-----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, I10XPhNUV9pvRlJ4eoScWZLp2xqChAz0RqPNzrZ7nJMQc5/UDq3wGpHePhK83PJW 5bOjAFHgIah0s6MZqLDvIQ== 0001032210-02-001035.txt : 20020628 0001032210-02-001035.hdr.sgml : 20020628 20020628153954 ACCESSION NUMBER: 0001032210-02-001035 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020628 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19599 FILM NUMBER: 02691449 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 FORMER COMPANY: FORMER CONFORMED NAME: WORLD FINANCE CORP DATE OF NAME CHANGE: 19700210 10-K 1 d10k.txt WORLD ACCEPTANCE CORPORATION ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- Form 10-K ----------------- (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _____________ Commission file number 0-19599 WORLD ACCEPTANCE CORPORATION (Exact name of registrant as specified in its charter) South Carolina 570425114 ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 108 Frederick Street Greenville, South Carolina 29607 ---------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) (864) 298-9800 -------------- (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, no par value -------------------------- (Title of Class) _________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by nonaffiliates of the registrant as of June 21, 2002, computed by reference to the closing sale price on such date, was $131,114,456. As of the same date, 17,632,402 shares of Common Stock, no par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's 2002 Annual Report ("the Annual Report") furnished to the Commission pursuant to Rule 14a-3(b) and the Notice of Annual Meeting of Shareholders and definitive Proxy Statement pertaining to the 2002 Annual Meeting of Shareholders ("the Proxy Statement") and filed pursuant to Regulation 14A are incorporated herein by reference into Parts II and IV, and Part III, respectively. ================================================================================ WORLD ACCEPTANCE CORPORATION Form 10-K Report Table of Contents -----------------
Item No. Page - -------- ---- PART I 1. Description of Business ................................................................ 1 2. Properties ............................................................................. 9 3. Legal Proceedings ...................................................................... 9 4. Submission of Matters to a Vote of Security Holders .................................... 10 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters .................. 10 6. Selected Financial Data ................................................................ 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .. 10 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 10 8. Financial Statements and Supplementary Data ............................................ 10 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ... 10 PART III 10. Directors and Executive Officers of the Registrant .................................... 11 11. Executive Compensation ................................................................ 11 12. Security Ownership of Certain Beneficial Owners and Management ........................ 11 13. Certain Relationships and Related Transactions ........................................ 11 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ....................... 11
Introduction World Acceptance Corporation, a South Carolina corporation, operates a small-loan consumer finance business in ten states. As used herein, the "Company" includes World Acceptance Corporation and each of its subsidiaries, except that when used with reference to the Common Stock or other securities described herein and in describing the positions held by management or agreements of the Company, it includes only World Acceptance Corporation. All references in this report to "fiscal 2002" are to the Company's fiscal year ended March 31, 2002. PART I. Item 1. Description of Business General. The Company is engaged in the small-loan consumer finance business, offering short-term small loans, medium-term larger loans, related credit insurance and ancillary products and services to individuals. The Company generally offers standardized installment loans of between $130 to $3,000 through 441 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, and Kentucky as of March 31, 2002. The Company generally serves individuals with limited access to other sources of consumer credit from banks, savings and loans, other consumer finance businesses and credit cards. The Company also offers income tax return preparation services and refund anticipation loans to its customers and others. Small-loan consumer finance companies operate in a highly structured regulatory environment. Consumer loan offices are individually licensed under state laws, which, in many states, establish allowable interest rates, fees and other charges on small loans made to consumers and the maximum principal amounts and maturities of these loans. The Company believes that virtually all participants in the small-loan consumer finance industry charge the maximum rates permitted under applicable state laws in those states with usury limitations. The small-loan consumer finance industry is a highly fragmented segment of the consumer lending industry. Small-loan consumer finance companies generally make loans to individuals of up to $1,000 with maturities of one year or less. These companies approve loans on the basis of the personal creditworthiness of their customers and maintain close contact with borrowers to encourage the repayment or refinancing of loans. By contrast, commercial banks, savings and loans and other consumer finance businesses typically make loans of more than $1,000 with maturities of more than one year. Those financial institutions generally approve consumer loans on the security of qualifying personal property pledged as collateral or impose more stringent credit requirements than those of small-loan consumer finance companies. As a result of their higher credit standards and specific collateral requirements, commercial banks, savings and loans and other consumer finance businesses typically charge lower interest rates and fees and experience lower delinquency and charge-off rates than do small-loan consumer finance companies. Small-loan consumer finance companies generally charge higher interest rates and fees to compensate for the greater credit risk of delinquencies and charge-offs and increased loan administration and collection costs. Expansion. During fiscal 2002, the Company opened ten new offices. Fifteen other offices were purchased and four offices were closed, merged into other existing offices, or sold due to their inability to grow to profitable levels. The Company plans to open or acquire at least 20 new offices in each of the next two fiscal years by increasing the number of offices in its existing market areas and in new states where it believes demographic profiles and state regulations are attractive. The Company's ability to expand operations into new states is dependent upon its ability to obtain necessary regulatory approvals and licenses, and there can be no assurance that the Company will be able to obtain any such approvals or consents. The Company's expansion is also dependent upon its ability to identify attractive locations for new offices and hire suitable personnel to staff, manage and supervise new offices. In evaluating a particular community, the Company examines several factors, including the demographic profile of the community, the existence of an established small-loan consumer finance market and the availability of suitable personnel to staff, manage and supervise the new offices. The Company generally locates new offices in communities already served by at least one small-loan consumer finance company. 1 The small-loan consumer finance industry is highly fragmented in the ten states in which the Company currently operates. The Company believes that its competitors in these markets are principally independent operators with fewer than 20 offices. The Company also believes that attractive opportunities to acquire offices from competitors in its existing markets and to acquire offices in communities not currently served by the Company will become available as conditions in the local economies and the financial circumstances of the owners change. The following table sets forth the number of offices of the Company at the dates indicated:
At March 31, -------------------------------------------------------------------------- State 1995 1996 1997 1998 1999 2000 2001 2002 - ----- ---- ---- ---- ---- ---- ---- ---- ---- South Carolina......... 59 62 68 64 63 63 62 62 Georgia................ 38 39 45 49 49 48 48 52 Texas.................. 93 104 131 128 131 135 135 136 Oklahoma............... 33 39 40 41 40 43 43 46 Louisiana (1).......... 15 20 18 21 20 21 20 20 Tennessee (2).......... 6 18 24 28 30 35 38 40 Illinois (3)........... - - 3 11 20 30 30 29 Missouri (4)........... - - 1 9 16 18 22 22 New Mexico (5)......... - - 6 9 10 13 12 12 Kentucky (6)........... - - - - 4 10 13 ---- ---- ---- ---- ---- ---- ---- ---- Total............. 244 282 336 360 379 410 420 441 ==== ==== ==== ==== ==== ==== ==== ====
_______________________ (1) The Company commenced operations in Louisiana in May 1991. (2) The Company commenced operations in Tennessee in April 1993. (3) The Company commenced operations in Illinois in September 1996. (4) The Company commenced operations in Missouri in August 1996. (5) The Company commenced operations in New Mexico in December 1996. (6) The Company commenced operations in Kentucky in March 2000. Loan and Other Products. In each state in which it operates, the Company offers loans that are standardized by amount and maturity in an effort to reduce documentation and related processing costs. Substantially all of the Company's loans are payable in monthly installments with terms of four to fifteen months, and all loans are prepayable at any time without penalty. In fiscal 2002, the Company's average originated loan size and term were approximately $647 and nine months, respectively. State laws regulate lending terms, including the maximum loan amounts and interest rates and the types and maximum amounts of fees, insurance premiums and other costs that may be charged. As of March 31, 2002, the annual percentage rates on loans offered by the Company, which include interest, fees and other charges as calculated for the purposes of federal consumer loan disclosure requirements, ranged from 24% to 214% depending on the loan size, maturity and the state in which the loan is made. In addition, in certain states, the Company sells credit insurance in connection with its loans as agent for an unaffiliated insurance company, which may increase its yields on loans originated in those states. Specific allowable charges vary by state and, consistent with industry practice, the Company generally charges the maximum rates allowable under applicable state law. Statutes in Texas and Oklahoma allow for indexing the maximum loan amounts to the Consumer Price Index. Fees charged by the Company include origination and account maintenance fees, monthly handling charges and, in South Carolina, Georgia, Louisiana and Tennessee, non-file fees, which are collected by the Company and paid as premiums to an unaffiliated insurance company for non-recording insurance. 2 The Company, as an agent for an unaffiliated insurance company, markets and sells credit life, credit accident and health, credit property, and unemployment insurance in connection with its loans in states where the sale of such insurance is permitted by law. Credit life insurance provides for the payment in full of the borrower's credit obligation to the lender in the event of death. Credit accident and health insurance provides for repayment of loan installments to the lender that come due during the insured's period of income interruption resulting from disability from illness or injury. Credit property insurance insures payment of the borrower's credit obligation to the lender in the event that the personal property pledged as security by the borrower is damaged or destroyed. Unemployment insurance provides for repayment of loan installments to the lender that come due during the insured's period of involuntary unemployment. The Company requires each customer to obtain credit insurance in the amount of the loan for all loans originated in Georgia, and encourages customers to obtain credit insurance for loans originated in South Carolina, Louisiana, and Kentucky and on a limited basis in Tennessee, Oklahoma, Missouri, and New Mexico. Customers in those states typically obtain such credit insurance through the Company. Charges for such credit insurance are made at maximum authorized rates and are stated separately in the Company's disclosure to customers, as required by the Truth-in-Lending Act. In the sale of insurance policies, the Company as agent writes policies only within limitations established by its agency contracts with the insurer. The Company does not sell credit insurance to non-borrowers. The Company also markets automobile club memberships to its borrowers in Georgia, Tennessee, and Kentucky as an agent for an unaffiliated automobile club. Club memberships entitle members to automobile breakdown and towing insurance and related services. The Company is paid a commission on each membership sold, but has no responsibility for administering the club, paying insurance benefits or providing services to club members. The Company generally does not market automobile club memberships to non-borrowers. In fiscal 1995 the Company implemented its World Class Buying Club, and began marketing certain electronic products and appliances to its Texas borrowers. Since implementation, the Company has expanded this program to all of the states where it operates. Borrowers participating in this program can purchase a product from a catalog available at a branch office or by direct mail and finance the purchase with a retail installment sales loan provided by the Company. Products sold through this program are shipped directly by the suppliers to the Company's customers and, accordingly, the Company is not required to maintain any inventory to support the program. 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, 2002, the larger class of loans amounted to approximately $60.6 million of gross loans receivable, a 9.9% increase over the balance outstanding at March 31, 2001. This portfolio now represents 26.8% 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. Another service offered by the Company is income tax return preparation, electronic filing and refund anticipation loans. Begun as an experiment is fiscal 1999, this program is now provided in all but a few of the Company's offices. The number of returns completed has grown from 16,000 in fiscal 2000 to over 40,000 in fiscal 2002 and the net revenues to the Company grew from approximately $1.0 million to approximately $4.3 million over this same period. The Company believes that this is a beneficial service for its existing customer base and plans to continue to promote and expand the program. 3 Loan Activity and Seasonality. The following table sets forth the composition of the Company's gross loans receivable by state at March 31 of each year from 1995 through 2002:
At March 31, ------------------------------------------------------------------------- State 1995 1996 1997 1998 1999 2000 2001 2002 ----- ---- ---- ---- ---- ---- ---- ---- ---- South Carolina ............ 35% 33% 26% 23% 22% 21% 21% 19% Georgia ................... 13 13 13 14 16 15 12 12% Texas ..................... 38 35 39 35 31 28 25 24% Oklahoma .................. 7 8 7 7 7 6 6 5% Louisiana (1).............. 4 5 3 4 4 3 3 3% Tennessee (2).............. 3 6 10 11 12 13 11 12% Illinois (3)............... - - - 2 3 4 5 5% Missouri (4)............... - - - 1 2 3 4 5% New Mexico (5)............. - - 2 3 3 3 3 3% Kentucky (6)............... - - - - - 4 10 12% ---- ---- ---- ---- ---- ---- ---- ---- Total ................. 100% 100% 100% 100% 100% 100% 100% 100% ==== ==== ==== ==== ==== ==== ==== ====
__________________________________ (1) The Company commenced operations in Louisiana in May 1991. (2) The Company commenced operations in Tennessee in April 1993. (3) The Company commenced operations in Illinois in September 1996. (4) The Company commenced operations in Missouri in August 1996. (5) The Company commenced operations in New Mexico in December 1996. (6) The Company commenced operations in Kentucky in March 2000. The following table sets forth the total number of loans and the average loan balance by state at March 31, 2002: Total Number Average Gross Loan of Loans Balance -------- ------- South Carolina ..... 58,188 722 Georgia ............ 37,924 721 Texas .............. 138,390 391 Oklahoma ........... 26,359 465 Louisiana .......... 12,054 588 Tennessee .......... 34,104 809 Illinois ........... 18,615 618 Missouri ........... 12,564 889 New Mexico ......... 11,816 527 Kentucky ........... 17,106 1580 -------- Total .......... 367,120 ======== The Company's highest loan demand occurs generally from October through December, its third fiscal quarter. Loan demand is generally lowest and loan repayment highest from January to March, its fourth fiscal quarter. Consequently, the Company experiences significant seasonal fluctuations in its operating results and cash needs. Operating results from the Company's third fiscal quarter are generally lower than in other quarters and operating results for its fourth fiscal quarter are generally higher than in other quarters. Lending and Collection Operations. The Company seeks to provide short-term loans to the segment of the population that has limited access to other sources of credit. In evaluating the creditworthiness of potential customers, the Company primarily examines the individual's discretionary income, length of current employment, duration of residence and prior credit experience. Loans are made to individuals on the basis of the customer's discretionary income and other factors and are limited to amounts that the customer can reasonably be expected to repay from that income. All of the Company's new customers are required to complete standardized credit applications in person or by telephone at local Company offices. Each of the Company's local offices is equipped to perform immediate background, employment and credit checks and approve loan applications promptly, often while 4 the customer waits. The Company's employees verify the applicant's employment and credit histories through telephone checks with employers, other employment references and a variety of credit services. Substantially all new customers are required to submit a listing of personal property that will be pledged as collateral to secure the loan, but the Company does not rely on the value of such collateral in the loan approval process and generally does not perfect its security interest in that collateral. Accordingly, if the customer were to default in the repayment of the loan, the Company may not be able to recover the outstanding loan balance by resorting to the sale of collateral. The Company generally approves less than 50% of applications for loans to new customers. The Company believes that the development and continual reinforcement of personal relationships with customers improve the Company's ability to monitor their creditworthiness, reduce credit risk and generate repeat loans. It is not unusual for the Company to have made a number of loans to the same customer over the course of several years, many of which were refinanced with a new loan after two or three payments. In determining whether to refinance existing loans, the Company typically requires loans to be current on a recency basis, and repeat customers are generally required to complete a new credit application if they have not completed one within the prior two years. In fiscal 2002, approximately 88% of the Company's loans were generated through refinancings of outstanding loans and the origination of new loans to previous customers. A refinancing represents a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an existing loan and the remaining portion is advanced to the customer. The Company actively markets the opportunity to refinance existing loans prior to maturity, thereby increasing the amount borrowed and increasing the fees and other income realized. For fiscal 2000, 2001, and 2002, the percentages of the Company's loan originations that were refinancings of existing loans were 78.3%, 78.5%, and 79.0%, respectively. The Company allows refinancing of delinquent loans on a case-by-case basis for those customers who otherwise satisfy the Company's credit standards. Each such refinancing is carefully examined before approval to avoid increasing credit risk. A delinquent loan may generally be refinanced only if the customer has made payments which, together with any credits of insurance premiums or other charges to which the customer is entitled in connection with the refinancing, reduce the balance due on the loan to an amount equal to or less than the original cash advance made in connection with the loan. The Company does not allow the amount of the new loan to exceed the original amount of the existing loan. The Company believes that refinancing delinquent loans for certain customers who have made periodic payments allows the Company to increase its average loans outstanding and its interest, fee and other income without experiencing a material increase in loan losses. These refinancings also provide a resolution to temporary financial setbacks for these borrowers and sustain their credit rating. To reduce late payment risk, local office staff encourage customers to inform the Company in advance of expected payment problems. Local office staff also promptly contact delinquent customers following any payment due date and thereafter remain in close contact with such customers through phone calls, letters or personal visits to the customer's residence or place of employment until payment is received or some other resolution is reached. When representatives of the Company make personal visits to delinquent customers, the Company's policy is to encourage the customers to return to the Company's office to make payment. Company employees are instructed not to accept payment outside of the Company's offices except in unusual circumstances. In Georgia, Oklahoma, and Illinois, the Company is permitted under state laws to garnish customers' wages for repayment of loans, but the Company does not otherwise generally resort to litigation for collection purposes, and rarely attempts to foreclose on collateral. Insurance-related Operations. In Georgia, Louisiana, South Carolina, Kentucky, and on a limited basis, Illinois, New Mexico, Missouri, Oklahoma, and Tennessee, the Company sells credit insurance to customers in connection with its loans as an agent for an unaffiliated insurance company. These insurance policies provide for the payment of the outstanding balance of the Company's loan upon the occurrence of an insured event. The Company earns a commission on the sale of such credit insurance, which is based in part on the claims experience of the insurance company on policies sold on its behalf by the Company. The Company has a wholly owned captive insurance subsidiary that reinsures a portion of the credit insurance sold in connection with loans made by the Company. Certain coverages currently sold by the Company on behalf of the unaffiliated insurance carrier are ceded by the carrier to the captive insurance subsidiary, providing the Company with an additional source of income derived from the earned reinsurance premiums. In fiscal 2002, the captive insurance subsidiary reinsured less than 6.3% of the credit insurance sold by the Company and contributed approximately $1,268,000 to the Company's total revenues. 5 The Company typically does not perfect its security interest in collateral securing its smaller loans by filing Uniform Commercial Code ("UCC") financing statements. Statutes in Georgia, Louisiana, South Carolina and Tennessee and Kentucky permit the Company to charge a non-file or non-recording insurance fee in connection with loans originated in these states. These fees are equal in aggregate amount to the premiums paid by the Company to purchase non-file insurance coverage from an unaffiliated insurance company. Under its non-file insurance coverage, the Company is reimbursed for losses on loans resulting from its policy not to perfect its security interest in collateral pledged to secure the loans. The Company generally perfects its security interest in collateral on larger loan transactions (typically greater than $1,000) by filing UCC financing statements. Monitoring and Supervision. The Company's loan operations are organized into Eastern and Western Divisions, with the Eastern Division consisting of South Carolina, Georgia, Tennessee, Illinois, Kentucky and Oklahoma and the Western Division consisting of Louisiana, Texas, Missouri and New Mexico. Several levels of management monitor and supervise the operations of each of the Company's offices. Branch managers are directly responsible for the performance of their respective offices and must approve all credit applications. District supervisors are responsible for the performance of eight to ten offices in their districts, typically communicate with the branch managers of each of their offices at least weekly and visit the offices monthly. Each of the state Vice Presidents of Operations monitor the performance of all offices within their states (or partial state in the case of Texas), primarily through communication with district supervisors. These Vice Presidents of Operations typically communicate with the district supervisors of each of their districts weekly and visit each office in their states quarterly. Senior management receives daily delinquency, loan volume, charge-off, and other statistical reports consolidated by state and has access to these daily reports for each branch office. At least monthly, district supervisors audit the operations of each office in their geographic area and submit standardized reports detailing their findings to the Company's senior management. At least once every nine months, each office undergoes an audit by the Company's internal auditors. These audits include an examination of cash balances and compliance with Company loan approval, review and collection procedures and compliance with federal and state laws and regulations. In fiscal 1994 the Company converted all of its loan offices to a new computer system following its acquisition of Paradata Financial Systems, a small software company located near St. Louis, Missouri. This system uses a proprietary data processing software package developed by Paradata, and has enabled the Company to fully automate all loan account processing and collection reporting. The system also provides significantly enhanced management information and control capabilities. The Company also markets the system to other finance companies, but experiences significant fluctuations from year to year in the amount of revenues generated from sales of the system to third parties and does not expect such revenues to be material. Staff and Training. Local offices are generally staffed with three employees. The branch manager supervises operations of the office and is responsible for approving all loan applications. Each office generally has one assistant manager who contacts delinquent customers, reviews loan applications and prepares operational reports and one customer service representative who takes and processes loan applications and payments and assists in the preparation of operational reports and collection and marketing activities. Large offices may employ additional assistant managers and service representatives. New employees are required to review a detailed training manual that outlines the Company's operating policies and procedures. The Company tests each employee on the training manual during the first year of employment. In addition, each branch provides in-office training sessions once every week and training sessions outside the office for one full day every two months. Compensation. The Company administers a performance-based compensation program for all of its district supervisors and branch managers. The Company annually reviews the performance of branch managers and adjusts their base salaries based upon a number of factors, including office loan growth, delinquencies and profitability. Branch managers also receive incentive compensation based upon office profitability and delinquencies. In addition, branch managers are paid a cash bonus for training personnel who are promoted to branch manager positions. Assistant managers and service representatives are paid a base salary and incentive compensation based primarily upon their office's loan volume and delinquency ratio. 6 Advertising. The Company actively advertises through direct mail, targeting both its present and former customers and potential customers who have used other sources of consumer credit. The Company creates mailing lists from public records of collateral filings by other consumer credit sources, such as furniture retailers and other consumer finance companies and obtains or acquires mailing lists from other sources. In addition to the general promotion of its loans for vacations, back-to-school needs and other uses, the Company advertises extensively during the October through December holiday season and in connection with new office openings. The Company believes its advertising contributes significantly to its ability to compete effectively with other providers of small-loan consumer credit. In fiscal 2002, advertising expenses were approximately 3.6% of total revenues. Competition. The small-loan consumer finance industry is highly fragmented, with numerous competitors. The majority of the Company's competitors are independent operators with fewer than 20 offices. Competition from nationwide consumer finance businesses is limited because these companies typically do not make loans of less than $1,000. The Company believes that competition between small-loan consumer finance companies occurs primarily on the basis of the strength of customer relationships, customer service and reputation in the local community, rather than pricing, as participants in this industry generally charge comparable interest rates and fees. The Company believes that its relatively larger size affords it a competitive advantage over smaller companies by increasing its access to, and reducing its cost of, capital. Several of the states in which the Company currently operates limit the size of loans made by small-loan consumer finance companies and prohibit the extension of more than one loan to a customer by any one company. As a result, many customers borrow from more than one finance company, enabling the Company to obtain information on the credit history of specific customers from other consumer finance companies. The Company generally seeks to open new offices in communities already served by at least one other small-loan consumer finance company. Government Regulation. Small-loan consumer finance companies are subject to extensive regulation, supervision and licensing under various federal and state statutes, ordinances and regulations. In general, these statutes establish maximum loan amounts and interest rates and the types and maximum amounts of fees, insurance premiums and other costs that may be charged. In addition, state laws regulate collection procedures, the keeping of books and records and other aspects of the operation of small-loan consumer finance companies. Generally, state regulations also establish minimum capital requirements for each local office. State agency approval is required to open new branch offices. Accordingly, the ability of the Company to expand by acquiring existing offices and opening new offices will depend in part on obtaining the necessary regulatory approvals. A Texas regulation requires the approval of the Texas Consumer Credit Commissioner for the acquisition, directly or indirectly, of more than 10% of the voting or common stock of a consumer finance company. A Louisiana statute prohibits any person from acquiring control of 50% or more of the shares of stock of a licensed consumer lender, such as the Company, without first obtaining a license as a consumer lender. The overall effect of these laws, and similar laws in other states, is to make it more difficult to acquire a consumer finance company than it might be to acquire control of a nonregulated corporation. Each of the Company's branch offices is separately licensed under the laws of the state in which the office is located. Licenses granted by the regulatory agencies in these states are subject to renewal every year and may be revoked for failure to comply with applicable state and federal laws and regulations. In the states in which the Company currently operates, licenses may be revoked only after an administrative hearing. The Company and its operations are regulated by several state agencies, including the Industrial Loan Division of the Office of the Georgia Insurance Commissioner, the Consumer Finance Division of the South Carolina Board of Financial Institutions, the South Carolina Department of Consumer Affairs, the Texas Office of the Consumer Credit Commission, the Oklahoma Department of Consumer Credit, the Louisiana Office of Financial Institutions, the Tennessee Department of Financial Institutions, the Missouri Division of Finance, the Consumer Credit Division of the Illinois Department of Financial Institutions, the Consumer Credit Bureau of the New Mexico Financial Institutions Division, and the Kentucky Department of Financial Institutions. These state regulatory agencies audit the Company's local offices from time to time, and each state agency performs an annual compliance audit of the Company's operations in that state. The Company is also subject to state regulations governing insurance agents in the states in which it sells credit insurance. State insurance regulations require that insurance agents be licensed, govern the commissions that may be 7 paid to agents in connection with the sale of credit insurance and limit the premium amount charged for such insurance. The Company's captive insurance subsidiary is regulated by the insurance authorities of the Turks and Caicos Islands of the British West Indies, where the subsidiary is organized and domiciled. The Company is subject to extensive federal regulation as well, including the Truth-in-Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the regulations thereunder and the Federal Trade Commission's Credit Practices Rule. These laws require the Company to provide complete disclosure of the principal terms of each loan to every prospective borrower, prohibit misleading advertising, protect against discriminatory lending practices and proscribe unfair credit practices. Among the principal disclosure items under the Truth-in-Lending Act are the terms of repayment, the final maturity, the total finance charge and the annual percentage rate charged on each loan. The Equal Credit Opportunity Act prohibits creditors from discriminating against loan applicants on the basis of race, color, sex, age or marital status. Pursuant to Regulation B promulgated under the Equal Credit Opportunity Act, creditors are required to make certain disclosures regarding consumer rights and advise consumers whose credit applications are not approved of the reasons for the rejection. The Fair Credit Reporting Act requires the Company to provide certain information to consumers whose credit applications are not approved on the basis of a report obtained from a consumer reporting agency. The Credit Practices Rule limits the types of property a creditor may accept as collateral to secure a consumer loan. Violations of the statutes and regulations described above may result in actions for damages, claims for refund of payments made, certain fines and penalties, injunctions against certain practices and the potential forfeiture of rights to repayment of loans. Consumer finance companies are affected by changes in state and federal statutes and regulations. The Company actively participates in trade associations and in lobbying efforts in the states in which it operates. Although the Company is not aware of any pending or proposed legislation that would have a material adverse effect on the Company's business, there can be no assurance that future regulatory changes will not adversely affect the Company's lending practices, operations, profitability or prospects. Employees. As of March 31, 2002, the Company had 1,490 employees, none of whom were represented by labor unions. The Company considers its relations with its personnel to be good. The Company seeks to hire people who will become long-term employees. The Company experiences a high level of turnover among its entry-level personnel, which the Company believes is typical of the small-loan consumer finance industry. Executive Officers. The names and ages, positions, terms of office and periods of service of each of the Company's executive officers (and other business experience for executive officers who have served as such for less than five years) are set forth below. The term of office for each executive officer expires upon the earlier of the appointment and qualification of a successor or such officers' death, resignation, retirement or removal.
Period of Service as Executive Officer and Pre-executive Officer Experience (if an Name and Age Position Executive Officer for Less Than Five Years) - ------------ -------- ------------------------------------------- Charles D. Walters (63) Chairman and Chief Chairman and CEO since July 1991; Executive Officer; President since July 1986; Director since Director April 1989 Douglas R. Jones (50) President and Chief Since August 1999; from October 1977 until Operating Officer August 1999, various positions with Associates Financial Services, Inc., Dallas, Texas with most recent being Regional Operations Director A. Alexander McLean, III (51) Executive Vice President, Executive Vice President since August 1996; Chief Financial Officer; Senior Vice President since July 1992; CFO and Director Director since July 1989 Mark C. Roland (46) Senior Vice President, Since January 1996; Senior Vice President - Eastern Division Operations Support, Fleet Finance, Atlanta, Georgia, from January 1993 to January 1996 Charles F. Gardner, Jr. (40) Senior Vice President, Since April 2000; Vice President, Operations - Western Division Southeast Texas and New Mexico from December 1996 to April 2000; Supervisor of West Texas from July 1987 to December 1996
8 Item 2. Properties The Company owns its headquarters facility of approximately 14,000 square feet in Greenville, South Carolina, and all of the furniture, fixtures and computer terminals located in each branch office. As of March 31, 2002, the Company had 441 branch offices, most of which are leased pursuant to short-term operating leases. During the fiscal year ended March 31, 2002, total lease expense was approximately $4.2 million, or an average of approximately $9,738 per office. The Company's leases generally provide for an initial three- to five-year term with renewal options. The Company's branch offices are typically located in shopping centers, malls and the first floors of downtown buildings. Branch offices generally have a uniform physical layout and range in size from 800 to 1,200 square feet. Item 3. Legal Proceedings From time to time the Company is involved in routine litigation relating to claims arising out of its operations in the normal course of business in which damages in various amounts are claimed. However, the Company believes that it is not presently a party to any such other pending legal proceedings that would have a material adverse effect on its financial condition. This report on Form 10-K, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") and other information incorporated herein by reference, may contain various "forward-looking statements," within the meaning of Section 21E of the Securities Exchange Act of 1934, that are based on management's belief and assumptions, as well as information currently available to management. 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 discusses in this Report and the Company's other filings with the Securities and Exchange Commission. 9 Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to the Company's security holders during the fourth fiscal quarter ended March 31, 2002. PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Since November 26, 1991, the Company's Common Stock has traded on the NASDAQ National Market System ("NASDAQ") under the symbol WRLD. As of June 21, 2002, there were 141 holders of record of Common Stock and approximately 2,000 persons or entities who hold their stcok in nominee or "street" names through various brokerage firms. Since April 1989, the Company has not declared or paid any cash dividends on its Common Stock. Its policy has been to retain earnings for use in its business. In the future, the Company's Board of Directors will determine whether to pay cash dividends based on conditions then existing, including the Company's earnings, financial condition, capital requirements and other relevant factors. In addition, the Company's credit agreements with its lenders impose restrictions on the amount of cash dividends that may be paid on its capital stock. Information contained under the caption "Corporate Information--Common Stock" in the Annual Report is incorporated herein by reference in further response to this Item 5. Item 6. Selected Financial Data Information contained under the caption "Selected Consolidated Financial and Other Data" in the Annual Report is incorporated herein by reference in response to this Item 6. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Information contained under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report is incorporated herein by reference in response to this Item 7. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company's outstanding debt under its revolving credit facility was $76.9 million at March 31, 2002. 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, 2002, a change of 1% in the interest rate would cause a change in interest expense of approximately $769,000 on an annual basis. Item 8. Financial Statements and Supplementary Data Consolidated Financial Statements for the Company and the Independent Auditors' Report thereon are contained in the Annual Report and are incorporated by reference in response to this Item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company had no disagreements on accounting or financial disclosure matters with its independent certified public accountants to report under this Item 9. 10 PART III. Item 10. Directors and Executive Officers of the Registrant Information contained under the caption "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by reference in response to this Item 10. The information in response to this Item 10 regarding the executive officers of the Company is contained in Item 1, Part I hereof under the caption "Executive Officers." Item 11. Executive Compensation Information contained under the caption "Executive Compensation" in the Proxy Statement, except for the information therein under the subcaption "Joint Report of the Compensation Committee and the Stock Option Committee," is incorporated herein by reference in response to this Item 11. Item 12. Security Ownership of Certain Beneficial Owners and Management Information contained under the captions "Ownership of Shares by Certain Beneficial Owners as of June 21, 2002" and "Ownership of Common Stock of Management as of June 21, 2002" in the Proxy Statement is incorporated by reference herein in response to this Item 12. Item 13. Certain Relationships and Related Transactions Information contained under the heading "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement is incorporated herein by reference in response to this Item 13. PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (1) The following consolidated financial statements of the Company and Independent Auditors' Report are contained in the Annual Report and are incorporated herein by reference. Consolidated Financial Statements: Consolidated Balance Sheets at March 31, 2002 and 2001 Consolidated Statements of Operations for the years ended March 31, 2002, 2001 and 2000 Consolidated Statements of Shareholders' Equity for the years ended March 31, 2002, 2001 and 2000 Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2001 and 2000 Notes to Consolidated Financial Statements Independent Auditors' Report (2) Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or the required information is included elsewhere in the consolidated financial statements. 11 (3) Exhibits The following exhibits are filed as part of this report or, where so indicated, have been previously filed and are incorporated herein by reference.
Filed Herewith (*), Non-Applicable (NA), or or Incorporated by Company Exhibit Reference Previous Registration Number Description Exhibit Number No. or Report --------------------------------------------------------------------------------------------------------------- 3.1 Second Amended and Restated Articles of Incorporation of the 3.1 1992 10-K Company 3.2 First Amendment to Second Amended and Restated Articles of 3.2 1995 10-K Incorporation 3.3 Amended Bylaws of the Company 3.4 33-42879 4.1 Specimen Share Certificate 4.1 33-42879 4.2 Articles 3, 4 and 5 of the Form of Company's Second Amended 3.1, 3.2 1995 10-K and Restated Articles of Incorporation (as amended) 4.3 Article II, Section 9 of the Company's Second Amended and 3.2 1995 10-K Restated Bylaws 4.4 Amended and Restated Revolving Credit Agreement, dated as of 4.4 9-30-97 10-Q June 30, 1997, between Harris Trust and Savings Bank, the Banks signatory thereto from time to time and the Company 4.5 Note Agreement, dated as of June 30, 1997, between Principal 4.7 9-30-97 10-Q Mutual Life Insurance Company and the Company re: 10% Senior Subordinated Secured Notes 4.6 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97 10-Q of Trust, dated as of June 30, 1997, between the Company and Harris Trust and Savings Bank, as Security Trustee 10.1+ Employment Agreement of Charles D. Walters, effective April 1, 10.1 1994 10-K 1994 10.2+ Employment Agreement of A. Alexander McLean, III, effective 10.2 1994 10-K April 1, 1994 10.3+ Employment Agreement of Douglas R. Jones effective August 16, 10.3 12-31-99 1999 10-Q
12
Filed Herewith (*), Non-Applicable (NA), or or Incorporated by Company Exhibit Reference Previous Registration Number Description Exhibit Number No. or Report --------------------------------------------------------------------------------------------------------------- 10.4+ Securityholders' Agreement dated as of September 19, 1991, 10.5 33-42879 between the Company and certain of its securityholders 10.5+ World Acceptance Corporation Supplemental Income Plan 10.7 2000 10-K 10.6+ Board of Directors Deferred Compensation Plan 10.6 2000 10-K 10.7+ 1992 Stock Option Plan of the Company 4 33-52166 10.8+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K 10.9+ The Company's Executive Incentive Plan 10.6 1994 10-K 10.10+ World Acceptance Corporation Retirement Savings Plan 4.1 333-14399 10.11+ Executive Deferral Plan 10.12 2001 10-K 13 Excerpts from 2002 Annual Report of the Company, with respect * NA to those portions incorporated by reference into this report 21 Schedule of Company's subsidiaries * NA 23 Consent of KPMG LLP in connection with the Company's * NA Registration Statements on Form S-8
+ Management Contract or other compensatory plan required to be filed under Item 14(c) of this report and Item 601 of Regulation S-K of the Securities and Exchange Commission. # Omitted from filing - substantially identical to immediately preceding exhibit, except for the parties thereto and the principal amount involved. (4) Reports on Form 8-K During the most recent fiscal quarter, there were no reports filed on Form 8-K. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WORLD ACCEPTANCE CORPORATION By: /s/ A. Alexander McLean, III ----------------------------------------- A. Alexander McLean, III Executive Vice President and CFO Date: June 28, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature ---------- /s/ Charles D. Walters - ----------------------------------------------------- Charles D. Walters, Chairman and Chief Executive Officer (principal executive officer); Director Date: June 28, 2002 /s/ A. Alexander McLean, III - ----------------------------------------------------- A. Alexander McLean, III, Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer); Director Date: June 28, 2002 /s/ Douglas R. Jones - ----------------------------------------------------- Douglas R. Jones, President and Chief Operating Officer; Director Date: June 28, 2002 /s/ William S. Hummers, III - ----------------------------------------------------- William S. Hummers, III, Director Date: June 28, 2002 14 EX-13 3 dex13.txt EXCERPTS FROM 2002 ANNUAL REPORT Exhibit 13 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA - -------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts)
Years Ended March 31, -------------------------------------------------------------- 2002 2001 2000 1999 1998 ---------- --------- --------- --------- --------- Statement of Operations Data: Interest and fee income ................................ $ 117,193 $ 103,412 $ 89,052 $ 80,677 $ 71,873 Insurance commissions and other income ................ 19,362 17,132 16,224 11,085 8,754 ---------- --------- --------- --------- --------- Total revenues ...................................... 136,555 120,544 105,276 91,762 80,627 ---------- --------- --------- --------- --------- Provision for loan losses .............................. 25,688 19,749 15,697 11,707 9,609 Legal expense/(1)/ ..................................... 449 416 183 5,845 441 Other general and administrative expenses .............. 74,969 67,848 61,652 57,788 53,029 Interest expense ....................................... 5,415 8,260 6,015 5,534 5,541 ---------- --------- --------- --------- --------- Total expenses ...................................... 106,521 96,273 83,547 80,874 68,620 ---------- --------- --------- --------- --------- Income before income taxes ............................. 30,034 24,271 21,729 10,888 12,007 Income taxes ........................................... 10,695 8,670 7,560 3,568 3,909 ---------- --------- --------- --------- --------- Net income/(1)/ ........................................ $ 19,339 $ 15,601 $ 14,169 $ 7,320 $ 8,098 ========== ========= ========= ========= ========= Net income per common share (diluted)/(1)/ ............. $ 1.00 $ .83 $ .74 $ .38 $ .42 ========== ========= ========= ========= ========= Diluted weighted average common equivalent shares ................................... 19,340 18,840 19,155 19,213 19,172 ========== ========= ========= ========= ========= Balance Sheet Data (end of period): Loans receivable ....................................... $ 172,637 $ 162,389 $ 135,660 $ 117,339 $ 103,385 Allowance for loan losses .............................. (12,926) (12,032) (10,008) (8,769) (8,444) ---------- --------- --------- --------- --------- Loans receivable, net ............................... 159,711 150,357 125,652 108,570 94,941 Total assets ........................................... 195,247 183,160 153,473 133,470 118,382 Total debt ............................................. 83,382 91,632 78,382 71,632 64,182 Shareholders' equity ................................... 102,433 82,727 68,192 54,692 47,301 Other Operating Data: As a percentage of average loans receivable: Provision for loan losses ........................... 14.8% 12.6% 12.3% 10.4% 9.9% Net charge-offs ..................................... 14.8% 12.0% 12.0% 9.7% 9.4% Number of offices open at year-end ..................... 441 420 410 379 360
/(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 loans receivable, the ongoing introduction of new products and services for marketing to its customer base, the maintenance of loan quality and acceptable levels of operating expenses. Since March 31, 1997, gross loans receivable have increased at a 14.8% annual compounded rate from $113.4 million to $226.3 million at March 31, 2002. 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 336 offices to 441 offices as of March 31, 2002. The Company plans to open or acquire at least 20 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 is called the "World Class Buying Club." Total loan volume under this program amounted to $4.5 million during fiscal 2002, a 6.9% 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 2003 and beyond. The Company's ParaData Financial Systems subsidiary provides data processing systems to separate finance companies, including the Company, and currently supports approximately 1,100 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 2002, its net revenues from system sales and support amounted to $2.5 million, an 8.3% decrease from the $2.8 million in fiscal 2001. As a result, ParaData's pretax income contribution to the Company also fluctuates greatly and was $0.8 million, $1.0 million, and $1.8 million in fiscal 2002, fiscal 2001, and fiscal 2000, respectively. ParaData's net revenue and resulting net contribution to the Company will continue to fluctuate on a year to year basis, but management believes this business 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, 2002, the larger loan category amounted to approximately $60.6 million of gross loans receivable, a 9.9% increase over the balance outstanding at March 31, 2001. As a result of these efforts, this portfolio has grown to 26.8% 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 an income tax return preparation and refund anticipation loan program in 40 of its offices. Based on the results of this test, the Company expanded this program in fiscal 2000 into all offices where permitted by the lease agreements. Since that time, the program has grown dramatically, with the Company preparing approximately 16,000 returns, 34,000 returns, and 40,000 returns in fiscal 2000, 2001, and 2002, respectively. Net revenue generated by the Company during this three year period rose from approximately $1.0 million in fiscal 2000, to approximately $4.3 million in fiscal 2002. The Company believes that this profitable business provides a beneficial service to 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, --------------------------------------- 2002 2001 2000 --------- --------- -------- (Dollars in thousands) Average gross loans receivable/(1)/ ............. $ 228,400 204,789 163,786 Average loans receivable/(2)/ ................... 173,192 156,850 127,230 Expenses as a percentage of total revenue: Provision for loan losses ................... 18.8% 16.4% 14.9% General and administrative .................. 55.2% 56.6% 58.7% Total interest expense ...................... 4.0% 6.9% 5.7% Operating margin/(3)/ ........................... 26.0% 27.0% 26.4% Return on average assets ........................ 9.9% 8.8% 9.7% Offices opened and acquired, net ................ 21 10 31 Total offices (at period end) ................... 441 420 410
- ---------------- (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. Critical Accounting Policies The Company's accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the finance company industry. The significant accounting policies used in the preparation of the consolidated financial statements are discussed in Note 1 to the consolidated financial statements. Certain critical accounting policies involve significant judgment by the Company's management, including the use of estimates and assumptions which affect the reported amounts of assets, liabilities, revenues, and expenses. As a result, changes in these estimates and assumptions could significantly affect the Company's financial position and results of operations. The Company considers its policies regarding the allowance for loan losses to be its most critical accounting policy due to the significant degree of management judgment. The Company has developed policies and procedures for assessing the adequacy of the allowance for loan losses which takes into consideration various assumptions and estimates with respect to the loan portfolio. The Company's assumptions and estimates may be affected in the future by changes in economic conditions, among other factors. For additional discussion concerning the allowance for loan losses, see "Credit Quality." Comparison of Fiscal 2002 Versus Fiscal 2001 Net income was $19.3 million in fiscal 2002, a $3.7 million, or 24.0%, increase over the $15.6 million earned during fiscal 2001. This increase resulted from an increase in operating income (revenue less provision for loan losses and general and administrative expense) of $2.9 million, or 9.0%, combined with a reduction in interest expense of $2.8 million, or 34.4%, offset by an increase of $2.0 million in income taxes. Interest and fee income during fiscal 2002 increased by $13.8 million, or 13.3%, over fiscal 2001. This increase resulted primarily from an increase of $16.3 million, or 10.4%, in average loans receivable between the two fiscal years. The increase in interest and fee income was also aided by favorable changes in state laws and regulations in three states during the past 21 months. In Tennessee, on loans less than $1,000, the interest and fees - -------------------------------------------------------------------------------- World Acceptance Corporation 7 Management's Discussion and Analysis - -------------------------------------------------------------------------------- allowed were substantially increased, while the sale of credit insurance and other ancillary products was eliminated. In Texas, the $10 initial charge was made non-refundable. In Georgia, there was an increase in the monthly maintenance charge and the allowed late charge, as well as a change in the restricted period on loan renewals. While these changes became effective during fiscal 2001, they were in force during the entire fiscal 2002, contributing to the increase in loan yields over the two fiscal periods. Insurance commissions and other income amounted to $19.4 million in fiscal 2002, a $2.2 million, or 13.0%, increase over the $17.1 million earned in fiscal 2001. Insurance commissions increased by $280,000, or 3.3%, and other income increased by $1.9 million, or 22.4%. The increase in insurance commissions resulted from the growth in the loan portfolio in Kentucky where credit insurance is sold in conjunction with the loan, partially offset by the elimination of credit insurance on loans less than $1,000 in Tennessee. The increase in other income was due primarily to the introduction of certain ancillary products, such as motor club and accidental death insurance in Kentucky during fiscal 2002, combined with an increase of approximately $1.4 million in net fees from the tax preparation program. Total revenues were $136.6 million during fiscal 2002, a 13.3% increase over the $120.5 million in the prior fiscal year. Revenues from the 397 offices that were open throughout both fiscal years increased by 9.9%. The provision for loan losses during fiscal 2002 increased by $5.9 million, or 30.1%, from the previous year. This increase resulted primarily from an increase in loan losses over the two fiscal periods. As a percentage of average loans receivable, net charge-offs rose to 14.8% during fiscal 2002 from 12.0% during fiscal 2001. This increase was due to the maturing of the larger loan portfolio, resulting in higher losses in this category, as well as an increase in overall losses due primarily to the decline in the economy. Although the Company's management remains concerned over the rise in charge-offs and continues to focus on strict adherence to the Company's lending and collection guidelines and policies by all branch personnel, there can be no assurance that this trend will not continue or that earnings will not be negatively affected by this factor in the future. General and administrative expenses increased by $7.2 million, or 10.5%, over the two fiscal years. The Company's profitability benefited by improved expense ratios as total general and administrative expense as a percent of total revenues decreased from 56.6% in fiscal 2001 to 55.2% in fiscal 2002. This ratio improved because the average general and administrative expense per open office rose by 7.5% over the two fiscal years, while the average revenue increased 10.3%. Interest expense was $5.4 million in fiscal 2002, a decrease of $2.8 million, or 34.4%, from $8.3 million in fiscal 2001. This decrease was due to the reduction in interest rates during the current year. Average debt outstanding increased by 0.6% over the two fiscal years. Because a major portion of the Company's debt is floating rate, the Company benefited greatly by the reduction in interest rates during fiscal 2002. The Company's effective income tax rate remained approximately the same at 35.7% and 35.6% during fiscal 2001 and 2002, respectively. 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 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 was primarily due to the continued expansion of the larger loan portfolio, which grew by 110.1% during fiscal 2001. 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, was 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. - -------------------------------------------------------------------------------- 8 World Acceptance Corporation Management's Discussion and Analysis - -------------------------------------------------------------------------------- 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 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 34,000) the number of tax returns prepared and filed during fiscal 2001. 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 loans less than $1,000, the Company's primary product. 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. Credit Quality The Company's delinquency and net charge-off ratios reflect, among other factors, changes in the mix of loans in the portfolio, the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions. 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. Loans are charged off at the earlier of when such loans are deemed to be uncollectible or when six months have elapsed since the date of the last full contractual payment. The Company's charge-off policy has been consistently applied and no significant changes have been made to the policy during the periods reported. Management considers the charge-off policy when evaluating the appropriateness of the allowance for loan losses. During fiscal 2002, the Company experienced slight increases in the delinquencies as a percent of loans from 4.0% in fiscal 2001 to 4.3% in fiscal 2002 on a contractual basis and from 2.3% to 2.5% on a recency basis. In - -------------------------------------------------------------------------------- World Acceptance Corporation 9 Management's Discussion and Analysis - -------------------------------------------------------------------------------- addition, charge-offs as a percent of average loans increased from 12.0% in fiscal 2001 to 14.8% in fiscal 2002. The increases were a reflection of a weakening economy and an overall rise in personal bankruptcy. In fiscal 2002, approximately 88% of the Company's loans were generated through renewals of outstanding loans and the origination of new loans to previous customers. A renewal represents a new loan transaction with a present customer in which a portion of the new loan proceeds is used to repay the balance of an existing loan and the remaining portion is advanced to the customer. For fiscal 2000, 2001, and 2002, the percentages of the Company's loan originations that were renewals of existing loans were 78.3%, 78.5%, and 79.0%, respectively. The Company's renewal policies are determined based on state regulations and customer payment history. A renewal is considered a current renewal if the customer is no more than 45 days delinquent on a recency basis. Delinquent renewals may be extended to customers that are more than 45 days past due on a recency basis if the customer completes a new application and the manager believes that the customers ability and intent to repay has improved. It is the Company's policy to not renew delinquent loans in amounts greater than the original amounts financed. In all cases, a customer must complete a new application every two years. During fiscal 2002, delinquent renewals represented less than 3% of the Company's total loan volume. 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. 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. The allowance for loan losses has an allocated and an unallocated component. The Company uses historical information for net charge-offs by loan type and average loan life by loan type to estimate the allocated component of the allowance for loan losses. This methodology is based on the fact that many customers renew their loans prior to the contractual maturity date. Average contractual loan terms are approximately nine months and the average loan life is approximately four months. The allowance for loan loss model also reserves 100% of the principle on loans greater than 90 days past due on a recency basis. The unallocated component of the allowance for loan losses is for probable losses inherent in the loan portfolio that are not captured in the allocated allowance and approximated $2 million at March 31, 2002. The Company believes that its allowance for loan losses is adequate to cover losses in the existing portfolio at March 31, 2002. The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2002, 2001, and 2000: March 31,
March 31, -------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ Balance at the beginning of the year ...................................... $ 12,031,622 10,008,257 8,769,367 Provision for loan losses ................................................. 25,687,989 19,748,604 15,697,165 Loan losses ............................................................... (27,774,830) (20,433,464) (16,766,909) Recoveries ................................................................ 2,092,032 1,682,681 1,482,439 Allowance on acquired loans, net of specific charge-offs .................. 888,831 1,025,544 826,195 ------------ ------------ ------------ Balance at the end of the year ............................................ $ 12,925,644 12,031,622 10,008,257 ============ ============ ============ Allowance as a percentage of loans receivable ............................. 7.5% 7.4% 7.4% Net charge-offs as a percentage of average loans receivable/(1)/ .......... 14.8% 12.0% 12.0%
- -------------------- /(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 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. - -------------------------------------------------------------------------------- 10 World Acceptance Corporation Management's Discussion and Analysis - -------------------------------------------------------------------------------- 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, 2002, 2001, and 2000:
At March 31, ----------------------------------------- 2002 2001 2000 --------- --------- --------- (Dollars in thousands) Recency basis: 60-89 days past due ................................................ $ 4,010 $ 3,213 $ 2,601 90 days or more past due ........................................... 1,627 1,624 1,196 --------- --------- --------- Total .......................................................... $ 5,637 $ 4,837 $ 3,797 ========= ========= ========= Percentage of period-end gross loans receivable ...................... 2.5% 2.3% 2.2% ========= ========= ========= Contractual basis: 60-89 days past due ................................................ $ 5,111 $ 4,297 $ 3,298 90 days or more past due ........................................... 4,708 4,080 2,818 --------- --------- --------- Total .......................................................... $ 9,819 $ 8,377 $ 6,116 ========= ========= ========= Percentage of period-end gross loans receivable ...................... 4.3% 4.0% 3.5% ========= ========= =========
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 2001 and 2002.
At or for the Three Months Ended ------------------------------------------------------------------------------------------------ June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, 2000 2000 2000 2001 2001 2001 2001 2002 --------- --------- --------- --------- --------- --------- --------- --------- (Dollars in thousands) Total revenues ...... $ 26,943 $ 28,610 $ 29,880 $ 35,111 $ 30,394 $ 31,324 $ 34,765 $ 40,072 Provision for loan losses ...... 3,912 5,155 7,039 3,643 5,204 6,902 8,572 5,010 General and administrative expenses ......... 16,402 16,326 17,556 17,980 17,958 17,274 20,277 19,910 Net income (loss) ... 3,189 3,262 1,975 7,175 3,655 3,673 3,039 8,972 Gross loans receivable ....... $ 196,303 $ 208,651 $ 235,532 $ 210,894 $ 221,714 $ 228,878 $ 257,243 $ 226,307 Number of offices open ..... 417 424 426 420 424 434 441 441
- -------------------------------------------------------------------------------- World Acceptance Corporation 11 Management's Discussion and Analysis - -------------------------------------------------------------------------------- Current Accounting Issues In June 1998, the Financial Accounting Standards Board ("FASB") 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 impact. In September 2000, the FASB issued 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 impact. In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill, noting that any purchase price allocable to an assembled workforce may not be accounted for separately. SFAS No. 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company was required to adopt the provisions of SFAS No. 141 immediately and adopted SFAS No. 142 effective April 1, 2002. SFAS No. 141 will require upon adoption of SFAS No. 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and make any necessary reclassifications in order to conform with the new criteria in SFAS No. 141 for recognition apart from goodwill. Upon adoption of SFAS No. 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with SFAS No. 142's transitional goodwill impairment evaluation, the statement will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of its assets (recognized and unrecognized) and liabilities in a manner to a purchase price allocation in accordance with SFAS No. 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be - -------------------------------------------------------------------------------- 12 World Acceptance Corporation Management's Discussion and Analysis - -------------------------------------------------------------------------------- completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of operations. Following the April 1, 2002 adoption of SFAS 142, the Company expects to have unamortized goodwill in the amount of $774,000 and unamortized identifiable intangible assets in the amount of $13.2 million related to loan office purchases. Under SFAS 142, the goodwill will no longer be amortized. Amortization expense related to goodwill was $166,000 ($107,000 after tax) for 2002 and 2001. The company will continue to amortize the identifiable intangible assets, which relates to non-compete agreements and customer lists. Because of the extensive effort needed to comply with adopting SFAS 142, it is not practical to reasonably estimate the effect of adopting this statement on the Company's financial statements at the date of this report, including whether it will be required to recognize any transitional impairment losses as the cumulative effect of a change in accounting principle. 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 $149.6 million at March 31, 1999 to $226.3 million at March 31, 2002, net cash provided by operating activities for fiscal years 2000, 2001, and 2002 was $31.9 million, $39.1 million, and $48.3 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, 275,000 shares in fiscal 2001 and 252,000 shares in fiscal 2002 for an aggregate purchase price of $724,000, $1,434,000, and $2,179,000 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 20 new offices in each of the next two fiscal years. Expenditures by the Company to open and furnish new offices generally averaged approximately $20,000 per office during fiscal 2002. 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 15 offices and a number of loan portfolios from competitors in eight states in 36 separate transactions during fiscal 2002. Gross loans receivable purchased in these transactions were approximately $14.9 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 a $105.0 million base credit facility with a syndicate of banks. In addition to the base revolving credit commitment, there is a $15 million seasonal revolving credit commitment available November 15 of each year through March 31 of the immediately succeeding year to cover the increase in loan demand during this period. The credit facility will expire on September 30, 2003. 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, 2002, the interest rate on borrowings under the revolving credit facility was 3.72%. 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, 2002, $76.9 million was outstanding under this facility, and there was $28.1 million of unused borrowing availability under the borrowing base limitations. - -------------------------------------------------------------------------------- World Acceptance Corporation 13 Management's Discussion and Analysis - -------------------------------------------------------------------------------- Subsequent to March 31, 2002, an additional bank was added to the revolving credit facility and the maximum amount available under the base commitment was raised to $115.0 million. Since then, the banks have agreed to raise the base commitment to $125.0 million and to extend the maturity date on the revolver to September 30, 2004. In conjunction with these changes, the Company has agreed to pay a 10 basis point closing fee and the margin over the LIBOR rate will be raised by 10 basis points. These changes should become effective during the second quarter of fiscal 2003. The Company has $6.0 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 2002 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. 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 following table summarizes the Company's contractual cash obligations by period (in thousands):
Fiscal Year Ended March 31, --------------------------- 2003 2004 2005 2006 2007 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Maturities of Notes Payable ....... $2,482 78,900 2,000 - - - $83,382 Minimum Lease Payments ...... 3,445 2,216 1,142 411 88 29 7,331 ----- ------ ----- --- -- -- ------ Total $5,927 81,116 3,142 411 88 29 $90,713 ===== ====== ===== === == == ======
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 $76.9 million at March 31, 2002. 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, 2002, a change of 1% in the interest rate would cause a change in interest expense of approximately $769,000 on an annual basis. - -------------------------------------------------------------------------------- 14 World Acceptance Corporation Management's Discussion and Analysis - -------------------------------------------------------------------------------- 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. Other Legal Matters At March 31, 2002, the Company and certain of its subsidiaries have been named as defendants in various 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. 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," "believe," 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, ------------------------------------- 2002 2001 --------------- --------------- Assets Cash ........................................................................... $ 3,222,266 3,292,504 Gross loans receivable ......................................................... 226,306,409 210,893,604 Less: Unearned interest and deferred fees ....................................... (53,669,912) (48,504,582) Allowance for loan losses ................................................. (12,925,644) (12,031,622) ------------- ------------- Loans receivable, net ................................................. 159,710,853 150,357,400 Property and equipment, net .................................................... 6,920,824 6,538,131 Other assets, net .............................................................. 11,425,691 9,834,117 Intangible assets, net ......................................................... 13,967,315 13,138,307 ------------- ------------- $ 195,246,949 183,160,459 ============= ============= Liabilities and Shareholders' Equity Liabilities: Senior notes payable ...................................................... 76,900,000 83,150,000 Subordinated notes payable ................................................ 6,000,000 8,000,000 Other note payable ........................................................ 482,000 482,000 Income taxes payable ...................................................... 2,615,536 3,038,113 Accounts payable and accrued expenses ..................................... 6,816,033 5,763,812 ------------- ------------- Total liabilities ..................................................... 92,813,569 100,433,925 ------------- ------------- Shareholders' equity: Preferred stock, no par value Authorized 5,000,000 shares, no shares issued or outstanding .......... - - Common stock, no par value Authorized 95,000,000 shares; issued and outstanding 18,879,218 and 18,688,973 shares at March 31, 2002 and 2001, respectively ............ - - Additional paid-in capital ................................................ 681,354 313,655 Retained earnings ......................................................... 101,752,026 82,412,879 ------------- ------------- Total shareholders' equity ............................................ 102,433,380 82,726,534 ------------- ------------- Commitments and contingencies $ 195,246,949 183,160,459 ============= =============
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------- 16 World Acceptance Corporation CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------
Years Ended March 31, ------------------------------------------------- 2002 2001 2000 ------------- ------------- ------------- Revenues: Interest and fee income .................................... $ 117,192,857 103,411,761 89,051,419 Insurance commissions and other income ..................... 19,362,244 17,131,920 16,224,444 ------------- ------------- ------------- Total revenues ....................................... 136,555,101 120,543,681 105,275,863 ------------- ------------- ------------- Expenses: Provision for loan losses .................................. 25,687,989 19,748,604 15,697,165 ------------- ------------- ------------- General and administrative expenses: Personnel ............................................... 48,454,298 43,878,217 39,498,066 Occupancy and equipment ................................. 8,225,000 7,627,080 6,917,420 Data processing ......................................... 1,659,144 1,518,501 1,501,667 Advertising ............................................. 4,929,249 3,967,213 3,932,663 Legal ................................................... 448,654 415,594 183,095 Amortization of intangible assets ....................... 1,986,090 1,797,425 1,472,108 Other ................................................... 9,715,740 9,060,353 8,330,131 ------------- ------------- ------------- 75,418,175 68,264,383 61,835,150 ------------- ------------- ------------- Interest expense ........................................... 5,414,790 8,259,794 6,015,029 ------------- ------------- ------------- Total expenses ....................................... 106,520,954 96,272,781 83,547,344 ------------- ------------- ------------- Income before income taxes ...................................... 30,034,147 24,270,900 21,728,519 ------------- ------------- ------------- Income taxes .................................................... 10,695,000 8,670,000 7,560,000 ------------- ------------- ------------- Net income ...................................................... $ 19,339,147 15,600,900 14,168,519 ============= ============= ============= Net income per common share: Basic ...................................................... $ 1.03 .84 .75 ============= ============= ============= Diluted .................................................... $ 1.00 .83 .74 ============= ============= ============= Weighted average shares outstanding: Basic ...................................................... 18,786,529 18,670,597 19,003,380 ============= ============= ============= Diluted .................................................... 19,339,764 18,839,620 19,155,042 ============= ============= =============
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, 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 Proceeds from exercise of stock options (442,136 shares), including tax benefits of $526,469 ............................. 2,546,634 - 2,546,634 Common stock repurchases (251,891 shares) ......................... (2,178,935) - (2,178,935) Net income ........................................................ - 19,339,147 19,339,147 ----------- ------------ ------------ Balances at March 31, 2002 ........................................ $ 681,354 101,752,026 102,433,380 =========== ============ ============
See accompanying notes to consolidated financial statements. - -------------------------------------------------------------------------------- 18 World Acceptance Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
Years Ended March 31, ------------------------------------------------ 2002 2001 2000 ------------- ------------ ------------ Cash flows from operating activities: Net income ......................................................... $ 19,339,147 15,600,900 14,168,519 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets ................................ 1,986,090 1,797,425 1,472,108 Amortization of loan costs and discounts ......................... 124,943 62,452 87,195 Provision for loan losses ........................................ 25,687,989 19,748,604 15,697,165 Depreciation ..................................................... 1,712,251 1,569,905 1,490,642 Deferred tax benefit ............................................. (914,000) (808,000) (485,000) Change in accounts: Other assets, net .............................................. (802,517) (819,170) (819,607) Income taxes payable ........................................... 103,892 1,020,027 616,282 Accounts payable and accrued expenses .......................... 1,052,221 924,811 (367,482) ------------- ------------ ------------ Net cash provided by operating activities .................... 48,290,016 39,096,954 31,859,822 ------------- ------------ ------------ Cash flows from investing activities: Increase in loans receivable, net .................................. (24,272,545) (28,815,645) (23,207,673) Net assets acquired from office acquisitions, primarily loans ...... (10,884,531) (15,653,874) (9,622,912) Increase in intangible assets from acquisitions .................... (2,815,098) (3,827,255) (2,752,700) Purchases of property and equipment, net ........................... (1,979,310) (1,340,245) (1,892,173) ------------- ------------ ------------ Net cash used by investing activities ........................ (39,951,484) (49,637,019) (37,475,458) ------------- ------------ ------------ Cash flows from financing activities: Proceeds (repayment) of senior revolving notes payable, net ..................................................... (6,250,000) 15,250,000 10,750,000 Repayment of senior term notes payable ............................. - - (4,000,000) Repayment of subordinated notes payable ............................ (2,000,000) (2,000,000) - Proceeds from exercise of stock options ............................ 2,020,165 325,806 43,750 Repurchase of common stock ......................................... (2,178,935) (1,433,913) (723,645) ------------- ------------ ------------- Net cash (used in) provided by financing activities .......... (8,408,770) 12,141,893 6,070,105 ------------- ------------ ------------ Increase (decrease) in cash .......................................... (70,238) 1,601,828 454,469 Cash at beginning of year ............................................ 3,292,504 1,690,676 1,236,207 ------------- ------------ ------------ Cash at end of year .................................................. $ 3,222,266 3,292,504 1,690,676 ============= ============ ============
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 accounting principles generally accepted in the United States of America 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 Insurance Company, 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 125 separate finance companies, including the Company. At March 31, 2002 and 2001, ParaData had total assets of $2,791,044, and $1,976,226, respectively. For the years ended March 31, 2002, 2001 and 2000, ParaData had income before income taxes of $773,023, $1,024,638, and $1,847,042, respectively. Total net revenues (sales and systems support less cost of sales) for ParaData for the years ended March 31, 2002, 2001 and 2000 were $2,522,104, $2,750,536, and $3,570,297, 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 2002 and 2001, 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 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. 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. The allowance for loan losses has an allocated and an unallocated component. The Company uses historical information for net charge-offs by loan type and average loan life by loan type to estimate the allocated component of the allowance for loan losses. This methodology is based on the fact that many customers renew their loans prior to the contractual maturity. Average contractual loan terms are approximately nine months and the average loan life is approximately four months. The allowance for loan loss model also reserves 100% - -------------------------------------------------------------------------------- 20 World Acceptance Corporation Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- of the principle on loans greater than 90 days past due on a recency basis. The unallocated component of the allowance for loan losses is for probable losses inherent in the loan portfolio that are not captured in the allocated allowance and approximated $2 million at March 31, 2002. At March 31, 2002 and 2001, 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Other Assets Other assets include costs incurred in connection with originating long-term debt. Such remaining unamortized costs aggregated $120,116, and $192,558 at March 31, 2002 and 2001, 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, 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 10 years, which approximates the estimated useful lives. Management periodically evaluates the recoverability of the unamortized balances of these assets and adjusts them as necessary. Fair Value of Financial Instruments SFAS No. 107, "Disclosures about the Fair Value of Financial Instruments" 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 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 - -------------------------------------------------------------------------------- World Acceptance Corporation 21 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 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 Income taxes are accounted for under the asset and liability method. 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 bases and operating loss and tax credit carryforwards. 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. 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, 2002, 2001, and 2000, the Company paid interest of $5,305,890, $8,176,867, and $5,977,647, respectively. For the years ended March 31, 2002, 2001 and 2000, the Company paid income taxes of $10,591,108, $8,457,973, and $7,913,718, respectively. - -------------------------------------------------------------------------------- 22 World Acceptance Corporation Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Supplemental non-cash financing activities for the years ended March 31, 2002, 2001, and 2000, consist of:
2002 2001 2000 --------- -------- -------- Tax benefits from exercise of stock options .............. $ 526,469 41,355 11,932 ========= ======== ========
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. - -------------------------------------------------------------------------------- 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, 2002, 2001, and 2000:
March 31, ------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ Balance at the beginning of the year ....................... $ 12,031,622 10,008,257 8,769,367 Provision for loan losses .................................. 25,687,989 19,748,604 15,697,165 Loan losses ................................................ (27,774,830) (20,433,464) (16,766,909) Recoveries ................................................. 2,092,032 1,682,681 1,482,439 Allowance on acquired loans, net of specific charge-offs ... 888,831 1,025,544 826,195 ------------ ------------ ------------ Balance at the end of the year ............................. $ 12,925,644 12,031,622 10,008,257 ============ ============ ============
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, ---------------------------- 2002 2001 ------------ ------------ Land ........................................................... $ 250,443 250,443 Buildings and leasehold improvements ........................... 3,205,312 3,065,873 Furniture and equipment ........................................ 12,770,712 11,501,981 ------------ ------------ 16,226,467 14,818,297 Less accumulated depreciation and amortization ................. (9,305,643) (8,280,166) ------------ ------------ Total ..................................................... $ 6,920,824 6,538,131 ============ ============
(4) Intangible Assets Intangible assets, net of accumulated amortization, consist of:
March 31, ---------------------------- 2002 2001 ------------ ------------ Cost of acquiring existing customers ........................... $ 8,829,727 7,140,655 Value assigned to noncompete agreements ........................ 4,185,426 4,835,824 Goodwill ....................................................... 774,038 939,903 Other .......................................................... 178,124 221,925 ------------ ------------ Total ..................................................... $ 13,967,315 13,138,307 ============ ============
- -------------------------------------------------------------------------------- 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 $76.9 million outstanding at March 31, 2002, 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, 2002, the Company's interest rate was 3.72% and the unused amount available under the revolver was $28.1 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, 2003. Subsequent to March 31, 2002, an additional bank was added to the revolving credit facility and the maximum amount available under the base commitment was raised to $115.0 million. Since then, the banks have agreed to raise the base commitment to $125.0 million and to extend the maturity date on the revolver to September 30, 2004. In conjunction with these changes, the Company has agreed to pay a 10 basis point closing fee and the margin over the LIBOR rate will be raised by 10 basis points. These changes should become effective during the second quarter of fiscal 2003. $6,000,000 Senior Subordinated Secured Notes - These notes mature in three annual installments of $2.0 million on June 30, 2002 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 2002. 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, 2002, approximately $23,498,000 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, 2002, are as follows: 2003, $2,482,000; 2004, $78,900,000; 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, 2002, 2001, and 2000:
2002 2001 2000 ------------- ----------- ----------- Insurance premiums written ................. $ 1,903,251 2,027,232 2,820,257 Recoveries on claims paid .................. $ 292,635 359,681 368,971 Claims paid ................................ $ 2,098,173 2,366,609 2,957,540
(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, 2002, are as follows: 2003 ....................................... $3,445,421 2004 ....................................... 2,216,074 2005 ....................................... 1,141,799 2006 ....................................... 410,912 2007 ....................................... 87,834 Thereafter ................................. 29,167 ---------- Total future minimum lease payments ........ $7,331,207 ========== Rental expense for cancelable and noncancelable operating leases for the years ended March 31, 2002, 2001, and 2000, was $4,204,362, $3,941,664, and $3,542,209, respectively. (8) Income Taxes Income tax expense for the years ended March 31, 2002, 2001, and 2000, consists of:
Current Deferred Total ------- -------- ----- Year ended March 31, 2002: U.S. Federal ................................ $ 10,883,000 $ (824,000) $ 10,059,000 State and local ............................. 726,000 (90,000) 636,000 ------------ ---------- ------------ $ 11,609,000 $ (914,000) $ 10,695,000 ============ ========== ============ Year ended March 31, 2001: U.S. Federal ................................ $ 8,764,000 $ (747,000) $ 8,017,000 State and local ............................. 714,000 (61,000) 653,000 ------------ ---------- ------------ $ 9,478,000 $ (808,000) $ 8,670,000 ============ ========== ============ Year ended March 31, 2000: U.S. Federal ................................ $ 7,427,000 $ (39,000) $ 7,028,000 State and local ............................. 618,000 (86,000) 532,000 ------------ ---------- ------------ $ 8,045,000 $ (485,000) $ 7,560,000 ============ ========== ============
- -------------------------------------------------------------------------------- 26 World Acceptance Corporation Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- Income tax expense attributable to income from continuing operations was $10,695,000, $8,670,000 and $7,560,000 for the years ended March 31, 2002, 2001 and 2000, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income from continuing operations as a result of the following:
2002 2001 2000 ---- ---- ---- U.S. Federal ...................................... $ 10,512,000 $ 8,495,000 $ 7,605,000 Increase (reduction) in income taxes resulting from: State tax, net of federal benefit ................. 413,000 424,000 346,000 Change in valuation allowance ..................... 27,000 15,000 55,000 Amortization of goodwill .......................... 58,000 58,000 58,000 Insurance income exclusion ........................ (248,000) (247,000) (165,000) Other, net ........................................ (67,000) (75,000) (339,000) ------------ ----------- ----------- $ 10,695,000 $ 8,670,000 $ 7,560,000 ============ =========== ===========
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at March 31, 2002 and 2001 are presented below:
2002 2001 ---- ---- Deferred tax assets: Allowance for doubtful accounts ................... $ 4,714,000 $ 4,372,000 Unearned insurance commissions .................... 2,213,000 1,739,000 Accounts payable and accrued expenses primarily related to employee benefits ....... 829,000 508,000 Tax over book accrued interest receivable ......... 988,000 840,000 Other ............................................. 315,000 289,000 ------------ ------------ Gross deferred tax assets ......................... 9,059,000 7,748,000 Less valuation allowance .......................... (308,000) (281,000) ------------ ------------ Net deferred tax assets ........................... 8,751,000 7,467,000 Deferred tax liabilities: Tax book basis of depreciable assets .............. (462,000) (37,000) Intangible assets ................................. (621,000) (455,000) Discount of purchased loans ....................... (67,000) (87,000) Deferred net loan origination fees ................ (511,000) (483,000) Other ............................................. (158,000) (47,000) ------------ ------------ Gross deferred liabilities ........................ (1,819,000) (1,449,000) ------------ ------------ Net deferred tax assets ........................... $ 6,932,000 $ 6,018,000 ============ ============
The valuation allowance for deferred tax assets as of March 31, 2002 and 2001 was $308,000 and $281,00, respectively. The valuation allowance against the potential total deferred tax assets as of March 31, 2002 and 2001 relates to state net operating losses. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become - -------------------------------------------------------------------------------- World Acceptance Corporation 27 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income prior to the expiration of the deferred tax assets governed by the tax code. Based upon the level of historical taxable income and projections for future taxable income over the periods, which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at March 31, 2002. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The Internal Revenue Service has examined the Company's federal income tax returns for the fiscal years 1994 through 1996. Tax returns for fiscal 1998 and subsequent years are subject to examination by taxing authorities. - -------------------------------------------------------------------------------- 28 World Acceptance Corporation 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, 2002 ----------------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- --------- Basic EPS Income available to common shareholders ................. $ 19,339,147 18,786,529 $ 1.03 ====== Effect of Dilutive Securities Options ................................................. $ - 553,235 ------------ ----------- Diluted EPS Income available to common shareholders plus assumed conversions .............................. $ 19,339,147 19,339,764 $ 1.00 ============ ========== ======
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 ============ =========== ======
Options to purchase 1,185,815, 1,822,078, and 2,986,140, shares of common stock at various prices were outstanding during the years ended March 31, 2002, 2001 and 2000, 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, 2002. - -------------------------------------------------------------------------------- World Acceptance Corporation 29 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 $423,145, $371,073, and $364,667, for the years ended March 31, 2002, 2001, and 2000, 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 years ended March 31, 2002, and 2001, contributions of $447,520 and $384,222, respectively were charged to operations related to the SERP. Executive Deferred Compensation Plan The Company has an Executive Deferral Plan. Eligible executives may elect to defer all or a portion of their incentive compensation to be paid under the Executive Incentive Plan. As of March 31, 2002, $85,000 had been deferred under this plan. 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) 2002 2001 2000 ---------- ----------- ----------- Net income As reported ................................................. $ 19,339 15,601 14,169 Pro forma ................................................... $ 18,454 14,733 13,423 Basic earnings per share As reported ................................................. $ 1.03 .84 .75 ======= ==== ==== Pro forma ................................................... $ .98 .79 .71 ======= ==== ==== Diluted earnings per share As reported ................................................. $ 1.00 .83 .74 ======= ==== ==== Pro forma ................................................... $ .95 .78 .70 ======= ==== ====
- -------------------------------------------------------------------------------- 30 World Acceptance Corporation Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- 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 2002, 2001, and 2000, respectively: dividend yield of zero; expected volatility of 46.5%, 29%, and 40%; risk-free interest rate of 5.19%, 5.49%, and 6.76%; and expected lives of 10 years for all plans in all three years. The fair values of options granted in 2002, 2001, and 2000 were $4.33, $2.93, and $3.36, respectively. Option activity for the years ended March 31 were as follows:
2002 2001 2000 ---- ---- ---- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Number Price Number Price Number Price ------ ----- ------ ----- ------ ----- Options outstanding, beginning of year .......... 3,391,240 $6.72 3,309,140 $6.82 3,020,140 $6.96 Granted ......................................... 266,500 $8.24 277,500 $5.02 435,850 $5.45 Exercised ....................................... (442,136) $4.58 (76,400) $4.26 (15,000) $2.92 Forfeited ....................................... (318,036) $8.37 (119,000) $7.21 (131,850) $5.95 -------- ----- -------- ----- -------- ----- Options outstanding, end of year ................ 2,897,568 $7.00 3,391,240 $6.72 3,309,140 $6.82 ========= ===== ========= ===== ========= ===== Options exercisable, end of year ................ 2,252,744 $7.17 2,656,659 $7.10 2,252,744 $7.08 ========= ===== ========= ===== ========= =====
Options outstanding at March 31 of each of the last three fiscal years were:
2002 2001 --------------------------------------------- --------------------------------------------- Weighted Weighted Average Weighted Average Weighted Remaining Average Remaining Average Range of Options Contractual Exercise Options Contractual Exercise Exercise Price Outstanding Life Price Outstanding Life Price - --------------- ----------- ---- ----- ----------- ---- ----- $2.90 - $4.99 83,673 3.20 $ 3.62 309,000 2.49 $ 3.28 $5.00 - $5.99 1,027,258 6.54 $ 5.31 1,259,162 7.48 $ 5.31 $6.00 - $7.99 1,019,322 2.92 $ 7.03 1,144,709 3.88 $ 7.02 $8.00 - $9.99 476,692 6.32 $ 8.55 235,692 4.01 $ 8.72 $10.00 - $13.00 290,623 3.88 $ 11.34 442,677 4.78 $ 11.30 --------- ---- ----- --------- ---- ----- $2.90 - $13.00 2,897,568 4.86 $ 7.00 3,391,240 5.22 $ 6.72 ========= ==== ====== ========= ==== ======
2000 -------------------------------------------- Weighted Average Weighted Remaining Average Range of Options Contractual Exercise Exercise Price Outstanding Life Price -------------- ----------- ---- ----- $2.90 - $4.99 293,000 2.27 $ 3.28 $5.00 - $5.99 1,104,062 8.06 $ 5.36 $6.00 - $7.99 1,223,709 4.86 $ 7.03 $8.00 - $9.99 235,692 5.01 $ 8.72 $10.00 - $13.00 452,677 5.77 $11.34 --------- ---- ----- $2.90 - $13.00 3,309,140 5.83 $ 6.82 ========= ==== =====
- -------------------------------------------------------------------------------- World Acceptance Corporation 31 Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- On May 14, 2002, the Company granted options for 6,000 shares to non-management directors and 60,000 shares to certain senior officers. After giving affect to the above grants, there remain 4,896 shares of common stock available for future grants. No expense has been recorded relative to stock options granted to date. (11) Acquisitions During fiscal 2002, the Company purchased the net assets of 36 consumer loan offices for a total consideration of $13,701,911. Total net loans receivable acquired amounted to $10,768,897, and the Company paid $2,815,098 for non-compete agreements with predecessor owners and for other intangible assets. Twenty-one of the 36 offices acquired were merged into existing offices. 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. The results of all acquisitions have been included in the Company's consolidated financial statements since the respective acquisition dates. 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:
2002 2001 -------------------------------------- -------------------------------------- First Second Third Fourth First Second Third Fourth ------- ------- ------- ------- ------- ------- ------- ------- (Dollars in thousands, except earnings per share data) Total revenues ..................................... $30,394 31,324 34,765 40,072 26,943 28,610 29,880 35,111 Provision for loan losses .......................... 5,204 6,902 8,572 5,010 3,912 5,155 7,039 3,643 General and administrative expenses ................ 17,958 17,274 20,277 19,910 16,402 16,326 17,556 17,980 Interest expense ................................... 1,595 1,525 1,244 1,050 1,760 2,154 2,303 2,043 Income tax expense ................................. 1,982 1,950 1,633 5,130 1,680 1,713 1,007 4,270 ------- ------- ------- ------- ------- ------- ------- ------- Net income .................................... $ 3,655 3,673 3,039 8,972 3,189 3,262 1,975 7,175 ======= ======= ======= ======= ======= ======= ======= ======= Earnings per share: Basic ......................................... $ .20 .20 .16 .48 .17 .18 .11 .38 ======= ======= ======= ======= ======= ======= ======= ======= Diluted ....................................... $ .19 .19 .16 .47 .17 .17 .11 .38 ======= ======= ======= ======= ======= ======= ======= =======
- -------------------------------------------------------------------------------- 32 World Acceptance Corporation Notes to Consolidated Financial Statements - -------------------------------------------------------------------------------- (13) Litigation At March 31, 2002, 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 advise 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 $684,450, 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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Greenville, South Carolina April 23, 2002 CORPORATE INFORMATION - -------------------------------------------------------------------------------- See note 5 to the Company's Consolidated Financial Statements. Common Stock World Acceptance Corporation's common stock trades on The Nasdaq Stock Market under the symbol: WRLD. As of June 21, 2002, there were 133 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 17,632,402 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 21, 2002, was $8.17. Market Price of Common Stock 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 Fiscal 2002 --------------------------------------- Quarter High Low ------- ---- --- First $ 9.30 $ 6.30 Second 9.99 7.05 Third 9.14 6.34 Fourth 8.10 6.90 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. Executive Offices World Acceptance Corporation Post Office Box 6429 (29606) 108 Frederick Street (29607) Greenville, South Carolina (864) 298-9800 Transfer Agent First Union National Bank Shareholder Services Group 1525 West W. T. Harris Boulevard Charlotte, North Carolina 28288-1153 (800) 829-8432 Legal Counsel Robinson, Bradshaw, & Hinson, P.A. 1900 Independence Center 101 North Tryon Street Charlotte, North Carolina 28246 Independent Auditors KPMG LLP 55 Beattie Place, Suite 900 Greenville, South Carolina 29601 Annual Report A copy of the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, may be obtained without charge by writing to the Corporate Secretary at the executive offices of the Company. For Further Information A. Alexander McLean III Executive Vice President and Chief Financial Officer World Acceptance Corporation (864) 298-9800 - -------------------------------------------------------------------------------- World Acceptance Corporation 37 EX-21 4 dex21.txt SCHEDULE OF COMPANY'S SUBSIDIARIES Exhibit 21 Exhibit 21 Subsidiaries of World Acceptance Corporation Jurisdiction of Incorporation Corporate Name or Organization - -------------- --------------- World Finance Corporation of South Carolina, Inc. South Carolina World Finance Corporation of Georgia Georgia World Finance Corporation of Texas Texas World Acceptance Corporation of Oklahoma, Inc. Oklahoma World Finance Corporation of Louisiana Louisiana World Acceptance Corporation of Missouri Missouri World Finance Corporation of Tennessee Tennessee World Acceptance Corporation of Alabama Alabama WAC Insurance Company, Ltd. Turks & Caicos Islands WFC Limited Partnership Texas WFC of South Carolina, Inc. South Carolina World Finance Corporation of Illinois Illinois World Finance Corporation of New Mexico New Mexico World Finance Corporation of Kentucky Kentucky WFC Services, Inc. Tennessee EX-23 5 dex23.txt CONSENT OF KPMG LLP EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors World Acceptance Corporation We consent to incorporation by reference in the registration statements (Nos. 33-52166, 33-98938 and 333-14399) on Form S-8 of World Acceptance Corporation of our report dated April 23, 2002, which respect to the consolidated balance sheets of World Acceptance Corporation and subsidiaries as of March 31, 2002 and 2001, 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, 2002, which report is incorporated by reference in the March 31, 2002 annual report on Form 10-K of World Acceptance Corporation. /s/ KPMG LLP Greenville, South Carolina June 28, 2002 -----END PRIVACY-ENHANCED MESSAGE-----