-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASiGk5Muv/Nfv6K3cQJGzjDeUuhM4sSisODli500yAGSNxlAIUpxf/zPrsT9qMSj GFlA3IXsWGESTOHhGvR3ig== 0000950168-97-000313.txt : 19970222 0000950168-97-000313.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950168-97-000313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD ACCEPTANCE CORP CENTRAL INDEX KEY: 0000108385 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 570425114 STATE OF INCORPORATION: SC FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19599 FILM NUMBER: 97529063 BUSINESS ADDRESS: STREET 1: 108 FREDRICK STREET CITY: GREENVILLE STATE: SC ZIP: 29607 BUSINESS PHONE: 8642989800 MAIL ADDRESS: STREET 1: P O BOX 6429 CITY: GREENVILLE STATE: SC ZIP: 29606 10-Q 1 WORLD ACCEPTANCE CORP. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT of 1934 For the transition period from to Commission File Number: 0-19599 WORLD ACCEPTANCE CORPORATION (Exact name of registrant as specified in its charter.) South Carolina 57-0425114 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 108 Frederick Street Greenville, South Carolina 29607 (Address of principal executive offices) (Zip Code) (864) 298-9800 (registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (Check Mark) Yes No Indicate the number of shares outstanding of each of issuer's classes of common stock, as of the latest practicable date, February 13, 1997. Common Stock, no par value 18,924,573 (Class) (Outstanding) This Filing contains 16 pages. The Exhibit Index is on page 14. 1 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements (unaudited): Consolidated Balance Sheets as of December 31, 1996, and March 31, 1996 3 Consolidated Statements of Operations for the three-month periods and nine-month periods ended December 31, 1996, and December 31, 1995 4 Consolidated Statements of Shareholders' Equity for the year ended March 31, 1996, and the nine-month period ended December 31, 1996 5 Consolidated Statements of Cash Flows for the three-month periods and nine-month periods ended December 31, 1996, and December 31, 1995 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the three-month periods and nine-month periods ended December 31, 1996, and December 31, 1995 8 PART II - OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities 12 Item 4. Submission of Matters to a Vote of Securityholders 12 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 16
2 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, March 31, 1996 1996 ASSETS Cash $ 2,012,177 1,693,747 Gross loans receivable 128,182,433 99,425,915 Less: Unearned interest and fees (28,140,285) (19,802,649) Allowance for loan losses (6,673,409) (5,006,703) ------------- -------------- Loans receivable, net 93,368,739 74,616,563 Property and equipment, net 5,816,040 5,643,120 Other assets, net 5,603,868 3,758,329 Intangible assets, net 8,879,621 4,859,807 ------------ ------------- $ 115,680,445 90,571,566 ============ ============= LIABILITIES & SHAREHOLDERS' EQUITY Liabilities: Senior notes payable 72,500,000 37,750,000 Other note payable 482,000 482,000 Income taxes payable 1,081,781 3,460,456 Accounts payable and accrued expenses 5,974,197 3,999,442 ---------- ------------- Total liabilities 80,037,978 45,691,898 ---------- ------------- Shareholders' equity: Common stock, no par value - - Additional paid-in capital 471,076 14,625,136 Retained earnings 35,171,391 30,254,532 ------------ ------------- Total shareholders' equity 35,642,467 44,879,668 ------------ ------------ $ 115,680,445 90,571,566 ============ =============
See accompanying notes to consolidated financial statements. 3 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Nine months ended December 31, December 31, ------------------------------- ------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Interest and fee income $ 17,031,185 15,175,756 48,469,268 43,719,455 Insurance and other income 2,137,419 2,877,093 6,000,378 7,586,227 ------------ ------------- ------------ ------------- Total revenues 19,168,604 18,052,849 54,469,646 51,305,682 ------------ ------------- ------------ ------------- Expenses: Provision for loan losses 4,197,506 3,248,758 9,471,160 7,414,335 ------------ ------------- ------------ ------------- General and administrative expenses: Personnel 7,127,302 6,376,761 20,689,992 18,751,747 Occupancy and equipment 1,216,175 1,079,243 3,712,325 3,172,902 Data processing 241,368 214,685 762,329 712,165 Advertising 1,293,840 1,172,715 2,377,548 2,012,691 Amortization of intangible assets 744,431 673,075 2,135,172 2,045,516 Other 1,791,953 1,630,363 4,743,201 4,420,030 ------------ ------------- ------------ ------------- 12,415,069 11,146,842 34,420,567 31,115,051 ------------ ------------- ------------ ------------- Interest expense 1,137,686 898,709 3,014,060 2,614,889 ------------ ------------- ------------ ------------- Total expenses 17,750,261 15,294,309 46,905,787 41,144,275 ------------ ------------- ------------ ------------- Income before income taxes 1,418,343 2,758,540 7,563,859 10,161,407 Income taxes 496,000 1,005,000 2,647,000 3,670,000 ------------ ------------- ------------ ------------- Net income $ 922,343 1,753,540 4,916,859 6,491,407 ============ ============= ============ ============= Earnings per common share: Primary $ .05 .08 .25 .30 ============ ============= ============ ============= Fully diluted $ .05 .08 .25 .30 ============ ============= ============ ============= Weighted average common shares outstanding: Primary 19,295,278 21,661,091 20,064,070 21,661,138 ============ ============= ============ ============= Fully diluted 19,324,947 21,782,091 20,073,959 21,743,206 ============ ============= ============ =============
See accompanying notes to consolidated financial statements. 4 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
Additional Paid-in Retained Capital Earnings Total Balances at March 31, 1995 $ 16,059,492 19,698,474 35,757,966 Proceeds from exercise of stock options (45,000 shares), including tax benefit of $124,140 326,168 - 326,168 Common stock repurchases (176,000 shares) (1,760,524) - (1,760,524) Net income - 10,556,058 10,556,058 ----------- ----------- ----------- Balances at March 31, 1996 $ 14,625,136 30,254,532 44,879,668 Proceeds from exercise of stock options (25,500 shares), including tax benefit of $30,397 104,778 - 104,778 Common stock repurchases (1,810,000 shares) (14,258,838) - (14,258,838) Net income - 4,916,859 4,916,859 ----------- ----------- ----------- Balances at December 31, 1996 $ 471,076 35,171,391 35,642,467 =========== ========== ==========
See accompanying notes to consolidated financial statements. 5 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended Nine months ended December 31, December 31, -------------------------- ------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Cash flows from operating activities: Net income $ 922,343 1,753,540 4,916,859 6,491,407 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 4,197,506 3,248,758 9,471,160 7,414,335 Amortization of intangible assets 744,431 673,075 2,135,172 2,045,516 Amortization of loan costs and discounts 42,610 22,587 59,030 77,843 Depreciation 332,763 268,112 976,197 772,781 Change in accounts: Other assets, net (1,499,957) 16,083 (1,904,569) (1,626,832) Income taxes payable (241,808) (604,953) (2,348,278) (2,433,940) Accounts payable and accrued expenses 1,639,713 1,498,737 1,974,755 2,023,939 ----------- ----------- ----------- ----------- Net cash provided by operating activities 6,137,601 6,875,939 15,280,326 14,765,049 ----------- ----------- ----------- ----------- Cash flows from investing activities: Increase in loans, net (10,250,834) (11,392,836) (19,644,004) (21,184,495) Net assets acquired from office acquisitions, primarily loans (7,805,663) (297,610) (8,653,604) (468,750) Costs of organizing new subsidiary - - - (96,360) Purchases of premises and equipment (38,309) (912,676) (1,074,845) (1,711,584) Purchases of intangible assets (5,510,653) (102,500) (6,154,986) (197,500) ------------ ----------- ------------ ----------- Net cash used by investing activities (23,605,459) (12,705,622) (35,527,439) (23,658,689) ---------- ----------- ---------- ---------- Cash flows from financing activities: Proceeds of senior notes payable, net 25,900,000 9,250,000 38,750,000 13,000,000 Repayment of senior term notes (4,000,000) (4,000,000) (4,000,000) (4,000,000) Proceeds from exercise of stock options 70,001 140,618 74,381 191,808 Repurchase of common stock (4,048,130) - (14,258,838) - ----------- ----------- ----------- ------- Net cash provided by financing activities 17,921,821 5,390,618 20,565,543 9,191,808 ---------- ------------ ----------- ----------- Increase (decrease) in cash 454,013 (439,065) 318,430 298,168 Cash, beginning of period 1,558,164 1,928,932 1,693,747 1,191,699 ----------- ----------- ----------- ----------- Cash, end of period $ 2,012,177 1,489,867 2,012,177 1,489,867 =========== =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest expense $ 1,371,235 1,218,210 3,079,396 2,812,233 Cash paid for income taxes 734,357 1,609,953 4,995,278 6,103,940 Supplemental schedule of noncash financing activities: Tax benefits from exercise of stock options 26,946 77,710 30,397 114,344
See accompanying notes to consolidated financial statements. 6 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) DECEMBER 31, 1996 NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of the Company at December 31, 1996 and for the periods then ended were prepared in accordance with the instructions for Form 10-Q and are unaudited; however, in the opinion of management, all adjustments (consisting only of items of a normal recurring nature) necessary for a fair presentation of the financial position at December 31, 1996, and the results of operations and cash flows for the period then ended, have been included. The results for the periods ended December 31, 1996, are not necessarily indicative of the results that may be expected for the full year or any other interim period. These consolidated financial statements do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the Company's audited financial statements and related notes for the year ended March 31, 1996, included in the Company's 1996 Annual Report to Shareholders. NOTE 2 - ALLOWANCE FOR LOAN LOSSES The following is a summary of the changes in the allowance for loan losses for the periods indicated (unaudited):
Three months Nine months ended December 31, ended December 31, 1996 1995 1996 1995 Balance at beginning of period $ 5,456,761 5,027,211 5,006,703 4,363,612 Provision for loan losses 4,197,506 3,248,758 9,471,160 7,414,335 Loan losses (3,905,511) (2,983,787) (9,159,691) (6,680,554) Recoveries 184,254 299,272 573,200 489,051 Allowance on acquired loans 740,399 13,905 782,037 18,915 ----------- ---------- ---------- ---------- Balance at end of period $ 6,673,409 5,605,359 6,673,409 5,605,359 =========== ========= ========== =========
NOTE 3 - PARADATA FINANCIAL SYSTEMS (PARADATA) The following data for ParaData was included in the Consolidated Statements of Operations for the periods ended December 31, 1996 and 1995:
Three Months Ended Nine Months Ended December 31, December 31, -------------------------- ------------------- 1996 1995 1996 1995 --------- -------- --------- ------ Sales and system-support $ 441,949 1,749,909 1,379,973 5,694,067 Cost of sales 36,627 574,180 253,584 2,850,632 ---------- ---------- ---------- ---------- Net margin (included in other income) 405,322 1,175,729 1,126,389 2,843,435 ---------- ---------- ---------- --------- General and administrative expenses Personnel 259,639 269,837 785,692 733,172 Occupancy and equipment 67,849 64,355 201,608 190,904 Advertising 2,921 - 5,963 2,284 Amortization of intangibles 7,189 7,189 21,567 21,565 Other 40,742 64,222 131,940 176,514 --------- -------- --------- -------- 378,340 405,603 1,146,770 1,124,439 Interest expense - 1,527 - 9,005 --------- -------- --------- -------- Net income (loss) before income taxes $ (26,982) 768,599 (20,381) 1,709,991 ========= ======== ========= ==========
NOTE 4 - ACQUISITIONS On December 2, 1996, the Company acquired Personal Credit Plan, Inc. for $7.2 million in cash. The Company acquired assets totaling approximately $8.2 million and assumed liabilities totaling approximately $6.4 million. Intangible assets and goodwill resulting from the acquisition were approximately $5.5 million. 7 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain information derived from the Company's consolidated statements of operations and balance sheets, as well as operating data and ratios, for the periods indicated (unaudited):
Three months Nine months ended December 31, ended December 31, 1996 1995 1996 1995 (Dollars in thousands) Average gross loans receivable (1) $ 111,991 101,061 106,789 95,811 Average loans receivable (2) 87,291 80,001 83,666 75,866 Expenses as a % of total revenue: Provision for loan losses 21.9% 18.0% 17.4% 14.5% General and administrative 64.8% 61.7% 63.2% 60.6% Total interest expense 5.9% 5.0% 5.5% 5.1% Operating margin (3) 13.3% 20.3% 19.4% 24.9% Return on average assets (annualized) 3.6% 7.6% 6.7% 9.7% Offices opened or acquired, net 36 1 60 32 Total offices (at period end) 342 276 342 276
(1) Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated period. (2) Average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred fees over the indicated period. (3) Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses, as a percentage of total revenues. Comparison of Three Months Ended December 31, 1996, Versus Three Months Ended December 31, 1995 Net income amounted to $922,000 for the three months ended December 31, 1996, a 47.4% decrease from the $1,754,000 earned during the corresponding three-month period of the previous year. This decrease resulted from a decrease in operating income (revenues less provision for loan losses and general and administrative expenses) of approximately $1,101,000, or 30.1%, combined with a slight increase in interest expense and offset by a decrease in income taxes. Interest and fee income for the quarter ended December 31, 1996, increased by $1,855,000, or 12.2%, over the same period of the prior year. This increase resulted from a $7.3 million increase, or 9.1%, in average loans receivable over the two corresponding periods. Insurance commissions and other income decreased by $740,000, or 25.7%, during the quarter ended December 31, 1996, when compared to the same quarter of the prior year. This decrease was due primarily to the decrease of gross profit on sales from ParaData, the Company's computer subsidiary, which is not expected to repeat the contribution to overall earnings that it made during fiscal 1996. Net revenues from ParaData amounted to $405,000 for the three months ended December 31, 1996, compared to $1,176,000 for the same period of the prior year. 8 WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Comparison of Three Months Ended December 31, 1996, Versus Three Months Ended December 31, 1995, continued Total revenues amounted to $19.2 million during the quarter ended December 31, 1996, representing a 6.2% increase over the $18.1 million in total revenues for the same quarter of the prior year. Revenues from the 244 offices open throughout both three-month periods remained level when comparing the two periods. At December 31, 1996, the Company had 346 offices in operation, an increase of 36 offices during the current quarter, and 60 offices since the beginning of the fiscal year. The provision for loan losses in the quarter ended December 31, 1996, increased by $949,000, or 29.2%, over the same period of the prior year. This increase resulted from a combination of increases in both the general allowance for loan losses as well as the amount of loans charged off. Net charge-offs for the current quarter amounted to $3,721,000, an increase of $1,037,000, or 38.6% over the amount charged off during the quarter ended December 1995. The increase in charge-offs is partially a result of increasing loans outstanding, as well as an increase in the overall levels of loans charged off. Management believes that the Company's recent experience with charge-offs is consistent with a national trend toward increased consumer defaults and bankruptcies. Management is monitoring the Company's delinquencies and charge-offs closely and is considering a number of attentive actions, including without limitation tightening credit standards for small loans and increasing collection efforts. Until the Company's delinquencies and charge-offs return to historical levels, management expects this trend of higher charge-offs to negatively affect the results of operations of the Company's small loan business. General and administrative expenses for the quarter ended December 31, 1996, increased by $1,268,000, or 11.4%, over the same quarter of fiscal 1995. This increase resulted primarily from the additional expenses associated with the 66 new offices opened or acquired between December 31, 1995, and December 31, 1996. Excluding the expenses associated with ParaData, overall general and administrative expenses when divided by the average open offices decreased by 2.0% when comparing the two periods. Interest expense increased by $239,000, or 26.6%, when comparing the two corresponding quarterly periods. This increase resulted from an increase in the level of debt outstanding primarily due to the funds used in conjunction with the stock repurchase program as well as the overall growth both internally and through acquisitions during the past year. Through December 31, 1996, the Company has repurchased 1,986,000 shares of its common stock for a total cost of approximately $16 million. The effective income tax rate decreased slightly to 35.0% during the quarter ended December 31, 1996, from 36.4% during the prior year quarter as a result of a corporate reorganization which reduced state income taxes. Comparison of Nine Months Ended December 31, 1996, Versus Nine Months Ended December 31, 1995 For the nine-month period ended December 31, 1996, net income amounted to $4.9 million, a decrease of $1.6 million, or 24.3%, from the corresponding nine-month period of the prior year. Operating income decreased by $2.2 million, or 17.2%, over the two periods. This decrease combined with an increase in interest expense was offset by a decrease in income taxes. Total revenues amounted to $54.5 million during the current nine-month period, an increase of $3.2 million, or 6.2%, over the prior-year period. This increase resulted from an increase in interest and fee income of 10.9% offset by a reduction in insurance and other income of 20.9%. Revenues from the 244 offices open throughout both nine-month periods increased approximately 1.3%. Interest and fee income rose by $4.7 million, or 10.9% during the two corresponding nine-month periods primarily as a result of increases in loan balances outstanding. Average loans receivable were $83.7 million during the nine months ended December 31, 1996, representing a 10.3% increase over the average balances of the prior year. The decrease in other income resulted primarily from a reduction in the net revenues from ParaData of $1,717,000 (see Note 3, page 7). 9 WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED Comparison of Nine Months Ended December 31, 1996, Versus Nine Months Ended December 31, 1995, continued The provision for loan losses increased by $2,057,000, or 27.7% during the current nine-month period when compared to the same period of fiscal 1996. This increase resulted in an increase in the general reserve for loan losses which is a function of gross loans outstanding, as well as an increase in loan losses. Net charge-offs increased by $2,395,000, or 38.7%, when comparing the two nine-month periods. As a percentage of average loans, this represented an increase to 13.7% during the current nine-month period compared to 11.8% for the same period of the prior fiscal year. The increase in delinquencies and loan losses during the six-month periods resulted in large part from the trend discussed above. General and administrative expenses increased by $3,306,000, or 10.6%, during the most recent nine-month period. As a percentage of total revenues, these expenses increased from 60.6% during the prior year nine-month period to 63.2% during the current period. This increase resulted from the additional offices opened or acquired during the past year. Excluding the expenses associated with ParaData, overall general and administrative expenses, when divided by the average open offices, decreased by 1.4% when comparing the two nine-month periods. Interest expense increased by approximately $399,000 during the current nine-month period as a result of the increase in the level of debt outstanding primarily due to the funds used to repurchase the Company's common stock. The effective income tax rate decreased slightly to 35.0% during the nine months ended December 31, 1996, from 36.1% for the same period ended December 31, 1995, as a result of a reduction of certain state income taxes resulting from a corporate reorganization. Liquidity and Capital Resources The Company's primary sources of funds are cash flow from operations and borrowings under its revolving credit agreement. The Company's primary ongoing cash requirements are funding the opening and operation of new offices, the overall growth of loans outstanding, and the repayment of existing debt. The Company has a $75.0 million revolving credit agreement and $12.0 million of senior term notes outstanding with institutional lenders. The term notes provide for interest payments to be made semi-annually at a fixed rate of 8.5% with annual principal payments of $4.0 million to be made each year (the next payment being due on December 1, 1997). The revolving credit facility is made up of a $50 million permanent line which expires on November 30, 1998, and a $25 million temporary line which expires on April 15, 1997. These lines bear interest, at the Company's option, at the agent's prime rate or LIBOR plus 1.60%. At December 31, 1996, the interest rate under the revolving credit facility was 7.27%, and the Company's outstanding balance under this facility was $60.5 million, leaving $3.9 million in borrowing availability under existing borrowing base limitations, which are based on eligible loans receivable. The Company is currently in negotiations with its lenders to extend the temporary line or restructure its lending arrangement to insure the adequate availability of funds to fulfill all of its funding requirements. The Company anticipates that the restructuring will be completed by the end of the current fiscal year. Borrowings under the revolving credit agreement and the term notes are secured by a lien on substantially all the tangible and intangible assets of the Company and its subsidiaries pursuant to various security agreements. The Company believes that cash flow from operations and borrowings under its revolving credit facility will be adequate to fund principal payments due under the term notes as well as fund the expected costs of opening and operating new offices, including funding initial operating losses of new offices, and funding loans receivable originated by those offices and the Company's other offices. 10 WORLD ACCEPTANCE CORPORATION MANAGEMENTS' DISCUSSION AND ANALYSIS, CONTINUED 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 six states in which the Company currently operates allow indexing of maximum loan amounts to the Consumer Price Index. These provisions will allow the Company to make larger loans at existing interest rates, which could offset the effect of inflationary increases in operating costs. Quarterly Information and Seasonality The Company's loan volume and corresponding loans receivable follow seasonal trends. The Company's highest loan demand occurs each year from October through December, its third fiscal quarter. Loan demand is generally the lowest and loan repayment is highest from January to March, its fourth fiscal quarter. Loan volume and average balances remain relatively level during the remainder of the year. This seasonal trend causes fluctuations in the Company's cash needs and quarterly operating performance through corresponding fluctuations in interest and fee income and insurance commissions earned, since unearned interest and insurance income are accreted to income on a collection method. Consequently, operating results for the Company's third fiscal quarter are significantly lower than in other quarters and operating results for its fourth fiscal quarter are generally higher than in other quarters. Legal Proceedings The Company is a party to certain legal proceedings. See Part II, Item 1. 11 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company and its Georgia subsidiary are named as co-defendants with a number of other finance companies, jewelry and furniture retailers, and insurance companies in a consolidated action, currently pending in U.S. District Court in Alabama under the caption In re American Insurance Company, "Non-filing Insurance" Fee Litigation (Multidistrict Litigation Docket No. 1130, U.S. District Court, District of Alabama, Northern Division). The consolidated action involves the defendants' non-file insurance practices. The complaint alleges, among other things, that the defendants' non-file insurance coverages do not constitute true insurance, which result in alleged federal truth-in-lending, RICO and antitrust violations and state fraud, breach of contract and conversion violations, and seeks certification of a nationwide class of plaintiffs to recover money damages and injunctive relief. The complaint in this action was filed on April 18, 1995, the Company has filed an answer and the parties are in the discovery process. The Company has been advised that certain of the defendants in the case have agreed to settle the claims made against them by paying money damages to the plaintiffs. The Company has also been advised that at least one of the settling defendants has agreed to change its non-file insurance practices. If the Company's non-file insurance practices are found to be invalid, the Company could be required to refund non-file insurance fees, pay other significant damages to the plaintiffs or change its non-file insurance practices going forward, and the Company could experience a reduction in future income unless legislative reforms are enacted. The Company disputes the allegations made in the complaint, and intends to continue to defend itself vigorously. Although the Company is unable to predict with certainty the outcome of this litigation, management expects that it will not have a material adverse effect on the Company's financial position or results of operations. Management's statement of expectation about the outcome of this litigation should be deemed a forward-looking statement, within the meaning of Section 27A of the Security Exchange Act of 1934, and no assurance can be given that management's expectation will prove correct, as such expectation is subject to certain risks, uncertainties and assumptions based on the preliminary nature of the case and the vagaries of litigation generally. Should one or more of these risks materialize or should underlying assumptions prove incorrect, the actual outcome of this litigation could differ materially from management's expectation. The Company from time to time and currently is involved as plaintiff or defendant in various other legal actions incident to its business. The current legal activities are not believed to be material to the financial condition of the Company. Item 2. Changes in Securities None. The Company's credit agreements contain certain restrictions on the payment of cash dividends on its capital stock. 12 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION, CONTINUED Item 6. Exhibits and Reports on Form 8-K (a) Exhibits:
Previous Company Exhibit Exhibit Registration Number Description Number No. or Report 3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K Company 3.2 First Amendment to Second Amended and Restated Articles 3.2 1995 10-K of Incorporation 3.3 Amended Bylaws of the Company 3.4 33-42879 4.1 Specimen Share Certificate 4.1 33-42879 4.2 Articles 3, 4 and 5 of the Form of Company's Second 3.1, 3.2 1995 10-K Amended and Restated Articles of Incorporation 4.3 Article II, Section 9 of the Company's Second Amended 3.2 1995 10-K and Restated Bylaws 4.4 Revolving Credit Agreement, dated as of December 1, 1992, 4.6 33-61524 between Harris Trust and Savings Bank, the Banks signatory thereto from time to time and the Company 4.5 First Amendment re: Note Agreements, Revolving Credit 4.5 1994 10-K Agreement and Security Agreement, Pledge and Indenture of Trust, dated as of April 2, 1993, between the Company and the Banks signatory thereto 4.6 Second Amendment to Revolving Credit Agreement, dated as 4.6 1994 10-K of September 1, 1993, between the Company and the Banks signatory thereto 4.7 Third Amendment to Credit Agreement/Second Amendment to 4.7 1995 10-K Revolving Credit Notes, dated as of November 1, 1994, between the Company and the Banks signatory thereto 4.8 Third (sic) Amendment to Credit Agreement, dated as of March 4.8 1995 10-K 13, 1995, between the Company and the Banks signatory thereto 4.9 Fifth Amendment to Credit Agreement, dated as of June 30, 1995 4.9 1996 10-K 4.10 Sixth Amendment to Credit Agreement, dated as of September 4.10 1996 10-K 1, 1995 4.11 Seventh Amendment to Credit Agreement, dated as of November 4.11 1996 10-K 1, 1995 4.12 Eighth Amendment to Credit Agreement, dated as of June 4.12 1996 10-K 1, 1996 13 4.13 Term Note Agreement, dated as of December 1, 1992, between 4.7 33-61524 Jefferson-Pilot Life Insurance Company and the Company 4.14# Term Note Agreement, dated as of December 1, 1992, between NA NA Principal Mutual Life Insurance Company and the Company 4.15 First Amendment to Note Agreements, dated November 1, 1994, 4.11 1995 10-K between Principal Mutual Life Insurance Company, Jefferson- Pilot Life Insurance Company and the Company 4.16 Security Agreement, Pledge and Indenture of Trust, dated as 4.9 33-61524 of December 1, 1992, between the Company and Harris Trust and Savings Bank, as Security Trust 4.17 Second Amendment to Security Agreement, Pledge and Indenture 4.10 1994 10-K of Trust, dated as of September 1, 1993, between the Company and Harris Trust and Savings Bank, as Security Trustee 4.18 Third Amendment to Security Agreement, Pledge and Indenture 4.18 1996 10-K of Trust, dated as of June 30, 1995 4.19 Fourth Amendment to Security Agreement, Pledge and Indenture 4.19 1996 10-K of Trust, dated as of November 1, 1995 4.20 Fifth Amendment to Security Agreement, Pledge and Indenture 4.20 1996 10-K of Trust, dated as of June 1, 1996 10.1+ Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K 1994 10.2+ Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K April 1, 1994 10.3+ Employment Agreement of R. Harold Owens, effective June 26, 10.3 1995 10-K 1995 10.4 Securityholders' Agreement, dated as of September 19, 1991, 10.5 33-42879 between the Company and certain of its securityholders 10.5+ 1992 Stock Option Plan of the Company 4 33-52166 10.6+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K 10.7+ The Company's Executive Incentive Plan 10.6 1994 10-K 10.8+ The Company's Executive Strategic Incentive Plan 10.8 1995 10-K 10.9+ Amendment No. 1, dated as of April 1, 1996, to the Executive 10.9 1996 10-K Strategic Incentive Plan
# Omitted from filing -- substantially identical to immediately preceding exhibits, except for the parties thereto and the principal amount involved. + Management contract or other compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation S-K. (b) Reports on Form 8-K. There were no reports filed on Form 8-K during the quarter ended December 31, 1996. 14 WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WORLD ACCEPTANCE CORPORATION Dated: February 13, 1997 /s/ C. D. Walters --------------------- C. D. Walters, Chief Executive Officer Dated: February 13, 1997 /s/ A. A. McLean III ------------------------ A. A. McLean III, Executive Vice President and Chief Financial Officer 15 EX-27 2 EXHIBIT 27
5 9-MOS MAR-31-1997 APR-1-1996 DEC-31-1996 2,012 0 100,042 6,673 0 95,381 5,816 0 115,680 7,056 72,982 0 0 35,642 0 115,680 0 54,470 0 0 34,421 9,471 3,014 7,564 2,647 4,917 0 0 0 4,917 .25 .25
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