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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 (FEE REQUIRED)
For the fiscal year ended March 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For this transition period from _______________ to ________________
Commission file number 0-19599
WORLD ACCEPTANCE
CORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 570425114
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
108 Frederick Street
Greenville, South Carolina 29607
(Address of principal executive offices) (Zip Code)
(864) 298-9800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The agregate market value of voting stock held by non-affiliates of the
registrant as of June 10, 1997, computed by reference to the closing sale price
on such date, was $. As of the same date, 18,946,573 shares of Common Stock, no
par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1997 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 1997 Annual
Meeting of Shareholders ("the Proxy Statement") and filed pursuant to Regulation
14A are incorporated herein by reference into Parts II and IV, and Part III,
respectively.
WORLD ACCEPTANCE CORPORATION
Form 10-K Report
Table of Contents
Item No. Page
- -------- ----
PART I
1. Description of Business 1
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition
and Results of Operation 9
8. Financial Statements and Supplementary Data 10
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 10
PART III
10. Directors and Executive Officers of the Registrant 10
11. Executive Compensation 10
12. Security Ownership of Certain Beneficial Owners and Management 10
13. Certain Relationships and Related Transactions 10
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 11
Introduction
World Acceptance Corporation, a South Carolina corporation, operates a
small-loan consumer finance business in nine 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 1997" are to the Company's fiscal year
ended March 31, 1997.
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 $1350 through 348 offices in South
Carolina, Georgia, Texas, Oklahoma, Louisiana, Tennessee, Illinois, Missouri,
and New Mexico as of June 20, 1997. The Company targets individuals with limited
access to other sources of consumer credit from banks, savings and loans, other
consumer finance businesses and credit cards. The Company's customers typically
use their loans to meet temporary or unanticipated cash needs, such as holiday
gift purchases, car repairs, medical bills and back-to-school needs.
Small-loan consumer finance companies operate in a highly structured
regulatory environment. Consumer loan offices are individually licensed under
state laws, which establish allowable interest rates, fees and other charges on
small loans made to consumers and, in many states, 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.
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.
The lending activities of small-loan consumer finance companies also differ
from those of pawnshops. Pawnshops generally make smaller loans with shorter
original maturities than small-loan consumer finance companies. Pawnshops also
extend loans based exclusively on the assessed value of the personal property
that is pledged to secure their loans rather than on the personal
creditworthiness of the borrower. Pawnshops experience default or forfeiture
rates on their loans that are significantly greater than those experienced by
small-loan consumer finance companies and, as a result, derive a large portion
of their revenues from the sale of forfeited collateral in the ordinary course
of their operations.
1
Expansion. The Company opened or acquired 54 new offices (net) during
fiscal 1997. The Company plans to open or acquire at least 30 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
nine states in which the Company currently operates. The Company believes
that its competitors in these markets are principally local operations 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,
------------------------------------------------------------------------------
At June 20,
State 1991 1992 1993 1994 1995 1996 1997 1997
- ----- ---- ---- ---- ---- ---- ---- ---- ----
South Carolina 52 52 53 56 59 62 68 68
Georgia 31 34 35 35 38 39 45 47
Texas 58 62 66 81 93 104 131 131
Oklahoma 21 23 27 31 33 39 40 39
Louisiana(1) - 5 10 12 15 20 18 18
Tennessee(2) - - - 2 6 18 24 28
Illinois(3) - - - - - - 3 4
Missouri(4) - - - - - - 1 7
New Mexico(5) - - - - - - 6 6
--- ---- ---- ----- ----- ---- --- ----
Total 162 176 191 217 244 282 336 348
=== === === ==== === === === ====
- ----------
(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.
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 1997 the
Company's average originated loan size and term were approximately $473 and
eight 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,
1997, 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 40% to 201% 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.
2
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 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 and credit property 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 provide for repayment of loan installments to the
lender that come due during the insured's period of involuntary unemployment
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. The Company requires each customer to obtain credit insurance in the
amount of the loan for all loans originated in South Carolina, Georgia and
Tennessee, and encourages customers to obtain credit insurance for loans
originated in Louisiana. 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.
In fiscal 1994 the Company began marketing automobile club memberships to
its borrowers in Georgia, Tennessee and Louisiana 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 Georgia,
Tennessee, and South Carolina and plans to introduce the program in Louisiana in
the fall of 1997. Borrowers participating in this program can purchase a product
from a catalog available at a branch office and finance the purchase with a
retail installment sales loan provided by the Company. Products sold through
this program are shipped directly by the manufacturers to the Company's
customers and, accordingly, the Company is not required to maintain any
inventory to support the program.
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 1991 through 1997.
At March 31,
----------------------------------------------------
State 1991 1992 1993 1994 1995 1996 1997
----- ---- ---- ---- ---- ---- ---- ----
South Carolina 40% 38% 37% 37% 35% 33% 26%
Georgia 13 13 14 14 13 13 13
Texas 39 39 38 38 38 35 39
Oklahoma 8 8 8 7 7 8 7
Louisiana(1) -- 2 3 3 4 5 3
Tennessee(2) -- -- -- 1 3 6 10
Illinois(3) -- -- -- -- -- -- --
Missouri(4) -- -- -- -- -- -- --
New Mexico(5) -- -- -- -- -- -- 2
--- --- --- --- --- --- ---
Total 100% 100% 100% 100% 100% 100% 100%
=== === === === === === ===
- ----------
(1) The Company commenced operations in Louisiana in May 1991.
(2) The Company commenced operations in Tennessee in April 1993.
(3) The Company commenced operations in Illinois in September 1996.
(4) The Company commenced operations in Missouri in August 1996.
(5) The Company commenced operations in New Mexico in December 1996.
3
The following table sets forth the total number of loans and the average
loan balance by state at March 31, 1997.
Total
Number Average Gross Loan
of Loans Balance
-------- -------
South Carolina......................... 69,871 $428
Georgia................................ 35,594 420
Texas.................................. 122,016 362
Oklahoma............................... 21,873 345
Louisiana.............................. 10,592 377
Tennessee.............................. 20,593 522
Illinois............................... 375 361
Missouri............................... 469 258
New Mexico............................. 5,331 366
-------
Total.............................. 286,714
=======
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 significantly 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.
Each new customer is 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 resort to collateral. The Company
believes that it 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 1997 approximately 91% 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 is used to repay the balance
of an existing loan and the remaining portion is advanced to the customer. The
refinancing of loans increases the Company's returns because the Company is
generally permitted to charge the full amount of fees, premiums and other
charges collected on the existing loans. 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 1995, 1996 and 1997, the percentages of the Company's loan originations
that were refinancings of existing loans were 79.5%, 80.0%, and 81.8%
respectively.
4
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.
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 and
Oklahoma, 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 and
Tennessee, the Company sells credit insurance to customers in connection with
its loans as an agent for an unaffiliated insurance company. These insurance
policies provide for the payment of the outstanding balance of the Company's
loan upon the occurrence of an insured event. The Company earns a commission on
the sale of such credit insurance, which is based in part on the claims
experience of the insurance company on policies sold on its behalf by the
Company.
The Company has a wholly owned captive insurance subsidiary, 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 1997, the captive insurance
subsidiary reinsured less than 15% of the credit insurance sold by the Company
and contributed approximately $674,000 to the Company's total revenues.
The Company typically does not perfect its security interest in collateral
securing its loans by filing Uniform Commercial Code 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.
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 and Illinois 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.
5
Senior management receives daily delinquency 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 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, Inc., 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 service representative, who takes and
processes loan applications and payments and assists in the preparation of
operational reports. 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 1997, advertising expenses were
approximately 3.8% of total revenues.
Competition. The small-loan consumer finance industry is highly fragmented,
with numerous competitors. The majority of the Company's competitors are local
operators with fewer than 20 offices. Pawnshops also provide competition in most
of the communities served by the Company. The Company believes that it is one of
only two large small-loan consumer finance companies in the states in which it
currently operates. Management believes that the Company's largest competitor is
Security Finance Corporation, which has more than 500 offices, including offices
in each of the six states in which the Company currently operates its lending
business. 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 pricing is not an important competitive factor in
the industry because most small-loan consumer finance companies charge the
maximum interest rates and fees allowable under applicable state laws. 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. 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.
6
Most 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 generally 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 and the
Tennessee 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.
7
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, 1996, the Company had approximately 1,154
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 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.
Name and Age Position Period of Service as Executive Officer
------------ -------- --------------------------------------
Charles D. Walters (58) Chairman and Chief Chairman since July 1991; President since
Executive Officer; Director July 1986; CEO since July 1991; Director
since April 1989
R. Harold Owens (49) President and Chief President since August 1996; Executive Vice
Operating Officer President since June 1995;
Director since August 1995
A. Alexander McLean, III (45) Executive Vice President; Chief Executive Vice President since August 1996;
Financial Officer; Director Senior Vice President since July 1992;
CFO and Director since June 1989
Mark C. Roland (41) Senior Vice President-Eastern Since January 1996
Division
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 20, 1997, the
Company had 348 branch offices, most of which are leased pursuant to short-term
operating leases. During the fiscal year ended March 31, 1997, total lease
expense was approximately $2.3 million, or an average of approximately $7,550
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.
The Company and its Georgia subsidiary are named as co-defendants with a
number of other finance companies, jewelry and furniture retailers, and
insurance companies in a consolidated action, currently pending in U. S.
District Court in Alabama under the caption In re Consolidated "Non-filing
Insurance" Fee Litigation (Multidistrict Litigation Docket No. 1130, U. S .
District Court, Middle District of Alabama, Northern Division). The consolidated
action involves the defendants' non-file insurance practices. The complaint
alleges, among other things, that the defendants' non-file insurance coverages
do not constitute true insurance, and that the defendants' practices with
respect to non-file insurance constitute alleged federal truth-in-lending, RICO
and antitrust violations. The complaint has been certified as a nationwide class
action and seeks to recover money damages and injunctive relief. The complaint
was filed on April 18, 1995, the Company has filed an answer and the parties are
in the discovery process. The Company has been advised that certain of the
defendants in the case have agreed to settle the claims made against them by
paying money damages to the plaintiffs. The Company has also been advised that
certain of the settling defendants has agreed to change its non-file insurance
practices. If the Company's non-file insurance
8
practices are found to be improper, the Company could be required to refund
non-file insurance fees, pay other significant damages to the plaintiffs, and
change its non-file insurance practices going forward, and the Company could
experience a reduction in future income.
The Company has been named as a defendant in an action, Turner v. World
Acceptance Corp., pending in District Court for the Fourteenth Judicial
District, Tulsa County, Oklahoma (No. CJ-97-1921). The action was commenced
against the Company on May 20, 1997, names numerous other consumer finance
companies as defendants, and seeks certification as a statewide class action.
The action alleges that World 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 Company has filed an answer in the action
denying liability, and discovery has not commenced. The plaintiff's claim is
based on a recent opinion of the Oklahoma Attorney General interpreting a
provision of the Oklahoma Consumer Credit Code with respect to the permitted
amount of certain loan refinance charges in a manner contrary to prior
regulatory practice in Oklahoma. Enforcement of the Oklahoma Attorney General's
opinion has been enjoined, and such action is currently pending before the
Oklahoma Supreme Court. In addition, the State of Oklahoma has recently enacted
legislation to clarify the interpretation of the disputed provision of
the Oklahoma Consumer Credit Code consistent with prior regulatory practice.
World intends to vigorously defend this action.
Management's statement of expectation with respect to these litigation
matters may be deemed a forward-looking statement, within the meaning of Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act"), and no
assurance can be given that management's expectation will prove correct, as
such expectation is subject to certain risks, uncertainties and assumptions
based on the preliminary nature of the actions and the vagaries of litigation
generally. Should one or more of these risks materialize or should underlying
assumptions prove incorrect, the actual outcome of these litigation matters
could differ materially from management's expectation (See Note 6 of Notes to
Consolidated Financial Statements).
From time to time the Company is involved in other routine litigation
relating to claims arising out of its operations in the normal course of
business. The Company believes that it is not presently a party to any such
other pending legal proceedings that would have a material adverse effect on its
financial condition.
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, 1997.
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 20,
1997, there were 163 holders of record of Common Stock.
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.
9
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 in the
final paragraph under the caption "Ownership of Common Stock of Management as of
June 20, 1997" 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 20, 1997" and "Ownership of Common Stock of
Management as of June 20, 1997" 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 headings "Certain Transactions" and
"Compensation Committee Interlocks and Insider Participation" in the Proxy
Statement is incorporated herein by reference in response to this Item 13.
10
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, 1997 and 1996
Consolidated Statements of Operations for the years ended March
31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the years
ended March 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended March
31, 1997, 1996 and 1995.
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
Incorporated by Reference
Previous
Exhibit Exhibit Company Registration
Number Description Number No. or Report
- ------------------------------------------------------------------------------------------------------------------------
3.1 Second Amended and Restated Articles of Incorporation of the Company 3.1 1992 10-K
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
11
4.2 Articles 3, 4 and 5 of the Form of Company's Second Amended and 3.1, 3.2 1995 10-K
Restated Articles of Incorporation (as amended)
4.3 Article II, Section 9 of the Company's Second Amended and Restated 3.2 1995 10-K
Bylaws
4.4 Revolving Credit Agreement, dated as of December 1, 1992, between 4.6 33-61524
Harris Trust and Savings Bank, the Banks signatory thereto from
time to time and the Company
4.5 First Amendment re: Note Agreements, Revolving Credit Agreement and 4.5 1994 10-K
Security Agreement, Pledge and Indenture of Trust, dated as of
April 2, 1993, between the Company and the Banks signatory thereto
4.6 Second Amendment to Revolving Credit Agreement, dated as of 4.6 1994 10-K
September 1, 1993, between the Company and the Banks signatory
thereto
4.7 Third Amendment to Credit Agreement/Second Amendment to Revolving 4.7 1995 10-K
Credit Notes, dated as of November 1, 1994, between the Company and
the Banks signatory thereto
4.8 Third [sic] Amendment to Credit Agreement, dated as of March 13, 4.8 1995 10-K
1995, between the Company and the Banks signatory thereto
4.9 Fifth Amendment to Credit Agreement, dated as of June 30, 1995 4.9 1996 10-K
4.10 Sixth Amendment to Credit Agreement, dated as of September 1, 1995 4.10 1996 10-K
4.11 Seventh Amendment to Credit Agreement, dated as of November 1, 1995 4.11 1996 10-K
4.12 Eighth Amendment to Credit Agreement, dated as of June 1, 1996 4.12 1996 10-K
4.13 Ninth Amendment to Credit Agreement, dated as of December 2, 1996 * NA
4.14 Tenth Amendment to Revolving Credit Agreement and Amendment to * NA
Security Agreement, dated as of March 31, 1997
4.15 Term Note Agreement, dated as of December 1, 1992, between 4.7 33-61524
Jefferson-Pilot Life Insurance Company and the Company
4.16 Term Note Agreement, dated as of December 1, 1992, between NA NA
Principal Mutual Life Insurance Company and the Company
4.17 First [sic] Amendment to Note Agreements, dated November 1, 1994, 4.11 1995 10-K
between Principal Mutual Life Insurance Company, Jefferson-Pilot
Life Insurance Company and the Company
4.18 Third Amendment to Note Agreements, dated June 30, 1995, among the * NA
Company and Principal Mutual Life Insurance Company and
Jefferson-Pilot Life Insurance Company
4.19 Security Agreement, Pledge and Indenture of Trust, dated as of 4.9 33-61524
December 1, 1992, between the Company and Harris Trust and Savings
Bank, as Security Trustee
12
4.20 Second Amendment to Security Agreement, Pledge and Indenture of 4.10 1994 10-K
Trust, dated as of September 1, 1993, between the Company and
Harris Trust and Savings Bank, as Security Trustee
4.21 Third Amendment to Security Agreement, Pledge and Indenture of 4.18 1996 10-K
Trust, dated as of June 30, 1995
4.22 Fourth Amendment to Security Agreement, Pledge and Indenture of 4.19 1996 10-K
Trust, dated as of November 1, 1995
4.23 Fifth Amendment to Security Agreement, Pledge and Indenture of 4.20 1996 10-K
Trust, dated as of June 1, 1996
4.24 Sixth Amendment to Security Agreement, Pledge and Indenture of * NA
Trust, dated as of December 2, 1996
10.1+ Employment Agreement of Charles D. Walters, effective April 1, 1994 10.1 1994 10-K
10.2+ Employment Agreement of A. Alexander McLean, III, effective April 10.2 1994 10-K
1, 1994
10.3+ Employment Agreement of R. Harold Owens, effective June 26, 1995 10.3 1995 10-K
10.4 Securityholders' Agreement, dated as of September 19, 1991, between 10.5 33-42879
the Company and certain of its securityholders
10.5+ 1992 Stock Option Plan of the Company 4 33-52166
10.6+ 1994 Stock Option Plan of the Company 10.6 1995 10-K
10.7+ The Company's Executive Incentive Plan 10.6 1994 10-K
10.8+ The Company's Executive Strategic Incentive Plan 10.8 1995 10-K
10.9+ Amendment No. 1, dated as of April 1, 1996, to the Executive 10.9 1996 10-K
Incentive Plan and the Executive Strategic Incentive Plan
13 Excerpts from 1997 Annual Report of the Company, with respect to * NA
those portions incorporated by reference into this report
21 Schedule of Company's subsidiaries * NA
23 Consent of KPMG Peat Marwick 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.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WORLD ACCEPTANCE CORPORATION
By: /s/ A. Alexander McLean, III
------------------------------
A. Alexander McLean, III,
Senior Vice President
Date: June 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature
---------
/s/ Charles D. Walters
- ----------------------------------
Charles D. Walters, Chairman and Chief Executive Officer
(principal executive officer); Director
Date: June 27, 1997
/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 27, 1997
/s/ R. Harold Owens
- ----------------------------------
R. Harold Owens, President and Chief
Operating Officer (principal operating officer); Director
Date: June 27, 1997
/s/ Ken R. Bramlett, Jr.
- ----------------------------------
Ken R. Bramlett, Jr., Director
Date: June 27, 1997
14