for the annual period. Comparison of Fiscal 2001 Versus Fiscal 2000 Net income amounted to $15.6 million during fiscal 2001, a 10.1% increase over the $14.2 million earned during fiscal 2000. This increase resulted from an increase in operating income (revenues less provision for loan losses and general and administrative expenses) of $4.8 million, or 17.3%, offset by increases in interest expense and income taxes. Interest and fee income during fiscal 2001 increased by $14.4 million, or 16.1%, over fiscal 2000. This increase resulted from an increase of $29.6 million, or 23.3%, in average loans receivable between the two fiscal years, offset partially by a reduction in yields in the loan portfolio. The continued decline in loan yields is primarily due to the continued expansion of the larger loan portfolio, which grew by 110.1% during the most recent fiscal year. The larger loans have stricter credit underwriting guidelines, more collateral, and fewer expected losses and generally carry lower interest rates than the traditional small loan. The large increase in average loans receivable, especially the larger loans, is partially due to several acquisitions during the year. The Company acquired approximately $15.6 million in net loans in 17 separate transactions during fiscal 2001. Insurance commissions and other income increased by $907,000, or 5.6%, over the two fiscal years. Insurance commissions increased by $245,000, or 3.0%, as a result of the increase in loan volume in states where -------------------------------------------------------------------------------- World Acceptance Corporation 7 Management's Discussion and Analysis -------------------------------------------------------------------------------- credit insurance may be sold. This increase was less than expected, in light of the excellent increase in larger loans (which generally permit the sale of credit insurance products), because of a change in state law in Tennessee during the year that affected the small loan portfolio. Effective July 1, 2000, Tennessee prohibited the sale of credit insurance and other ancillary products on loans less than $1,000, but increased the interest and fees that could be charged on these loans. Other income increased by $663,000, or 8.3%, over the two years. Tax preparation fees increased by $1.7 million, or 181.7%, as the Company more than doubled (to approximately 33,000) the number of tax returns prepared and filed during fiscal 2001. This program went extremely well this year and should provide a source of revenue growth for several years. The increase in tax preparation fees was offset by decreases in ParaData net revenue of $819,000 and other ancillary products of $380,000. As expected, ParaData was unable to attract the number of new customers in fiscal 2001 that it gained in fiscal 2000. The decline in other ancillary products resulted from the Tennessee law change during the year, which eliminated the sale of these products on certain loans. Total revenues increased to $120.5 million in fiscal 2001, a $15.3 million, or 14.5%, increase over the $105.3 million in fiscal 2000. Revenues from the 366 offices open throughout both fiscal years increased by 6.8%. At March 31, 2001, the Company had 420 offices in operation, an increase of 10 net offices from March 31, 2000. The provision for loan losses during fiscal 2001 increased by $4.1 million, or 25.8%, from the previous year. This increase resulted from a combination of increases in both the general allowance for loan losses and the amount of loans charged off. Net charge-offs for fiscal 2001 amounted to $18.8 million, a 22.7% increase over the $15.3 million charged off during fiscal 2000, and net charge-offs as a percentage of average loans remained stable at 12.0% when comparing the two annual periods. General and administrative expenses during fiscal 2001 increased by $6.4 million, or 10.4%, over the previous fiscal year. This increase was due primarily to costs associated with the new offices opened or acquired during the fiscal year. Excluding the expenses associated with ParaData, general and administrative expenses, when divided by average open offices, increased by 4.4% when comparing the two fiscal years and, overall, general and administrative expenses as a percent of total revenues decreased from 58.7% in fiscal 2000 to 56.6% during fiscal 2001. Interest expense increased by $2.2 million, or 37.3%, during fiscal 2001, as compared to the previous fiscal year. This increase was due to additional borrowings outstanding during the year, as well as increases in interest rates during the first part of fiscal 2001. The Company's effective income tax rate increased to 35.7% during fiscal 2001 from 34.8% during the previous fiscal year. This increase resulted primarily from increased state income taxes. Comparison of Fiscal 2000 Versus Fiscal 1999 Net income was $14.2 million in fiscal 2000, a $6.8 million, or 93.6%, increase over the $7.3 million earned during fiscal 1999. The results for fiscal 1999 were greatly affected by the $5.4 million accrual for the legal settlement recorded during that period (see "Legal Settlement"). Excluding this one-time accrual, net of income tax benefits, net income for fiscal 2000 rose by $3.4 million, or 31.6%, over the adjusted fiscal 1999 earnings. This increase resulted from an increase in operating income of $5.9 million, or 27.1%, offset by increases in interest expense and income taxes. Interest and fee income during fiscal 2000 increased by $8.4 million, or 10.4%, over fiscal 1999. This increase resulted primarily from an increase of $15.0 million, or 13.3%, in average loans receivable between the two fiscal years. The increase in interest and fee income resulting from the larger loan base was partially offset by a reduction in loan yields over the two fiscal years, primarily due to an increase in the larger loan portfolio. These loans have lower interest rates than the traditional small loans; however, the overall returns on these loans are enhanced by the sale of credit insurance and other ancillary products. -------------------------------------------------------------------------------- 8 World Acceptance Corporation Management's Discussion and Analysis -------------------------------------------------------------------------------- Insurance commissions and other income amounted to $16.2 million in fiscal 2000, a $5.1 million, or 46.4%, increase over the $11.1 million recorded in fiscal 1999. Insurance commissions increased by $2.3 million, or 40.7%, and other income increased by $2.8 million, or 52.6%. The improvement in insurance commission revenue resulted primarily from the growth in the larger loan portfolio, mainly in those states where credit insurance may be sold in conjunction with the loan transaction. The increase in other income resulted primarily from $1.1 million in additional net revenue generated by ParaData, combined with approximately $1.0 million in net revenues generated by the new tax return preparation and refund anticipation loan program. ParaData had an excellent year in fiscal 2000, attracting several new customers. Its increased net revenue resulted in approximately $1.8 million in pretax profit for the subsidiary during fiscal 2000, compared with $792,000 earned in fiscal 1999. The tax preparation program was new to the Company on a wide-scale basis in fiscal 2000. Although systems and service bureau problems were encountered during the first several weeks of the tax filing season, the Company considered the program a success by filing approximately 16,000 tax returns and generating approximately $1.0 million in net revenues. Total revenues were $105.3 million during fiscal 2000, a 14.7% increase over the $91.8 million in the prior fiscal year. Revenues from the 346 offices that were open throughout both fiscal years increased by 8.6%. The provision for loan losses during fiscal 2000 increased by $4.0 million, or 34.1%, from the previous year. This increase resulted from an increase in the general allowance for loan losses, as well as an increase in actual loan losses. As a percentage of average loans receivable, net charge-offs rose to 12.0% during fiscal 2000 from 9.7% during the previous fiscal year. This increase in net charge-offs resulted from a combination of factors, including a reduction in non-file insurance available to offset losses in two states due to the legal settlement; the growth in the loan portfolio in Illinois and Missouri, two newer states where credit insurance is not sold; as well as a general increase in losses. General and administrative expenses, excluding the accrual for the legal settlement in fiscal 1999, increased by $3.6 million, or 6.2%, over the two fiscal years. The Company's profitability benefited by improved expense ratios as total general and administrative expenses as a percent of total revenues decreased from 63.5% during fiscal 1999 to 58.7% during fiscal 2000. Additionally, the average general and administrative expense per open office actually declined by .1% when comparing the two fiscal years. Interest expense increased by $481,000, or 8.7%, in fiscal 2000 when compared with the prior fiscal year. This increase was due to an increase in average borrowings during the year, as well as an increase in interest rates over the two periods. The Company's effective income tax rate increased to 34.8% in fiscal 2000 from 32.8% in fiscal 1999 primarily as a result of reduced benefits from the Company's captive insurance subsidiary as well as increased state income taxes. Credit Loss Experience Delinquency is computed on the basis of the date of the last full contractual payment on a loan (known as the recency method) and on the basis of the amount past due in accordance with original payment terms of a loan (known as the contractual method). Management closely monitors portfolio delinquency using both methods to measure the quality of the Company's loan portfolio and the probability of credit losses. -------------------------------------------------------------------------------- World Acceptance Corporation 9 Management's Discussion and Analysis ________________________________________________________________________________ The Company maintains an allowance for loan losses in an amount that, in management's opinion, is adequate to cover losses inherent in the existing loan portfolio. The Company charges against current earnings, as a provision for loan losses, amounts added to the allowance to maintain it at levels expected to cover probable losses of principal. The Company's policy is to charge off loans on which a full contractual installment has not been received during the prior 180 days, or sooner if the loan is deemed uncollectible. Collection efforts on charged-off loans continue until the obligation is satisfied or until it is determined such obligation is not collectible or the cost of continued collection efforts will exceed the potential recovery. Recoveries of previously charged-off loans are credited to the allowance for loan losses. When establishing the allowance for loan losses, the Company takes into consideration the growth of the loan portfolio, the mix of the loan portfolio, current levels of charge-offs, current levels of delinquencies, and current economic factors. While management uses the best information available to make evaluations, future adjustments to the allowance for loan losses may be necessary if conditions differ substantially from the assumptions used in making the calculations. The following table sets forth the Company's allowance for loan losses at the end of the fiscal years ended March 31, 2001, 2000, and 1999, and the credit loss experience over the indicated periods:
At or for the Years Ended March 31, --------------------------------------- 2001 2000 1999 --------- --------- --------- (Dollars in thousands) Allowance for loan losses........................................... $ 12,032 $ 10,008 $ 8,769 Percentage of loans receivable...................................... 7.4% 7.4% 7.5% Provision for loan losses........................................... $ 19,749 $ 15,697 $ 11,707 Net charge-offs..................................................... $ 18,751 $ 15,284 $ 10,863 Net charge-offs as a percentage of average loans receivable /(1)/... 12.0% 12.0% 9.7%
___________________ /(1)/ Average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period. The following table classifies the gross loans receivable of the Company that were delinquent on a recency and contractual basis for at least 60 days at March 31, 2001, 2000, and 1999:
At March 31, --------------------------------------- 2001 2000 1999 --------- --------- --------- (Dollars in thousands) Recency basis: 60-89 days past due................................................ $ 3,213 $ 2,601 $ 2,163 90 days or more past due........................................... 1,624 1,196 1,047 ------ ------ ------ Total............................................................ $ 4,837 $ 3,797 $ 3,210 ====== ====== ====== Percentage of period-end gross loans receivable..................... 2.3% 2.2% 2.1% Contractual basis: 60-89 days past due................................................ $ 4,297 $ 3,298 $ 2,766 90 days or more past due........................................... 4,080 2,818 2,609 ------ ------ ------ Total............................................................ $ 8,377 $ 6,116 $ 5,375 ====== ====== ====== Percentage of period-end gross loans receivable..................... 4.0% 3.5% 3.6% ====== ====== ======
________________________________________________________________________________ 10 World Acceptance Corporation Management's Discussion and Analysis ________________________________________________________________________________ Quarterly Information and Seasonality The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand typically occurs from October through December, its third fiscal quarter. Loan demand has generally been the lowest and loan repayment highest from January to March, its fourth fiscal quarter. Loan volume and average balances typically remain relatively level during the remainder of the year. This seasonal trend affects quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned and the provision for loan losses recorded, as well as fluctuations in the Company's cash needs. Consequently, operating results for the Company's third fiscal quarter generally are significantly lower than in other quarters and operating results for its fourth fiscal quarter significantly higher than in other quarters. The following table sets forth, on a quarterly basis, certain items included in the Company's unaudited consolidated financial statements and shows the number of offices open during fiscal years 2000 and 2001.
At or for the Three Months Ended ------------------------------------------------------------------------------------------------ June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, 1999 1999 1999 2000 2000 2000 2000 2001 --------- --------- --------- --------- --------- --------- --------- --------- (Dollars in thousands) Total revenues....... $ 24,327 $ 25,513 $ 26,930 $ 28,506 $ 26,943 $ 28,610 $ 29,880 $ 35,111 Provision for loan losses....... 3,039 4,573 5,540 2,545 3,912 5,155 7,039 3,643 General and administrative expenses.......... 15,301 14,723 15,886 15,925 16,402 16,326 17,556 17,980 Net income (loss).... 3,056 3,129 2,586 5,398 3,189 3,262 1,975 7,175 Gross loans receivable........ $ 159,182 $ 163,228 $ 182,900 $ 173,609 $ 196,303 $ 208,651 $ 235,532 $ 210,894 Number of offices open...... 387 399 404 410 417 424 426 420
Current Accounting Issues In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. This effective date reflects the deferral provided by SFAS 137, which defers the earlier effective date specified in SFAS 133. The Company adopted SFAS 133 on April 1, 2001, with no material impact. In September 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 140 (SFAS No. 140), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement 125," which revises the criteria for accounting for securitizations and other transfers of financial assets and collateral, and introduces new disclosures. The enhanced disclosure requirements are effective for year-end 2000. The other provisions of SFAS No. 140 apply prospectively to transfers of financial assets and extinguisments of liabilities occurring after March 31, 2001. The Company adopted SFAS No. 140 on April 1, 2001 with no material impact. ________________________________________________________________________________ World Acceptance Corporation 11 Management's Discussion and Analysis ________________________________________________________________________________ Liquidity and Capital Resources The Company has financed its operations, acquisitions and office expansion through a combination of cash flow from operations and borrowings from its institutional lenders. The Company has generally applied its cash flow from operations to fund its increasing loan volume, fund acquisitions, repay long- term indebtedness, and repurchase its common stock. As the Company's gross loans receivable increased from $130.6 million at March 31, 1998 to $210.9 million at March 31, 2001, net cash provided by operating activities for fiscal years 1999, 2000, and 2001 was $20.7 million, and $31.9 million, and $39.1 million, respectively. The Company's primary ongoing cash requirements relate to the funding of new offices and acquisitions, the overall growth of loans outstanding, the repayment of long-term indebtedness and the repurchase of its common stock. The Company repurchased 1,986,000 shares of its common stock under its repurchase program, for an aggregate purchase price of approximately $16.0 million, between February 1996 and October 1996. Because of certain loan agreement restrictions, the Company suspended its stock repurchases in October 1996. The stock repurchase program was reinstated in January 2000, and 144,000 shares were repurchased in fiscal 2000 and 275,000 were repurchased in fiscal 2001 for an aggregate purchase price of $724,000 and $1,434,000, respectively. The Company believes stock repurchases to be a viable component of the Company's long-term financial strategy and an excellent use of excess cash when the opportunity arises. In addition, the Company plans to open or acquire at least 15 new offices in each of the next two fiscal years. Expenditures by the Company to open and furnish new offices generally averaged approximately $19,500 per office during fiscal 2001. New offices have also required from $100,000 to $400,000 to fund outstanding loans receivable originated during their first 12 months of operation. The Company acquired 12 offices and a number of loan portfolios from competitors in eight states in 17 separate transactions during fiscal 2001. Gross loans receivable purchased in these transactions were approximately $23.4 million in the aggregate at the dates of purchase. The Company believes that attractive opportunities to acquire new offices or receivables from its competitors or to acquire offices in communities not currently served by the Company will continue to become available as conditions in local economies and the financial circumstances of owners change. The Company has an $105.0 million revolving credit facility with a syndicate of banks. The credit facility will expire on September 30, 2002. Funds borrowed under the revolving credit facility bear interest, at the Company's option, at either the agent bank's prime rate per annum or the LIBOR rate plus 1.75% per annum. At March 31, 2001, the interest rate on borrowings under the revolving credit facility was 6.94%. The Company pays a commitment fee equal to 0.375% of the daily unused portion of the revolving credit facility. Amounts outstanding under the revolving credit facility may not exceed specified percentages of eligible loans receivable. On March 31, 2001, $83.2 million was outstanding under this facility, and there was $21.8 million of unused borrowing availability under the borrowing base limitations. The Company has $8.0 million of senior subordinated secured notes with an insurance company. These notes mature in annual installments of $2.0 million on each June 30, from 2001 through 2004, and bear interest at 10.0%, payable quarterly. The notes were issued at a discounted price equal to 99.6936% and may be prepaid subject to certain prepayment penalties. Borrowings under the revolving credit facility 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. ________________________________________________________________________________ 12 World Acceptance Corporation Management's Discussion and Analysis ________________________________________________________________________________ The Company's credit agreements contain a number of financial covenants, including minimum net worth and fixed charge coverage requirements. The credit agreements also contain certain other covenants, including covenants that impose limitations on the Company with respect to (i) declaring or paying dividends or making distributions on or acquiring common or preferred stock or warrants or options; (ii) redeeming or purchasing or prepaying principal or interest on subordinated debt; (iii) incurring additional indebtedness; and (iv) entering into a merger, consolidation or sale of substantial assets or subsidiaries. The senior subordinated notes are also subject to prepayment penalties. The Company believes that it is in compliance with these agreements and does not believe that these agreements will materially limit its business and expansion strategy. The Company believes that cash flow from operations and borrowings under its revolving credit facility will be adequate to fund the expected cost of opening or acquiring new offices, including funding initial operating losses of new offices and funding loans receivable originated by those offices and the Company's other offices and the scheduled repayment of the senior subordinated notes. From time to time, the Company has needed and obtained, and expects that it will continue to need on a periodic basis, an increase in the borrowing limits under its revolving credit facility. The Company has successfully obtained such increases in the past and anticipates that it will be able to do so in the future as the need arises; however, there can be no assurance that this additional funding will be available (or available on reasonable terms) if and when needed. Quantitative and Qualitative Disclosures About Market Risk The Company's outstanding debt under its revolving credit facility was $83.2 million at March 31, 2001. Interest on borrowings under this facility is based, at the Company's option, on the prime rate or LIBOR plus 1.75%. Based on the outstanding balance at March 31, 2001, a change of 1% in the interest rate would cause a change in interest expense of approximately $832,000 on an annual basis. Inflation The Company does not believe that inflation has a material adverse effect on its financial condition or results of operations. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. While increases in operating costs would adversely affect the Company's operations, the consumer lending laws of three of the ten states in which the Company 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 in those states, which could partially offset the potential increase in operating costs due to inflation. Legal Settlement From April 1995 through July 1999, the Company and several of its subsidiaries were 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 was 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). ________________________________________________________________________________ World Acceptance Corporation 13 Management's Discussion and Analysis ________________________________________________________________________________ On November 11, 1998, the Company and its subsidiaries named in the action entered into a settlement agreement pursuant to which the Company 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 curtailed certain non-filing practices by the Company and its subsidiaries and allowed the court to approve criteria defining those circumstances in which the Company's subsidiaries could make non-filing insurance claims going forward. As a result of the settlement, non-filing insurance fees charged to borrowers were reduced by 25%. The settlement agreement, which includes the settlement by several other defendants in the litigation, including the Company's insurer, was approved by the Court. The Company 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, $5.0 million was paid to an escrow account and has been distributed to class participants, and $244 thousand in costs were incurred in completing the settlement. The remaining $156 thousand of the accrual was reversed in fiscal 2000. The settlement limited and reduced the coverage for the types of losses with respect to which the Company's subsidiaries submit claims. The Company does not believe that those limitations and reductions will have a material adverse effect on the Company's results of operations. Other Legal Matters At March 31, 2001, the Company and certain of its subsidiaries have been named as defendants in various other legal actions arising from their normal business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to such other matters cannot be determined, the Company believes, based upon the advice of counsel, that any such liability will not have a material adverse effect on the Company's consolidated financial statements taken as a whole. ________________________________________________________________________________ 14 World Acceptance Corporation Management's Discussion and Analysis ________________________________________________________________________________ Forward-Looking Statements This annual report, 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 beliefs and assumptions, as well as information currently available to management. When used in this document, the words "anticipate," "estimate," "expect," and similar expressions may identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual financial results, performance or financial condition may vary materially from those anticipated, estimated or expected. Among the key factors that could cause the Company's actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements are the following: changes in interest rates; risks inherent in making loans, including repayment risks and value of collateral; recently enacted or proposed legislation; the timing and amount of revenues that may be recognized by the Company; changes in current revenue and expense trends (including trends affecting charge-offs); changes in the Company's markets and general changes in the economy (particularly in the markets served by the Company); the unpredictable nature of litigation; and other matters discussed in this annual report and the Company's filings with the Securities and Exchange Commission. ________________________________________________________________________________ World Acceptance Corporation 15 CONSOLIDATED BALANCE SHEETS ________________________________________________________________________________
March 31, ------------------------------------- 2001 2000 --------------- --------------- Assets Cash............................................................................ $ 3,292,504 1,690,676 Gross loans receivable.......................................................... 210,893,604 173,609,123 Less: Unearned interest and deferred fees........................................ (48,504,582) (37,949,381) Allowance for loan losses.................................................. (12,031,622) (10,008,257) --------------- --------------- Loans receivable, net.................................................. 150,357,400 125,651,485 Property and equipment, net..................................................... 6,538,131 6,752,791 Other assets, net............................................................... 9,834,117 8,269,399 Intangible assets, net.......................................................... 13,138,307 11,108,477 --------------- --------------- $ 183,160,459 153,472,828 =============== =============== Liabilities and Shareholders' Equity Liabilities: Senior notes payable....................................................... 83,150,000 67,900,000 Subordinated notes payable................................................. 8,000,000 10,000,000 Other note payable......................................................... 482,000 482,000 Income taxes payable....................................................... 3,038,113 2,059,441 Accounts payable and accrued expenses...................................... 5,763,812 4,839,001 --------------- --------------- Total liabilities...................................................... 100,433,925 85,280,442 --------------- --------------- Shareholders' equity: Preferred stock, no par value Authorized 5,000,000 shares............................................ - - Common stock, no par value Authorized 95,000,000 shares; issued and outstanding 18,688,973 and 18,887,573 shares at March 31, 2001 and 2000, respectively............. - - Additional paid-in capital................................................. 313,655 267,958 Retained earnings.......................................................... 82,412,879 67,924,428 --------------- --------------- Total shareholders' equity............................................. 82,726,534 68,192,386 --------------- --------------- Commitments and contingencies $ 183,160,459 153,472,828 =============== ===============
See accompanying notes to consolidated financial statements. ________________________________________________________________________________ 16 World Acceptance Corporation CONSOLIDATED STATEMENTS OF OPERATIONS ________________________________________________________________________________
Years Ended March 31, -------------------------------------------------- 2001 2000 1999 -------------- ------------- ------------- Revenues: Interest and fee income.................................... $ 103,411,761 89,051,419 80,676,687 Insurance commissions and other income..................... 17,131,920 16,224,444 11,085,548 -------------- ------------- ------------- Total revenues.................................... 120,543,681 105,275,863 91,762,235 -------------- ------------- ------------- Expenses: Provision for loan losses.................................. 19,748,604 15,697,165 11,707,392 -------------- ------------- ------------- General and administrative expenses: Personnel.............................................. 43,878,217 39,498,066 37,055,930 Occupancy and equipment................................ 7,627,080 6,917,420 6,358,974 Data processing........................................ 1,518,501 1,501,667 1,437,421 Advertising ......................................... 3,967,213 3,932,663 4,063,755 Legal.................................................. 415,594 183,095 5,844,864 Amortization of intangible assets...................... 1,797,425 1,472,108 1,309,632 Other.................................................. 9,060,353 8,330,131 7,562,355 -------------- ------------- ------------- 68,264,383 61,835,150 63,632,931 -------------- ------------- ------------- Interest expense........................................... 8,259,794 6,015,029 5,534,315 -------------- ------------- ------------- Total expenses.................................... 96,272,781 83,547,344 80,874,638 -------------- ------------- ------------- Income before income taxes...................................... 24,270,900 21,728,519 10,887,597 -------------- ------------- ------------- Income taxes.................................................... 8,670,000 7,560,000 3,568,000 -------------- ------------- ------------- Net income...................................................... $ 15,600,900 14,168,519 7,319,597 ============== ============= ============= Net income per common share: Basic...................................................... $ .84 .75 .39 ============== ============= ============= Diluted.................................................... $ .83 .74 .38 ============== ============= ============= Weighted average shares outstanding: Basic...................................................... 18,670,597 19,003,380 19,010,789 ============== ============= ============= Diluted.................................................... 18,839,620 19,155,042 19,212,813 ============== ============= =============
See accompanying notes to consolidated financial statements. ________________________________________________________________________________ World Acceptance Corporation 17 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY --------------------------------------------------------------------------------
Additional Paid-in Retained Capital Earnings Total ----------- ------------ ------------ Balances at March 31, 1998........................................ $ 864,968 46,436,312 47,301,280 Proceeds from exercise of stock options (18,000 shares), including tax benefits of $18,453.............................. 70,953 - 70,953 Net income........................................................ - 7,319,597 7,319,597 ----------- ------------ ------------ Balances at March 31, 1999........................................ 935,921 53,755,909 54,691,830 Proceeds from exercise of stock options (15,000 shares), including tax benefits 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 (76,400 shares), including tax benefits of $41,355.............................. 367,161 - 367,161 Common stock repurchases (275,000 shares)......................... (321,464) (1,112,449) (1,433,913) Net income........................................................ - 15,600,900 15,600,900 ----------- ------------ ------------ Balances at March 31, 2001........................................ $ 313,655 82,412,879 82,726,534 =========== ============ ============
See accompanying notes to consolidated financial statements. -------------------------------------------------------------------------------- 18 World Acceptance Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS --------------------------------------------------------------------------------
Years Ended March 31, ------------------------------------------------ 2001 2000 1999 ------------- ------------ ------------ Cash flows from operating activities: Net income ....................................................... $ 15,600,900 14,168,519 7,319,597 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets .............................. 1,797,425 1,472,108 1,309,632 Amortization of loan costs and discounts........................ 62,452 87,195 119,741 Provision for loan losses....................................... 19,748,604 15,697,165 11,707,392 Depreciation .................................................. 1,569,905 1,490,642 1,428,619 Deferred tax benefit............................................ (808,000) (485,000) (1,257,000) Change in accounts: Other assets, net............................................. (819,170) (819,607) (1,463,428) Income taxes payable.......................................... 1,020,027 616,282 2,093,575 Accounts payable and accrued expenses......................... 924,811 (367,482) 1,102,972 ------------ ------------ ------------ Net cash provided by operating activities................... 39,096,954 31,859,822 20,687,950 ------------ ------------ ------------ Cash flows from investing activities: Increase in loans receivable, net................................. (28,815,645) (23,207,673) (21,064,511) Net assets acquired from office acquisitions, primarily loans..... (15,653,874) (9,622,912) (4,311,115) Increase in intangible assets from acquisitions................... (3,827,255) (2,752,700) (1,527,123) Purchases of property and equipment, net.......................... (1,340,245) (1,892,173) (1,264,105) ------------ ------------ ------------ Net cash used by investing activities....................... (49,637,019) (37,475,458) (28,166,854) ------------ ------------ ------------ Cash flows from financing activities: Proceeds of senior revolving notes payable, net.................................................... 15,250,000 10,750,000 11,450,000 Repayment of senior term notes payable............................ - (4,000,000) (4,000,000) Repayment of subordinated notes payable........................... (2,000,000) - - Proceeds from exercise of stock options........................... 325,806 43,750 52,500 Repurchase of common stock........................................ (1,433,913) (723,645) - ------------ ------------- ------------ Net cash provided by financing activities................... 12,141,893 6,070,105 7,502,500 ------------ ------------ ------------ Increase in cash..................................................... 1,601,828 454,469 23,596 Cash at beginning of year............................................ 1,690,676 1,236,207 1,212,611 ------------ ------------ ------------ Cash at end of year.................................................. $ 3,292,504 1,690,676 1,236,207 ============ ============ ============
See accompanying notes to consolidated financial statements. -------------------------------------------------------------------------------- World Acceptance Corporation 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ________________________________________________________________________________ (1) Summary of Significant Accounting Policies ------------------------------------------ The Company's accounting and reporting policies are in accordance with generally accepted accounting principles and conform to general practices within the finance company industry. The following is a description of the more significant of these policies used in preparing the consolidated financial statements. Principles of Consolidation The consolidated financial statements include the accounts of World Acceptance Corporation and its wholly owned subsidiaries (the "Company"). Subsidiaries consist of operating entities in various states, ParaData Financial Systems ("ParaData"), a software company acquired during fiscal 1994, and WAC Holdings Ltd., a captive reinsurance company established in fiscal 1994. All significant intercompany balances and transactions have been eliminated in consolidation. The Company operates primarily as one business segment, which is a consumer finance company. ParaData provides data processing systems to 130 separate finance companies, including the Company. At March 31, 2001 and 2000, ParaData had total assets of $1,976,226, and $3,912,252, respectively. For the years ended March 31, 2001, 2000 and 1999, ParaData had income before income taxes of $1,024,638, $1,847,042, and $791,529, respectively. Total net revenues (sales and systems support less cost of sales) for ParaData for the years ended March 31, 2001, 2000 and 1999 were $2,750,536, $3,570,297, and $2,383,578, respectively. Loans and Interest Income The Company is licensed to originate direct cash consumer loans in the states of Georgia, South Carolina, Texas, Oklahoma, Louisiana, Tennessee, Missouri, Illinois, New Mexico and Kentucky. During fiscal 2001 and 2000, the Company originated loans generally ranging up to $3,000, with terms of 24 months or less. Experience indicates that a majority of the direct cash consumer loans are renewed. Fees received and direct costs incurred for the origination of loans are deferred and amortized to interest income over the contractual lives of the loans. Unamortized amounts are recognized in income at the time that loans are renewed or paid in full. Loans are carried at the gross amount outstanding reduced by unearned interest and insurance income, net deferred origination fees and direct costs, and an allowance for loan losses. Unearned interest is deferred at the time the loans are made and accreted to income on a collection method, which approximates the level yield method. Charges for late payments are credited to income when collected. The Company generally offers its loans at the prevailing statutory rates for terms not to exceed 24 months. Management believes that the carrying value approximates the fair value of its loan portfolio. Allowance for Loan Losses Additions to the allowance for loan losses are based on management's evaluation of the loan portfolio under current economic conditions, the volume of the loan portfolio, overall portfolio quality, review of specific loans, charge-off experience, and such other factors which, in management's judgment, deserve recognition in estimating loan losses. Loans are charged off at the earlier of when such loans are deemed ________________________________________________________________________________ 20 World Acceptance Corporation Notes to Consolidated Financial Statements ________________________________________________________________________________ to be uncollectible or when six months have elapsed since the date of the last full payment. The net balance of loans deemed to be uncollectible is charged against the loan loss allowance. Recoveries of previously charged- off loans are credited to the allowance for loan losses. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the calculations. At March 31, 2001 and 2000, there were no concentrations of loans in any local economy, type of property, or to any one borrower. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful life of the related asset as follows: building, 40 years; furniture and fixtures, 5 to 10 years; equipment, 3 to 7 years; and vehicles, 3 years. Amortization of leasehold improvements is recorded using the straight-line method over the lesser of the estimated useful life of the asset or the term of the lease. Additions to premises and equipment and major replacements or betterments are added at cost. Maintenance, repairs, and minor replacements are charged to operating expense as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles 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. Other Assets Other assets include costs incurred in connection with originating long- term debt. Such remaining unamortized costs aggregated $192,558, and $183,236 at March 31, 2001 and 2000, respectively, and are amortized as interest expense over the life of the respective indebtedness. Intangible Assets Intangible assets include the cost of acquiring existing customers, the value assigned to noncompete agreements, costs incurred in connection with the acquisition of loan offices, and goodwill (the excess cost over the fair value of the net assets acquired). These assets are being amortized on a straight-line basis over the estimated useful lives of the respective assets as follows: 8 to 10 years for customer lists, 5 to 10 years for noncompete agreements and acquisition costs, and 10 years for goodwill. Management periodically evaluates the recoverability of the unamortized balances of these assets and adjusts them as necessary. Fair Value of Financial Instruments Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about the Fair Value of Financial Instruments" (SFAS 107) requires disclosures about the fair value of all financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value ________________________________________________________________________________ World Acceptance Corporation 21 Notes to Consolidated Financial Statements ________________________________________________________________________________ or other valuation techniques. The carrying amount of financial instruments included in the financial statements are deemed reasonable estimates of their fair value because of their variable repricing features and/or their short terms to maturity. Insurance Premiums Insurance premiums for credit life, accident and health, property and unemployment insurance written in connection with certain loans, net of refunds and applicable advance insurance commissions retained by the Company, are remitted monthly to an insurance company. All commissions are credited to unearned insurance commissions and recognized as income over the life of the related insurance contracts using a method similar to that used for the recognition of interest income. Non-file Insurance Non-file premiums are charged on certain loans at inception and renewal in lieu of recording and perfecting the Company's security interest in the assets pledged on certain loans and are remitted to a third-party insurance company for non-file insurance coverage. Such insurance and the related insurance premiums, claims, and recoveries are not reflected in the accompanying consolidated financial statements except as a reduction in loan losses (see note 6). Certain losses related to such loans, which are not recoverable through life, accident and health, property, or unemployment insurance claims are reimbursed through non-file insurance claims subject to policy limitations. Any remaining losses are charged to the allowance for loan losses. Income Taxes The Company uses the asset and liability method of accounting for income taxes required by SFAS No. 109, "Accounting for Income Taxes." Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Supplemental Cash Flow Information For the years ended March 31, 2001, 2000, and 1999, the Company paid interest of $8,176,867, $5,977,647, and $5,784,930, respectively. For the years ended March 31, 2001, 2000 and 1999, the Company paid income taxes of $8,457,973 $7,913,718, and $5,661,575, respectively. ________________________________________________________________________________ 22 World Acceptance Corporation Notes to Consolidated Financial Statements ________________________________________________________________________________ Supplemental non-cash financing activities for the years ended March 31, 2001, 2000, and 1999, consist of:
2001 2000 1999 ---------- ----------- ----------- Tax benefits from exercise of stock options...................... $ 41,355 11,932 18,453 ====== ====== ======
Earnings Per Share Earnings per share ("EPS") are computed in accordance with SFAS No. 128, "Earnings per Share." Basic EPS includes no dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company. Potential common stock included in the diluted EPS computation consists of stock options, which are computed using the treasury stock method. 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 and has disclosed in the footnotes pro forma net income and earnings per share information as if the fair value method had been applied. Reclassification Certain reclassification entries have been made for fiscal 2000 and 1999 to conform with fiscal 2001 presentation. There was no impact on shareholders' equity or net income previously reported as a result of these reclassifications. ________________________________________________________________________________ World Acceptance Corporation 23 Notes to Consolidated Financial Statements ________________________________________________________________________________ (2) Allowance for Loan Losses ------------------------- The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2001, 2000, and 1999:
March 31, ----------------------------------------------- 2001 2000 1999 ------------ ----------- ----------- Balance at the beginning of the year....................... $ 10,008,257 8,769,367 8,444,563 Provision for loan losses.................................. 19,748,604 15,697,165 11,707,392 Loan losses................................................ (20,433,464) (16,766,909) (12,256,626) Recoveries................................................. 1,682,681 1,482,439 1,393,437 Allowance on acquired loans, net of specific charge-offs... 1,025,544 826,195 (519,399) ------------ ----------- ------------ Balance at the end of the year............................. $ 12,031,622 10,008,257 8,769,367 ============ =========== ============
The allowance on acquired loans represents specific reserves established on bulk loan purchases and is shown in the above roll-forward net of subsequent charge-offs related to the same purchased loans. (3) Property and Equipment ---------------------- Summaries of property and equipment follow:
March 31, ------------------------------ 2001 2000 ------------ ------------ Land................................................................. $ 250,443 250,443 Buildings and leasehold improvements................................. 3,065,873 2,696,916 Furniture and equipment.............................................. 11,501,981 11,045,811 ------------ ------------ 14,818,297 13,993,170 Less accumulated depreciation and amortization....................... (8,280,166) (7,240,379) ------------ ------------ Total........................................................... $ 6,538,131 6,752,791 ============ ============
(4) Intangible Assets ----------------- Intangible assets, net of accumulated amortization, consist of:
March 31, ------------------------------ 2001 2000 ------------- ------------ Cost of acquiring existing customers................................. $ 7,140,655 4,045,160 Value assigned to noncompete agreements.............................. 4,835,824 5,687,007 Goodwill............................................................. 939,903 1,105,768 Other................................................................ 221,925 270,542 ---------- ----------- Total........................................................... $ 13,138,307 11,108,477 ========== ===========
________________________________________________________________________________ 24 World Acceptance Corporation Notes to Consolidated Financial Statements ________________________________________________________________________________ (5) Notes Payable Summaries of the Company's notes payable follow: Senior Credit Facilities $105,000,000 Revolving Credit Facility - This facility provides for -------------------------------------- borrowings of up to $105.0 million, with $83.2 million outstanding at March 31, 2001, subject to a borrowing base formula. The Company may borrow, at its option, at the rate of prime or LIBOR plus 1.75%. At March 31, 2001, the Company's interest rate was 6.94% and the unused amount available under the revolver was $21.8 million. The revolving credit facility has a commitment fee of 3/8 of 1% on the unused portion of the commitment. Borrowings under the revolving credit facility mature on September 30, 2002. $8,000,000 Senior Subordinated Secured Notes - These notes mature in -------------------------------------------- four annual installments of $2.0 million on June 30, 2001 through June 30, 2004, and bear interest at 10.0%, payable quarterly. The notes were issued at a discounted price equal to 99.6936% and may be prepaid subject to certain prepayment penalties. Substantially all of the Company's assets are pledged as collateral for borrowings under the revolving credit facility. The Company's assets are also pledged as collateral for the senior subordinated notes on a subordinated basis. Other Note Payable The Company also has a $482,000 note payable to an unaffiliated insurance company, bearing interest at 10%, payable annually, which matures in September 2001. The various debt agreements contain restrictions on the amounts of permitted indebtedness, investments, working capital, repurchases of common stock and cash dividends. At March 31, 2001, approximately $13,460,000 was available under these covenants for the payment of cash dividends, or the repurchase of the Company's common stock. In addition, the agreements restrict liens on assets and the sale or transfer of subsidiaries. The Company was in compliance with the various debt covenants for all periods presented. The aggregate annual maturities of the notes payable for each of the fiscal years subsequent to March 31, 2001, are as follows: 2002, $2,482,000; 2003, $85,150,000; 2004, $2,000,000; and 2005, $2,000,000. ________________________________________________________________________________ World Acceptance Corporation 25 Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- (6) Non-file Insurance ------------------ The Company maintains non-file insurance coverage with an unaffiliated insurance company. Premiums, claims paid, and recoveries under this coverage are not included in the accompanying financial statements except as a reduction of loan losses. The following is a summary of the non-file insurance activity for the years ended March 31, 2001, 2000, and 1999:
2001 2000 1999 ------------- ----------- ----------- Insurance premiums written....... $ 2,027,232 2,820,257 3,162,825 Recoveries on claims paid........ $ 359,681 368,971 367,756 Claims paid...................... $ 2,366,609 2,957,540 3,200,486
(7) Leases ------ The Company conducts most of its operations from leased facilities, except for its owned corporate office building. It is expected that in the normal course of business, expiring leases will be renewed at the Company's option or replaced by other leases or acquisitions of other properties. The future minimum lease payments under noncancelable operating leases as of March 31, 2001, are as follows: 2002........................................... $ 3,200,806 2003........................................... 2,216,351 2004........................................... 1,196,969 2005 .......................................... 626,372 2006 .......................................... 235,199 Thereafter..................................... 7,000 ----------- Total future minimum lease payments....... $ 7,482,697 =========== Rental expense for cancelable and noncancelable operating leases for the years ended March 31, 2001, 2000, and 1999, was $3,941,664, $3,542,209, and $3,180,150, respectively. (8) Income Taxes ------------ Income tax expense for the years ended March 31, 2001, 2000, and 1999, consists of:
2001 2000 1999 ---------- ----------- ----------- Current: Federal....................................................... $ 8,764,000 7,427,000 4,538,000 State......................................................... 714,000 618,000 287,000 ---------- ----------- ----------- Total..................................................... 9,478,000 8,045,000 4,825,000 ---------- ----------- ----------- Deferred: Federal....................................................... (747,000) (399,000) (1,179,000) State......................................................... (61,000) (86,000) (78,000) ---------- ----------- ----------- Total..................................................... (808,000) (485,000) (1,257,000) ---------- ----------- ----------- $ 8,670,000 7,560,000 3,568,000 ========== =========== ===========
-------------------------------------------------------------------------------- 26 World Acceptance Corporation Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- The income tax expense for the years ended March 31, 2001, 2000, and 1999 differs from the amount computed by applying the U.S. federal income tax rate of 35% as a result of the following:
2001 2000 1999 ---------- ----------- ----------- Computed "expected" income tax expense............................ $ 8,495,000 7,605,000 3,811,000 Increase resulting from: State income tax, net of Federal benefit..................... 424,000 346,000 136,000 Amortization of goodwill..................................... 58,000 58,000 58,000 Insurance income exclusion................................... (247,000) (165,000) (162,000) Other, net................................................... (60,000) (284,000) (275,000) ---------- ----------- ----------- Total income tax expense.......................................... $ 8,670,000 7,560,000 3,568,000 ========== =========== ===========
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of the deferred tax asset (liability) at March 31, 2001 and 2000, relate to the following:
2001 2000 ----------- ----------- Deferred tax assets: Allowance for doubtful accounts.............................. $ 4,372,000 3,680,000 Unearned insurance commissions............................... 1,739,000 1,453,000 Accounts payable and accrued expenses primarily related to employee benefits............................. 508,000 350,000 Intangible assets............................................ - 27,000 Tax over book accrued interest receivable.................... 840,000 743,000 Other........................................................ 289,000 266,000 ----------- ------------ Gross deferred tax assets......................................... 7,748,000 6,519,000 Less valuation allowance.......................................... (281,000) (266,000) ----------- ------------ Net deferred tax assets........................................... 7,467,000 6,253,000 ----------- ------------ Deferred tax liabilities: Intangible Assets............................................ (455,000) - Discount on purchased loans.................................. (87,000) (121,000) Deferred net loan origination fees........................... (483,000) (442,000) Other........................................................ (424,000) (480,000) ----------- ------------ Gross deferred tax liabilities.................................... (1,449,000) (1,043,000) ----------- ------------ Net deferred tax assets........................................... $ 6,018,000 5,210,000 =========== ============
A valuation allowance is established for any portion of the gross deferred tax asset that management cannot determine is more likely than not to be realized. The realization of net deferred tax assets is based on utilization of loss carrybacks to prior taxable periods, anticipation of future taxable income and the utilization of tax planning strategies. The valuation allowance against the potential total deferred tax asset as of March 31, 2001 and 2000 relates to state net operating losses. Management has determined that it is more likely than not that the net deferred tax asset can be realized based upon these criteria. The Internal Revenue Service has examined the Company's federal income tax returns for the fiscal years 1994 through 1996. Tax returns for fiscal 1997 and subsequent years are subject to examination by the taxing authorities. -------------------------------------------------------------------------------- World Acceptance Corporation 27 Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- (9) Earnings Per Share ------------------ The following is a reconciliation of the numerators and denominators of the basic and diluted EPS calculations.
For the year ended March 31, 2001 ----------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS Income available to common shareholders.................. $ 15,600,900 18,670,597 $ .84 ====== Effect of Dilutive Securities Options.................................................. $ - 169,023 ------------ ----------- Diluted EPS Income available to common shareholders plus assumed conversions............................... $ 15,600,900 18,839,620 $ .83 ============ =========== ====== For the year ended March 31, 2000 ----------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS Income available to common shareholders.................. $ 14,168,519 19,003,380 $ .75 ====== Effect of Dilutive Securities Options.................................................. $ - 151,662 ------------ ----------- Diluted EPS Income available to common shareholders plus assumed conversions............................... $ 14,168,519 19,155,042 $ .74 ============ =========== ====== For the year ended March 31, 1999 ----------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ Basic EPS Income available to common shareholders.................. $ 7,319,597 19,010,789 $ .39 ====== Effect of Dilutive Securities Options.................................................. $ - 202,024 ------------ ----------- Diluted EPS Income available to common shareholders plus assumed conversions............................... $ 7,319,597 19,212,813 $ .38 ============ =========== ======
Options to purchase 1,822,078, 2,986,140, and 1,979,878, shares of common stock at various prices were outstanding during the years ended March 31, 2001, 2000 and 1999, respectively, but were not included in the computation of diluted EPS because the option exercise price was greater than the average market price of the common shares. The options, which expire on various dates, were still outstanding as of March 31, 2001. -------------------------------------------------------------------------------- 28 World Acceptance Corporation Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- (10) Benefit Plans ------------- Retirement Plan The Company provides a defined contribution employee benefit plan (401(k) plan) covering full-time employees, whereby employees can invest up to 15% of their gross pay. The Company makes a matching contribution equal to 50% of the employees' contributions for the first 6% of gross pay. The Company's expense under this plan was $371,073, $364,667, and $306,697, for the years ended March 31, 2001, 2000, and 1999, respectively. Supplemental Executive Retirement Plan The Company has instituted a Supplemental Executive Retirement Plan ("SERP"), which is a non-qualified executive benefit plan in which the Company agrees to pay the executive additional benefits in the future, usually at retirement, in return for continued satisfactory performance by the executive. The Company selects the key executives who participate in the SERP. The SERP is an unfunded plan, which means there are no specific assets set aside by the Company in connection with the establishment of the plan. The executive has no rights under the agreement beyond those of a general creditor of the Company. For the year ended March 31, 2001, contributions of $384,222 were charged to operations related to the SERP. Stock Option Plans The Company has a 1992 Stock Option Plan and a 1994 Stock Option Plan for the benefit of certain directors, officers, and key employees. Under these plans, 3,750,000 shares of authorized common stock have been reserved for issuance pursuant to grants approved by the Stock Option Committee. The options have a maximum duration of 10 years, may be subject to certain vesting requirements, and are priced at the market value of the Company's common stock on the date of grant of the option. The Company applies APB Opinion 25 in accounting for the stock option plans, described in the preceding paragraph. Accordingly, no compensation expense has been recognized for the stock-based option plans. 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 would have been reduced to the pro forma amounts indicated below:
(Dollars in thousands except per share amounts) 2001 2000 1999 ----------- ----------- ----------- Net income As reported................................................. $ 15,601 14,169 7,320 Pro forma................................................... $ 14,733 13,423 6,666 Basic earnings per share As reported................................................. $ .84 .75 .39 ======= ====== ====== Pro forma................................................... $ .79 .71 .35 ======= ====== ====== Diluted earnings per share As reported................................................. $ .83 .74 .38 ======= ====== ====== Pro forma................................................... $ .78 .70 .35 ======= ====== ======
The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 2001, 2000, and 1999, respectively: dividend yield of zero; expected volatility of 29%, 40%, and 51%; risk-free interest rate of 5.49%, 6.76%, and 5.00%; and expected lives of 10 years for all plans in all three years. The fair values of options granted in 2001, 2000, and 1999 were $2.93, $3.36, and $3.92, respectively. -------------------------------------------------------------------------------- World Acceptance Corporation 29 Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- At March 31, 2001, the Company had the following options outstanding:
Shares Shares Shares Price Grant Date Granted Exercisable Exercised Per Share Expiration Date ---------- ------- ----------- --------- --------- --------------- April 22, 1992 150,000 150,000 - $ 2.98 April 22, 2002 April 30, 1992 24,000 24,000 6,000 $ 3.04 April 30, 2002 October 20, 1992 358,500 358,500 267,500 $ 2.92 October 20, 2002 January 20, 1993 30,000 30,000 - $ 5.04 January 20, 2003 April 7, 1993 90,000 90,000 4,000 $ 6.33 April 7, 2003 April 30, 1993 18,000 18,000 - $ 5.54 April 30, 2003 October 19, 1993 313,500 313,500 13,500 $ 6.88 October 19, 2003 April 30, 1994 24,000 24,000 - $ 5.75 April 30, 2004 October 13, 1994 454,500 454,500 6,000 $ 7.48 October 13, 2004 April 1, 1995 211,692 211,692 - $ 8.63 April 1, 2005 April 30, 1995 24,000 24,000 - $ 9.50 April 30,2005 June 26, 1995 75,000 75,000 - $11.33 June 26, 2005 October 31, 1995 98,500 96,500 - $13.00 October 31, 2005 January 23, 1996 15,000 15,000 - $10.25 January 23, 2006 April 1, 1996 137,123 137,123 - $10.75 April 1, 2006 April 1, 1996 60,054 60,054 - $10.75 June 26, 2001 April 1, 1996 33,000 33,000 - $10.75 April 1, 2006 April 30, 1996 24,000 24,000 - $10.06 April 30, 2006 July 18, 1996 6,800 6,800 - $ 6.75 July 18, 2006 July 18, 1996 7,800 7,800 - $ 6.75 June 26, 2001 October 25, 1996 162,000 129,600 - $ 6.69 October 25, 2006 January 27, 1997 30,000 24,000 - $ 5.94 January 27, 2007 January 27, 1997 6,000 6,000 - $ 5.94 June 26, 2001 March 31, 1997 26,800 26,800 - $ 5.41 March 31, 2007 April 1, 1997 54,080 54,080 - $ 5.41 April 1, 2007 April 1, 1997 24,502 24,502 - $ 5.41 June 26, 2001 April 29, 1997 17,500 16,700 - $ 5.18 April 29, 2007 April 29, 1997 6,500 6,500 6,500 $ 5.18 June 26, 2001 April 30, 1997 24,000 24,000 - $ 5.16 April 30, 2007 October 28, 1997 180,500 108,300 - $ 5.19 October 28, 2007 April 1, 1998 50,022 50,022 - $ 6.69 April 1, 2008 April 1, 1998 23,287 23,287 - $ 6.69 June 26, 2001 April 1, 1998 36,300 24,200 - $ 6.69 April 1, 2008 April 30, 1998 24,000 24,000 - $ 6.50 April 30, 2008 November 23, 1998 211,000 84,400 - $ 5.25 November 23, 2008 April 1, 1999 42,100 - - $ 5.38 April 1, 2009 April 1, 1999 100,000 66,666 - $ 5.38 April 1, 2009 April 1, 1999 50,000 50,000 35,900 $ 5.38 June 26, 2001 April 30, 1999 24,000 24,000 - $ 5.47 April 30, 2009 May 11, 1999 15,000 3,000 - $ 5.47 May 11, 2009 August 16, 1999 50,000 10,000 - $ 5.78 August 16, 2009 October 20, 1999 140,000 24,500 - $ 5.44 October 20, 2009 April 1, 2000 50,000 - - $ 4.91 April 1, 2010 April 30, 2000 24,000 24,000 - $ 5.13 April 30, 2010 October 26, 2000 203,500 - - $ 5.03 October 26, 2010 --------- --------- --------- Total 3,712,140 2,981,106 339,400 ========= ========= =========
-------------------------------------------------------------------------------- 30 World Acceptance Corporation Notes to Consolidated Financial Statements -------------------------------------------------------------------------------- On April 30, 2001, the Company granted options for 24,000 shares to non- management directors. After giving affect to the above grants, there remain 13,860 shares of common stock available for future grants. No expense has been recorded relative to stock options granted to date. (11) Acquisitions ------------ During fiscal 2001, the Company purchased the net assets of 17 consumer loan offices for a total consideration of $19,405,071. Total net loans receivable acquired amounted to $15,638,874, and the Company paid $3,843,156 for non-compete agreements with predecessor owners and for other intangible assets. Eight of the 17 offices acquired were merged into existing offices. During fiscal 2000, the Company purchased the net assets of 24 consumer loan offices for a total consideration of $12,376,112. Total net loans receivable acquired amounted to $9,571,314, and the Company paid $2,753,200 for non-compete agreements with predecessor owners and for other intangible assets. Twelve of the 24 offices acquired were merged into existing offices. During fiscal 1999, the Company purchased the net assets of 21 consumer loan offices for a total consideration of $5,909,134. Total net loans receivable acquired amounted to $4,271,696, and the Company paid $1,527,123 for non-compete agreements with predecessor owners and for other intangible assets. Eighteen of the 21 offices acquired were merged into existing offices. The pro forma impact of these purchases as though they had been acquired at the beginning of the periods presented would not have a material effect on the results of operations as reported. (12) Quarterly Information (Unaudited) --------------------------------- The following sets forth selected quarterly operating data:
2001 2000 --------------------------------- --------------------------------- First Second Third Fourth First Second Third Fourth ----- ------ ----- ------ ----- ------ ----- ------ (Dollars in thousands, except earnings per share data) Total revenues............................. $ 26,943 28,610 29,880 35,111 24,327 25,513 26,930 28,506 Provision for loan losses.................. 3,912 5,155 7,039 3,643 3,039 4,573 5,540 2,545 General and administrative expenses........ 16,402 16,326 17,556 17,980 15,301 14,723 15,886 15,925 Interest expense........................... 1,760 2,154 2,303 2,043 1,356 1,463 1,582 1,614 Income tax expense ........................ 1,680 1,713 1,007 4,270 1,575 1,625 1,336 3,024 ------- ------ ------- ------ ------- ------- ------- ------ Net income............................ $ 3,189 3,262 1,975 7,175 3,056 3,129 2,586 5,398 ======= ====== ======= ====== ======= ======= ======= ====== Earnings per share: Basic................................. $ .17 .18 .11 .38 .16 .16 .14 .29 ======= ====== ======= ====== ======= ======= ======= ====== Diluted............................... $ .17 .17 .11 .38 .16 .16 .14 .28 ======= ====== ======= ====== ======= ======= ======= ======
-------------------------------------------------------------------------------- World Acceptance Corporation 31 Notes to Consolidated Financial Statements ________________________________________________________________________________ (13) Litigation ---------- From April 1995 through July 1999, the Company and several of its subsidiaries were 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 was 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). On November 11, 1998, the Company and its subsidiaries named in the action entered into a settlement agreement pursuant to which the Company 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 curtailed certain non-filing practices by the Company and its subsidiaries and allowed the court to approve criteria defining those circumstances in which the Company's subsidiaries could make non-filing insurance claims going forward. As a result of the settlement, non-filing insurance fees charged to borrowers were reduced by 25%. The settlement agreement, which includes the settlement by several other defendants in the litigation, including the Company's insurer, was approved by the Court. The Company 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, $5.0 million was paid to an escrow account and has been distributed to class participants and $244 thousand in costs were incurred in completing the settlement. The remaining $156 thousand of the accrual was reversed in fiscal 2000. The settlement limited and reduced the coverage for the types of losses with respect to which the Company's subsidiaries submit claims. The Company does not believe that those limitations and reductions will have a material adverse effect on the Company's results of operations. ________________________________________________________________________________ 32 World Acceptance Corporation Notes to Consolidated Financial Statements ________________________________________________________________________________ At March 31, 2001, the Company and certain of its subsidiaries have been named as defendants in various other legal actions arising from their normal business activities in which damages in various amounts are claimed. Although the amount of any ultimate liability with respect to such other matters cannot be determined, the Company believes, based upon the advice of counsel, that any such liability will not have a material adverse effect on the Company's consolidated financial statements taken as a whole. (14) Commitments ----------- The Company has entered into employment agreements with certain key executive employees. The employment agreements have terms of two or three years and call for aggregate minimum annual base salaries of $655,000, adjusted annually as determined by the Company's Compensation Committee. The agreements also provide for annual incentive bonuses, which are based on the achievement of certain predetermined operational goals. ________________________________________________________________________________ World Acceptance Corporation 33 INDEPENDENT AUDITORS' REPORT ________________________________________________________________________________ The Board of Directors World Acceptance Corporation Greenville, South Carolina We have audited the accompanying consolidated balance sheets of World Acceptance Corporation and subsidiaries as of March 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2001. The consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of World Acceptance Corporation and subsidiaries as of March 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Greenville, South Carolina April 24, 2001 ________________________________________________________________________________ 34 World Acceptance Corporation CORPORATE INFORMATION ________________________________________________________________________________ Common Stock World Acceptance Corporation's common stock trades on The Nasdaq Stock Market under the symbol: WRLD. As of June 18, 2001, there were approximately 141 shareholders of record and approximately 2,000 persons or entities who hold their stock in nominee or "street" names through various brokerage firms. On this date there were 18,815,542 shares of common stock outstanding. The table below reflects the stock prices published by Nasdaq by quarter for the last two fiscal years. The last reported sale price on June 18, 2001, was $7.96. Market Price of Common Stock Fiscal 2000 ------------------------------------ Quarter High Low First $ 5.75 $ 5.00 Second 6.63 5.00 Third 5.81 4.13 Fourth 6.13 4.38 Fiscal 2001 ------------------------------------- Quarter High Low First $ 5.50 $ 4.78 Second 5.38 4.94 Third 5.50 5.00 Fourth 6.69 5.25 The Company has never paid a dividend on its Common Stock. The Company presently intends to retain its earnings to finance the growth and development of its business and does not expect to pay cash dividends in the foreseeable future. The Company's debt agreements also contain certain limitations on the Company's ability to pay dividends. See note 5 to the Company's Consolidated Financial Statements.