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, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission file number 0-19599
WORLD ACCEPTANCE
CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 570425114
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
108 Frederick Street
Greenville, South Carolina 29607
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(Address of principal executive offices) (Zip Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
(Title of Class)
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. [X]
The aggregate market value of voting stock held by nonaffiliates of the registrant as of June 19, 2000, computed by reference to the closing sale price on such date, was $83,603,015. As of the same date, 18,627,573 shares of Common Stock, no par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 2000 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 2000 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
Item No. Page
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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............................................................................. 11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 11
7A. Quantitative and Qualitative Disclosures About Market Risk.......................................... 11
8. Financial Statements and Supplementary Data......................................................... 11
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 11
PART III
10. Directors and Executive Officers of the Registrant................................................. 11
11. Executive Compensation............................................................................. 11
12. Security Ownership of Certain Beneficial Owners and Management..................................... 12
13. Certain Relationships and Related Transactions..................................................... 12
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................... 12
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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 2000" are to the Company's fiscal year ended March 31, 2000.
PART I.
Item 1. Description of Business
General. The Company is engaged in the small-loan consumer finance business, offering short-term 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 412 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri, New Mexico, and Kentucky as of June 19, 2000. 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.
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 2000, the Company opened 23 new offices. Twelve 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 25 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.
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,
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At June 19,
State 1993 1994 1995 1996 1997 1998 1999 2000 2000
----- ---- ---- ---- ---- ---- ---- ---- ---- ----
South Carolina........ 53 56 59 62 68 64 63 63 63
Georgia............... 35 35 38 39 45 49 49 48 48
Texas................. 66 81 93 104 131 128 131 135 134
Oklahoma.............. 27 31 33 39 40 41 40 43 43
Louisiana (1)......... 10 12 15 20 18 21 20 21 21
Tennessee (2)......... - 2 6 18 24 28 30 35 36
Illinois (3).......... - - - - 3 11 20 30 30
Missouri (4).......... - - - - 1 9 16 18 20
New Mexico (5)........ - - - - 6 9 10 13 13
Kentucky (6).......... - - - - - - - 4 4
---- ---- ---- ---- ---- ---- ---- ---- ----
Total............ 191 217 244 282 336 360 379 410 412
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(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 2000, the Company's average originated loan size and term were approximately $555 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, 2000, 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 205% 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, Oklahoma, Missouri and South Carolina 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.
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, Tennessee, Louisiana, and Kentucky and on a limited basis in 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 and Tennessee 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 seven of the ten states where it operates and plans to introduce the program in the remaining three states during fiscal 2001. 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.
Beginning in fiscal 1997, the Company expanded its product line on a limited basis to include larger balance, lower risk and lower yielding, individual consumer loans. Since that time, the Company has acquired 13 larger loan offices and several bulk purchases of larger loans receivable. Additionally, the Company has converted several of its traditional small-loan offices into those offering the larger loan products, primarily in Georgia, South Carolina and Tennessee. As of March 31, 2000, the larger class of loans amounted to approximately $26.2 million, a 212.1% increase over the balance outstanding at the end of the prior fiscal year. As a result of these efforts, this portfolio has grown to 15.1% of the total balances as of the end of the fiscal year. Management believes that these offices can support much larger asset balances with 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 into additional offices during the current fiscal year.
During fiscal 1999, the Company tested in 40 offices an income tax return preparation and refund anticipation loan program. Based on the results of this test, the Company expanded this program into all offices where permitted by the lease agreements or approximately 390 offices in fiscal 2000. Due to certain systems and service bureau problems encountered during the first two weeks of the filing season, the program was less successful than anticipated; however, in spite of these problems, the Company completed and filed approximately 16,000 tax returns generating approximately $1 million in net revenue. The Company believes that this is a beneficial service for its existing customer base due to the earned income credit and believes that the program can become even more profitable in fiscal 2001 and beyond.
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 1993 through 2000:
At March 31,
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State 1993 1994 1995 1996 1997 1998 1999 2000
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South Carolina........... 37% 37% 35% 33% 26% 23% 22% 21%
Georgia.................. 14 14 13 13 13 14 16 15
Texas.................... 38 38 38 35 39 35 31 28
Oklahoma................. 8 7 7 8 7 7 7 6
Louisiana (1)............ 3 3 4 5 3 4 4 3
Tennessee (2)............ - 1 3 6 10 11 12 13
Illinois (3)............. - - - - - 2 3 4
Missouri (4)............. - - - - - 1 2 3
New Mexico (5)........... - - - - 2 3 3 3
Kentucky (6)............. - - - - - - - 4
---- ---- ---- ---- ---- ---- ---- ----
Total................ 100% 100% 100% 100% 100% 100% 100% 100%
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(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, 2000:
Total Number Average Gross Loan
of Loans Balance
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South Carolina..................... 64,835 565
Georgia............................ 37,139 693
Texas.............................. 132,427 368
Oklahoma........................... 25,246 417
Louisiana.......................... 11,772 450
Tennessee.......................... 30,069 762
Illinois........................... 14,866 430
Missouri........................... 8,971 549
New Mexico......................... 11,280 443
Kentucky........................... 3,952 510
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Total.......................... 340,557
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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
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 2000, 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 1998, 1999, and 2000, the percentages of the Company's loan originations that were refinancings of existing loans were 79.1%, 78.5%, and 78.3%, 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, Tennessee, Kentucky, and on a limited basis, New Mexico, Missouri and Oklahoma, 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, which 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 2000, the captive insurance subsidiary reinsured less than 9.2% of the credit insurance sold by the Company and contributed approximately $748,000 to the Company's total revenues.
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 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, and Kentucky and the Western Division consisting of Louisiana, Texas, Oklahoma, 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 there can be no assurance that revenues from sales of the system to third parties will 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.
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 2000, advertising expenses were approximately 3.7% 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 Illinois Consumer Credit Division, 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
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, 2000, the Company had approximately 1,300 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)
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Charles D. Walters (61) Chairman and Chief Chairman since July 1991; President since July
Executive Officer; 1986; CEO since July 1991; Director since April
Director 1989
D. R. Jones (48) President and Chief Since August 1999; from October 1977 until
Operating Officer August 1999, various positions with Associates
Financial Services, Inc., with most recent being
Regional Operations Director
A. Alexander McLean, III (49) 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 (44) Senior Vice President, Since January 1996; Senior Vice President -
Eastern Division Operations Support, Fleet Finance, in Atlanta,
Georgia, from January 1993 to January 1996
Charles F. Gardner, Jr. (38) Senior Vice President, Since April 2000; Vice President, Operations -
Western Division Southeast Texas and Mexico since December 1996;
Supervisor of West Texas since July 1987
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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 June 19, 2000, the Company had 412 branch offices, most of which are leased pursuant to short-term operating leases. During the fiscal year ended March 31, 2000, total lease expense was approximately $3.5 million, or an average of approximately $8,938 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
On November 11, 1998, the Company and its subsidiaries named in the action entered into a settlement agreement pursuant to which the Company agreed to settle all claims alleged in the litigation involving it and its subsidiaries for an aggregate cash payment of $5 million. In addition, the terms of the settlement curtailed certain non-filing practices by the Company and its subsidiaries and allowed the court to approve criteria defining those circumstances in which the Company's subsidiaries could make non-filing insurance claims going forward. As a result of the settlement, non-filing insurance fees charged to borrowers were reduced by 25%. The settlement agreement, which includes the settlement by several other defendants in the litigation, including the Company's insurer, was approved by the Court.
The Company recorded an accrual for settlement costs, including the expected expenses to comply with the terms of the settlement, of $5.4 million in the fiscal year ended March 31, 1999. Of this total accrual, $5.0 million was paid to an escrow account and has been distributed to class participants and $244 thousand in costs were incurred in completing the settlement. The remaining $156 thousand of the accrual was reversed in fiscal 2000. The settlement limited and reduced the coverage for the types of losses with respect to which its subsidiaries submit claims. The Company does not believe that those limitations and reductions will have a material adverse effect on the Company's results of operations.
The Tulsa Case is based on an opinion of the Oklahoma Attorney General issued on February 20, 1997, interpreting a provision of the OCCC with respect to the permitted amount of certain loan refinance charges in a manner contrary to regulatory practice that had been in existence in Oklahoma since 1969. On the basis of that opinion the Administrator of the Oklahoma Department of Consumer Credit (the "Department") notified the Company and the other consumer finance companies that the Department would begin enforcing the provisions of the OCCC, as interpreted by the Attorney General's opinion on March 3, 1997. In response to the Attorney General's opinion and the Department's threat, the Company and numerous other consumer finance companies brought suit (the "Administrator's Case") to enjoin enforcement by the Department of the OCCC as interpreted by the Attorney General. Shortly thereafter, the Oklahoma Legislature enacted amendments to the relevant provision of the OCCC, which became effective on August 29, 1997, and which negated the effect of the Attorney General's interpretation.
Although the Company and the other consumer finance companies were successful at the trial court level in the Adminstrator's Case, in May 1999, the Oklahoma Supreme Court upheld the Attorney General's interpretation. The Oklahoma Supreme Court's decision expressly limited the application of the Attorney General's interpretation of the OCCC to the period between March 3, 1997 and August 29, 1997, and it expressly refrained from reaching the issue of whether refunds of charges assessed during that period were required.
The Attorney General has recently directed the Department to proceed with administratively ordering refunds of those charges. The Company and several of the other consumer finance companies contend that for numerous reasons, the Department lacks both the authority and the legal basis to order refunds. The Company and the other consumer finance companies are attempting to open discussions with the Department and the Attorney General with the goal of resolving both the issues concerning an attempted administrative order of refunds and the issues that remain pending in the Tulsa Case. It is far too early to predict whether those discussions, if they can be initiated, will be successful. Nonetheless, because of the 1997 amendments to the OCCC, the Company expects that even if both the Tulsa Case and the Department's attempts at administratively ordering refunds are decided adversely to the Company, those results would not materially affect the Company's refinancing practices in Oklahoma going forward. Such adverse decisions could, however, involve a material monetary award; however, in the opinion of management the likelihood of such a material monetary award is not currently deemed to be probable. The Company intends to continue to defend vigorously against both the Tulsa Case and the Department's threat to administratively order refunds, while at the same time, exploring every possibility of reaching a satisfactory non-judicial resolution of all of the issues.
From time to time the Company is involved in other routine litigation relating to claims arising out of its operations in the normal course of business 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. Specifically, management's statements of expectations with respect to the Tulsa Case and related controversy with the Attorney General and Department (collectively, the "Oklahoma Litigation") described above and in MD&A may be deemed forward-looking statements. When used in this document, the words "anticipate," "estimate," "expect," and similar expressions may identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual financial results, performance or financial condition may vary materially from those anticipated, estimated or expected. Among the key factors that could cause the Company's actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements are the following: changes in interest rates; risks inherent in making loans, including repayment risks and value of collateral; recently-enacted or proposed legislation; the timing and amount of revenues that may be recognized by the Company; the outcome of the Oklahoma Litigation; 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.
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, 2000.
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 19, 2000, there were 152 holders of record of Common Stock and approximately 2,000 persons or entities who hold their stock 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
Market risk reflects the risk of economic loss resulting from adverse changes in market price and interest rates. The Company generally offers its loans at the prevailing statutory rates for terms not to exceed 36 months. Management believes that the carrying value approximates the fair value of its loan portfolio. The Company's outstanding debt under its revolving credit facility was $67.9 million at March 31, 2000. Interest on borrowings under this facility is based, at the Company's option, on the prime rate or LIBOR plus 1.60%. Based on the outstanding balance at March 31, 2000, a change of 1% in the interest rate would cause a change in interest expense of approximately $679,000 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.
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 19, 2000" and "Ownership of Common Stock of Management as of June 19, 2000" 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, 2000 and 1999
Consolidated Statements of Operations for the years ended March 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998
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.
(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
June 30, 1997, between Harris Trust and Savings Bank, the 10-Q
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
Mutual Life Insurance Company and the Company re: 10% Senior 10-Q
Subordinated Secured Notes
4.6 Amended and Restated Security Agreement, Pledge and Indenture 4.8 9-30-97
of Trust, dated as of June 30, 1997, between the Company and 10-Q
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
10.4+ Settlement Agreement dated as of April 1, 1999, between the 10.3 1999 10-K
Company and R. Harold Owens
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Filed Herewith (*),
Non-Applicable (NA), or
or Incorporated by Company
Exhibit Reference Previous Registration
Number Description Exhibit Number No. or Report
------------------------------------------------------------------------------------------------------------------
10.5 Securityholders' Agreement dated as of September 19, 1991, 10.5 33-42879
between the Company and certain of its securityholders
10.6+ Board of Directors Deferred Compensation Plan * N/A
10.7+ World Acceptance Corporation Supplemental Income Plan * N/A
10.8+ 1992 Stock Option Plan of the Company 4 33-52166
10.9+ 1994 Stock Option Plan of the Company, as amended 10.6 1995 10-K
10.10+ The Company's Executive Incentive Plan 10.6 1994 10-K
10.11+ World Acceptance Corporation Retirement Savings Plan 4.1 333-14399
13 Excerpts from 2000 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
27 Financial Data Schedule * NA
|
+ 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.
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 29, 2000 |
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.
/s/ Charles D. Walters
---------------------------------------------------
Charles D. Walters, Chairman and Chief Executive Officer
(principal executive officer); Director
Date: June 29, 2000
/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 29, 2000
/s/ Charles D. Way
---------------------------------------------------
Charles D. Way, Director
Date: June 29, 2000
/s/ William S. Hummers, III
---------------------------------------------------
William S. Hummers, III, Director
Date: June 29, 2000
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Exhibit 10.6
WORLD ACCEPTANCE CORPORATION
BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
Page
----
ARTICLE I PURPOSE OF PLAN
1.1 Purpose of Plan 1
ARTICLE II DEFINITIONS
2.1 Account 1
2.2 Beneficiary 1
2.3 Board 1
2.4 Change in Control 1
2.5 Committee 2
2.6 Company 2
2.7 Compensation 2
2.8 Deferred Stock Unit 2
2.9 Dividend Date 2
2.10 Effective Date 2
2.11 Eligible Director 2
2.12 Fair Market Value Per Share 2
2.13 Nonqualified Deferred Compensation 2
2.14 Participant 2
2.15 Participant Enrollment and Election Form 2
2.16 Plan 2
2.17 Plan Year 2
RTICLE III ELIGIBILITY AND PARTICIPATION
3.1 Eligibility Requirements 3
ARTICLE IV DEFERRAL OF COMPENSATION
4.1 Nonqualified Deferral Elections 3
4.2 Failure to Elect 3
ARTICLE V PLAN ACCOUNTS
5.1 Establishment of Accounts 3
ARTICLE VI ALLOCATION OF FUNDS
6.1 Account Earnings 4
6.2 Interest Credit 4
6.3 Deferred Stock Credit 4
|
Page
----
ARTICLE VII PAYMENT OF BENEFITS
7.1 Payment of Benefits 5
7.2 Beneficiary Designation 5
7.3 Change in Control 5
ARTICLE VIII COMMITTEE
8.1 Membership of the Committee 5
8.2 Duties of the Committee 6
ARTICLE IX ADMINISTRATION
9.1 Administrative Authority 6
9.2 Uniformity of Discretionary Acts 7
9.3 Litigation 7
9.4 Payment of Administration Expenses 7
9.5 Liability of Committee, Indemnification 7
9.6 Expenses 7
9.7 Taxes 7
ARTICLE X MISCELLANEOUS
10.1 Alienation of Benefits 7
10.2 General Creditor Status 8
10.3 Governing Law 8
10.4 Binding on Successors 8
10.5 No Guarantee of Employment 8
10.6 Construction 8
ARTICLE XI AMENDMENT, TERMINATION, OR MERGER OF PLAN
11.1 Amendment 8
11.2 Termination 8
11.3 Notice of Amendment of Termination 8
ARTICLE XII CLAIMS PROCEDURE 9
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ARTICLE I
PURPOSE OF PLAN
ARTICLE II
DEFINITIONS
2.5 Committee. "Committee" means the Committee charged with managing and
---------
administrating the Plan and the individual Participant Enrollment and
Election Forms in accordance with Articles VIII and IX hereof.
2.6 Company. "Company" means World Acceptance Corporation., or any successor
-------
company as a result of merger, consolidation, liquidation, transfer of
assets, or other reorganization.
2.7 Compensation. "Compensation" means payment for services provided by an
------------
Eligible Director to the Company in the form of retainer fees, meeting
fees, or other such fees, which would otherwise be paid in cash.
2.8 Deferred Stock Unit. "Deferred Stock Unit" means a phantom stock unit
-------------------
having value at any time equivalent to the Fair Market Value Per Share of
the Company's common stock, no par value.
2.9 Dividend Date. "Dividend Date" means each date, if any, on which cash or
-------------
other dividends are paid on the Company's common stock.
2.10 Effective Date. "Effective Date" means the date on which the Company
--------------
adopts the Plan.
2.11 Eligible Director. "Eligible Director" means a person not employed by
-----------------
the Company, but who is a member of the Board and receives Compensation.
2.12 Fair Market Value Per Share. "Fair Market Value Per Share" means on any
---------------------------
date the average of the closing sales prices per share for the Company's
common stock, no par value, over the preceding twenty (20) days on which
common stocks are traded on the NASDAQ Stock Market.
2.13 Nonqualified Deferred Compensation. "Nonqualified Deferred Compensation"
----------------------------------
means Compensation that is due to be earned and which would otherwise be
paid to a Participant, which the Participant elects to defer under the
Plan, and which is credited to an Account on behalf of a Participant.
2.14 Participant. "Participant" means any Eligible Director who is or may
-----------
become (or whose beneficiaries may become) eligible to receive a benefit
under the Plan by executing a valid Participant Enrollment and Election
Form.
2.15 Participant Enrollment and Election Form. "Participant Enrollment and
----------------------------------------
Election Form" means the form on which an Eligible Director elects, prior
to the period in which services are to be performed, to defer
Compensation hereunder.
2.16 Plan. "Plan" means the WAC Board of Directors Deferred Compensation Plan.
----
2.17 Plan Year. "Plan Year" means the calendar year.
---------
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
ARTICLE IV
DEFERRAL OF COMPENSATION
A Participant may change the amount of his deferred Compensation by delivering to the Committee prior to the beginning of any subsequent Plan Year a new Participant Enrollment and Election Form, with such change being first effective for Compensation to be earned in such subsequent Plan Year. Once made, an election shall continue until changed by a Participant on a new Participant Enrollment and Election Form delivered to the Committee.
ARTICLE V
PLAN ACCOUNTS
ARTICLE VI
ALLOCATION OF FUNDS
If at any time any Deferred Stock Units are maintained in a Participant's Account, there shall be credited to such Account additional Deferred Stock Units on each Dividend Date. The number of such additional Deferred Stock Units shall be determined by (i) multiplying the total number of Deferred Stock Units (including fractional Deferred Stock Units) in the Account immediately prior to the Dividend Date by the amount of the dividend per share to be payable on such Dividend Date and (ii) dividing the product by the Fair Market Value Per Share on the Dividend Date. In the case of dividends payable on the Company's common stock other than in cash, the amount of the dividend per share shall be based on the fair market value of the property at the time of distribution of the dividend, as determined by the Committee.
In the event of any change in the outstanding shares of common stock of the Company upon which the stock equivalency hereunder is based, by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or any other change in corporate structure, or in the event any dividend is paid in common shares of Company stock or other property, the number of Deferred Stock Units credited to an Account shall be equitably adjusted in such manner as the Committee shall determine to be fair under the circumstances.
ARTICLE VII
PAYMENT OF BENEFITS
ARTICLE VIII
COMMITTEE
ARTICLE IX
ADMINISTRATION
(a) Resolve and determine all disputes or questions arising under the Plan, including the power to determine the rights of Participants and Beneficiaries, and their respective benefits, and to remedy any ambiguities, inconsistencies, or omissions in the Plan.
(b) Adopt such rules of procedure and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules and regulations adopted as above.
(d) Make determinations concerning the crediting and distribution of Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure specialized advice or assistance, as it deems necessary or desirable in connection with the administration and operation of the Plan, and the Committee shall be entitled to rely conclusively upon, and shall be fully protected in any action or omission taken by it in good faith reliance upon the advice or opinion of such firms or persons. The Committee shall have the power and authority to delegate from time to time by written instrument all or any part of its duties, powers, or responsibilities under the Plan, both ministerial and discretionary, as it deems appropriate, to any person or committee, and in the same manner to revoke any such delegation of duties, powers, or responsibilities. Any action of such person or committee in the exercise of such delegated duties, powers, or responsibilities shall have the same force and effect for
all purposes hereunder as if such action had been taken by the Committee. Further, the Committee may authorize one or more persons to execute any certificate or document on behalf of the Committee, in which event any person notified by the Committee of such authorization shall be entitled to accept and conclusively rely upon any such certificate or document executed by such person as representing action by the Committee until such third person shall have been notified of the revocation of such authority.
ARTICLE X
MISCELLANEOUS
10.1 Alienation of Benefits. Benefits payable under this Plan shall not be
----------------------
subject in any manner to alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution or levy of any kind, either
voluntary or involuntary, and any attempt to alienate, sell or otherwise
transfer or dispose of any interest shall be void.
7
|
10.2 General Creditor Status. Each Participant shall be regarded as a general
-----------------------
unsecured creditor of the Company with respect to any rights derived by
the Participant from the existence of this Plan or any benefits due him.
A Participants benefit under this plan are unfunded. No Participant shall
have any rights as a shareholder of the Company as a result of
participation in this Plan.
10.3 Governing Law. The provisions of this Plan and the rights of the
-------------
parties hereunder shall be interpreted and construed in accordance with
the laws of the State of South Carolina.
10.4 Binding On Successors. In the event that the Company is merged or
---------------------
consolidated with another entity or in the event that substantially all
the assets of the Company are sold or transferred to another entity, the
provisions of the Plan shall be binding upon and shall inure to the
benefit of the continuing entity in such merger or consolidation or the
entity to which such assets are sold or transferred.
10.5 No Guarantee of Employment. Nothing contained in this Plan shall be
--------------------------
construed as a contract of employment between the Company and any
Participant.
10.6 Construction. The masculine gender when used herein shall be deemed to
------------
include the feminine gender, and the singular may include the plural
unless the context clearly indicates to the contrary.
|
ARTICLE XI
AMENDMENT, TERMINATION OR MERGER OF THE PLAN
11.1 Amendment. The Committee reserves the right at any time and from time to
---------
time to modify or amend, in whole or in part, any or all of the
provisions of the Plan, provided that no modification or amendment shall
be made that will affect adversely any right or obligation of any
Participant with respect to a Participant's Account. Notwithstanding the
foregoing, any modification or amendment of the Plan may be made,
retroactively if necessary, which the Committee deems necessary or proper
to bring the Plan into conformity with any law or governmental regulation
relating to the Plan. No amendment to this Plan shall decrease a
Participant's Account balance.
11.2 Termination. The Company may terminate the Plan in whole or in part for
-----------
any reason at any time. In the case of such termination or partial
termination, distributions shall be made pursuant to the provisions of
Article VII. The Company has established the Plan with the bona fide
intention and expectation that the Plan will continue indefinitely, but
the Company shall be under no obligation to maintain the Plan for any
given length of time and may, in its sole discretion, terminate the Plan
at any time without any liability whatsoever.
11.3 Notice of Amendment or Termination. Notice of every such amendment or
----------------------------------
termination shall be given in writing to each Participant and Beneficiary
of a deceased Participant.
|
ARTICLE XII
CLAIMS PROCEDURE
12.1 A person with an interest in the Plan shall have the right to file a
claim for benefits under the Plan and to appeal any denial of a claim
for benefits. Any request for a Plan benefit or to clarify the
claimant's rights to future benefits under the terms of the Plan shall
be considered to be a claim.
12.2 A claim for benefits will be considered as having been made when
submitted in writing by the claimant to the Company. No particular form
is required for the claim, but the written claim must identify the name
of the claimant and describe generally the benefit to which the
claimant believes he or she is entitled. The claim may be delivered
personally during normal business hours or mailed to the Company.
12.3 The Committee, acting on behalf of the Company, will determine whether,
or to what extent, the claim may be allowed or denied under the terms
of the Plan. If the claim is wholly or partially denied, the claimant
shall be so informed by written notice within 90 days after the day the
claim is submitted unless special circumstances require an extension of
time for processing the claim. If such an extension of time for
processing is required, written notice of the extension shall be
furnished to the claimant prior to the termination of the initial
90-day period. Such extension may not exceed an additional 90 days from
the end of the initial 90-day period. The extension notice shall
indicate the special circumstances requiring an extension of time and
the date by which the Plan expects to render the final decision. If
notice of denial of a claim (in whole or in part) is not furnished
within the initial 90-day period after the claim is submitted (or, if
applicable, the extended 90-day period), the claimant shall consider
that his or her claim has been denied just as if he or she had received
actual notice of denial.
12.4 The notice informing the claimant that his or her claim has been wholly
or partially denied shall be written in a manner calculated to be
|
understood by the claimant and shall include:
(1) The specific reason(s) for the denial.
(2) Specific reference to pertinent Plan provisions on which the denial is based.
(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary.
(4) Appropriate information as to the steps to be taken if the Participant or Beneficiary wishes to submit his or her claim for review.
12.5 If the claim is wholly or partially denied, the claimant (or his or her
authorized representative) may file an appeal of the denied claim with
the Committee requesting that the claim be reviewed. The Committee
shall conduct a full and fair review of each appealed claim and its
denial. Unless the Committee notifies the claimant that due to the
nature of the benefit and other attendant circumstances he or she is
entitled to a greater period of time within which to submit his or her
request for review of a denied claim, the claimant shall have 60 days
after he or she (or his or her authorized representative) receives
written notice of denial of his or her claim within which such request
must be submitted to the Committee.
12.6 The request for review of a denied claim must be made in writing. In
connection with making such request, the claimant or his authorized
|
representative may:
(1) Review pertinent documents.
(2) Submit issues and comments in writing.
12.7 The decision of the Committee regarding the appeal will be given to the
claimant in writing no later than 60 days following receipt of the
request for review. However, if special circumstances (for example, if
the Board decides to hold a hearing on the appeal) require an extension
of time for processing, the decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request for
review. If special circumstances require that a decision will be made
beyond the initial time for furnishing the decision, written notice of
the extension shall be furnished to the claimant (or his authorized
representative) prior to the commencement of the extension. If a
decision on review is not furnished within the appropriate time, the
claim shall be deemed to have been denied on appeal.
12.8 The Committee may, in its sole discretion, decide to hold a hearing if
it determines that a hearing is necessary or appropriate in order to
make a full and fair review of the appealed claim.
12.9 The decision on review shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, as
well as specific references to the pertinent Plan provisions on which
the decision is based.
12.10 A Participant or Beneficiary must exhaust his rights to file a claim
and to request a review of the denial of his claim before bringing any
civil action to recover benefits due to him under the terms of the
Plan, to enforce his rights under the terms of the Plan, or to clarify
his rights to future benefits under the terms of the Plan.
10
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IN WITNESS WHEREOF, this Plan is hereby adopted this ____ day of
|
_________, 2000.
ATTEST: WORLD ACCEPTANCE CORPORATION
____________________________ By: ________________________
Secretary Title: _______________________
[CORPORATE SEAL]
EXHIBIT 10.7
WORLD ACCEPTANCE CORPORATION
SUPPLEMENTAL INCOME PLAN
2.1 "Beneficiary" means, with respect to an Executive, the person or persons who are designated as such by an Executive, in his Participation Agreement, to receive payments under the Plan following the death of the Executive.
2.2 "Corporation" means World Acceptance Corporation, a South Carolina corporation, or any successor thereto and it subsidiaries.
2.3 "Disability" shall have the meaning ascribed to "Total Disability" in the World Acceptance Corporation Long Term Disability Income Plan, whether or not the Executive is covered under such plan. The Board, in its sole discretion, will determine an Executive's Disability for purposes of this Plan.
2.4 "Early Retirement" means the retirement, with the written consent of the Board of Directors, from employment with the Corporation by an Executive prior to his Normal Retirement Age. The Board may grant or deny Early Retirement to an Executive for any reason. However, no Executive will be granted Early Retirement until he has reached the age of 57 and been a participant in the Plan for at least 8 years.
2.5 "Early Retirement Benefit" means, with respect to each Executive, 45% of such Executive's monthly base salary, at the time of Early Retirement, multiplied by his Days of Service Fraction.
2.6 "Early Retirement Date" means the first day of the month following the month during which the Executive is granted Early Retirement.
2.7 "Employment Date" means the most recent date an Executive became employed
as an officer of the Corporation. If the Executive was originally employed
as a non-officer, then the date of promotion to officer status constitutes
the Employment Date.
2.8 "Executive" means any employee who is an officer, who is designated as
eligible to participate in the Plan by the Board of Directors of the
Corporation and who executes a Participation Agreement.
2.9 "Fiscal Year" shall mean the 12-month period beginning on April 1 of each
year.
2.10 "Normal Retirement" means the retirement from employment with the
Corporation of an Executive after reaching Normal Retirement Age.
2.11 "Normal Retirement Age" means the date on which an Executive attains the
age of sixty-five (65).
2.12 "Normal Retirement Benefit" means, with respect to each Executive, 45% of
such Executive's monthly base salary at the time of Normal Retirement.
2.13 "Normal Retirement Date" means the first day of the month following the
month during which the Executive attains Normal Retirement Age or, if
later, the first day of the month following the Executive's retirement
after attainment of his Normal Retirement Age.
2.14 "Participation Agreement" means the agreement executed by the Executive
upon being admitted to the Plan. With respect to each Executive, the
Participation Agreement shall be an integral part of the Plan.
2.15 "Plan" means the Supplemental Income Plan of the Corporation and its
successors as described herein as the same may hereafter from time to time
be amended.
2.16 "Day of Service" means, with respect to each Executive, each day following
such Executive's Employment Date on which such Executive is employed by
the Corporation.
2.17 "Days of Service Fraction" means, with respect to each Executive, at any
time, the number of Days of Service then accrued by such Executive,
divided by the number of Days of Service such Executive would accrue if he
were continuously employed by the Corporation from his Employment Date
until his Normal Retirement Age.
3. Payment of Benefits
-------------------
3.1 If an Executive voluntarily terminates employment before retirement, or if
an Executive's employment is terminated for reason of malfeasance,
dishonesty, or other similar wrongdoing (even after becoming eligible for
retirement), neither the Executive nor his Beneficiary will be entitled to
receive any benefits under this Plan. If an Executive's malfeasance,
dishonesty or other wrongdoing is discovered after payments to the
Executive under this Plan have already begun, neither the Executive nor
his Beneficiary will be entitled to receive any further payments under the
Plan. All determinations under
2
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this paragraph will be made by World Acceptance Corporation's Board of
Directors in its sole discretion.
3.2 In the event of an Executive's Normal Retirement, the Corporation will make
a series of monthly payments to the Executive. Each payment will be equal
to the Executive's Normal Retirement Benefit. The first such payment shall
be made on the Normal Retirement Date and the remaining payments shall be
made on the first day of each succeeding month until 180 total payments
have been made. If the Executive dies before all of the payments due to him
have been made, the remaining payments shall be made to the Executive's
Beneficiary. If the Executive's Beneficiary dies before receiving all the
payments due to him, then the remaining payments shall be made to the
personal representative of the Beneficiary's estate.
3.3 In the event of an Executive's Early Retirement, the Corporation will make
a series of monthly payments to the Executive. Each payment will be equal
to the Executive's Early Retirement Benefit. The first such payment shall
be made on the Executive's Early Retirement Date and the remaining payments
shall be made on the first day of each succeeding month until 180 total
payments have been made. If an Executive dies before receiving all of the
payments due to him, then the remaining payments shall be made to the
Executive's Beneficiary. If the Executive's Beneficiary dies before
receiving all the payments due to him or her, then the remaining payments
shall be made to the personal representative of the Beneficiary's estate.
3.4 Except as provided in section 3.1, if the Corporation terminates an
Executive's employment before his death or retirement, or if an Executive
terminates employment because of Disability, the Executive will receive the
same benefit he would have received if he had retired on the date of his
termination. For purposes of this paragraph, the age 57 and 8 years of Plan
participation requirements for Early Retirement will not apply. The first
such payment shall be made on the first day of the month following the
Executive's termination of employment and the remaining payments shall be
made on the first day of each succeeding month until 180 payments have been
made. If the Executive's Beneficiary dies before all of the payments due
have been made, then any remaining payments shall be made to the personal
representative of the Beneficiary's estate.
3.5 If an Executive dies while employed with the Corporation, his Beneficiary
will receive payments pursuant to section 3.2 calculated as if the
Executive's date of death is his Normal Retirement Date.
3.6 If, at the death of the Executive, there is no properly designated living
Beneficiary, or, if the Beneficiary is an entity and such entity is not
then in existence, then any payments due under this Plan shall be made to
the Executive's estate.
3.7 In making any payment to or for the benefit of any minor or an incompetent
Beneficiary, the Board, in its sole and absolute discretion, may make a
distribution to a legal or natural guardian or other relative of a minor or
court-appointed committee of such incompetent. It may also make a payment
to any adult with whom the minor or incompetent temporarily or permanently
resides. The receipt by a guardian, committee, relative or
3
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other person shall be a complete discharge of the Corporation. Neither the
Board nor the Corporation shall have any responsibility to see to the
proper application of any payments so made.
4. Nature of Corporation's Obligation
----------------------------------
4.1 The Corporation's obligation to the Executives under this Plan shall be an
unfunded and unsecured promise to pay. The rights of an Executive or
Beneficiary under this Plan shall be solely those of an unsecured general
creditor of the Corporation. The Corporation shall not be obligated under
any circumstances to set aside or hold assets to fund its financial
obligations under this Plan.
4.2 Any assets that the Corporation may set aside, acquire or hold to help
cover its financial liabilities under this Plan are and remain general
assets of the Corporation subject to the claims of its creditors. The
Corporation does not give, and the Plan does not give, any beneficial
ownership interest in any assets of the Corporation to a Executive or
Beneficiary. All rights of ownership in any assets are and remain in the
Corporation. Any general asset used or acquired by the Corporation in
connection with the liabilities it has assumed under this Plan shall not be
deemed to be held under any trust for the benefit of the Executive or any
Beneficiary, and no general asset shall be considered security for the
performance of the obligations of the Corporation. Any such asset shall
remain a general, unpledged, and unrestricted asset of the Corporation.
4.3 The Corporation's liability for payment of benefits shall be determined
only under the provisions of this Plan, as they may be amended from time to
time.
5. Amendment and Termination
-------------------------
5.1 This Plan may be amended in any way or may be terminated, in whole or in
part, at any time, in the discretion of the Board. However, no amendment
or termination of the Plan will have the effect of reducing an Executive's
retirement benefit below the amount of such benefit computed as of the date
of amendment or termination.
6. Limitations on Transfer
-----------------------
6.1 Neither an Executive nor a Beneficiary may in any manner anticipate,
alienate, sell, assign, pledge, encumber or otherwise transfer the right to
receive payments under this Plan. Any attempt to do so will be void. Such
rights are not subject to legal process or levy of any kind.
4
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7. Administration
--------------
7.1 The Corporation is the named fiduciary of the Plan. The Board, acting on
behalf of the Corporation, shall have the authority to control and manage
the operation and administration of the Plan except as otherwise expressly
provided in this plan document.
7.2 The Board, acting on behalf of the Corporation, has the discretion (1) to
interpret and construe the terms and provisions of the Plan (including any
rules or regulations adopted under the Plan), (2) to determine eligibility
to participate in the Plan and (3) to make factual determinations in
connection with any of the foregoing. A decision of the Board with respect
to any matter pertaining to the Plan, including without limitation the
employees determined to be eligible, the benefits payable, and the
construction or interpretation of any provision thereof, shall be
conclusive and binding upon all interested persons. No Board member shall
participate in any decision of the Board that would directly and
specifically affect the timing or amount of his or her benefits under the
Plan.
8. Claims Procedure
----------------
8.1 A person with an interest in the Plan shall have the right to file a claim
for benefits under the Plan and to appeal any denial of a claim for
benefits. Any request for a Plan benefit or to clarify the claimant's
rights to future benefits under the terms of the Plan shall be considered
to be a claim.
8.2 A claim for benefits will be considered as having been made when submitted
in writing by the claimant to the Corporation. No particular form is
required for the claim, but the written claim must identify the name of the
claimant and describe generally the benefit to which the claimant believes
he or she is entitled. The claim may be delivered personally during normal
business hours or mailed to the Corporation.
8.3 The Board, acting on behalf of the Corporation, will determine whether, or
to what extent, the claim may be allowed or denied under the terms of the
Plan. If the claim is wholly or partially denied, the claimant shall be so
informed by written notice within 90 days after the day the claim is
submitted unless special circumstances require an extension of time for
processing the claim. If such an extension of time for processing is
required, written notice of the extension shall be furnished to the
claimant prior to the termination of the initial 90-day period. Such
extension may not exceed an additional 90 days from the end of the initial
90-day period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Plan
expects to render the final decision. If notice of denial of a claim (in
whole or in part) is not furnished within the initial 90-day period after
the claim is submitted (or, if applicable, the extended 90-day period), the
claimant shall consider that his or her claim has been denied just as if he
or she had received actual notice of denial.
5
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8.4 The notice informing the claimant that his or her claim has been wholly or
partially denied shall be written in a manner calculated to be understood
|
by the claimant and shall include:
(1) The specific reason(s) for the denial.
(2) Specific reference to pertinent Plan provisions on which the denial is based.
(3) A description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary.
(4) Appropriate information as to the steps to be taken if the Executive or Beneficiary wishes to submit his or her claim for review.
8.5 If the claim is wholly or partially denied, the claimant (or his or her authorized representative) may file an appeal of the denied claim with the Board requesting that the claim be reviewed. The Board shall conduct a full and fair review of each appealed claim and its denial. Unless the Board notifies the claimant that due to the nature of the benefit and other attendant circumstances he or she is entitled to a greater period of time within which to submit his or her request for review of a denied claim, the claimant shall have 60 days after he or she (or his or her authorized representative) receives written notice of denial of his or her claim within which such request must be submitted to the Board.
8.6 The request for review of a denied claim must be made in writing. In connection with making such request, the claimant or his authorized representative may:
(1) Review pertinent documents.
(2) Submit issues and comments in writing.
8.7 The decision of the Board regarding the appeal will be given to the claimant in writing no later than 60 days following receipt of the request for review. However, if special circumstances (for example, if the Board decides to hold a hearing on the appeal) require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If special circumstances require that a decision will be made beyond the initial time for furnishing the decision, written notice of the extension shall be furnished to the claimant (or his authorized representative) prior to the commencement of the extension. If a decision on review is not furnished within the appropriate time, the claim shall be deemed to have been denied on appeal.
8.8 The Board may, in its sole discretion, decide to hold a hearing if it determines that a hearing is necessary or appropriate in order to make a full and fair review of the appealed claim.
8.9 The decision on review shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, as well
as specific references to the pertinent Plan provisions on which the
decision is based.
8.10 An Executive or Beneficiary must exhaust his rights to file a claim and to
request a review of the denial of his claim before bringing any civil
action to recover benefits due to him under the terms of the Plan, to
enforce his rights under the terms of the Plan, or to clarify his rights
to future benefits under the terms of the Plan.
9. General Provisions
------------------
9.1 Nothing in this Plan shall be deemed to give any person the right to
remain in the employ of the Corporation or affect the right of the
Corporation to terminate any Executive's employment with or without cause.
9.2 Any amount required to be withheld under applicable Federal, state and
local income tax laws will be withheld and any payment under the Plan will
be reduced by the amount so withheld.
9.3 This Plan shall be construed and administered in accordance with the laws
of the State of South Carolina to the extent that such laws are not
preempted by federal law.
This plan document has been executed on behalf of the Corporation this
15th day of March, 2000.
WORLD ACCEPTANCE CORPORATION
By:___________________________________________
A. A. McLean, Executive Vice President and CFO
----------------------------------------------
[Type name and Title]
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As provided in the above referenced Plan effective April 1, 2000, you, C. D. Walters, are hereby invited to participate. By accepting the invitation to participate in the Plan, you acknowledge that you have read the Plan, understand its terms, understand that benefits will be paid pursuant to the Plan only under specific circumstances described therein, understand that you are a general creditor of World Acceptance Corporation and that you have no interest in specific assets owned by the Corporation.
I hereby accept this invitation of World Acceptance Corporation to participate in its Supplemental Income Plan.
For purposes of the plan, I hereby designate the following Beneficiary or Beneficiaries:
If the above named Beneficiary is not alive when payments are first due to be made under the Plan, I hereby designate the following Contingent Beneficiary or Beneficiaries:
Plan Employment Date: April 30, 1976
Company Copy - Return to Debbie Bolds at Home Office
Years Ended March 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Statement of Operations Data:
Interest and fee income................................. $ 89,052 $ 80,677 $ 71,873 $ 64,820 $ 58,326
Insurance commissions and other income................. 16,224 11,085 8,754 7,863 9,608
---------- --------- --------- --------- ---------
Total revenues....................................... 105,276 91,762 80,627 72,683 67,934
---------- --------- --------- --------- ---------
Provision for loan losses............................... 15,697 11,707 9,609 9,480 7,255
Legal expense (1)....................................... 183 5,845 441 645 477
Other general and administrative expenses............... 61,652 57,788 53,029 46,201 40,546
Interest expense........................................ 6,015 5,534 5,541 4,322 3,498
---------- --------- --------- --------- ---------
Total expenses....................................... 83,547 80,874 68,620 60,648 51,776
---------- --------- --------- --------- ---------
Income before income taxes.............................. 21,729 10,888 12,007 12,035 16,158
Income taxes............................................ 7,560 3,568 3,909 3,952 5,602
---------- --------- --------- --------- ---------
Net income (1).......................................... $ 14,169 $ 7,320 $ 8,098 $ 8,083 $ 10,556
========== ========= ========= ========= =========
Net income per common share (diluted) (1)............... $ .74 $ .38 $ .42 $ .41 $ .49
========== ========= ========= ========= =========
Diluted weighted average common
equivalent shares.................................... 19,155 19,213 19,172 19,833 21,653
========== ========= ========= ========= =========
Balance Sheet Data (end of period):
Loans receivable........................................ $ 135,660 $ 117,339 $ 103,385 $ 89,539 $ 79,624
Allowance for loan losses............................... (10,008) (8,769) (8,444) (6,283) (5,007)
--------- -------- --------- -------- ---------
Loans receivable, net............................ 125,652 108,570 94,941 83,256 74,617
Total assets............................................ 153,473 133,470 118,382 104,486 90,572
Total debt.............................................. 78,382 71,632 64,182 58,682 38,232
Shareholders' equity.................................... 68,192 54,692 47,301 38,963 44,880
Other Operating Data:
As a percentage of average loans receivable:
Provision for loan losses............................ 12.3% 10.4% 9.9% 11.1% 9.4%
Net charge-offs...................................... 12.0% 9.7% 9.4% 10.6% 8.6%
Number of offices open at year-end...................... 410 379 360 336 282
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(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.
General
The Company's financial performance continues to be dependent in large part upon the growth in its outstanding loan receivables, the ongoing introduction of new products and services for marketing to the customer base, the maintenance of loan quality and acceptable levels of operating expenses. Since March 31, 1995, gross loans receivable have increased at a 14.3% annual compounded rate from $89.1 million to $173.6 million at March 31, 2000. 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 244 offices to 410 offices as of March 31, 2000. The Company plans to open or acquire at least 25 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 began to sell and finance electronic items and appliances to its existing customer base. This program, the "World Class Buying Club," began in Texas in February 1995 and has since been expanded into seven states, with further expansion into the remaining three states expected during fiscal 2001. This program's loan volume declined during fiscal 2000 to $3.6 million from $4.4 million during the prior year primarily due to greater emphasis by branch personnel being placed on other products and services. As a result, the sales finance portfolio decreased to $3.5 million, or 2.0% of total loans, at March 31, 2000. The Company plans to renew its efforts to aggressively market these products, which have provided positive contributions in prior years and are expected to enhance revenues and profits in fiscal 2001 and beyond.
The Company's ParaData Financial Systems subsidiary provides data processing systems to 127 separate finance companies, including the Company, and currently supports approximately 1,017 individual branch offices in 43 states. During fiscal 2000, ParaData increased net revenues on system sales and support to approximately $3.6 million, a 49.8% increase over fiscal 1999 net revenues. This increase resulted in a pretax contribution to the Company of $1.8 million, a 133.4% increase over its fiscal 1999 contribution. Additionally, and more importantly, ParaData continued to provide state-of-the-art data processing support for the Company's in-house integrated computer system.
Beginning in fiscal 1997, the Company expanded its product line on a limited basis to include larger balance, lower risk and lower yielding, individual consumer loans. Since that time, the Company has acquired 13 larger loan offices and several bulk purchases of larger loans receivable. Additionally, the Company has converted several of its traditional small-loan offices into those offering the larger loan products, primarily in Georgia, South Carolina and Tennessee. As of March 31, 2000, the larger class of loans amounted to approximately $26.2 million, a 212.1% increase over the balance outstanding at the end of the prior fiscal year. As a result of these efforts, this portfolio has grown to 15.1% of the total loan balances as of the end of the fiscal year. Management believes that these offices can support much larger asset balances with 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 into additional offices during the current fiscal year.
During fiscal 1999, the Company tested in 40 offices an income tax return preparation and refund anticipation loan program. Based on the results of this test, the Company expanded this program into all offices where permitted by the lease agreements or approximately 390 offices in fiscal 2000. Due to certain systems and service bureau problems encountered during the first two weeks of the filing season, the program was less successful than anticipated; however, in spite of these problems, the Company completed and filed approximately 16,000 tax returns, generating approximately $1 million in net revenue. The Company believes that this is a beneficial service for its existing customer base due to the earned income credit and believes that the program can become even more profitable in fiscal 2001 and beyond.
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,
----------------------------------------
2000 1999 1998
---------- ----------- ----------
(Dollars in thousands)
Average gross loans receivable (1).................................... $ 163,786 144,203 $ 125,094
Average loans receivable (2).......................................... 127,230 112,273 97,285
Expenses as a percentage of total revenue:
Provision for loan losses......................................... 14.9% 12.8% 11.9%
General and administrative(3)..................................... 58.7% 63.5% 66.3%
Total interest expense............................................ 5.7% 6.0% 6.9%
Operating margin (4).................................................. 26.4% 23.8% 21.8%
Return on average assets (5).......................................... 9.7% 8.4% 7.2%
Offices opened and acquired, net...................................... 31 19 24
Total offices (at period end)......................................... 410 379 360
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Comparison of Fiscal 2000 Versus Fiscal 1999
Net income was $14.2 million in fiscal 2000, a $6.8 million, or 93.6%, increase over the $7.3 million earned during fiscal 1999. The results for fiscal 1999 were greatly affected by the $5.4 million accrual for the legal settlement recorded during that period (see Legal Settlement). Excluding this one-time accrual, net of income tax benefits, net income for fiscal 2000 rose by $3.4 million, or 31.6%, over the adjusted fiscal 1999 earnings. This increase resulted from an increase in operating income (revenues less provision for loan losses and general and administrative expenses) of $5.9 million, or 27.1%, offset by increases in interest expense and income taxes.
Interest and fee income during fiscal 2000 increased by $8.4 million, or 10.4%, over fiscal 1999. This increase resulted primarily from an increase of $15.0 million, or 13.3%, in average loans receivable between the two fiscal years. The increase in interest and fee income resulting from the larger loan base was partially offset by a reduction in loan yields over the two fiscal years, primarily due to an increase in the larger loan portfolio. These loans, originated mainly in South Carolina , Georgia and Tennessee, have lower interest rates than the traditional small loans; however, the overall returns on these loans are enhanced by the sale of credit insurance and other ancillary products.
Total revenues were $105.3 million during fiscal 2000, a 14.7% increase over the $91.8 million in the prior fiscal year. Revenues from the 346 offices that were open throughout both fiscal years increased by 8.6%.
The provision for loan losses during fiscal 2000 increased by $4.0 million, or 34.1%, from the previous year. This increase resulted from an increase in the general allowance for loan losses, as well as an increase in actual loan losses. As a percentage of average loans receivable, net charge-offs rose to 12.0% during fiscal 2000 from 9.7% during the previous fiscal year. This increase in net charge-offs resulted from a combination of factors, including a reduction in non-file insurance available to offset losses in two states due to the legal settlement; the growth in the loan portfolio in Illinois and Missouri, two newer states where credit insurance is not sold; as well as a general increase in losses.
General and administrative expenses, excluding the accrual for the legal settlement in fiscal 1999, increased by $3.6 million, or 6.2%, over the two fiscal years. The Company's profitability has benefited by improved expense ratios as total general and administrative expenses as a percent of total revenues has decreased from 63.5% during fiscal 1999 to 58.7% during the most recent fiscal year. Additionally, the average general and administrative expense per open office actually declined by .1% when comparing the two fiscal years.
Interest expense increased by $481,000, or 8.7%, in fiscal 2000 when compared with the prior fiscal year. This increase was due to an increase in average borrowings during the year as well as an increase in interest rates over the two periods.
The Company's effective income tax rate increased to 34.8% in fiscal 2000 from 32.8% in fiscal 1999 primarily as a result of reduced benefits from the Company's captive insurance subsidiary as well as increased state income taxes.
Comparison of Fiscal 1999 Versus Fiscal 1998
Net income for the fiscal year ended March 31, 1999, was $7.3 million. The results for the year were greatly affected by legal expenses resulting from the settlement of certain litigation (see Legal Settlement). The total cost of this settlement was $5.24 million including the expense of complying with the terms of the settlement ($5.4 million was accrued as an estimate in fiscal 1999, and $156,000 was reversed in fiscal 2000). Excluding the settlement-related expenses, as well as the related income tax benefit, net income amounted to $10.8 million,
Total revenues were $91.8 million during fiscal 1999, an increase of $11.1 million, or 13.8%, over fiscal 1998. Revenues from the 311 offices that were open throughout both fiscal years increased by 8.9%. At March 31, 1999, the Company had 379 offices in operation, a net increase of 19 offices during the fiscal year.
During fiscal 1999, interest and fee income increased by $8.8 million, or 12.4%, over the previous fiscal year. This increase resulted primarily from an increase in average loans receivable of $15.0 million, or 15.4%, over the two fiscal years. The Company continued to see a decline in the overall yield on the loan portfolio as the volume of larger loans and sales finance loans increased over prior-year levels.
Insurance commissions and other income increased by $2.3 million, or 26.6%, over the two fiscal years. Insurance commissions increased by $533,000, or 10.1%, as a result of increased loans outstanding in the four states where credit insurance is sold in conjunction with the Company's loan products. Other income increased by $1.8 million, or 51.9%, primarily as a result of increased volume by the Company's sales finance program and greatly increased revenue by ParaData Financial Systems. The gross profit from the World Class Buying Club increased by $339,000, or 21.7%, over the two fiscal years, as the program was expanded into two additional states during the year. ParaData's gross profits increased by $925,000, or 63.4%, during fiscal 1999, primarily as a result of several new systems that were installed for new customers during the period. Additionally, increased sales of other ancillary products, such as Motor Club Memberships and Accidental Death & Disability Insurance, further enhanced other income during the 1999 fiscal year.
The provision for loan losses increased by $2.1 million, or 21.8%, when comparing fiscal 1999 to fiscal 1998. This increase resulted from an increase in the allowance for losses of $325,000, or 3.8%, combined with an increase in net charge-offs of $1.7 million, or 18.6%. As a percentage of average loans receivable, net charge-offs increased slightly from 9.4% during fiscal 1998 to 9.7% during fiscal 1999.
General and administrative expenses, excluding the legal settlement, increased by $4.8 million, or 8.9%, during fiscal 1999 when compared to fiscal 1998. As a percentage of total revenues, these expenses decreased from 66.3% in fiscal 1998 to 63.5% in the following year. The Company's expense ratios benefited from the sale or combination of 10 unprofitable offices during the year, as well as a reduction in the number of new offices that were opened during this period. Excluding the expenses related to the Legal Settlement and those associated with ParaData, overall general and administrative expenses, when divided by average open offices increased by 3.3%.
Interest expense remained level over the two fiscal years. While the Company's average level of debt outstanding increased by approximately 7.3% over the two periods, the Company benefited from a reduction in interest rates during this period as prime dropped from 8.5% at the beginning of the fiscal year to 7.75% at March 31, 1999.
The Company's effective income tax rate increased slightly to 32.8% in fiscal 1999 from 32.6% in fiscal 1998 as a result of reduced benefits from the Company's captive insurance subsidiary.
Credit Loss Experience
Delinquency is computed on the basis of the date of the last full contractual payment on a loan (known as the recency method) and on the basis of the amount past due in accordance with original payment terms of a loan (known as the contractual method). Management closely monitors portfolio delinquency using both methods to measure the quality of the Company's loan portfolio and the probability for credit losses.
When establishing the allowance for loan losses, the Company took 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. As previously noted, the Company experienced an increase in net charge-offs as a percentage of loans. The impact of this change was offset to a certain extent by an improvement in delinquent loans as a percentage of total loans. While management uses the best information available to make evaluations, future adjustments to the allowance for loan losses may be necessary if conditions differ substantially from the assumptions used in making the calculations.
The following table sets forth the Company's allowance for loan losses at the end of the fiscal years ended March 31, 2000, 1999, and 1998, and the credit loss experience over the indicated periods:
At or for the
Years Ended March 31,
---------------------------------------
2000 1999 1998
--------- --------- ----------
(Dollars in thousands)
Allowance for loan losses........................................... $ 10,008 $ 8,769 $ 8,444
Percentage of loans receivable...................................... 7.4% 7.5% 8.2%
Provision for loan losses........................................... $ 15,697 $ 11,707 $ 9,609
Net charge-offs..................................................... $ 15,284 $ 10,863 $ 9,158
Net charge-offs as a percentage of average loans receivable (1)..... 12.0% 9.7% 9.4%
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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, 2000, 1999, and 1998:
At March 31,
----------------------------------------
2000 1999 1998
--------- --------- -----------
(Dollars in thousands)
Recency basis:
60 - 89 days past due............................................. $ 2,601 $ 2,163 $ 1,901
90 - 179 days past due............................................ 1,196 1,047 712
------- ------- ------
Total........................................................... $ 3,797 $ 3,210 $ 2,613
======= ======= ======
Percentage of period end gross loans receivable..................... 2.2% 2.1% 2.0%
Contractual basis:
60 - 89 days past due............................................. $ 3,298 $ 2,766 $ 2,360
90 - 179 days past due............................................ 2,818 2,609 1,952
------- ------- ------
Total........................................................... $ 6,116 $ 5,375 $ 4,312
======= ======= ======
Percentage of period end gross loans receivable..................... 3.5% 3.6% 3.3%
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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 certain items included in the Company's unaudited consolidated financial statements and the offices open during fiscal years 1999 and 2000.
At or for the Three Months Ended
-----------------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1999 1999 1999 1999 2000
--------- --------- --------- --------- --------- --------- --------- ----------
(Dollars in thousands)
Total revenues....... $ 20,734 $ 21,682 $ 23,836 $ 25,510 $ 24,327 $ 25,513 $ 26,930 $ 28,506
Provision for
loan losses....... 2,360 3,112 4,262 1,973 3,039 4,573 5,540 2,545
General and
administrative
expenses.......... 13,925 19,696 15,012 15,000 15,301 14,723 15,886 15,925
Net income (loss).... 2,133 (1,670) 2,054 4,803 3,056 3,129 2,586 5,398
Gross loans
receivable........ $ 136,061 $ 141,133 $ 166,479 $ 149,571 $ 159,182 $ 163,228 $ 182,900 $ 173,609
Number of
offices open...... 366 374 383 379 387 399 404 410
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Current Accounting Issues
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. This effective date reflects the deferral provided by SFAS 137, which defers the earlier effective date specified in SFAS 133. The Company does not anticipate that adoption of SFAS 133 will have a material effect on its financial statements.
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, to fund acquisitions, to repay long-term indebtedness, and to repurchase its common stock. As the Company's gross loans receivable increased from $113.4 million at March 31, 1997, to $173.6 million at March 31, 2000, net cash provided by operating activities for fiscal years 1998, 1999, and 2000 was $19.0 million, $20.7 million, and $31.9 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, for an aggregate purchase price of $724,000, were purchased in fiscal 2000. 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 25 new offices in each of the next two fiscal years. Expenditures by the Company to open and furnish new offices generally averaged approximately $15,000 per office during fiscal 2000. New offices have also required from $100,000 to $400,000 to fund outstanding loans receivable originated during their first 12 months of operation.
The Company acquired 12 offices and a number of loan portfolios from competitors in eight states in 24 separate transactions during fiscal 2000. Gross loans receivable purchased in these transactions were approximately $13.5 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.
On December 1, 1999, the Company paid the fifth and final installment on its 8.5% Senior Term Notes of $4.0 million. The Company financed the acquisitions and the Term Note repayment with borrowings under its revolving credit facility.
The Company has an $85.0 million revolving credit facility with a syndicate of banks. The credit facility will expire on September 30, 2001. 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 1.60% per annum. At March 31, 2000, the interest rate on borrowings under the revolving credit facility was 7.87%. 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, 2000, $67.9 million was outstanding under this facility, and there was $17.1 million of unused borrowing availability under the borrowing base limitations.
On June 30, 1997, the Company issued $10.0 million of senior subordinated secured notes. These notes mature in five annual installments of $2.0 million beginning June 30, 2000, and ending 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. 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 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. The Company needs to increase the borrowing limits under its revolving credit facility from time to time and does not anticipate this to be a problem; however, there can be no assurance that this additional funding will be available when needed.
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 offset the potential increase in operating costs due to inflation.
Year 2000
The Company recognized a potential business risk associated with the failure of computerized systems and products to correctly recognize and process dates beyond 1999. This problem is commonly called the "year 2000 problem." Accordingly, the Company attempted to identify and assess its particular areas of risk related to the year 2000 problem.
The Company determined that its primary software package, the "Loan Manager System," developed and maintained by its wholly owned subsidiary, ParaData Financial Systems, was year 2000 compliant. The Company also received assurance from several outside vendors on whom it depends for various processes such as payroll, general ledger and benefits administration, that these systems were year 2000 compliant. The Company's total costs of addressing the year 2000 problem were immaterial, and the Company did not experience any disruptions to its business as a result of the change to calendar year 2000.
Legal Settlement
From April 1995 through July 1999, the Company and several of its
subsidiaries were parties to litigation challenging the Company's non-filing
insurance practices. Non-filing insurance is an insurance product that lenders
like the Company can purchase in lieu of filing a UCC financing statement
covering the collateral of their borrowers. The litigation against the Company
was consolidated with other litigation against other finance companies, jewelry
and furniture retailers, and insurance companies in a purported nationwide class
action in the U.S. District Court in Alabama under the caption In re:
Consolidated "Non-filing Insurance" Fee Litigation (Multidistrict Litigation
Docket No. 1130), U.S. District Court, Middle District of Alabama, Northern
Division).
On November 11, 1998, the Company and its subsidiaries named in the action entered into a settlement agreement pursuant to which the Company agreed to settle all claims alleged in the litigation involving it and its subsidiaries for an aggregate cash payment of $5 million. In addition, the terms of the settlement curtailed certain non-filing practices by the Company and its subsidiaries and allowed the court to approve criteria defining those circumstances in which the Company's subsidiaries could make non-filing insurance claims going forward. As a result of the settlement, non-filing insurance fees charged to borrowers were reduced by 25%. The settlement agreement, which includes the settlement by several other defendants in the litigation, including the Company's insurer, was approved by the Court.
The Company recorded an accrual for settlement costs, including the expected expenses to comply with the terms of the settlement, of $5.4 million in the fiscal year ended March 31, 1999. Of this total accrual, $5.0 million was paid to an escrow account and has been distributed to class participants, and $244 thousand in costs were incurred in completing the settlement. The remaining $156 thousand of the accrual was reversed in fiscal 2000. The settlement limited and reduced the coverage for the types of losses with respect to which its subsidiaries submit claims. The Company does not believe that those limitations and reductions will have a material adverse effect on the Company's results of operations.
Other Legal Matters
The Company was named as a defendant in an action, Turner v. World Acceptance Corp., filed in the district court for the Fourteenth Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20, 1997. That action (the Tulsa Case) named the Company and numerous other consumer finance companies as defendants, and sought certification as a statewide class action. The Tulsa Case alleges that the Company and other consumer finance defendants collected excess finance charges in connection with refinancing certain consumer finance loans in Oklahoma and seeks money damages and an injunction against further collection of such charges. The Tulsa Case also challenged the constitutionality of the provisions of the Oklahoma Consumer Credit Code ("OCCC") under which the Company operates. The Company filed an answer in the action denying the allegations. On March 16, 1999, the District Court granted summary judgment in favor of the Company and the other consumer finance companies and dismissed the Tulsa Case. The plaintiffs in the Tulsa Case appealed that order, and their appeal remains pending before the Oklahoma Court of Appeals.
The Tulsa Case is based on an opinion of the Oklahoma Attorney General issued on February 20, 1997, interpreting a provision of the OCCC with respect to the permitted amount of certain loan refinance charges in a manner contrary to regulatory practice that had been in existence in Oklahoma since 1969. On the basis of that opinion the Administrator of the Oklahoma Department of Consumer Credit (the "Department") notified the Company and the other consumer finance companies that the Department would begin enforcing the provisions of the OCCC as interpreted by the Attorney General's opinion on March 3, 1997. In response to the Attorney General's opinion and the Department's threat, the Company and numerous other consumer finance companies brought suit (the "Administrator's Case") to enjoin enforcement by the Department of the OCCC as interpreted by the Attorney General. Shortly thereafter, the Oklahoma Legislature enacted amendments to the relevant provision of the OCCC which became effective on August 29, 1997, and which negated the effect of the Attorney General's interpretation.
Although the Company and the other consumer finance companies were successful at the trial court level in the Administrator's Case, in May 1999 the Oklahoma Supreme Court upheld the Attorney General's interpretation. The Oklahoma Supreme Court's decision expressly limited the application of the Attorney General's interpretation of the OCCC to the period between March 3, 1997, and August 29, 1997, and it expressly refrained from reaching the issue of whether refunds of charges assessed during that period were required.
The Attorney General has recently directed the Department to proceed with administratively ordering refunds of those charges. The Company and several of the other consumer finance companies contend that for numerous reasons, the Department lacks both the authority and the legal basis to order refunds. The Company and the other consumer finance companies are attempting to open discussions with the Department and the Attorney General with the goal of resolving both the issues concerning an attempted administrative order of refunds and the issues that remain pending in the Tulsa Case. It is far too early to predict whether those discussions, if they can be initiated, will be successful. Nonetheless, because of the 1997 amendments to the OCCC, the Company expects that even if both the Tulsa Case and the Department's attempts at administratively ordering refunds are decided adversely to the Company, those results would not materially affect the Company's refinancing practices in Oklahoma going forward. Such adverse decisions could involve a material monetary award; however, in the opinion of management the likelihood of such a material monetary award is not currently deemed to be probable. The Company intends to continue to defend vigorously against both the Tulsa Case and the Department's threat to administratively order refunds, while at the same time, exploring every possibility of reaching a satisfactory non-judicial resolution of all of the issues.
At March 31, 2000, 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, in the opinion of management, and based upon the advice of counsel, 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. Specifically, management's statements of expectations with respect to the litigation described above in "Other Legal Matters," may be deemed forward-looking statements. When used in this document, the words "anticipate," "estimate," "expect," and similar expressions may identify forward-looking statements. Although the Company believes that the expectations reflected in any such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Any such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the Company's actual financial results, performance or financial condition may vary materially from those anticipated, estimated or expected. Among the key factors that could cause the Company's actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements are the following: changes in interest rates; risks inherent in making loans, including repayment risks and value of collateral; recently enacted or proposed legislation; the occurrence of non-filing claims at historical levels in circumstances validated by the Settlement; 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.
March 31,
----------------------------------
2000 1999
--------------- ------------
Assets
Cash............................................................................ $ 1,690,676 1,236,207
Gross loans receivable.......................................................... 173,609,123 149,570,861
Less:
Unearned interest and deferred fees........................................ (37,949,381) (32,231,831)
Allowance for loan losses.................................................. (10,008,257) (8,769,367)
------------- -------------
Loans receivable, net.................................................. 125,651,485 108,569,663
Property and equipment, net..................................................... 6,752,791 6,299,662
Other assets, net............................................................... 8,269,399 7,536,987
Intangible assets, net.......................................................... 11,108,477 9,827,885
------------- -------------
$ 153,472,828 133,470,404
============= =============
Liabilities and Shareholders' Equity
Liabilities:
Senior notes payable....................................................... 67,900,000 61,150,000
Subordinated notes payable................................................. 10,000,000 10,000,000
Other note payable......................................................... 482,000 482,000
Income taxes payable....................................................... 2,059,441 1,940,091
Accounts payable and accrued expenses...................................... 4,839,001 5,206,483
------------- -------------
Total liabilities...................................................... 85,280,442 78,778,574
------------- -------------
Shareholders' equity:
Preferred stock, no par value
Authorized 5,000,000 shares............................................ - -
Common stock, no par value
Authorized 95,000,000 shares; issued and outstanding 18,887,573 and
19,016,573 shares at March 31, 2000 and 1999, respectively............. - -
Additional paid-in capital................................................. 267,958 935,921
Retained earnings.......................................................... 67,924,428 53,755,909
------------- -------------
Total shareholders' equity............................................. 68,192,386 54,691,830
------------- -------------
Commitments and contingencies
$ 153,472,828 133,470,404
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See accompanying notes to consolidated financial statements.
Years Ended March 31,
-------------------------------------------------
2000 1999 1998
-------------- ------------- ------------
Revenues:
Interest and fee income.................................... $ 89,051,419 80,676,687 71,872,739
Insurance commissions and other income..................... 16,224,444 11,085,548 8,753,768
------------- ------------- -------------
Total revenues .......................................... 105,275,863 91,762,235 80,626,507
------------- ------------- -------------
Expenses:
Provision for loan losses.................................. 15,697,165 11,707,392 9,608,495
------------- ------------- -------------
General and administrative expenses:
Personnel.............................................. 39,498,066 37,055,930 32,922,691
Occupancy and equipment......................................... 6,917,420 6,358,974 6,099,711
Data processing................................................. 1,501,667 1,437,421 1,309,845
Advertising .................................................. 3,932,663 4,063,755 4,179,616
Legal................................................. 183,095 5,844,864 441,246
Amortization of intangible assets...................... 1,472,108 1,309,632 1,432,076
Other.................................................. 8,330,131 7,562,355 7,084,384
------------- ------------- -------------
61,835,150 63,632,931 53,469,569
------------- ------------- -------------
Interest expense........................................... 6,015,029 5,534,315 5,541,002
------------- ------------- -------------
Total expenses.................................... 83,547,344 80,874,638 68,619,066
------------- ------------- -------------
Income before income taxes...................................... 21,728,519 10,887,597 12,007,441
------------- ------------- -------------
Income taxes.................................................... 7,560,000 3,568,000 3,909,000
------------- ------------- -------------
Net income...................................................... $ 14,168,519 7,319,597 8,098,441
============= ============= =============
Net income per common share:
Basic...................................................... $ .75 .39 .43
============= ============= =============
Diluted.................................................... $ .74 .38 .42
============= ============= =============
Weighted average shares outstanding:
Basic...................................................... 19,003,380 19,010,789 18,959,348
============= ============= =============
Diluted.................................................... 19,155,042 19,212,813 19,172,456
============= ============= =============
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See accompanying notes to consolidated financial statements.
Additional
Paid-in Retained
Capital Earnings Total
------- -------- -----
Balances at March 31, 1997........................................ $ 625,592 38,337,871 38,963,463
Proceeds from exercise of stock options (62,000 shares),
including tax benefits of $58,543.............................. 239,376 - 239,376
Net income........................................................ - 8,098,441 8,098,441
----------- ------------ ------------
Balances at March 31, 1998........................................ 864,968 46,436,312 47,301,280
Proceeds from exercise of stock options (18,000 shares),
including tax benefits of $18,453.............................. 70,953 - 70,953
Net income........................................................ - 7,319,597 7,319,597
----------- ------------ ------------
Balances at March 31, 1999........................................ 935,921 53,755,909 54,691,830
Proceeds from exercise of stock options (15,000 shares),
including tax benefits of $11,932.............................. 55,682 - 55,682
Common stock repurchases (144,000 shares)......................... (723,645) - (723,645)
Net income........................................................ - 14,168,519 14,168,519
----------- ------------ ------------
Balances at March 31, 2000........................................ $ 267,958 67,924,428 68,192,386
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See accompanying notes to consolidated financial statements.
Years Ended March 31,
-----------------------------------------------
2000 1999 1998
------------- ------------ -----------
Cash flows from operating activities:
Net income ...................................................... $14,168,519 7,319,597 8,098,441
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets .............................. 1,472,108 1,309,632 1,432,076
Amortization of loan costs and discounts............................. 87,195 119,741 73,636
Provision for loan losses............................................ 15,697,165 11,707,392 9,608,495
Depreciation ....................................................... 1,490,642 1,428,619 1,456,052
Change in accounts:
Other assets, net............................................. (819,607) (1,463,428) (1,742,179)
Income taxes payable................................................. 131,282 (836,575) (322,645)
Accounts payable and accrued expenses................................ (367,482) 1,102,972 438,919
------------ ------------ ------------
Net cash provided by operating activities................... 31,859,822 20,687,950 19,042,795
------------ ------------ ------------
Cash flows from investing activities:
Increase in loans receivable, net................................. (23,207,673) (21,064,511) (13,857,947)
Net assets acquired from office acquisitions, primarily loans..... (9,622,912) (4,311,115) (7,450,022)
Increase in intangible assets from acquisitions................... (2,752,700) (1,527,123) (1,925,437)
Purchases of property and equipment, net.......................... (1,892,173) (1,264,105) (1,763,684)
------------ ------------ ------------
Net cash used by investing activities................................ (37,475,458) (28,166,854) (24,997,090)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds (repayments) of senior revolving notes
payable, net................................................... 10,750,000 11,450,000 (500,000)
Repayment of senior term notes payable............................ (4,000,000) (4,000,000) (4,000,000)
Proceeds from senior subordinated notes........................... - - 10,000,000
Proceeds from exercise of stock options........................... 43,750 52,500 180,833
Repurchase of common stock........................................ (723,645) - -
------------- ------------ ------------
Net cash provided by financing activities................... 6,070,105 7,502,500 5,680,833
------------ ------------ ------------
Increase (decrease) in cash.......................................... 454,469 23,596 (273,462)
Cash at beginning of year............................................ 1,236,207 1,212,611 1,486,073
------------ ------------ ------------
Cash at end of year.................................................. $ 1,690,676 1,236,207 1,212,611
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See accompanying notes to consolidated financial statements.
The Company's accounting and reporting policies are in accordance with generally accepted accounting principles and conform to general practices within the finance company industry. The following is a description of the more significant of these policies used in preparing the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of World Acceptance Corporation and its wholly owned subsidiaries (the "Company"). Subsidiaries consist of operating entities in various states, ParaData Financial Systems, a software company acquired during fiscal 1994, and WAC Holdings Ltd., a captive reinsurance company established in fiscal 1994. All significant intercompany balances and transactions have been eliminated in consolidation.
The Company operates primarily as one business segment, which is a consumer finance company. The Company has operations through ParaData Financial Systems (ParaData), which provides data processing systems to 127 separate finance companies, including the Company. At March 31, 2000 and 1999, ParaData had total assets of $3,912,252 and $2,063,070, respectively. For the year ended March 31, 2000, 1999 and 1998, ParaData had income before income taxes of $1,847,042, $791,529, and $13,525, respectively. Total net revenues (sales and systems support less cost of sales) for ParaData for the years ended March 31, 2000, 1999 and 1998 were $3,570,297, $2,383,578 and $1,458,942, 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 2000 and 1999, the Company originated loans generally ranging up to $3,000, with terms of 36 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 36 months. Management believes that the carrying value approximates the fair value of its loan portfolio.
Allowance for Loan Losses
Additions to the allowance for loan losses are based on management's evaluation of the loan portfolio under current economic conditions, the volume of the loan portfolio, overall portfolio quality, review of specific loans, charge-off experience, and such other factors which, in management's judgment, deserve recognition in estimating loan losses. Loans are charged off at the earlier of when such loans are deemed
to be uncollectible or when six months have elapsed since the date of the last full payment. The net balance of loans deemed to be uncollectible is charged against the loan loss allowance. Recoveries of previously charged-off loans are credited to the allowance for loan losses. While management uses the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the calculations.
At March 31, 2000 and 1999, there were no concentrations of loans in any local economy, type of property, or to any one borrower.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation is recorded using the straight-line
method over the estimated useful life of the related asset as follows:
building, 40 years; furniture and fixtures, 5 to 10 years; equipment, 3
to 7 years; and vehicles, 3 years. Amortization of leasehold
improvements is recorded using the straight-line method over the lesser
of the estimated useful life of the asset or the term of the lease.
Additions to premises and equipment and major replacements or
betterments are added at cost. Maintenance, repairs, and minor
replacements are charged to operating expense as incurred. When assets
are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other Assets
Other assets include costs incurred in connection with originating long-term debt. Such remaining unamortized costs aggregated $183,236 and $232,930 at March 31, 2000 and 1999, respectively, and are amortized as interest expense over the life of the respective indebtedness.
Intangible Assets
Intangible assets include the cost of acquiring existing customers, the value assigned to noncompete agreements, costs incurred in connection with the acquisition of loan offices, and goodwill (the excess cost over the fair value of the net assets acquired). These assets are being amortized on a straight-line basis over the estimated useful lives of the respective assets as follows: 8 to 10 years for customer lists, 5 to 10 years for noncompete agreements and acquisition costs, and 10 years for goodwill. Management periodically evaluates the recoverability of the unamortized balances of these assets and adjusts them as necessary.
Fair Value of Financial Instruments
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about the Fair Value of Financial Instruments" (SFAS 107) in December 1991. SFAS 107 requires disclosures about the fair value of all financial instruments whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present value or other valuation techniques. The carrying amount of financial instruments included in the financial statements are deemed reasonable estimates of their fair value because of their variable repricing features and/or their short terms to maturity.
Insurance Premiums
Insurance premiums for credit life, accident and health, property and unemployment insurance written in connection with certain loans, net of refunds and applicable advance insurance commissions retained by the Company, are remitted monthly to an insurance company. All commissions are credited to unearned insurance commissions and recognized as income over the life of the related insurance contracts using a method similar to that used for the recognition of interest income.
Non-file Insurance
Non-file premiums are charged on certain loans at inception and renewal in lieu of recording and perfecting the Company's security interest in the assets pledged on certain loans and are remitted to a third-party insurance company for non-file insurance coverage. Such insurance and the related insurance premiums, claims, and recoveries are not reflected in the accompanying consolidated financial statements except as a reduction in loan losses (see note 6).
Certain losses related to such loans, which are not recoverable through life, accident and health, property, or unemployment insurance claims are reimbursed through non-file insurance claims subject to policy limitations. Any remaining losses are charged to the allowance for loan losses.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes required by SFAS No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Supplemental Cash Flow Information
For the years ended March 31, 2000, 1999, and 1998, the Company paid interest of $5,977,647, $5,784,930, and $5,391,147, respectively.
For the years ended March 31, 2000, 1999 and 1998, the Company paid income taxes of $7,913,718, $5,661,575, and $5,406,645, respectively.
Supplemental non-cash financing activities for the years ended March 31, 2000, 1999, and 1998, consist of:
2000 1999 1998
---------- ----------- --------
Tax benefits from exercise of stock options.................. $ 11,932 18,453 58,543
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Earnings Per Share
Earnings per share are computed in accordance with SFAS No. 128, "Earnings per Share." Basic EPS includes no dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company. Potential common stock included in the diluted EPS computation consists of stock options which are computed using the treasury stock method.
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," issued in October 1995, allows a company to either adopt the fair value method of valuation or continue using the intrinsic valuation method presented under Accounting Principles Board (APB) Opinion 25 to account for stock-based compensation. The fair value method recommended in SFAS No. 123 requires a company to recognize compensation expense based on the fair value of the option on the grant date. The intrinsic value method measures compensation expense as the difference between the quoted market price of the stock and the exercise price of the option on the date of grant. The Company has elected to continue using APB Opinion 25 and has disclosed in the footnotes pro forma net income and earnings per share information as if the fair value method had been applied.
Reclassification
Certain reclassification entries have been made for fiscal 1999 and 1998 to conform with fiscal 2000 presentation. There was no impact on shareholders' equity or net income previously reported as a result of these reclassifications.
The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2000, 1999, and 1998:
March 31,
-----------------------------------------------
2000 1999 1998
------------ ----------- -----------
Balance at the beginning of the year....................... $ 8,769,367 8,444,563 6,283,459
Provision for loan losses.................................. 15,697,165 11,707,392 9,608,495
Loan losses................................................ (16,766,909) (12,256,626) (10,436,240)
Recoveries................................................. 1,482,439 1,393,437 1,278,616
Allowance on acquired loans, net of specific charge-offs... 826,195 (519,399) 1,710,233
------------ ----------- ------------
Balance at the end of the year............................. $ 10,008,257 8,769,367 8,444,563
============ =========== ============
|
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.
Summaries of property and equipment follow:
March 31,
------------------------------
2000 1999
------------ ------------
Land................................................................. $ 250,443 250,443
Buildings and leasehold improvements................................. 2,696,916 2,550,763
Furniture and equipment.............................................. 11,045,811 9,600,998
------------ ------------
13,993,170 12,402,204
Less accumulated depreciation and amortization....................... (7,240,379) (6,102,542)
---------- -------------
Total........................................................... $ 6,752,791 6,299,662
============ ============
|
Intangible assets, net of accumulated amortization, consist of:
March 31,
------------------------------
2000 1999
------------ ------------
Cost of acquiring existing customers................................. $ 4,045,160 1,994,782
Value assigned to noncompete agreements.............................. 5,687,007 6,228,480
Goodwill............................................................. 1,105,768 1,271,633
Other................................................................ 270,542 332,990
------------ ------------
Total........................................................... $ 11,108,477 9,827,885
============ ============
|
Summaries of the Company's notes payable follow:
Senior Credit Facilities
$85,000,000 Revolving Credit Facility - This facility provides for borrowings of up to $85.0 million, with $67.9 million outstanding at March 31, 2000, subject to a borrowing base formula. The Company may borrow, at its option, at the rate of prime or LIBOR plus 1.60%. At March 31, 2000, the Company's interest rate was 7.87% and the unused amount available under the revolver was $17.1 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, 2001.
$10,000,000 Senior Subordinated Secured Notes - These notes mature in five annual installments of $2.0 million beginning June 30, 2000 and ending 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 agreement. The Company's assets are also pledged as collateral for the senior subordinated notes on a subordinated basis.
Other Note Payable
The Company also has a $482,000 note payable to an unaffiliated insurance company, bearing interest at 10%, payable annually, which matures in September 2001.
The various debt agreements contain restrictions on the amounts of permitted indebtedness, investments, working capital, repurchases of common stock and cash dividends. At March 31, 2000, approximately $6,676,000 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, 1999, are as follows: 2001, $2,000,000; 2002, $70,382,000; 2003, $2,000,000; 2004, $2,000,000; 2005, $2,000,000.
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, 2000, 1999, and 1998:
2000 1999 1998
------------- ----------- --------
Insurance premiums written................ $ 2,820,257 3,162,825 3,257,517
Recoveries on claims paid................. $ 368,971 367,756 334,812
Claims paid............................... $ 2,957,540 3,200,486 3,267,005
|
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, 2000, are as follows:
2001..................................................................... $ 2,936,470
2002..................................................................... 1,743,801
2003..................................................................... 1,058,036
2004 .................................................................... 485,264
2005 .................................................................... 219,054
Thereafter............................................................... 36,000
----------
Total future minimum lease payments............................. $ 6,478,625
=========
|
Rental expense for cancelable and noncancelable operating leases for the years ended March 31, 2000, 1999, and 1998, was $3,542,209, $3,180,150, and $2,929,002, respectively.
Income tax expense for the years ended March 31, 2000, 1999, and 1998, consists of:
2000 1999 1998
---------- ----------- -----------
Current:
Federal.......................................................$ 7,427,000 4,538,000 4,845,000
State......................................................... 618,000 287,000 209,000
---------- ----------- -----------
Total..................................................... 8,045,000 4,825,000 5,054,000
--------- --------- -----------
Deferred:
Federal....................................................... (399,000) (1,179,000) (1,073,000)
State......................................................... (86,000) (78,000) (72,000)
---------- ----------- -----------
Total..................................................... (485,000) (1,257,000) (1,145,000)
---------- ----------- -----------
$ 7,560,000 3,568,000 3,909,000
========== =========== ===========
|
The income tax expense for the years ended March 31, 2000, 1999, and 1998 differs from the amount computed by applying the U.S. federal income tax rate of 35% as a result of the following:
2000 1999 1998
---------- ----------- -----------
Computed "expected" income tax expense............................ $ 7,605,000 3,811,000 4,202,000
Increase resulting from:
State income tax, net of Federal benefit..................... 346,000 136,000 89,000
Amortization of goodwill..................................... 58,000 58,000 58,000
Insurance income exclusion................................... (165,000) (162,000) (278,000)
Other, net................................................... (284,000) (275,000) (162,000)
---------- ----------- -----------
Total income tax expense.......................................... $ 7,560,000 3,568,000 3,909,000
========== =========== ===========
|
Temporary differences between the financial statement carrying amounts and tax basis of assets and liabilities that give rise to significant portions of the deferred tax asset (liability) at March 31, 2000 and 1999, relate to the following:
2000 1999
----------- -----------
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 3,680,000 3,200,000
Unearned insurance commissions............................... 1,453,000 1,176,000
Accounts payable and accrued expenses primarily
related to employee benefits............................. 350,000 370,000
Intangible assets............................................ 27,000 246,000
Tax over book accrued interest receivable.................... 743,000 536,000
Other........................................................ 266,000 211,000
------------- ------------
Gross deferred tax assets......................................... 6,519,000 5,739,000
Less valuation allowance.......................................... (266,000) (211,000)
------------- ------------
Net deferred tax assets........................................... 6,253,000 5,528,000
------------- ------------
Deferred tax liabilities:
Discount on purchased loans.................................. (121,000) (151,000)
Deferred net loan origination fees........................... (442,000) (408,000)
Other........................................................ (480,000) (244,000)
------------- ------------
Gross deferred tax liabilities.................................... (1,043,000) (803,000)
------------- ------------
Net deferred tax assets........................................... $ 5,210,000 4,725,000
============= ============
|
A valuation allowance is established for any portion of the gross deferred tax asset that is not more likely than not to be realized. The realization of net deferred tax assets is based on utilization of loss carrybacks to prior taxable periods, anticipation of future taxable income and the utilization of tax planning strategies. Management has determined that it is more likely than not that the net deferred tax asset can be realized based upon these criteria.
The Internal Revenue Service has examined the Company's federal income tax returns for the fiscal years 1994 through 1996. Tax returns for fiscal 1997 and subsequent years are subject to examination by the taxing authorities.
The following is a reconciliation of the numerators and denominators of the basic and diluted EPS calculations.
For the year ended March 31, 2000
----------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common shareholders.................. $ 14,168,519 19,003,380 $ .75
======
Effect of Dilutive Securities
Options.................................................. $ - 151,662
------------ -----------
Diluted EPS
Income available to common shareholders
plus assumed conversions............................... $ 14,168,519 19,155,042 $ .74
============ =========== ======
|
For the year ended March 31, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to common shareholders.................. $ 7,319,597 19,010,789 $ .39
======
Effect of Dilutive Securities
Options.................................................. $ - 202,024
------------ -----------
Diluted EPS
Income available to common shareholders
plus assumed conversions............................... $ 7,319,597 19,212,813 $ .38
============ ========== ======
|
For the year ended March 31, 1998
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common shareholders.................. $ 8,098,441 18,959,348 $ .43
======
Effect of Dilutive Securities
Options.................................................. $ - 213,108
------------ -----------
Diluted EPS
Income available to common shareholders
plus assumed conversions............................... $ 8,098,441 19,172,456 $ .42
============ =========== ======
|
Options to purchase 2,986,140, 1,979,878, and 1,938,669 shares of common stock at various prices were outstanding during the years ended March 31, 2000, 1999 and 1998, 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, 2000.
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 $364,667,
$306,697, and $284,925, for the years ended March 31, 2000, 1999, and
1998, respectively.
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 which are 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) 2000 1999 1998
----------- ----------- --------
Net income
As reported................................................. $ 14,169 7,320 8,098
Pro forma................................................... $ 13,423 6,666 7,553
Basic earnings per share
As reported................................................. $ .75 .39 .43
====== ====== ======
Pro forma................................................... $ .71 .35 .40
====== ====== ======
Diluted earnings per share
As reported................................................. $ .74 .38 .42
====== ====== ======
Pro forma................................................... $ .70 .35 .39
====== ====== ======
|
The effects of applying SFAS 123 may not be representative of the effects on reported net income in future years.
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 2000, 1999, and 1998, respectively:
dividend yield of zero; expected volatility of 40%, 51% and 43%;
risk-free interest rate of 6.76%, 5.00%, 5.82%; and expected lives of
10 years for all plans in all three years. The fair values of options
granted in 2000, 1999, and 1998 were $3.36, $3.92, and $3.88,
respectively.
At March 31, 2000, the Company had the following options outstanding:
Shares Shares Shares Price
Grant Date Granted Exercisable Exercised Per Share Expiration Date
---------- ------- ----------- --------- --------- ---------------
April 22, 1992 150,000 150,000 - $ 2.98 April 22, 2002
April 30, 1992 24,000 24,000 6,000 $ 3.04 April 30, 2002
October 20, 1992 358,500 358,500 233,500 $ 2.92 October 20, 2002
January 20, 1993 30,000 30,000 - $ 5.04 January 20, 2003
April 7, 1993 90,000 90,000 4,000 $ 6.33 April 7, 2003
April 30, 1993 18,000 18,000 - $ 5.54 April 30, 2003
October 19, 1993 336,000 336,000 13,500 $ 6.88 October 19, 2003
April 30, 1994 24,000 24,000 - $ 5.75 April 30, 2004
October 13, 1994 499,500 499,500 6,000 $ 7.48 October 13, 2004
April 1, 1995 211,692 211,692 - $ 8.63 April 1, 2005
April 30, 1995 24,000 24,000 - $ 9.50 April 30, 2005
June 26, 1995 75,000 45,000 - $11.33 June 26, 2005
October 31, 1995 109,500 89,200 - $13.00 October 31, 2005
January 23, 1996 15,000 12,000 - $10.25 January 23, 2006
April 1, 1996 229,177 229,177 - $10.75 April 1, 2006
April 30, 1996 24,000 24,000 - $10.06 April 30, 2006
July 18, 1996 14,600 14,600 - $6.75 July 18, 2006
October 25, 1996 173,500 103,500 - $6.69 October 25, 2006
January 27, 1997 36,000 17,400 - $5.94 January 27, 2007
March 31, 1997 26,800 17,867 - $5.41 March 31, 2007
April 1, 1997 78,662 78,662 - $5.41 April 1, 2007
April 29, 1997 24,000 24,000 - $5.18 April 29, 2007
April 30, 1997 24,000 24,000 - $5.16 April 30, 2007
October 28, 1997 190,000 80,200 - $5.19 October 28, 2007
April 1, 1998 73,309 56,635 - $6.69 April 1, 2008
April 1, 1998 36,300 12,072 - $6.69 April 1, 2008
April 30, 1998 24,000 24,000 - $6.50 April 30, 2008
November 23, 1998 231,500 51,500 - $5.25 November 23, 2008
April 1, 1999 192,100 83,334 - $5.38 April 1, 2009
April 30, 1999 24,000 24,000 - $5.47 April 30, 2009
May 11, 1999 15,000 - - $5.47 May 11, 2009
August 16, 1999 50,000 - - $5.78 August 16, 2009
October 20, 1999 140,000 - - $5.44 October 20, 2009
--------- --------- ---------
Total 3,572,140 2,776,839 263,000
========= ========= =========
|
Subsequent to March 31, 2000, the Company granted options for additional shares under the plans: April 1, 2000, 49,300 shares to certain branch managers; and April 30, 2000, 24,000 shares to non-management directors. After giving affect to the above grants, there remain 104,560 shares of common stock available for future grants. No expense has been recorded relative to stock options granted to date.
During fiscal 2000, the Company purchased the net assets of 24 consumer loan offices for a total consideration of $12,376,112. Total net loans receivable acquired amounted to $9,571,314, and the Company paid $2,753,200 for non-compete agreements with predecessor owners and for other intangible assets. Twelve of the 24 offices acquired were merged into existing offices.
During fiscal 1999, the Company purchased the net assets of 21 consumer loan offices for a total consideration of $5,909,134. Total net loans receivable acquired amounted to $4,271,696, and the Company paid $1,527,123 for non-compete agreements with predecessor owners and for other intangible assets. Eighteen of the 21 offices acquired were merged into existing offices.
During fiscal 1998, the Company purchased the net assets of 27 consumer loan offices for a total consideration of $9,338,522. Total net loans receivable acquired amounted to $7,450,022, and the Company paid $1,925,437 for non-compete agreements with predecessor owners and for other intangible assets. Eighteen of the 27 offices acquired were merged into existing offices.
The pro forma impact of these purchases as though they had been acquired at the beginning of the periods presented would not have a material effect on the results of operations as reported.
The following sets forth selected quarterly operating data:
2000 1999
--------------------------------- ---------------------------------
First Second Third Fourth First Second Third Fourth
----- ------ ----- ------ ----- ------ ----- ------
(Dollars in thousands, except earnings per share data)
Total revenues............................. $ 24,327 25,513 26,930 28,506 20,734 21,682 23,836 25,510
Provision for loan losses.................. 3,039 4,573 5,540 2,545 2,360 3,112 4,262 1,973
General and administrative expenses........ 15,301 14,723 15,886 15,925 13,925 19,696 15,012 15,000
Interest expense........................... 1,356 1,463 1,582 1,614 1,216 1,411 1,456 1,451
Income tax expense ........................ 1,575 1,625 1,336 3,024 1,100 (867) 1,052 2,283
----- ------- ------- ------ ------- -------- ------- ------
Net income (loss)..................... $ 3,056 3,129 2,586 5,398 2,133 (1,670) 2,054 4,803
===== ======= ======= ====== ======= ======= ======= ======
Earnings (loss) per share:
Basic................................. $ .16 .16 .14 .29 .11 (.09) .11 .26
======= ======= ======= ====== ======= ======= ======= ======
Diluted............................... $ .16 .16 .14 .28 .11 (.09) .11 .25
======= ======= ======= ====== ======= ======= ======= ======
|
From April 1995 through July 1999, the Company and several of its subsidiaries were parties to litigation challenging the Company's non-filing insurance practices. Non-filing insurance is an insurance product that lenders like the Company can purchase in lieu of filing a UCC financing statement covering the collateral of their borrowers. The litigation against the Company was consolidated with other litigation against other finance companies, jewelry and furniture retailers, and insurance companies in a purported nationwide class action in the U.S. District Court in Alabama under the caption In re: Consolidated "Non-filing Insurance" Fee Litigation (Multidistrict Litigation Docket No. 1130), U.S. District Court, Middle District of Alabama, Northern Division).
On November 11, 1998, the Company and its subsidiaries named in the action entered into a settlement agreement pursuant to which the Company agreed to settle all claims alleged in the litigation involving it and its subsidiaries for an aggregate cash payment of $5 million. In addition, the terms of the settlement curtailed certain non-filing practices by the Company and its subsidiaries and allowed the court to approve criteria defining those circumstances in which the Company's subsidiaries could make non-filing insurance claims going forward. As a result of the settlement, non-filing insurance fees charged to borrowers were reduced by 25%. The settlement agreement, which includes the settlement by several other defendants in the litigation, including the Company's insurer, was approved by the Court.
The Company recorded an accrual for settlement costs, including the expected expenses to comply with the terms of the settlement, of $5.4 million in the fiscal year ended March 31, 1999. Of this total accrual, $5.0 million was paid to an escrow account and has been distributed to class participants and $244 thousand in costs were incurred in completing the settlement. The remaining $156 thousand of the accrual was reversed in fiscal 2000. The settlement limited and reduced the coverage for the types of losses with respect to which its subsidiaries submit claims. The Company does not believe that those limitations and reductions will have a material adverse effect on the Company's results of operations.
The Company was named as a defendant in an action, Turner v. World Acceptance Corp., filed in the district court for the Fourteenth Judicial District, Tulsa County, Oklahoma (No. CJ-97-1921) on May 20, 1997. That action (the Tulsa Case) named the Company and numerous other consumer finance companies as defendants, and sought certification as a statewide class action. The Tulsa Case alleges that the Company and other consumer finance defendants collected excess finance charges in connection with refinancing certain consumer finance loans in Oklahoma and seeks money damages and an injunction against further collection of such charges. The Tulsa Case also challenged the constitutionality of the provisions of the Oklahoma Consumer Credit Code ("OCCC") under which the Company operates. The Company filed an answer in the action denying the allegations. On March 16, 1999, the District Court granted summary judgment in favor of the Company and the other consumer finance companies and dismissed the Tulsa Case. The plaintiffs in the Tulsa Case appealed that order, and their appeal remains pending before the Oklahoma Court of Appeals.
The Tulsa Case is based on an opinion of the Oklahoma Attorney General issued on February 20, 1997, interpreting a provision of the OCCC with respect to the permitted amount of certain loan refinance charges in a manner contrary to regulatory practice that had been in existence in Oklahoma since 1969. On the basis of that opinion the Administrator of the Oklahoma Department of Consumer Credit (the "Department") notified the Company and the other consumer finance companies that the Department would begin enforcing the provisions of the OCCC, as interpreted by the Attorney General's opinion on March 3, 1997. In response to the Attorney General's opinion and the Department's threat, the Company
and numerous other consumer finance companies brought suit (the "Administrator's Case") to enjoin enforcement by the Department of the OCCC as interpreted by the Attorney General. Shortly thereafter, the Oklahoma Legislature enacted amendments to the relevant provision of the OCCC, which became effective on August 29, 1997, and which negated the effect of the Attorney General's interpretation.
Although the Company and the other consumer finance companies were successful at the trial court level in the Adminstrator's Case, in May 1999, the Oklahoma Supreme Court upheld the Attorney General's interpretation. The Oklahoma Supreme Court's decision expressly limited the application of the Attorney General's interpretation of the OCCC to the period between March 3, 1997, and August 29, 1997, and it expressly refrained from reaching the issue of whether refunds of charges assessed during that period were required.
The Attorney General has recently directed the Department to proceed with administratively ordering refunds of those charges. The Company and several of the other consumer finance companies contend that for numerous reasons, the Department lacks both the authority and the legal basis to order refunds. The Company and the other consumer finance companies are attempting to open discussions with the Department and the Attorney General with the goal of resolving both the issues concerning an attempted administrative order of refunds and the issues that remain pending in the Tulsa Case. It is far too early to predict whether those discussions, if they can be initiated, will be successful. Nonetheless, because of the 1997 amendments to the OCCC, the Company expects that even if both the Tulsa Case and the Department's attempts at administratively ordering refunds are decided adversely to the Company, those results would not materially affect the Company's refinancing practices in Oklahoma going forward. Such adverse decisions could involve a material monetary award; however, in the opinion of management the likelihood of such a material monetary award is not currently deemed to be probable. The Company intends to continue to defend vigorously against both the Tulsa Case and the Department's threat to administratively order refunds, while at the same time, exploring every possibility of reaching a satisfactory non-judicial resolution of all of the issues.
At March 31, 2000, 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, in the opinion of management, and based upon the advice of counsel, any such liability will not have a material adverse effect on the Company's consolidated financial statements taken as a whole.
The Company has entered into employment agreements with certain key executive employees. The employment agreements have terms of three years and call for aggregate minimum annual base salaries of $625,500, 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.
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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States of America.
/s/ KPMG
Greenville, South Carolina
April 20, 2000
|
Common Stock
World Acceptance Corporation's common stock trades on The Nasdaq Stock Market under the symbol: WRLD. As of June 19, 2000, there were approximately 152 shareholders of record and approximately 2,000 persons or entities who hold their stock in nominee or "street" names through various brokerage firms. On this date there were 18,627,573 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 19, 2000, was $5.00.
Market Price of Common Stock
Fiscal 1999
----------------------------------------
Quarter High Low
------- ------- --------
First $ 7.94 $ 5.63
Second 6.94 4.75
Third 6.50 4.56
Fourth 6.75 5.19
Fiscal 2000
----------------------------------------
Quarter High Low
------- ------- --------
First $ 5.75 $ 5.00
Second 6.63 5.00
Third 5.81 4.13
Fourth 6.13 4.38
|
Executive Offices
World Acceptance Corporation
Post Office Box 6249 (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
(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
Exhibit 21
SUBSIDIARIES
of
WORLD ACCEPTANCE CORPORATION
Jurisdiction of Incorporation
Corporate Name or Organization
-------------- ---------------
World Acceptance Corporation South Carolina
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, but not Inc.
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
|
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 20, 2000, relating to the consolidated balance sheets of World Acceptance Corporation and subsidiaries as of March 31, 2000 and 1999, 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, 2000, which report appears in the March 31, 2000 annual report on Form 10-K of World Acceptance Corporation.
Greenville, South Carolina /s/ KPMG LLP June 26, 2000 |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 3 MOS | 6 MOS | 9 MOS | 12 MOS |
| FISCAL YEAR END | MAR 31 2000 | MAR 31 2000 | MAR 31 2000 | MAR 31 2000 |
| PERIOD START | APR 01 1999 | APR 01 1999 | APR 01 1999 | APR 01 1999 |
| PERIOD END | JUN 30 1999 | SEP 30 1999 | DEC 31 1999 | MAR 31 2000 |
| CASH | 1,110 | 1,538 | 3,027 | 1,691 |
| SECURITIES | 0 | 0 | 0 | 0 |
| RECEIVABLES | 124,205 | 127,451 | 141,715 | 135,660 |
| ALLOWANCES | 9,039 | 9,603 | 10,466 | 10,008 |
| INVENTORY | 0 | 0 | 0 | 0 |
| CURRENT ASSETS | 116,276 | 119,386 | 134,276 | 127,343 |
| PP&E | 6,341 | 6,794 | 6,761 | 6,753 |
| DEPRECIATION | 0 | 0 | 0 | 0 |
| TOTAL ASSETS | 140,142 | 144,563 | 159,360 | 153,473 |
| CURRENT LIABILITIES | 6,912 | 5,154 | 5,132 | 6,899 |
| BONDS | 75,482 | 78,532 | 90,732 | 78,382 |
| PREFERRED MANDATORY | 0 | 0 | 0 | 0 |
| PREFERRED | 0 | 0 | 0 | 0 |
| COMMON | 57,748 | 60,877 | 63,496 | 68,192 |
| OTHER SE | 0 | 0 | 0 | 0 |
| TOTAL LIABILITY AND EQUITY | 140,142 | 144,563 | 153,360 | 153,473 |
| SALES | 0 | 0 | 0 | 0 |
| TOTAL REVENUES | 24,327 | 49,840 | 76,770 | 105,276 |
| CGS | 0 | 0 | 0 | 0 |
| TOTAL COSTS | 0 | 0 | 0 | 0 |
| OTHER EXPENSES | 15,301 | 30,024 | 45,910 | 61,835 |
| LOSS PROVISION | 3,039 | 7,612 | 13,152 | 15,697 |
| INTEREST EXPENSE | 1,356 | 2,819 | 4,401 | 6,015 |
| INCOME PRETAX | 4,631 | 9,385 | 13,307 | 21,729 |
| INCOME TAX | 1,575 | 3,200 | 4,536 | 7,560 |
| INCOME CONTINUING | 3,056 | 6,185 | 8,771 | 14,169 |
| DISCONTINUED | 0 | 0 | 0 | 0 |
| EXTRAORDINARY | 0 | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 | 0 |
| NET INCOME | 3,056 | 6,185 | 8,771 | 14,169 |
| EPS BASIC | 0.16 | 0.33 | 0.46 | 0.75 |
| EPS DILUTED | 0.16 | 0.32 | 0.46 | 0.74 |