COMPANY PROFILE
WORLD ACCEPTANCE CORPORATION, founded in 1962, is one of the largest small-loan consumer
finance companies in the United States and Mexico. It offers short-term small loans, medium-term larger loans, related
credit insurance products, ancillary products and services to individuals who have limited access to other sources of
consumer credit. It also offers income tax return preparation services to its customer base and to others.
World emphasizes quality customer service and the building of strong personal relationships with its customers.
As a result, a substantial portion of the Company's business is repeat business from the renewal of loans to existing
customers and the origination of new loans to former customers. During fiscal 2011, the Company loaned $2.6 billion in
the aggregate in 2.3 million transactions. At March 31, 2011, World had approximately 867,000 customers. The
Company's loans generally are under $4,000 and have maturities of less than 36 months. World’s average gross loan
made in fiscal 2011 was $1,134, and the average contractual maturity was approximately eleven months.
The Company also markets computer software and related services to financial services companies through its
ParaData Financial Systems subsidiary. The ParaData system is currently used in 1,652 consumer loan offices, including
the Company's branch offices, and ParaData services over 103 customers.
As of June 3, 2011, World operated 1,081 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana,
Tennessee, Missouri, Illinois, New Mexico, Kentucky, Alabama, Wisconsin and Mexico.
CONTENTS
Financial Highlights
Message to Shareholders
Selected Consolidated Financial and Other Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Board of Directors
Company Officers
Corporate Information
1
2
5
6
16
17
18
19
20
47
48
50
51
52
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
Selected Statement of Operations Data:
2011
2010
Change
Years Ended March 31,
Total revenues ................................................................. $ 491,445
Net income ......................................................................
91,249
Diluted earnings per share ...........................................
5.63
Selected Balance Sheet Data:
Gross loans receivable .................................................... $ 875,046
Total assets ......................................................................
666,397
Total debt ........................................................................
187,430
Total shareholders' equity ...............................................
442,575
Selected Ratios:
Return on average assets .................................................
13.9%
Return on average shareholders' equity ...........................
22.8%
Shareholders' equity to assets ..........................................
66.4%
440,636
73,661
4.45
770,265
593,052
170,642
382,948
12.7%
22.1%
64.6%
Statistical Data:
Number of customers at period end ................................
867,315
792,757
Number of loans made .................................................... 2,268,897
2,119,725
Number of offices ...........................................................
1,067
990
11.5%
23.9%
26.5%
13.6%
12.4%
9.8%
15.6%
9.4%
3.2%
2.8%
9.4%
7.0%
7.8%
Comparison of Cumulative Total Return Between World
Acceptance Corporation, NASDAQ Composite Index and
NASDAQ Financial Index
World Acceptance Corporation
NASDAQ Composite Index
NASDAQ Financial Index
S
R
A
L
L
O
D
300
200
100
0
2007
2008
2009
2010
2011
World Acceptance Corporation
NASDAQ Composite Index
NASDAQ Financial Index
3-31-07
100.00
100.00
100.00
3-31-08
79.73
93.28
84.42
3-31-09
42.80
50.56
53.45
3-31-10
90.31
79.31
73.00
3-31-11
163.20
93.40
78.23
World Acceptance Corporation
1
To Our Shareholders
Fiscal 2011 was another outstanding year for World Acceptance Corporation. Although the country
continued to face a great deal of economic uncertainty, your Company, once again, made remarkable
improvements in almost all areas of operations and achieved a strong financial performance throughout the year.
As the chart below indicates, most key statistics continued to show strong trends over the trailing ten and five
years, as well as excellent growth rates during the most recent fiscal year:
Key Indicators
Value at
Fiscal Year End
or For Fiscal 2011
(dollars in thousands,
except per share data)
Total Revenues
Net Earnings
Earnings Per
Share (diluted)
Gross Loans
Number of Offices
Stock price per share
$491,445
$91,249
$5.63
$875,046
1,067
$65.20
Ten Year
Five Year
Annual Compounded Annual Compounded
Growth Rate
Growth Rate
Fiscal 2011
Growth Rate
15.1%
19.3%
21.1%
15.3%
9.8%
25.6%
15.1%
18.8%
22.8%
16.0%
11.5%
18.9%
11.5%
23.9%
26.5%
13.6%
7.8%
80.7%
I am also very pleased that our excellent performance has been recognized by the stock market by rewarding
our shareholders with substantial appreciation of our share price during the year. Our share price has risen from
$36.08 at the beginning of the fiscal year to $65.20 at March 31, 2011, an 80.7% increase. Since then, it has been
very volatile, but appears to have adequate support at the current levels. There remains a certain amount of
political uncertainty at the federal level as a result of the passage of the “Dodd-Frank Wall Street Reform and
Consumer Protection Act” and its creation of the “Consumer Financial Protection Bureau” which may continue
to have an impact on our stock performance until such time as the ultimate direction of this bureau becomes
apparent. However, as I have stated before, I believe your Company and other companies in this industry provide
a vital service to a large portion of the population who do not have access to greatly needed credit through
traditional banking or credit card channels and that this new Bureau will recognize this need and the inability of
other institutions to provide it in an efficient manner. Therefore, I am optimistic that this Company and this
industry have an excellent future with growing demand for our products and services.
After reducing our office expansion to 46 stores
in Fiscal 2010, providing relief from the aggressive
expansion of the three previous years when we
opened 324 new offices, we increased our office
network by 77 new branches in fiscal 2011. This was
a 7.8% increase over the 990 offices that we had open
at the beginning of the year and gave us a total of
1,067 offices in twelve states and Mexico. We entered
Wisconsin in December, a new state for us, which we
believe will become another excellent state in the next
few years. Our goal for fiscal year 2012 is to open 63
offices in the US, 10 in Mexico and evaluate
acquisitions as the opportunities arise.
Gross loans receivable, the Company’s primary earning asset, increased to $875.0 million at March 31, 2011,
up 13.6% over the $770.3 million outstanding at the end of fiscal 2010. The Company continues to demonstrate
its ability to prosper in even the worst economic environment, primarily due to the relationship and close
personal contact it maintains with its customers. At the end of the fiscal year, the Company had open loan
relationships with approximately 867,000 customers. This is compared to approximately 793,000 customers at
March 31, 2010. It is very important to the Company that the majority of our loan growth continues to be
2
World Acceptance Corporation
To Our Shareholders
generated through opening new accounts, as opposed
to an increase in our average balance per account.
During fiscal 2011, the 13.6% growth in gross loans
consisted of a 9.7% increase in number of accounts
and a 3.9% increase in average balances. We believe
that our expanding customer base provides an
excellent opportunity for additional growth in the
coming year. We also believe that because our loan
portfolio is our primary earning asset, loan growth is
a good indicator of future trends in revenue and
earnings for World Acceptance.
Acquisitions will remain a very important part of our overall growth strategy; however, growth through
acquisitions is inherently less predictable due to the timing of the availability of attractive purchase opportunities.
We are very pleased that we achieved reasonable loan growth with relatively fewer acquisitions. During the most
recent fiscal year, we completed the purchase of 20 offices in 11 separate transactions. Of these, 14 offices were
merged into existing Company offices and six became new office locations. These acquisitions contributed
approximately 5,900 accounts and $4.0 million in gross loan balances. During the prior year, we acquired $3.9
million in gross loans and 6,300 accounts. While these purchases have not been material over the last couple of
years, they have certainly been meaningful in the past and we will continue to review potential acquisition
candidates in existing and contiguous markets for future growth as opportunities arise.
Net earnings for the year rose to $91.2 million, or
$5.63 per diluted share, compared with $73.7 million, or
$4.45 per diluted share, during fiscal 2010. Earnings
grew 23.9% and earnings per share rose 26.5%
compared with the prior year. During fiscal 2010, both
net earnings and earnings per share benefited from gains
recognized on the early retirement of a portion of our
convertible notes at a substantial discount as well as
other nonrecurring gains. Similar net gains were
substantially less in fiscal 2011. Nonrecurring gains
amounted to approximately $3.3 million in fiscal 2010
and approximately $1.0 million in fiscal 2011 and
accounted for a decrease of approximately $.08 per
diluted share when comparing the two fiscal years.
Historically, the Company’s growth in earnings per share has exceeded its net earnings growth due to its
ongoing stock repurchase program. While very few shares were repurchased in fiscal 2010, primarily due to the
decision to retire convertible notes at substantial discounts combined with the uncertainty in the economy, the
Company became more aggressive in its share repurchases in fiscal 2011. During the year, we repurchased
approximately 1.3 million shares at an aggregate price of $53.3 million. The Company believes that share
repurchase is an important part of its long term strategy in building shareholder value. In the last 16 years, the
Company has repurchased 9.8 million shares at an aggregate price of $220.5 million. The Company intends to
apply this strategy in the future as well.
We are especially pleased to report another year of improving credit quality during what must be considered
an unusual economic period. Our loan delinquencies and loan charge-offs will always be one of the most critical
components of our business and these are continuously monitored by all levels of management. Because
delinquencies remain relatively flat due to our consistent and aggressive charge-off policies, our charge-off ratio
is the key indicator of credit quality. The increase in our net charge-offs as a percentage of average net loans to
16.7% in fiscal 2009, the highest level in the Company’s history, had a direct negative impact on both loan
World Acceptance Corporation
3
To Our Shareholders
growth and net earnings. Since then we have had eight
consecutive quarters where our charge-off ratios
declined from the prior year’s corresponding quarterly
ratio. As a result, we have seen our fiscal charge-off
ratios decline from an all time high of 16.7% in fiscal
2009, to 15.5% in fiscal 2010 and to 14.3% during
fiscal year 2011. This ratio is slightly below our
historical averages and we do not expect this trend of
lower ratios to continue; however we are very pleased
with the rapid return to normal loss levels which we
believe further validates our thorough underwriting
policies and procedures.
Control over our operating expenses has always
been a very high priority for the management of
your Company at all levels. As we have done in each
of the previous ten years, we have reduced general
and administrative expenses as a percentage of total
revenue once again to an historical low in fiscal
2011. This ratio declined from 49.2% in fiscal 2010
to 48.3% in the most recent fiscal year. As the
Company continues to grow, it becomes increasingly
difficult to leverage our fixed cost; however, the
ongoing monitoring
and
of
administrative expenses will always remain an area
of concentrated focus.
general
our
After aggressively expanding in Mexico for the last five years (we opened our first two offices in Juarez in
September 2005 and ended the past fiscal year with 95 offices) we became profitable in fiscal 2011. This
subsidiary had net earnings of $1.9 million during the year and had approximately $51 million (US) in gross
loans outstanding and 103,000 customer accounts at March 31, 2011. Very few of the 95 open offices have
reached a mature status so we should see our profitability in Mexico rise dramatically as our average loan
balances outstanding per office begin to rise. Additionally, the expense of opening the planned 10 new offices in
Mexico during fiscal 2012 will have a much smaller impact on a base of 95 offices than we have seen
previously. Credit quality remains within acceptable levels and, although there has been a great deal reported on
the violence taking place in certain areas of the country, we have been fortunate that thus far we have not seen a
negative impact on our operations. We are extremely pleased with our progress in Mexico and expect even
bigger contributions from there as it becomes a bigger part of our overall organization.
Overall, fiscal 2011 was another great year for your Company. The improvements that were made in so
many areas of operations for the second year in a row were especially satisfying given the ongoing difficult
economic environment. For the reasons discussed above, I believe that we are well positioned to have another
excellent year in fiscal 2012. On behalf of the directors, management and all of our more than 4,000 dedicated
and loyal employees, many of whom are shareholders, we thank you for your support and continued interest in
World Acceptance Corporation.
Sincerely,
A. A. McLean III
Chairmen and
Chief Executive Officer
4
World Acceptance Corporation
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in thousands, except per share amounts)
Years Ended March 31,
2011
2010
2009
2008
2007
Statement of Operations Data:
Interest and fee income
$ 424,594
$ 375,031
$ 331,454
$ 292,457
$ 247,007
Insurance commissions and other income
66,851
65,605
60,698
53,590
45,311
Total revenues
Provision for loan losses
491,445
440,636
392,152
346,047
292,318
95,908
90,299
85,476
67,542
51,925
General and administrative expenses
237,515
217,012
200,216
179,218
153,627
Interest expense
Total expenses
14,773
13,881
14,886
15,938
11,696
348,196
321,192
300,578
262,698
217,248
Income before income taxes
143,249
119,444
91,574
83,349
75,070
Income taxes
Net income
52,000
45,783
35,081
33,096
28,897
$ 91,249
$ 73,661
$ 56,493
$ 50,253
$ 46,173
Net income per common share (diluted)
$
5.63
$
4.45
$
3.43
$
2.89
$
2.51
Diluted weighted average shares
16,210
16,546
16,464
17,375
18,394
Balance Sheet Data (end of period):
Loans receivable, net of unearned and deferred fees
$ 646,072
$ 571,086
$498,433 $ 445,091
$378,038
Allowance for loan losses
Loans receivable, net
Total assets
Total debt
Shareholders' equity
Other Operating Data:
(48,355)
(42,897)
(38,021)
(33,526)
(27,840)
597,717
528,189
460,412
411,565
350,198
666,397
593,052
526,094
478,881
402,026
187,430
170,642
197,042
197,078
148,840
442,575
382,948
296,335
244,801
228,731
As a percentage of average loans receivable:
Provision for loan losses
Net charge-offs
15.1%
16.3%
17.6%
15.8%
14.5%
14.3%
15.5%
16.7%
14.5%
13.3%
Number of offices open at year-end
1,067
990
944
838
732
World Acceptance Corporation
5
Management’s Discussion And Analysis
General
The Company's financial performance continues to be dependent in large part upon the growth in its outstanding loans
receivable, the maintenance of loan quality and acceptable levels of operating expenses. Since March 31, 2006, gross loans
receivable have increased at a 16.0% annual compounded rate from $416.3 million to $875.0 million at March 31, 2011.
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 620 offices to 1,067 offices as of March 31, 2011. During fiscal 2012, the Company plans to open
approximately 63 new offices in the United States and 10 new offices in Mexico and also to evaluate acquisition as
opportunities arise.
The Company's ParaData Financial Systems subsidiary provides data processing systems to 103 separate finance companies,
including the Company, and currently supports approximately 1,652 individual branch offices in 44 states and Mexico.
ParaData’s revenue is highly dependent upon its ability to attract new customers, which often requires substantial lead time,
and as a result its revenue may fluctuate from year to year. Its net revenues from system sales and support amounted to $1.9
million, $1.8 million and $2.0 million in fiscal 2011, 2010 and 2009, respectively. ParaData’s net revenue to the Company
will continue to fluctuate on a year to year basis. ParaData continues to provide state-of-the-art data processing support for
the Company’s in-house integrated computer system at a substantially reduced cost to the Company.
The Company offers an income tax return preparation and electronic filing program in all but a few of its offices. The
Company prepared approximately 48,000, 62,000 and 61,000 returns in each of the fiscal years 2011, 2010 and 2009,
respectively. Revenues from our tax preparation business decreased by $3.0 million or 29.3% during fiscal 2011 due to a
24% decline in the number of returns prepared. This decrease resulted, primarily, from an increase in compensation from tax
preparers who continued to offer an instant loan on tax refunds, which the Company was unable to offer this year. Next
year, it is expected that the refund anticipation loans will not be available for any tax preparer, so the Company should not
have this competitive disadvantage going forward.
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:
Average gross loans receivable (1)
Average net loans receivable (2)
Expenses as a percentage of total revenues:
Provision for loan losses
General and administrative
Total interest expense
Operating margin (3)
Return on average assets
Offices opened and acquired, net
Total offices (at period end)
2011
860,538
633,748
Years Ended March 31,
2010
(Dollars in thousands)
750,504
553,650
2009
658,587
486,776
$
19.5%
48.3%
3.0%
32.2%
13.9%
77
1,067
20.5%
49.2%
3.2%
30.3%
12.7%
46
990
21.8%
51.1%
3.8%
27.1%
10.9%
106
944
(1) Average gross loans receivable have been determined by averaging month-end gross loans receivable over the indicated
period.
(2) Average net loans receivable have been determined by averaging month-end gross loans receivable less unearned interest
and deferred fees over the indicated period.
(3) Operating margin is computed as total revenues less provision for loan losses and general and administrative expenses as a
percentage of total revenues.
6
World Acceptance Corporation
Management’s Discussion And Analysis
Comparison of Fiscal 2011 Versus Fiscal 2010
Net income was $91.2 million during fiscal 2011, a 23.9% increase over the $73.7 million earned during fiscal 2010. This
increase resulted primarily from an increase in operating income (revenues less provision for loan losses and general and
administrative expenses) of $24.7 million, or 18.5%, offset by a $0.9 million increase in interest expense, and a $6.2 million
increase in income tax expense.
Total revenues increased to $491.4 million in fiscal 2011, a $50.8 million, or 11.5%, increase over the $440.6 million in
fiscal 2010. Revenues from the 937 offices open throughout both fiscal years increased by 9.0%. At March 31, 2011, the
Company had 1,067 offices in operation, an increase of 77 offices from March 31, 2010.
Interest and fee income during fiscal 2011 increased by $49.6 million, or 13.2%, over fiscal 2010. This increase resulted
from an increase of $80.1 million, or 14.5%, in average net loans receivable between the two fiscal years. The increase in
average loans receivable was attributable to the Company’s internal growth. During fiscal 2011, internal growth increased
because the Company opened 73 new offices and the average loan balance increased from $971 to $1,009.
Insurance commissions and other income increased by $1.2 million, or 1.9%, over the two fiscal years. Insurance
commissions increased by $4.5 million, or 12.1%, as a result of the increase in loan volume in states where credit insurance
is sold. Other income decreased by $3.3 million, or 11.4%, over the two years, primarily due to a $3.1 million decrease in tax
preparation revenue. This decrease was due to a 24.0% reduction in the number of tax returns prepared by the Company
compared with the prior year, primarily due to increased competition from tax preparers who offered an instant loan on tax
refunds. Consequently, tax preparation revenue declined to $7.8 million during fiscal 2011 from $10.9 million in the fiscal
2010.
The provision for loan losses during fiscal 2011 increased by $5.6 million, or 6.2%, from the previous year. This increase
resulted from a combination of increases in both the allowance for loan losses and the amount of loans charged off. Net
charge-offs for fiscal 2011 amounted to $90.6 million, a 5.8% increase over the $85.6 million charged off during fiscal 2010.
During the current fiscal year, the Company also had a reduction in our year-over-year loan loss ratios. Annualized net
charge-offs as a percentage of average net loans decreased from 15.5% during fiscal 2010 to 14.3% during fiscal 2011. The
current year charge-off ratio of 14.3% is below historical levels, and the Company does not expect the ratio to decrease
meaningfully below this level. Historically from fiscal 2002 to fiscal 2006, the charge-offs as a percent of average loans
ranged from 14.6% to 14.8%. In fiscal 2007 the Company experienced a temporary decline to 13.3%, which was attributed to
a change in the bankruptcy law but returned to 14.5% in fiscal 2008. In fiscal 2009 the ratio increased to 16.7%, the highest
in the Company’s history as a result of the difficult economic environment and higher energy costs that our customers faced,
but has been declining during fiscal 2010 and fiscal 2011. Accounts that were 61 days or more past due were 2.4% on a
recency basis and were 3.8% on a contractual basis at both March 31, 2011 and March 31, 2010.
General and administrative expenses during fiscal 2011 increased to $237.5 million, or 9.4%, over the previous fiscal year.
This increase was due primarily to costs associated with the new offices opened or acquired during the fiscal year. General
and administrative expenses, when divided by average open offices, increased slightly when comparing the two fiscal years
and, overall, general and administrative expenses as a percent of total revenues decreased from 49.2% in fiscal 2010 to
48.3% during fiscal 2011. This decrease resulted from management’s ongoing monitoring and control of expenses and
continued leveraging of fixed expenses.
Interest expense increased by $0.9 million, or 6.4%, during fiscal 2011, as compared to the previous fiscal year as a result of
an increase in average debt outstanding of 4.0% and a slight increase in average interest rates. Average interest rates
increased from 6.5% in fiscal 2010 to 6.7% in fiscal 2011.
Income tax expense increased $6.2 million, or 13.6%, primarily from an increase in pre-tax income. The effective rate
decreased to 36.3% in fiscal 2011 from 38.3% in fiscal 2010 due partially to an income tax settlement with the state of South
Carolina for tax years March 31, 1997 through March 31, 2006, which resulted in the Company recognizing a tax benefit of
approximately $900,000.
Comparison of Fiscal 2010 Versus Fiscal 2009
Net income was $73.7 million during fiscal 2010, a 30.4% increase over the $56.5 million earned during fiscal 2009. This
increase resulted primarily from an increase in operating income of $26.9 million, or 25.2%, and a $1.0 million decrease in
interest expense, offset by an increase in income tax expense.
World Acceptance Corporation
7
Management’s Discussion And Analysis
Total revenues increased to $440.6 million in fiscal 2010, a $48.5 million, or 12.4%, increase over the $392.2 million in
fiscal 2009. Revenues from the 834 offices open throughout both fiscal years increased by 8.1%. At March 31, 2010, the
Company had 990 offices in operation, an increase of 46 offices from March 31, 2009.
Interest and fee income during fiscal 2010 increased by $43.6 million, or 13.1%, over fiscal 2009. This increase resulted
from an increase of $66.9 million, or 13.7%, in average net loans receivable between the two fiscal years. The increase in
average loans receivable was attributable to the Company’s internal growth. During fiscal 2010, internal growth increased
because the Company opened 48 new offices and the average loan balance increased from $917 to $971.
Insurance commissions and other income increased by $4.9 million, or 8.1%, over the two fiscal years. Insurance
commissions increased by $4.8 million, or 14.7%, as a result of the increase in loan volume in states where credit insurance
is sold. Other income increased slightly, but there were various changes within other income when comparing the two years,
including:
• Revenue from tax preparation increased approximately $1.0 million, or 10%.
•
In fiscal 2010, a $1.1 million gain on the interest rate swaps was recorded compared to an approximate
$800,000 loss is fiscal 2009.
In fiscal 2010, the Company extinguished $18.0 million par value of its convertible notes at a $2.2 million
gain, compared to fiscal 2009, during which $15.0 million par value of the convertible notes were
extinguished at a $4.0 million gain.
In fiscal 2009, a $1.5 million gain was recognized on the sale of a foreign currency option. There was no
such gain recorded during fiscal 2010.
•
•
See Note 8 to the Consolidated Financial Statements for further discussion regarding this extinguishment of debt.
The provision for loan losses during fiscal 2010 increased by $4.8 million, or 5.6%, from the previous year. This increase
resulted from a combination of increases in both the allowance for loan losses and the amount of loans charged off. Net
charge-offs for fiscal 2010 amounted to $85.6 million, a 5.6% increase over the $81.1 million charged off during fiscal 2009.
Accounts that were 61 days or more past due decreased from 2.7% to 2.4% on a recency basis and from 4.2% to 3.8% on a
contractual basis when comparing March 31, 2010 to March 31, 2009. During fiscal 2010, we had a reduction in our year-
over-year loan losses. Annualized net charge-offs as a percentage of average net loans decreased from 16.7% during fiscal
2009 to 15.5% during fiscal 2010.
During fiscal year 2010 our charge-offs as a percent of average net loans decreased to 15.5% from 16.7% in fiscal 2009. We
believe our customer base is highly impacted by the cost of basic commodities such as food and energy and unemployment.
The cost of basic commodities rose steeply during the first several months of our fiscal 2009, which had a negative impact on
our customer’s ability to repay outstanding loans. This, in turn, drove our charge-off ratio up significantly over our historical
experience. After moderating in the second half of fiscal 2009, the costs of basic commodities rose more gradually during
fiscal 2010 allowing our customers to adapt to such costs increases and better manage their ability to repay outstanding
loans. The rate of unemployment has also stabilized. We believe these were major factors in the reduction of our charge-off
ratio during fiscal 2010.
General and administrative expenses during fiscal 2010 increased by $16.8 million, or 8.4%, over the previous fiscal year.
This increase was due primarily to costs associated with the new offices opened or acquired during the fiscal year. General
and administrative expenses, when divided by average open offices, increased slightly when comparing the two fiscal years
and, overall, general and administrative expenses as a percent of total revenues decreased from 51.1% in fiscal 2009 to
49.2% during fiscal 2010. This decrease resulted from the reduction of branch openings during fiscal 2010 and
management’s ongoing monitoring and control of expenses.
Interest expense decreased by $1.0 million, or 6.7%, during fiscal 2010, as compared to the previous fiscal year as a result of
a decrease in average debt outstanding of 4.5% and a slight decrease in average interest rates. Average interest rates
decreased from 6.7% in fiscal 2009 to 6.5% in fiscal 2010.
Income tax expense increased $10.7 million, or 30.5%, primarily from an increase in pre-tax income. The effective rate
remained consistent at 38.3% in both fiscal 2010 and fiscal 2009.
Critical Accounting Policies
The Company’s accounting and reporting policies are in accordance with U.S. generally accepted accounting principles and
conform to general practices within the finance company industry. The significant accounting policies used in the
8
World Acceptance Corporation
Management’s Discussion And Analysis
preparation of the consolidated financial statements are discussed in Note 1 to the consolidated financial statements. Certain
critical accounting policies involve significant judgment by the Company’s management, including the use of estimates and
assumptions which affect the reported amounts of assets, liabilities, revenues, and expenses. As a result, changes in these
estimates and assumptions could significantly affect the Company’s financial position and results of operations. The
Company considers its policies regarding the allowance for loan losses, share-based compensation, and income taxes to be its
most critical accounting policies due to the significant degree of management judgment involved.
Allowance for Loan Losses
The Company has developed policies and procedures for assessing the adequacy of the allowance for loan losses that take
into consideration various assumptions and estimates with respect to the loan portfolio. The Company’s assumptions and
estimates may be affected in the future by changes in economic conditions, among other factors. For additional discussion
concerning the allowance for loan losses, see “Credit Quality” below.
Share-Based Compensation
The Company measures compensation cost for share-based awards at fair value and recognizes compensation over the
service period for awards expected to vest. The fair value of restricted stock is based on the number of shares granted and the
quoted price of our common stock, and the fair value of stock options is determined using the Black-Scholes valuation
model. The Black-Scholes model requires the input of highly subjective assumptions, including expected volatility, risk-free
interest rate and expected life, changes to which can materially affect the fair value estimate. In addition, the estimation of
share-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ
from our current estimates, such amounts will be recorded as a cumulative adjustment in the period that the estimates are
revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee
class, and historical experience. Actual results, and future changes in estimates, may differ substantially from our current
estimates.
Income Taxes
Management uses certain assumptions and estimates in determining income taxes payable or refundable, deferred income tax
liabilities and assets for events recognized differently in its financial statements and income tax returns, and income tax
expense. Determining these amounts requires analysis of certain transactions and interpretation of tax laws and regulations.
Management exercises considerable judgment in evaluating the amount and timing of recognition of the resulting income tax
liabilities and assets. These judgments and estimates are re-evaluated on a periodic basis as regulatory and business factors
change.
No assurance can be given that either the tax returns submitted by management or the income tax reported on the
Consolidated Financial Statements will not be adjusted by either adverse rulings by the U.S. Tax Court, changes in the tax
code, or assessments made by the Internal Revenue Service (“IRS”) or state taxing authorities. The Company is subject to
potential adverse adjustments, including but not limited to: an increase in the statutory federal or state income tax rates, the
permanent non-deductibility of amounts currently considered deductible either now or in future periods, and the dependency
on the generation of future taxable income in order to ultimately realize deferred income tax assets.
The Company adopted FASB ASC 740-10, on April 1, 2007. Under FASB ASC 740, the Company includes the current and
deferred tax impact of its tax positions in the financial statements when it is more likely than not (likelihood of greater than
50%) that such positions will be sustained by taxing authorities, with full knowledge of relevant information, based on the
technical merits of the tax position. While the Company supports its tax positions by unambiguous tax law, prior experience
with the taxing authority, and analysis that considers all relevant facts, circumstances and regulations, management must still
rely on assumptions and estimates to determine the overall likelihood of success and proper quantification of a given tax
position.
Credit Quality
The Company’s delinquency and net charge-off ratios reflect, among other factors, changes in the mix of loans in the
portfolio, the quality of receivables, the success of collection efforts, bankruptcy trends and general economic conditions.
Delinquency is computed on the basis of the date of the last full contractual payment on a loan (known as the recency
method) and on the basis of the amount past due in accordance with original payment terms of a loan (known as the
contractual method). Management closely monitors portfolio delinquency using both methods to measure the quality of the
Company's loan portfolio and the probability of credit losses.
World Acceptance Corporation
9
Management’s Discussion And Analysis
The following table classifies the gross loans receivable of the Company that were delinquent on a recency and contractual
basis for at least 61 days at March 31, 2011, 2010, and 2009:
Recency basis:
61-90 days past due
91 days or more past due
Total
Percentage of period-end gross loans receivable
Contractual basis:
61-90 days past due
91 days or more past due
Total
2011
At March 31,
2010
(Dollars in thousands)
2009
12,894
8,297
21,191
11,094
7,337
18,431
11,304
6,661
17,965
2.4%
2.4%
2.7%
16,564
16,625
33,189
14,548
14,985
29,533
14,223
13,673
27,896
$
$
$
$
Percentage of period-end gross loans receivable
3.8%
3.8%
4.2%
Loans are charged off at the earlier of when such loans are deemed to be uncollectible or when six months have elapsed since
the date of the last full contractual payment. The Company’s charge-off policy has been consistently applied and no
significant changes have been made to the policy during the periods reported. Management considers the charge-off policy
when evaluating the appropriateness of the allowance for loan losses. Charge-offs as a percent of average net loans
decreased from 15.5% in fiscal 2010 to 14.3% in fiscal 2011.
In fiscal 2011, approximately 84.3% 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. For fiscal 2011, 2010, and 2009, the percentages of the Company’s loan originations that were
refinancings of existing loans were 75.9%, 76.4% and 75.0%, respectively. The Company’s refinancing policies, while
limited by state regulations, in all cases consider the customer’s payment history and require that the customer has made
multiple payments on the loan being considered for refinancing. A refinancing is considered a current refinancing if the
customer is no more than 45 days delinquent on a contractual basis. Delinquent refinancings may be extended to customers
who are more than 45 days past due on a contractual basis if the customer completes a new application and the manager
believes that the customer’s ability and intent to repay has improved. It is the Company’s policy to not refinance delinquent
loans in amounts greater than the original amounts financed. In all cases, a customer must complete a new application every
two years. During fiscal 2011, delinquent refinancings represented 1.6% of the Company’s total loan volume compared to
2.0% in fiscal 2010.
Charge-offs, as a percentage of loans made by category, are greatest on loans made to new borrowers and less on loans made
to former borrowers and refinancings. This is as expected due to the payment history experience available on repeat
borrowers. However, as a percentage of total loans charged off, refinancings represent the greatest percentage due to the
volume of loans made in this category. The following table depicts the charge-offs as a percent of loans made by category
and as a percent of total charge-offs during fiscal 2011:
Loan Volume
by Category
Percent of
Total Charge-offs
Charge-off as a Percent of Total
Loans Made by Category
Refinancing
Former borrowers
New borrowers
75.9%
8.4%
15.7%
100.0%
76.6%
4.8%
18.6%
100.0%
4.7%
3.2%
9.3%
10
World Acceptance Corporation
Management’s Discussion And Analysis
The Company maintains an allowance for loan losses in an amount that, in management’s opinion, is adequate to cover
losses inherent in the existing loan portfolio. The Company charges against current earnings, as a provision for loan losses,
amounts added to the allowance to maintain it at levels expected to cover probable losses of principal. When establishing the
allowance for loan losses, the Company takes into consideration the growth of the loan portfolio, the mix of the loan
portfolio, current levels of charge-offs, current levels of delinquencies, and current economic factors. In accordance with
FASB ASC Topic 450, the Company accrues an estimated loss if it is probable and can be reasonably estimated. It is
probable that there are losses in the existing portfolio. To estimate the losses, the Company uses historical information for
net charge-offs and average loan life. This method is based on the fact that many customers refinance their loans prior to the
contractual maturity. Average contractual loan terms are approximately eleven months and the average loan life is
approximately four months. Based on this method, the Company had an allowance for loan losses that approximated six
months of average net charge-offs at March 31, 2011, 2010, and 2009. Therefore, at each year end the Company had an
allowance for loan losses that covered estimated losses for its existing loans based on historical charge-offs and average
lives. In addition, the entire loan portfolio turns over approximately three times during a typical twelve-month period.
Therefore, a large percentage of loans that are charged off during any fiscal year are not on the Company’s books at the
beginning of the fiscal year. The Company believes that it is not appropriate to provide for losses on loans that have not
been originated, that twelve months of net charge-offs are not needed in the allowance, and that the method employed is in
accordance with generally accepted accounting principles.
The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2011, 2010, and
2009:
Balance at beginning of period
Provision for loan losses
Loan losses
Recoveries
Translation adjustment
Allowance on acquired loans
Balance at end of period
At March 31,
2011
2010
2009
$
$
42,896,819
95,908,363
(100,044,691)
9,475,131
119,372
-
38,020,770
90,298,934
(94,782,185)
9,139,923
219,377
-
48,354,994
42,896,819
33,526,147
85,476,092
(88,728,498)
7,590,928
(306,340)
462,441
38,020,770
Allowance as a percentage of loans receivable,
net of unearned and deferred fees
Net of charge-offs as a percentage of average
loans receivable (1)
7.5%
14.3%
7.5%
15.5%
7.6%
16.7%
(1) Average loans receivable have been determined by averaging month-end gross loans receivable less unearned interest and deferred
fees over the indicated period.
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 are significantly higher than in other quarters.
World Acceptance Corporation
11
Management’s Discussion And Analysis
The following table sets forth, on a quarterly basis, certain items included in the Company's unaudited consolidated financial
statements and shows the number of offices open during fiscal years 2011 and 2010.
At or for the Three Months Ended
2011
2010
June
30,
September December March
30,
31,
31,
June
30,
September December March
30,
31,
31,
(Dollars in thousands)
110,398
118,066
126,039
136,942
100,230
104,206
112,310
123,890
19,698
27,275
31,962
16,973
20,428
25,156
29,633
15,082
57,298
18,714
56,091
20,235
61,393
18,064
62,733
34,236
53,333
14,635
51,755
14,612
55,537
14,751
56,387
29,663
Total revenues $
Provision for
loan losses
General and
administrative
expenses
Net income
Gross loans
receivable
Number of
$
824,941
868,192
965,434
875,046
726,057
754,854
838,864
770,265
offices open
1,010
1,034
1,054
1,067
949
966
975
990
Recently Issued Accounting Pronouncements
See “Item 8. Financial Statements and Supplementary Data. Note 1. Summary of Significant Accounting Policies,” of the
Consolidated Financial Statements for the impact of new accounting pronouncements.
Liquidity and Capital Resources
The Company has financed and continues to finance its operations, acquisitions and office expansion through a combination
of cash flows from operations and borrowings from its institutional lenders. The Company has generally applied its cash
flows from operations to fund its increasing loan volume, fund acquisitions, repay long-term indebtedness, and repurchase its
common stock. As the Company's gross loans receivable increased from $416.3 million at March 31, 2006 to $875.0
million at March 31, 2011, net cash provided by operating activities for fiscal years 2011, 2010 and 2009 was $199.8
million, $183.6 million and $153.9 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 or repurchase of long-term indebtedness and the repurchase of its common stock. As of
March 31, 2011, approximately 7.8 million shares have been repurchased since 2000 for an aggregate purchase price of
approximately $204.5 million. During fiscal 2011 the Company repurchased 1.3 million shares for $53.3 million. In August
2010, the Board of Directors authorized the Company to repurchase up to $20 million of common stock. In addition, as
previously announced, subsequent to the end of fiscal 2011, on May 23, 2011 and April 26, 2011, the Board of Directors
authorized the Company to repurchase up to $50 million of additional common stock. Through June 3, 2011 (including
pending repurchase orders subject to settlement), the Company repurchased shares of its common stock for approximately
$34.2 million. See Note 20 – Subsequent Events to the Consolidated Financial Statements. 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 approximately 63 branches in the United States, 10
branches in Mexico, and evaluate acquisition opportunities in fiscal 2012. Expenditures by the Company to open and furnish
new offices generally averaged approximately $25,000 per office during fiscal 2011. 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 six offices and fourteen loan portfolios from competitors in eight states in eleven separate
transactions during fiscal 2011. Gross loans receivable purchased in these transactions were approximately $3.9 million in
the aggregate at the dates of purchase. The Company believes that attractive opportunities to acquire new offices or
receivables from its competitors or to acquire offices in communities not currently served by the Company will continue to
become available as conditions in local economies and the financial circumstances of owners change.
12
World Acceptance Corporation
Management’s Discussion And Analysis
The Company has a $225.0 million base credit facility with a syndicate of banks. The credit facility will expire on August
31, 2012. 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 3.0% per annum with a minimum 4.0% interest rate. During fiscal
2011, the effective interest rate on borrowings under the revolving credit facility, including the impact of interest swap, was
4.4%. The Company pays a commitment fee equal to 0.375% per annum 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, 2011, $82.3 million was outstanding under this facility, and there was $142.7 million of unused
borrowing availability under the borrowing base limitations.
The Company has a $75 million junior subordinated note payable with a bank, which will mature on September 17, 2015.
Funds borrowed under the junior subordinated note payable bear interest at LIBOR plus 4.875% per annum. At March 31,
2011, the interest rate on borrowings under the junior subordinated note payable was 5.2%. The Company is required to pay
an unused line fee at a rate between 25 basis points and 37.5 basis points per annum (based on whether the usage rate for a
month is equal to or greater than 65% or less than 65%) on the average daily unused portion of the maximum amount of the
commitments under the junior subordinated note payable. Amounts outstanding under the junior subordinated note payable
may not exceed specified percentages of eligible loans receivable. On March 31, 2011, $30.0 million was outstanding and
there was $45.0 million of unused borrowing availability under the borrowing base limitations. The initial $30.0 million
draw on the junior subordinated note payable was used to pay down the outstanding balance on the revolving credit facility.
Beginning September 17, 2011 the maximum available borrowings will be reduced by $5.0 million annually.
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 Company was in compliance with these agreements at March 31, 2011 and does not believe that
these agreements will materially limit its business and expansion strategy.
On October 2, 2006, the Company amended its senior credit facility in connection with the issuance of $110 million in
aggregate principal amount of its 3% convertible senior subordinated notes due October 1, 2011 (the “Convertible Senior
Notes”). As of March 31, 2011, $77.0 million in aggregate principal amount of the Convertible Senior Notes remained
outstanding. See Note 7 to the Consolidated Financial Statements included in this report for more information regarding this
transaction and the terms of the Convertible Senior Notes.
The following table summarizes the Company’s contractual cash obligations by period (in thousands):
Fiscal Year Ended March 31,
2012
2013
2014
2015
2016
Thereafter
Total
Convertible notes payable
$
77,000
$
-
$
Maturities of notes payable
Junior subordinated note payable
Interest payments
Minimum lease payments
-
-
6,191
16,422
82,250
-
2,997
10,737
$
-
-
-
-
-
-
1,541
4,517
1,541
828
$
$
-
-
30,000
642
270
Total
$
99,613
$ 95,984
$ 6,058
$ 2,369
$ 30,912
$
-
-
-
-
-
-
$
77,000
82,250
30,000
12,912
32,774
$ 234,936
World Acceptance Corporation
13
Management’s Discussion And Analysis
The Company believes that cash flow from operations and borrowings under its revolving credit facility and junior
subordinated note payable will be adequate for the next twelve months, and for the foreseeable future thereafter, to fund the
expected cost of opening or acquiring new offices, including funding initial operating losses of new offices and funding
loans receivableoriginated by those offices and the Company's other offices. Except as otherwise discussed in this report,
including in Part 1, Item 1A, “Risk Factors,” management is not currently aware of any trends, demands, commitments,
events or uncertainties that it believes will or could result in, or are or could be reasonably likely to result in, the Company’s
liquidity increasing or decreasing in any material way. From time to time, the Company has needed and obtained, and
expects that it will continue to need on a recurring basis, an increase in the borrowing limits under its revolving credit
facility. The Company has successfully obtained such increases in the past and anticipates that it will be able to do so in the
future as the need arises; however, there can be no assurance that this additional funding will be available (or available on
reasonable terms) if and when needed. See Part I, Item 1A, “Risk Factors,” for a further discussion of risks and contingencies
that could affect our business, financial condition and liquidity.
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of March 31, 2011, the Company’s financial instruments consist of the following: cash and cash equivalents, loans
receivable, senior notes payable, convertible senior subordinated notes payable, junior subordinated note payable, and
interest rate swaps. Fair value approximates carrying value for all of these instruments, except the convertible senior
subordinated notes payable, for which the fair value of $85.6 million represents the quoted market price. Loans receivable
are originated at prevailing market rates and have an average life of approximately four months. Given the short-term nature
of these loans, they are continually repriced at current market rates. The Company’s outstanding debt under its revolving
credit facility was $82.3 million at March 31, 2011. Interest on borrowings under this facility is based, at the Company’s
option, on the prime rate or LIBOR plus 3.0%, with a minimum rate of 4.0%. The Company’s outstanding debt under its
junior subordinated note payable was $30.0 million at March 31, 2011. Interest on borrowings under this facility is based on
LIBOR plus 4.875%.
Based on the outstanding balance at March 31, 2011, a change of 1% in the LIBOR interest rate would cause a change in
interest expense of approximately $537,000 on an annual basis.
In December 2008, the Company entered into a $20 million interest rate swap to convert a variable rate of one month LIBOR
to a fixed rate of 2.4%. In accordance with FASB ASC Topic 815-10-15, the Company records derivatives at fair value, as
other assets or liabilities, on the consolidated balance sheets. Since the Company is not utilizing hedge accounting under
FASB ASC Topic 815-10-15, changes in the fair value of the derivative instrument are included in other income. As of
March 31, 2011 the fair value of the interest rate swap was a liability of $0.3 million and included in other liabilities. The
change in fair value from the beginning of the year, recorded as an unrealized gain in other income, was approximately $1.0
million.
On October 10, 2006, the Company issued $110 million convertible senior subordinated notes due October 1, 2011 to
qualified institutional brokers in accordance with Rule 144A of the Securities Act of 1933. The coupon rate on the
Convertible Notes is fixed at 3% and is payable semi-annually in arrears on April 1 and October 1 of each year, commencing
April 1, 2007. During fiscal 2009 and fiscal 2010, the company repurchased and cancelled $33.0 million, respectively, of the
convertible senior subordinated notes. See Note 8 to the Consolidated Financial Statements for more information regarding
these repurchases.
Foreign Currency Exchange Rate Risk
In September 2005 the Company began opening offices in Mexico, where local businesses utilize the Mexican peso as their
functional currency. The consolidated financial statements of the Company are denominated in U.S. dollars and are
therefore subject to fluctuation as the U.S. dollar and Mexican peso foreign exchange rate changes. International revenues
were approximately 5.5% of total revenues for the year ended March 31, 2011 and net loans denominated in Mexican pesos
were approximately $32.3 million (USD) at March 31, 2011.
The Company’s foreign currency exchange rate exposures may change over time as business practices evolve and could have
a material effect on its financial results. There have been, and there may continue to be, period-to-period fluctuations in the
relative portions of Mexican revenues.
14
World Acceptance Corporation
Management’s Discussion And Analysis
Because earnings are affected by fluctuations in the value of the U.S. dollar against foreign currencies, an analysis was
performed assuming a hypothetical 10% increase or decrease in the value of the U.S. dollar relative to the Mexican peso in
which the Company’s transactions in Mexico are denominated. At March 31, 2011, the analysis indicated that such market
movements would not have had a material effect on the consolidated financial statements. The actual effects on the
consolidated financial statements in the future may differ materially from results of the analysis for the year ended March 31,
2011. The Company will continue to monitor and assess the effect of currency fluctuations and may institute further hedging
alternatives.
Inflation
The Company does not believe that inflation, within reasonably anticipated rates, will have a material adverse effect on its
financial condition. Although inflation would increase the Company’s operating costs in absolute terms, the Company
expects that the same decrease in the value of money would result in an increase in the size of loans demanded by its
customer base. It is reasonable to anticipate that such a change in customer preference would result in an increase in total
loan receivables and an increase in absolute revenues to be generated from that larger amount of loans receivable. That
increase in absolute revenues should offset any increase in operating costs. In addition, because the Company’s loans are
relatively short in both contractual term and average life, it is unlikely that loans made at any given point in time will be
repaid with significantly inflated dollars.
Legal Matters
From time to time the Company is involved in routine litigation relating to claims arising out of its operations in the normal
course of business. See Note 19 to our audited Consolidated Financial Statements for discussion of current litigation.
World Acceptance Corporation
15
CONSOLIDATED STATEMENTS OF OPERATIONS
ASSETS
Cash and cash equivalents
Gross loans receivable
Less:
Unearned interest and fees
Allowance for loan losses
Loans receivable, net
Property and equipment, net
Deferred income taxes
Other assets, net
Goodwill
Intangible assets, net
Total assets
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable
Convertible senior subordinated notes payable
Discount on convertible subordinated notes payable
Net of discount
Junior subordinated note payable
Income taxes payable
Accounts payable and accrued expenses
Total liabilities
Shareholders' equity:
Preferred stock, no par value
Authorized 5,000,000, no shares issued or outstanding
Common stock, no par value
Authorized 95,000,000 shares; issued and outstanding
15,711,365 and 16,521,553 shares at March 31, 2011 and
March 31, 2010, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income/(loss)
Total shareholders' equity
Commitments and contingencies
March 31,
2011
2010
8,030,580
875,045,680
5,445,168
770,265,207
(228,974,132)
(48,354,994)
597,716,554
23,366,207
14,480,025
10,804,113
5,634,586
6,364,890
666,396,955
(199,179,293)
(42,896,819)
528,189,095
22,985,830
11,642,590
11,559,684
5,616,380
7,613,518
593,052,265
$
$
82,250,000
77,000,000
(1,819,600)
75,180,400
30,000,000
13,097,419
23,293,967
223,821,786
99,150,000
77,000,000
(5,507,959)
71,492,041
-
14,043,486
25,418,784
210,104,311
-
-
-
-
47,352,738
395,086,232
136,199
442,575,169
27,112,822
357,179,568
(1,344,436)
382,947,954
Total liabilities and shareholders' equity
$
666,396,955
593,052,265
See accompanying notes to consolidated financial statements.
16
World Acceptance Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues:
Interest and fee income
Insurance commissions and other income
Total revenues
Expenses:
Provision for loan losses
General and administrative expenses:
Personnel
Occupancy and equipment
Advertising
Amortization of intangible assets
Other
Years Ended March 31,
2011
2010
2009
$
424,594,245
66,850,858
491,445,103
375,030,993
65,605,147
440,636,140
331,453,835
60,698,020
392,151,855
95,908,363
90,298,934
85,476,092
159,160,492
142,482,669
130,674,094
31,115,076
13,056,444
1,949,444
32,233,478
28,468,673
12,842,759
2,242,517
30,975,389
25,577,437
13,067,079
2,454,872
28,443,267
Total general and administrative expenses
237,514,934
217,012,007
200,216,749
Interest expense
Total expenses
14,772,694
348,195,991
13,881,224
321,192,165
14,885,634
300,578,475
Income before income taxes
Income taxes
Net income
Net income per common share:
Basic
Diluted
143,249,112
119,443,975
51,999,932
91,249,180
45,782,667
73,661,308
91,573,380
35,080,790
56,492,590
5.76
5.63
4.52
4.45
3.48
3.43
$
$
$
Weighted average common shares outstanding:
Basic
Diluted
15,833,983
16,210,233
16,304,207
16,545,703
16,239,883
16,464,403
See accompanying notes to consolidated financial statements.
World Acceptance Corporation
17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss),
net
Total
Shareholders'
Equity
Total
Comprehensive
Income
Balances at March 31, 2008
$
16,284,723
228,346,754
169,503
244,800,980
Proceeds from exercise of stock
options (142,683 shares), including tax
benefits of $1,320,974
Common stock repurchases
(288,700 shares)
Issuance of restricted common
stock under stock option plan (78,592
shares)
Stock option expense
Repurchase and cancellation of
convertible notes
Other comprehensive income
Net income
Total comprehensive income
2,975,335
-
(6,527,680)
(1,321,084)
1,418,031
3,232,229
(336,328)
-
-
-
-
-
-
-
-
-
-
56,492,590
-
(4,399,166)
-
-
2,975,335
(7,848,764)
1,418,031
3,232,229
(336,328)
(4,399,166)
56,492,590
-
Balances at March 31, 2009
$
17,046,310
283,518,260
(4,229,663)
296,334,907
Proceeds from exercise of stock
options (280,350 shares), including tax
benefits of $1,671,344
Common stock repurchases
(38,500 shares)
Issuance of restricted common stock
under stock option plan (68,044 shares)
Stock option expense
Repurchase and cancellation of
convertible notes
Other comprehensive income
Net income
Total comprehensive income
7,424,333
(1,434,657)
1,568,600
3,281,556
(773,320)
-
-
-
-
-
-
-
-
-
-
-
-
73,661,308
-
2,885,227
-
-
7,424,333
(1,434,657)
1,568,600
3,281,556
(773,320)
2,885,227
73,661,308
-
Balances at March 31, 2010
27,112,822
357,179,568
(1,344,436)
382,947,954
(4,399,166)
56,492,590
52,093,424
2,885,227
73,661,308
76,546,535
Proceeds from exercise of stock
options (447,250 shares), including tax
benefits of $1,923,628
Common stock repurchases
(1,298,057 shares)
Issuance of restricted common
stock under stock option plan (54,951
shares)
Stock option expense
Proceeds from the sale of the call
option and warrants associated with the
convertible notes
Other comprehensive income
Net income
Total comprehensive income
13,806,260
-
-
(53,342,516)
1,485,359
3,855,348
1,092,949
-
-
-
-
-
-
-
91,249,180
-
-
-
-
-
-
1,480,635
-
-
13,806,260
(53,342,516)
1,485,359
3,855,348
1,092,949
1,480,635
91,249,180
-
1,480,635
91,249,180
92,729,815
Balances at March 31, 2011
$
47,352,738
395,086,232
136,199
442,575,169
See accompanying notes to consolidated financial statements.
18
World Acceptance Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flow from operating activities:
Net income
2011
Years Ended March 31,
2010
2009
$
91,249,180
73,661,308
56,492,590
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of intangible assets
Amortization of loan costs and discounts
Provision for loan losses
Gain on the extinguishment of debt
Amortization of convertible note discount
Depreciation
Deferred income tax expense (benefit)
Compensation related to stock option and restricted stock plans
Unrealized (gains) losses on interest rate swap
Change in accounts:
Other assets, net
Income taxes payable
Accounts payable and accrued expenses
1,949,444
441,895
95,908,363
-
3,688,359
6,172,747
(2,837,480)
5,340,707
(1,017,032)
1,017,199
(947,074)
(1,130,438)
2,242,517
411,622
90,298,934
(2,238,846)
3,903,999
5,766,532
608,244
4,850,156
(1,107,397)
(2,375,923)
2,675,456
4,909,399
2,454,872
745,031
85,476,092
(3,966,783)
4,497,124
4,784,014
3,225,577
4,650,260
773,047
(361,495)
(6,813,159)
1,956,920
Net cash provided by operating activities
199,835,870
183,606,001
153,914,090
Cash flows from investing activities:
Increase in loans receivable, net
Net assets acquired from office acquisitions, primarily loans
Increase in intangible assets from acquisitions
Purchases of property and equipment, net
(161,275,485)
(2,977,729)
(746,666)
(6,394,287)
(152,999,243)
(2,838,303)
(903,918)
(5,244,623)
(128,590,255)
(9,153,680)
(1,673,367)
(9,862,860)
Net cash used in investing activities
(171,394,167)
(161,986,087)
(149,280,162)
Cash flow from financing activities:
(Payments on)/proceeds from senior revolving notes payable, net
Repayment of convertible senior subordinated notes
Repayment of other notes payable
Proceeds from junior subordinated note payable
Loan cost associated with junior subordinated note payable
Proceeds from sale of the call option and warrants associated
with the convertible notes
Proceeds from exercise of stock options
Repurchase of common stock
Excess tax benefit from exercise of stock options
(16,900,000)
-
-
30,000,000
(629,048)
1,092,949
11,882,632
(53,342,516)
1,923,628
(14,160,000)
(14,447,500)
-
-
-
-
5,752,989
(1,434,657)
1,671,344
8,810,000
(9,179,752)
(400,000)
-
-
-
1,654,361
(7,848,764)
1,320,974
Net cash used in financing activities
(25,972,355)
(22,617,824)
(5,643,181)
Increase (decrease) in cash and cash equivalents
2,469,348
(997,910)
(1,009,253)
Effects of foreign currency fluctuations on cash
116,064
182,668
(319,912)
Cash and cash equivalents at beginning of period
5,445,168
6,260,410
7,589,575
Cash and cash equivalents at end of period
$
8,030,580
5,445,168
6,260,410
See accompanying notes to consolidated financial statements.
World Acceptance Corporation
19
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
The Company's accounting and reporting policies are in accordance with U.S. 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.
Nature of Operations
The Company is a small-loan consumer finance company headquartered in Greenville, South Carolina, that offers
short-term small loans, medium-term larger loans, related credit insurance products and ancillary products and
services to individuals who have limited access to other sources of consumer credit. It also offers income tax return
preparation services to its customer base and to others.
The Company also markets computer software and related services to financial services companies through its
ParaData Financial Systems (“ParaData”) subsidiary.
As of March 31, 2011, the Company operated 972 offices in South Carolina, Georgia, Texas, Oklahoma, Louisiana,
Tennessee, Missouri, Illinois, New Mexico, Kentucky, Alabama, and Wisconsin. The Company also operated 95
offices in Mexico. The Company is subject to numerous lending regulations that vary by jurisdiction.
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 and Mexico, ParaData (a
software company acquired during fiscal 1994), WAC Insurance Company, Ltd. (a captive reinsurance company
established in fiscal 1994) and Servicios World Acceptance Corporation de Mexico (a service company established
in fiscal 2006). All significant intercompany balances and transactions have been eliminated in consolidation.
The financial statements of the Company’s foreign subsidiaries in Mexico are prepared using the local currency as
the functional currency. Assets and liabilities of these subsidiaries are translated into US dollars at the current
exchange rate and income and expense are translated at an average exchange rate for the period. The resulting
translation gains and losses are recognized as a component of equity in “Accumulated Other Comprehensive
Income (Loss).”
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP)
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. The most significant item subject to such estimates and assumptions that
could materially change in the near term is the allowance for loan losses. Actual results could differ from those
estimates.
Reclassification
Certain prior period amounts have been reclassified to conform to the current presentation. Such reclassifications
had no impact on previously reported net income or shareholders’ equity.
Business Segments
The Company reports operating segments in accordance with Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 280. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assess performance. FASB ASC Topic 280 requires that a public enterprise
report a measure of segment profit or loss, certain specific revenue and expense items, segment assets, information
about the way that the operating segments were determined and other items.
The Company has one reportable segment, which is the consumer finance company. The other revenue generating
activities of the Company, including the sale of insurance products, income tax preparation, buying club and the
20
World Acceptance Corporation
Notes to Consolidated Financial Statements
automobile club, are done in the existing branch network in conjunction with or as a complement to the lending
operation. There is no discrete financial information available for these activities and they do not meet the criteria
under FASB ASC Topic 280 to be reported separately.
ParaData provides data processing systems to 103 separate finance companies, including the Company. At March
31, 2011 and 2010, ParaData had total assets of $0.9 million and $1.2 million, which represented less than 1.0% of
total consolidated assets at each fiscal year end. Total net revenues (system sales and support) for ParaData for the
years ended March 31, 2011, 2010 and 2009 were $1.9 million, $1.8 million and $2.0 million, respectively, which
represented less than 1% of consolidated revenue for each year. Although ParaData is an operating segment under
FASB ASC Topic 280, it does not meet the criteria to require separate disclosure.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of
three months or less from the date of original issuance to be cash equivalents.
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, Kentucky, Alabama, and Wisconsin. In addition,
the Company also originates direct cash consumer loans in Mexico. During fiscal 2011 and 2010, the Company
originated loans generally ranging up to $4,000, with terms of 36 months or less. Experience indicates that a
majority of the direct cash consumer loans are refinanced, and the Company accounts for the refinancing as a new
loan. Generally a customer must make multiple payments in order to qualify for refinancing. Furthermore, the
Company’s lending policy has predetermined lending amounts, so that in most cases a refinancing will result in
advancing additional funds. The Company believes that the advancement of additional funds constitutes more than
a minor modification to the terms of the existing loan, as the present value of the cash flows under the terms of the
new loan will be 10% or more of the present value of the remaining cash flows under the terms of the original loan.
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
refinanced or paid in full.
Loans are carried at the gross amount outstanding, reduced by unearned interest and insurance income, net of
deferred origination fees and direct costs, and an allowance for loan losses. The Company calculates interest
revenue on its loans using the rule of 78s, and recognizes the interest revenue using the collection method, which is
a cash method of recognizing the revenue. The Company believes that the combination of these two methods does
not differ materially from the interest method, which is an accrual method for recognizing the revenue. 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
The Company maintains an allowance for loan losses in an amount that, in management’s opinion, is adequate to
cover losses inherent in the existing loan portfolio. The Company charges against current earnings, as a provision
for loan losses, amounts added to the allowance to maintain it at levels expected to cover probable losses of
principal. When establishing the allowance for loan losses, the Company takes into consideration the growth of the
loan portfolio, current levels of charge-offs, current levels of delinquencies, and current economic factors. The
allowance for loan losses has an allocated and an unallocated component. The Company uses historical and current
economic information for net charge-offs by loan type and average loan life by loan type to estimate the allocated
component of the allowance for loan losses.
This method is based on the fact that many customers refinance their loans prior to the contractual maturity.
Average contractual loan terms are approximately 11 months and the average loan life is approximately four
months. The allowance for loan loss model also reserves 100% of the principal on loans greater than 90 days past
due on a recency basis. Loans are charged off at the earlier of when such loans are deemed to be uncollectible or
when six months have elapsed since the date of the last full contractual payment. The Company’s charge-off
World Acceptance Corporation
21
Notes to Consolidated Financial Statements
policy has been consistently applied and no significant changes have been made to the policy during the periods
reported. Management considers the charge-off policy when evaluating the appropriateness of the allowance for
loan losses.
FASB ASC Topic 310 prohibits carryover or creation of valuation allowances in the initial accounting of all loans
acquired in a transfer that are within the scope of this authoritative literature. The Company believes that loans
acquired since the adoption of FASB ASC Topic 310 have not shown evidence of deterioration of credit quality
since origination, and therefore, are not within the scope of FASB ASC Topic 310. Therefore, the Company
records acquired loans (not within the scope of FASB ASC Topic 310) at fair value.
Nonaccrual Policy
The Company calculates interest revenue on its loans using the rule of 78s, and recognizes the interest revenue
using the collection method, which is a cash method of recognizing the revenue. The Company believes that the
combination of these two methods does not differ materially from the interest method, which is an accrual method
for recognizing the revenue. Since the Company uses the collection method when recognizing interest and
insurance income, interest is not accrued until payments are collected from customers.
Impaired Loans
The Company defines impaired loans as bankrupt accounts and accounts 91 days or more past due. In accordance
with the Company’s charge-off policy, once a loan is deemed uncollectible, 100% of the net investment is charged-
off, except in the case of a borrower who has filed for bankruptcy. Accounts 91 days or more past due, including
bankrupt accounts 91 days or more past due, are reserved 100%.
Additional requirements from ASU 2010-20 about the credit quality of the Company’s receivables are disclosed in
Note 3.
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 improvements 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 the consolidated statement of operations.
Operating Leases
The Company’s office leases typically have a lease term of three to five years and contain lessee renewal options
and cancellation clauses in the event of regulatory changes. The Company typically renews its leases for one or
more option periods. Accordingly, the Company amortizes its leasehold improvements over the shorter of their
economic lives, which are generally five years, or the lease term that considers renewal periods that are reasonably
assured.
Other Assets
Other assets include cash surrender value of life insurance policies, prepaid expenses, debt issuance costs and other
deposits.
Derivatives and Hedging Activities
The Company uses interest rate swaps and has used foreign currency options to economically hedge the variable
cash flows associated with $20 million of its LIBOR-based borrowings and currency fluctuations, respectively.
Interest rate swap agreements are carried at fair value. Changes to fair value are recorded each period as a
component of the consolidated statement of operations. See Note 9 for further discussion related to the interest rate
swaps. As of March 31, 2011 and 2010, the Company did not have any foreign currency options outstanding.
22
World Acceptance Corporation
Notes to Consolidated Financial Statements
Intangible Assets and Goodwill
Intangible assets include the cost of acquiring existing customers, and the value assigned to non-compete
agreements. Customer lists are amortized on a straight line or accelerated basis over their estimated period of
benefit, ranging from 5 to 20 years with a weighted average of approximately 10 years. Non-compete agreements
are amortized on a straight line basis over the term of the agreement.
The Company evaluates goodwill annually for impairment in the fourth quarter of the fiscal year using the market
value-based approach. The Company has one reporting unit, the consumer finance company, and the Company has
multiple components, the lowest level of which are individual offices. The Company’s components are aggregated
for impairment testing because they have similar economic characteristics. The Company writes off goodwill when
it closes an office that has goodwill assigned to it. As of March 31, 2011, the Company had 85 offices with
recorded goodwill.
Impairment of Long-Lived Assets
The Company assesses impairment of long-lived assets, including property and equipment and intangible assets,
whenever changes or events indicate that the carrying amount may not be recoverable. The Company assesses
impairment of these assets generally at the office level based on the operating cash flows of the office and the
Company’s plans for office closings. The Company will write down such assets to fair value if, based on an
analysis, the sum of the expected future undiscounted cash flows is less than the carrying amount of the assets. The
Company recorded an immaterial impairment charge for the fiscal year 2011 and did not record any impairment
charges for the fiscal years 2010 and 2009.
Fair Value of Financial Instruments
FASB ASC Topic 825 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
Company’s financial instruments consist of the following: cash and cash equivalents, loans receivable, senior notes
payable, junior subordinated note payable, convertible senior subordinated notes payable and interest rate swaps.
Fair value approximates carrying value for all of these instruments, except the convertible subordinated notes
payable. Loans receivable are originated at prevailing market rates and have an average life of approximately four
months. Given the short-term nature of these loans, they are continually repriced at current market rates. The
Company’s revolving credit facility and junior subordinated note payable have a variable rate based on a margin
over LIBOR and reprice with any changes in LIBOR. The fair value of convertible subordinated notes payable is
based on the current quoted market price which was $85,616,300 and $73,388,700 as of March 31, 2011 and 2010,
respectively. The carrying value of the convertible subordinated notes payable, net of discount, was $75,180,400
and $71,492,041 at March 31, 2011 and 2010, respectively. The swap is valued based on information from a third
party broker.
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 in lieu of recording and perfecting the Company's security interest
in the assets pledged. The premiums are remitted to a third party insurance company. 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 11).
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.
World Acceptance Corporation
23
Notes to Consolidated Financial Statements
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
Beginning with the adoption of FASB ASC Topic 740-10 as of April 1, 2007, the Company recognizes the effect of
income tax positions only if those positions are more likely than not of being sustained. Recognized income tax
positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment occurs. Prior to the
adoption, the Company recognized the effect of income tax positions only if the likelihood of such positions being
sustained was probable.
Supplemental Cash Flow Information
For the years ended March 31, 2011, 2010, and 2009, the Company paid interest of $9,840,627, $9,354,502 and
$9,373,237, respectively.
For the years ended March 31, 2011, 2010, and 2009, the Company paid income taxes of $50,487,423, $40,628,124
and $37,302,456, respectively.
Earnings Per Share
Earnings per share (“EPS”) are computed in accordance with FASB ASC Topic. Basic EPS includes no dilution
and is computed by dividing net income 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, restricted stock and
warrants, which are computed using the treasury stock method. Potential common stock related to convertible
senior notes are included in the diluted EPS computation using the method prescribed by FASB ASC Topic 260-10-
45. See Note 14 for the reconciliation of the numerators and denominators for basic and dilutive EPS calculations.
Stock-Based Compensation
FASB ASC Topic 718-10, requires companies to recognize in the income statement the grant-date fair value of
stock options and other equity-based compensation issued to employees. FASB ASC Topic 718-10 does not change
the accounting guidance for share-based payment transactions with parties other than employees provided in FASB
ASC Topic 718-10. Under FASB ASC Topic 718-10, the way an award is classified will affect the measurement of
compensation cost. Liability-classified awards are remeasured to fair value at each balance-sheet date until the
award is settled. Equity-classified awards are measured at grant-date fair value, amortized over the subsequent
vesting period, and are not subsequently remeasured. The fair value of non-vested stock awards for the purposes of
recognizing stock-based compensation expense is the market price of the stock on the grant date. The fair value of
options is estimated on the grant date using the Black-Scholes option pricing model (see Note 15).
At March 31, 2011, the Company had several share-based employee compensation plans, which are described more
fully in Note 15. Effective April 1, 2006, the Company adopted FASB ASC Topic 718 using the modified
prospective transition method. Under that method of transition, compensation cost recognized during fiscal years
2009, 2010 and 2011 includes: (a) compensation cost for all share-based payments granted prior to, but not yet
vested as of April 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of
FASB ASC Topic 718, and (b) compensation cost for all share-based payments granted subsequent to April 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions of FASB ASC Topic 718. Since this
compensation cost is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.
FASB ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those estimates. The Company has elected to expense grants of
awards with graded vesting on a straight-line basis over the requisite service period for each separately vesting
portion of the award.
24
World Acceptance Corporation
Notes to Consolidated Financial Statements
Comprehensive Income
Total comprehensive income consists of net income and other comprehensive income (loss). The Company’s other
comprehensive income (loss) and accumulated other comprehensive income (loss) are comprised of foreign
currency translation adjustments.
Concentration of Risk
During the year ended March 31, 2011, the Company operated in 12 states in the United States as well as in
Mexico. For the years ended March 31, 2011, 2010 and 2009, total revenues within the Company's four largest
states (measured by total revenues) accounted for approximately 57%, 58% and 59%, respectively, of the
Company's total revenues.
Advertising Costs
Advertising costs are expensed when incurred. Advertising costs were approximately $13.1 million, $12.8 million
and $13.1 million for fiscal years 2011, 2010 and 2009, respectively.
Recently Issued Accounting Pronouncements
Variable Interest Entities
In June 2009, FASB issued ASC Topic 810-30, “Variable Interest Entities.” FASB ASC Topic 810-30 changes how
a reporting entity determines whether an entity that is insufficiently capitalized or is not controlled through voting
(or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate
another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s
ability to direct the activities of the other entity that most significantly impact the other entity’s performance. FASB
ASC Topic 810-30 is effective for a reporting entity’s first fiscal year beginning after November 15, 2009. The
adoption of FASB ASC Topic 810-30 during the year ended March 31, 2011 did not have an impact on the
Company’s financial position or results of operations.
Improving Disclosures about Fair Value Measurements
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”), “Improving
Disclosures about Fair Value Measurements,” which amends FASB ASC Topic 820-10, “Fair Value Measurements
and Disclosures,” to require disclosure of transfers in and out of Levels 1 and 2 and gross presentation of items in
the Level 3 rollforward. The guidance also clarifies the level of disaggregation required for fair value measurement
disclosures and requires disclosure of inputs and valuation techniques used in Levels 2 and 3. With the exception of
the gross presentation of items in the Level 3 rollforward (which is effective for fiscal years beginning after
December 15, 2010), the Company adopted this guidance effective April 1, 2010 with no significant impact on its
Consolidated Financial Statements.
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
Accounting Standards Update No. 2010-20 (“ASU 2010-20”), “Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses,” requires companies to provide more information in their
disclosures about the credit quality of their financing receivables and the credit reserves held against them. ASU
2010-20 is intended to improve transparency in financial reporting by public and nonpublic companies that hold
financing receivables, which include loans, lease receivables, and other long-term receivables. The disclosures
required under ASU 2010-20 are included in Note 3.
World Acceptance Corporation
25
Notes to Consolidated Financial Statements
(2) Accumulated Other Comprehensive Income (Loss)
The Company applies the provisions of FASB ASC Topic 220-10. The following summarizes accumulated other
comprehensive (loss) income as of March 31, 2011, 2010 and 2009:
2011
2010
2009
Balance at beginning of period
$
(1,344,436)
(4,229,663)
169,503
Unrealized gain (loss) from foreign exchange
translation adjustment
1,480,635
2,885,227
(4,399,166)
Total accumulated other comprehensive (loss) income
$
136,199
(1,344,436)
(4,229,663)
(3) Allowance for Loan Losses and Credit Quality Indicators
The following is a summary of the changes in the allowance for loan losses for the years ended March 31, 2011,
2010, and 2009:
2011
March 31,
2010
2009
Balance at beginning of period $
42,896,819
38,020,770
33,526,147
Provision for loan losses
Loan losses
Recoveries
Translation adjustment
Allowance on acquired loans
95,908,363
(100,044,691)
9,475,131
119,372
-
90,298,934
(94,782,185)
9,139,923
219,377
-
Balance at end of period
$
48,354,994
42,896,819
85,476,092
(88,728,498)
7,590,928
(306,340)
462,441
38,020,770
The following is a summary of loans individually and collectively evaluated for impairment for the period indicated:
Bankruptcy
91 days or more delinquent, excluding bankruptcy
Total loans individually evaluated for impairment
Allowance for impaired loans
Total loans collectively evaluated for impairment
As of March 31,
2011
As of March 31,
2010
$
$
$
$
4,810,026
16,393,955
21,203,981
4,801,016
14,765,078
19,566,094
(16,819,674)
(15,180,102)
4,384,307
4,385,992
-
-
26
World Acceptance Corporation
Notes to Consolidated Financial Statements
The following is an assessment of the credit quality for the period indicated:
Credit risk
Consumer loans- non-bankrupt accounts
Consumer loans- bankrupt accounts
Total
Consumer
Credit risk profile based on payment activity
Performing
Contractual non-performing, 61 or more
days delinquent
Total
Delinquent renewals
Credit risk
New borrower
Former borrower
Refinance
Delinquent refinance
Total
March, 31
2011
2010
$
$
870,235,654
4,810,026
875,045,680
765,464,191
4,801,016
770,265,207
$
841,856,489
740,731,794
33,189,191
29,533,413
875,045,680
770,265,207
19,330,235
18,272,655
101,948,334
68,628,863
685,138,248
19,330,235
875,045,680
89,342,537
60,529,685
602,120,330
18,272,655
770,265,207
$
$
$
$
The following is a summary of the past due receivables as of:
Recency basis:
30-60 days past due
61-90 days past due
91 days or more past due
Total
Percentage of period-end gross loans receivable
Contractual basis:
30-60 days past due
61-90 days past due
91 days or more past due
Total
2011
March 31,
2010
2009
21,533,219
12,894,240
8,297,319
42,724,778
19,402,655
11,093,549
7,336,951
37,833,155
19,240,718
11,303,676
6,661,429
37,205,823
4.9%
4.9%
5.5%
23,705,287
16,564,121
16,625,070
56,894,478
21,280,835
14,547,990
14,985,423
50,814,248
20,749,412
14,222,605
13,673,171
48,645,188
$
$
$
$
Percentage of period-end gross loans receivable
6.5%
6.6%
7.3%
For the year ended March 31, 2009, the Company recorded adjustments of approximately $0.5 million to the
allowance for loan losses in connection with its acquisitions in accordance with generally accepted accounting
principles. No adjustment was made for the years ended March 31, 2011 and 2010. This adjustment represented
the allowance for loan losses on acquired loans that did not meet the scope of FASB ASC Topic 310 (see Note 1).
World Acceptance Corporation
27
Notes to Consolidated Financial Statements
(4) Property and Equipment
Property and equipment consist of:
Land
Building and leasehold improvements
Furniture and equipment
Less accumulated depreciation and amortization
Total
March 31,
2011
2010
$
250,443
250,443
14,462,437
33,589,368
12,794,625
31,403,537
48,302,248
44,448,605
(24,936,041)
(21,462,775)
$
23,366,207
22,985,830
Depreciation expense was approximately $6,173,000, $5,767,000 and $4,784,000 for the years ended March 31,
2011, 2010 and 2009, respectively.
(5) Intangible Assets
The following table provides the gross carrying amount and related accumulated amortization of definite-lived
intangible assets:
March 31, 2011
March 31, 2010
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Cost of acquiring
existing customers
$
20,911,951
(14,779,838)
$
20,304,885
(12,940,041)
Value assigned to
non-compete agreements
Total
8,133,643
$ 29,045,594
8,042,643
(7,900,866)
(22,680,704) $ 28,347,528
(7,793,969)
(20,734,010)
The estimated amortization expense for intangible assets for future years ended March 31 is as follows: $1.6 million
for 2012; $1.2 million for 2013, $0.8 million for 2014; $0.5 million for 2015; $0.3 million for 2016; and an
aggregate of $1.8 million for the years thereafter.
28
World Acceptance Corporation
Notes to Consolidated Financial Statements
(6) Goodwill
The following summarizes the changes in the carrying amount of goodwill for the year ended March 31, 2011 and
2010:
Balance at beginning of year
Goodwill
Accumulated goodwill impairment losses
Goodwill acquired during the year
Impairment losses
Balance at end of year
Goodwill
Accumulated goodwill impairment losses
Total
March 31,
2011
2010
5,616,380
5,580,946
-
-
5,616,380
5,580,946
43,599
35,434
(25,393)
-
5,659,979
5,616,380
(25,393)
-
5,634,586
5,616,380
$
$
$
$
$
The Company performed an annual impairment test during the fourth quarter of fiscal 2011 and determined that
none of the recorded goodwill was impaired. However, during the year a branch was closed and an immaterial
impairment loss was recorded.
(7) Notes Payable
The Company's notes payable consist of:
Senior Notes Payable $225,000,000 Revolving Credit Facility
This facility provides for borrowings of up to $225,000,000 with $82,250,000 outstanding at March 31, 2011,
subject to a borrowing base formula. The Company may borrow, at its option, at the rate of prime or LIBOR plus
3.00% with a minimum of 4.00%. At March 31, 2011 and 2010, the Company’s prime interest rate was 4.25%, and
the unused amount available under the revolver at March 31, 2011 was $142.8 million. The revolving credit facility
has a commitment fee of 0.375% per annum on the unused portion of the commitment. Borrowings under the
revolving credit facility mature on August 31, 2012.
Substantially all of the Company’s assets are pledged as collateral for borrowings under the revolving credit
agreement.
Junior Subordinated Note Payable
On September 17, 2010, the Company entered into the Junior Subordinated Note Payable with Wells Fargo Preferred
Capital, Inc. (“Wells Fargo”) providing for a non-revolving line of credit maturing on September 17, 2015. Wells
Fargo is also a lender under the Revolving Credit Agreement.
The Junior Subordinated Note Payable initially provides a commitment of $75.0 million. This commitment amount
will be reduced annually by $5.0 million beginning on the first anniversary of the closing date. Term loan borrowings
under the Junior Subordinated Note Payable are limited to 85% of the eligible accounts receivable of the Company
and its subsidiaries, less the sum of (i) all unearned finance charges and unearned insurance premiums and insurance
commissions applicable to such eligible accounts receivable, (ii) any principal amounts then outstanding under the
Revolving Credit Agreement, (iii) market-to-market liability under any hedging agreement, (iv) the aggregate
principal amounts then outstanding under the Convertible Notes, and (v) all other unsecured on-balance sheet
indebtedness of
World Acceptance Corporation
29
Notes to Consolidated Financial Statements
the Company and its direct and indirect subsidiaries (including accrued liabilities and taxes but excluding obligations
under the Junior Subordinated Note Payable) as reflected on the Company’s most recent consolidated financial
statements.
Interest on borrowed amounts under the Junior Subordinated Note Payable is payable monthly in arrears at a rate per
annum equal to the sum of one-month LIBOR, as in effect from time to time, plus 4.875%, provided, however that
during each period that the outstanding principal balance of the borrowings under the Junior Subordinated Note
Payable is less than $30 million (the “Minimum Balance”), the Company shall pay interest on the Minimum Balance.
The Company is required to pay an unused line fee at a rate between 25 basis points and 37.5 basis points per annum
(based on whether the usage rate for a month is equal to or greater than 65% or less than 65%) on the average daily
unused portion of the maximum amount of the commitments under the Junior Subordinated Note Payable. In
addition, the Company has paid Wells Fargo a non-refundable commitment fee of $487,500 in connection with the
Junior Subordinated Note Payable.
The Junior Subordinated Note Payable is guaranteed by the Company’s domestic subsidiaries pursuant to a
Subordinated Guaranty Agreement and, although initially unsecured, will be, after payment in full of the Convertible
Notes, secured by a second lien on all assets of the Company and each guarantor pursuant to a Subordinated Security
Agreement, Pledge and Indenture of Trust signed by the Company (the “Company Security Agreement”) and a
Subordinated Security Agreement, Pledge and Indenture of Trust signed by the Company’s domestic subsidiaries (the
“Subsidiary Security Agreement”).
The liens created to secure the Junior Subordinated Note Payable after payment in full of the Convertible Notes will
be subject to the first lien position of the lenders under the Revolving Credit Agreement. The Junior Subordinated
Note Payable will be subordinated to the Revolving Credit Agreement and will have the same rank as the Convertible
Notes until such notes are paid in full. Thereafter, the Junior Subordinated Note Payable will be subordinate to the
Revolving Credit Agreement pursuant to the terms and conditions of the Subordination and Intercreditor Agreement
(the “Subordination Agreement”), dated as of September 17, 2010, among the Company, Wells Fargo, individually
and as agent for the lenders party to the Junior Subordinated Note Payable, Bank of Montreal, individually and as
agent for the lenders party to the Revolving Credit Agreement, and Harris N.A., as Senior Creditor Collateral Agent.
The Subordination Agreement will require the indebtedness under the Revolving Credit Agreement to be paid in full
in a bankruptcy proceeding before the indebtedness under the Junior Subordinated Note Payable can be paid. In
addition, it will provide for customary standstill periods for the Junior Subordinated Note Payable, customary cure
periods for the Revolving Credit Agreement, customary restrictions with respect to prepayments of indebtedness
under the Junior Subordinated Note Payable and customary restrictions with respect to amending the Revolving Credit
Agreement and the Junior Subordinated Note Payable.
The Junior Subordinated Note Payable contains financial covenants requiring the Company to (a) maintain a minimum
net worth, which is defined as (i) for the fiscal quarter of the Company ending March 31, 2010, $275,000,000, and (ii)
for each fiscal quarter thereafter, the sum of the minimum net worth for the immediately preceding fiscal quarter plus
50% of consolidated net income for such fiscal quarter (but without deduction in the case of any deficit of
consolidated net income for such fiscal quarter); and (b) maintain a fixed charge coverage ratio of at least 2.00 to 1.00
at the end of each fiscal quarter.
The Junior Subordinated Note Payable contains restrictive covenants that limit the ability of the Company and its
direct and indirect subsidiaries to incur indebtedness, create or assume liens, prepay certain indebtedness, acquire, sell
or dispose of all or a substantial part of their assets, engage in certain mergers or consolidations, engage in
transactions with affiliates, and make investments. These covenants in the Junior Subordinated Note Payable are
subject to a number of qualifications and exceptions. In addition, the Junior Subordinated Note Payable requires the
Company to maintain Wells Fargo as a lender under the Revolving Credit Agreement and any other senior revolving
credit facility, in each case with a commitment in an amount of a least 20% of the total commitments thereunder
unless Wells Fargo, in its sole discretion, agrees to providing a lesser percentage of the total commitments.
The Junior Subordinated Note Payable also contains representations and warranties and events of default that are
customary for this type of transaction.
On September 17, 2010, the Company borrowed $30.0 million under the Junior Subordinated Note Payable and
used the proceeds from such borrowing to repay a portion of the Revolving Credit Agreement. These borrowings
30
World Acceptance Corporation
Notes to Consolidated Financial Statements
continue to be outstanding at March 31, 2011, and leave the Company with borrowing capacity of $45.0 million
under the Junior Subordinated Note Payable, subject to the terms and conditions described above.
Convertible Senior Notes
On October 10, 2006, the Company issued $110 million aggregate principal amount of its 3.0% convertible senior
subordinated notes due October 1, 2011 (the “Convertible Notes”) to qualified institutional brokers in accordance
with Rule 144A of the Securities Act of 1933. Interest on the Convertible Notes is payable semi-annually in arrears
on April 1 and October 1 of each year, commencing April 1, 2007. The Convertible Notes are the Company’s direct,
senior subordinated, unsecured obligations and rank equally in right of payment with all existing and future
unsecured senior subordinated debt of the Company, senior in right of payment to all of the Company’s existing and
future subordinated debt and junior to all of the Company’s existing and future senior debt. The Convertible Notes
are structurally junior to the liabilities of the Company’s subsidiaries. The Convertible Notes are convertible prior
to maturity, subject to certain conditions described below, at an initial conversion rate of 16.0229 shares per $1,000
principal amount of notes, which represents an initial conversion price of approximately $62.41 per share, subject to
adjustment. Upon conversion, the Company will pay cash up to the principal amount of notes converted and deliver
shares of its common stock to the extent the daily conversion value exceeds the proportionate principal amount
based on a 30 trading-day observation period.
Holders may convert the Convertible Notes prior to July 1, 2011 only if one or more of the following conditions are
satisfied:
• During any fiscal quarter commencing after December 31, 2006, if the last reported sale price of the
common stock for at least 20 trading days during a period of 30 consecutive trading days ending on the
last trading day of the preceding fiscal quarter is greater than or equal to 120% of the applicable
conversion price on such last trading day;
• During the five business day period after any ten consecutive trading day period in which the trading
price per note for each day of such ten consecutive trading day period was less than 98% of the product
of the last reported sale price of the Company’s common stock and the applicable conversion rate on
each such day; or
• The occurrence of specified corporate transactions.
If the Convertible Notes are converted in connection with certain fundamental changes that occur prior to October
1, 2011, the Company may be obligated to pay an additional make-whole premium with respect to the Convertible
Notes converted. If the Company undergoes certain fundamental changes, holders of Convertible Notes may
require the Company to purchase the Convertible Notes at a price equal to 100% of the principal amount of the
Convertible Notes purchased plus accrued interest to, but excluding, the purchase date.
Holders may also surrender their Convertible Notes for conversion anytime on or after July 1, 2011 until the close
of business on the third business day immediately preceding the maturity date, regardless of whether any of the
foregoing conditions have been satisfied.
The contingent conversion feature was not required to be bifurcated and accounted for separately under the
provisions of FASB ASC Topic 815-10-15.
The aggregate underwriting commissions and other debt issuance costs incurred with respect to the issuance of the
Convertible Notes were approximately $3.6 million and are being amortized over the period the convertible senior
notes are outstanding.
Convertible Notes Hedge Strategy
Concurrent and in connection with the sale of the Convertible Notes, the Company purchased call options to
purchase shares of the Company’s common stock equal to the conversion rate as of the date the options are
exercised for the Convertible Notes, at a price of $62.41 per share. The cost of the call options totaled $24.6
million. The Company also sold warrants to the same counterparties to purchase from the Company an aggregate of
1,762,519 shares of the Company’s common stock at a price of $73.97 per share and received net proceeds from the
sale of these warrants of $16.2 million. Taken together, the call option and warrant agreements increased the
effective conversion price of the Convertible Notes to $73.97 per share. The call options and warrants must be
settled in net shares. On the date of settlement, if the market price per share of the Company’s common stock is
above $73.97 per share, the Company will be required to deliver shares of its common stock representing the value
of the call options and warrants in excess of $73.97 per share.
World Acceptance Corporation
31
Notes to Consolidated Financial Statements
The warrants have a strike price of $73.97 and are generally exercisable at any time. The Company issued and sold
the warrants in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended,
by virtue of section 4(2) thereof. There were no underwriting commissions or discounts in connection with the sale
of the warrants.
In accordance with FASB ASC Topic 815-40, the Company accounted for the call options and warrants as a net
reduction in additional paid in capital, and is not required to recognize subsequent changes in fair value of the call
options and warrants in its consolidated financial statements.
See Note 8 for information regarding the Company’s repurchase of the Convertible Notes, which reduced the
outstanding aggregate principal amount of such notes outstanding to $77.0 million as of March 31, 2011.
Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
On April 1, 2009, the Company adopted FASB ASC Topic 470-20. FASB ASC Topic 470-20 required the
convertible debt to be separated between its liability and equity components, in a manner that reflects the
Company’s non-convertible debt borrowing rate, determined to be approximately 8.7% at the time of the issuance of
the Convertible Notes.
The carrying amounts of the debt and equity components are as follows (in thousands):
March 31, 2011
March 31, 2010
Face value of convertible debt
Unamortized discount
Net carrying amount of debt component
$
Carrying amount of equity component
$
77,000
(1,820)
75,180
22,586
77,000
(5,508)
71,492
22,586
The interest expense relating to both the contractual interest coupon and amortization of the discount on the liability
component are as follows (in thousands):
Contractual interest coupon
Amortization of the discount on the liability component
Total interest expense on convertible notes
March 31, 2011 March 31, 2010
$
$
2,310
3,688
5,998
2,560
3,904
6,464
For fiscal 2011, 2010, and 2009, the effective interest rate on the liability component was 8.2%, 8.4% and 8.4%,
respectively. Due to the combination of put, call and conversion options that are part of the terms of the
Convertible Notes agreement, the remaining discount on the liability component will be amortized over six months.
Debt Covenants
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, 2011, $73.2 million was available under
these covenants for the payment of cash dividends, the repurchase of the Company's common stock, or the
repurchase of subordinated debt. In addition, the agreements restrict liens on assets and the sale or transfer of
subsidiaries.
The aggregate annual maturities of the notes payable for each of the fiscal years subsequent to March 31, 2011 are
as follows:
2012
2013
2014
2015
2016
Total future debt payments
$
$
77,000,000
82,250,000
-
-
30,000,000
189,250,000
32
World Acceptance Corporation
Notes to Consolidated Financial Statements
(8) Extinguishment Of Debt
During fiscal 2011, the Company did not repurchase any of its Convertible Notes.
During fiscal 2010, the Company repurchased, in privately negotiated transactions, an aggregate principal amount
of $18.0 million of its Convertible Notes at an average discount to face value of approximately 19.7%. The
Company spent approximately $14.4 million in the aggregate on these repurchases. The transactions were treated as
an extinguishment of debt for accounting purposes. The Company recorded a gain of approximately $2.2 million on
the repurchase of the Convertible Notes, which was partially offset by the write-off of $230,000 of deferred
financing costs associated with the repurchase and cancellation of Convertible Notes.
During fiscal 2009, the Company repurchased, in privately negotiated transactions, an aggregate principal amount
of $15.0 million of its Convertible Notes at an average discount to face value of approximately 38.8%. The
Company spent approximately $9.2 million in the aggregate on these repurchases. The transactions were treated as
an extinguishment of debt for accounting purposes. The Company recorded a gain of approximately $4.0 million on
the repurchase of the Convertible Notes, which was partially offset by the write-off of $300,000 of deferred
financing costs associated with the repurchase and cancellation of Convertible Notes.
(9) Derivative Financial Instruments
On December 8, 2008, the Company entered into an interest rate swap with a notional amount of $20 million to
economically hedge a portion of the cash flows from its floating rate revolving credit facility. Under the terms of
the interest rate swap, the Company pays a fixed rate of 2.4% on the $20 million notional amount and receives
payments from a counterparty based on the 1 month LIBOR rate for a term ending December 8, 2011. Interest rate
differentials paid or received under the swap agreement are recognized as adjustments to interest expense.
On October 5, 2005, the Company entered into an interest rate swap with a notional amount of $30 million to
economically hedge a portion of the cash flows from its floating rate revolving credit facility. Under the terms of
the interest rate swap, the Company paid a fixed rate of 4.755% on the $30 million notional amount and received
payments from a counterparty based on the 1 month LIBOR rate for the term that ended October 5, 2010.
On May 15, 2008, the Company entered into a $10 million foreign currency exchange option to economically hedge
its foreign exchange risk relative to the Mexican peso. Under the terms of the option contract, the Company could
exchange $10 million U.S. dollars at a rate of 11.0 Mexican pesos per dollar. The option was sold in October 2008
and the Company recorded a $1.5 million net gain in fiscal 2009.
The fair value of the Company’s interest rate derivative instruments is included in the Consolidated Balance Sheets
as follows:
March 31, 2011:
Accounts payable and accrued expenses
Fair value of derivative instrument
March 31, 2010:
Accounts payable and accrued expenses
Fair value of derivative instruments
Interest
Rate Swaps
319,235
$
$ 319,235
$ 1,336,269
$ 1,336,269
The interest rate swap is currently in a liability position, therefore there is no significant risk of loss related to
counterparty credit risk.
World Acceptance Corporation
33
Notes to Consolidated Financial Statements
The gains (losses) recognized in the Company’s Consolidated Statements of Operations as a result of the interest
rate swaps and foreign currency exchange option are as follows:
March 31, 2011 March 31, 2010 March 31, 2009
Realized losses
Interest rate swaps - included as a component
of interest expense
Foreign currency exchange option- included
as a component of other income
Unrealized gains (losses)
Interest rate swaps - included as a component
of other income
$
$
$
(1,128,758)
(1,784,575)
(895,813)
-
-
(1,548,500)
1,017,032
1,107,397
(773,047)
The Company does not enter into derivative financial instruments for trading or speculative purposes. The purpose
of these instruments is to reduce the exposure to variability in future cash flows attributable to a portion of its
LIBOR-based borrowings and to reduce variability in foreign cash flows. The Company is currently not accounting
for these derivative instruments using the cash flow hedge accounting provisions of FASB ASC Topic 815-10-15;
therefore, the changes in fair value of the swap and option are included in earnings as other income or expenses.
By using derivative instruments, the Company is exposed to credit and market risk. Credit risk, which is the risk
that a counterparty to a derivative instrument will fail to perform, exists to the extent of the fair value gain in a
derivative. Market risk is the adverse effect on the financial instruments from a change in interest rates or implied
volatility of exchange rates. The Company manages the market risk associated with interest rate contracts and
currency options by establishing and monitoring limits as to the types and degree of risk that may be undertaken.
The market risk associated with derivatives used for interest rate and foreign currency risk management activities is
fully incorporated in the Company’s market risk sensitivity analysis.
(10) Insurance Commissions and other income
Insurance commissions and other income for the years ending March 31, 2011, 2010 and 2009 consist of:
Insurance commissions
Tax return preparation revenue
Gain on extinguishment of debt, net
Auto club membership revenue
World Class Buying Club revenue
Other
Insurance commissions and other income
(11) Non-file Insurance
2011
2010
2009
$
$
41,691,008
7,794,582
-
5,011,758
4,416,879
7,936,631
66,850,858
37,194,717
10,850,852
2,238,846
4,536,074
3,832,884
6,951,774
65,605,147
32,430,496
9,868,849
3,966,783
4,088,500
3,780,851
6,562,541
60,698,020
The Company maintains non-file insurance coverage with an unaffiliated insurance company. The following is a
summary of the non-file insurance activity for the years ended March 31, 2011, 2010 and 2009:
2011
2010
2009
Insurance premiums written
Recoveries on claims paid
Claims paid
$
$
$
6,745,271
691,184
6,778,465
6,227,752
646,229
6,136,490
5,768,316
598,887
5,620,489
34
World Acceptance Corporation
Notes to Consolidated Financial Statements
(12) Leases
The Company conducts most of its operations from leased facilities, except for its owned corporate office building.
The Company's leases typically have a lease term of three to five years and contain lessee renewal options. A
majority of the leases provide that the lessee pays property taxes, insurance, and common area maintenance costs. 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. All of the Company’s leases are operating leases.
The future minimum lease payments under noncancelable operating leases as of March 31, 2011, are as follows:
2012
2013
2014
2015
2016
Thereafter
Total future minimum lease payments
16,421,589
10,736,797
4,517,203
827,967
269,942
-
32,773,498
Rental expense for cancelable and noncancelable operating leases for the years ended March 31, 2011, 2010 and
2009, was $17,821,568, $15,865,447 and $14,257,168, respectively.
(13) Income Taxes
Income tax expense (benefit) consists of:
Year ended March 31, 2011
U.S. Federal
State and local
Foreign
Year ended March 31, 2010
U.S. Federal
State and local
Foreign
Year ended March 31, 2009
U.S. Federal
State and local
Foreign
Current
Deferred
Total
47,303,032
(19,448)
47,283,584
4,953,995
(538,793)
4,415,202
2,580,385
54,837,412
(2,279,239)
(2,837,480)
301,146
51,999,932
39,979,719
4,918,495
276,209
45,174,423
525,900
82,344
-
40,505,619
5,000,839
276,209
608,244
45,782,667
27,459,617
4,351,570
44,026
3,311,357
(85,780)
-
30,770,974
4,265,790
44,026
31,855,213
3,225,577
35,080,790
$
$
$
$
$
$
World Acceptance Corporation
35
Notes to Consolidated Financial Statements
Income tax expense was $51,999,932, $45,782,667 and $35,080,790, for the years ended March 31, 2011, 2010 and
2009, respectively, and differed from the amounts computed by applying the U.S. federal income tax rate of 35% to
pretax income from continuing operations as a result of the following:
2011
2010
2009
Expected income tax
$
50,137,189
41,805,391
32,050,683
Increase (reduction) in income taxes resulting from:
State tax, net of federal benefit
Change in valuation allowance
Insurance income exclusion
Uncertain tax positions
Other, net
2,869,881
3,250,545
2,772,764
-
(165,289)
(1,326,568)
60
(237,574)
420,594
(405,425)
(108,636)
539,211
484,719
51,999,932
$
543,651
45,782,667
232,193
35,080,790
At March 31, 2011, the Company has net operating losses for state income tax purposes of $10.3 million available
to offset future taxable state income, if any, which expires in 2030.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at March 31, 2011 and 2010 are presented below:
Deferred tax assets:
Allowance for doubtful accounts
Unearned insurance commissions
Accounts payable and accrued expenses
primarily related to employee benefits
Accrued interest receivable
Convertible notes
Unrealized losses
Other
Gross deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Fair value adjustment for loans
Property and equipment
Intangible assets
Deferred net loan origination fees
Prepaid expenses
Other
Gross deferred tax liabilities
2011
2010
$ 16,994,387
11,428,086
13,726,075
9,841,960
5,645,600
2,818,221
676,690
118,784
675,217
38,356,985
(1,274)
38,355,711
(16,244,190)
(3,718,415)
(1,607,004)
(1,685,664)
(620,413)
-
(23,875,686)
7,119,122
2,606,892
1,016,063
499,030
1,274
34,810,416
(1,274)
34,809,142
(15,393,253)
(3,492,473)
(1,944,965)
(1,437,409)
(554,549)
(343,903)
(23,166,552)
Net deferred tax assets
$ 14,480,025
11,642,590
36
World Acceptance Corporation
Notes to Consolidated Financial Statements
The valuation allowance for deferred tax assets as of March 31, 2011 and 2010 was $1,274. The valuation
allowance against the total deferred tax assets as of March 31, 2011 and 2010 relates to state net operating losses.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. In order to fully realize the deferred tax
asset, the Company will need to generate future taxable income prior to the expiration of the deferred tax assets
governed by the tax code. Based upon the level of historical taxable income and projections for future taxable
income over the periods in which the deferred tax assets are deductible, management believes it is more likely than
not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at
March 31, 2011. The amount of the deferred tax asset considered realizable, however, could be reduced in the near
term if estimates of future taxable income during the carryforward period are reduced.
The Company is required to assess whether the earnings of the Company’s Mexican foreign subsidiary will be
permanently reinvested in the respective foreign jurisdiction or if previously untaxed foreign earnings of the
Company will no longer be permanently reinvested and thus become taxable in the United States. As of March 31,
2011, the Company has determined that $1,852,476 of cumulative undistributed net earnings, as well as the future
net earnings, of the Mexican foreign subsidiaries will be permanently reinvested.
As of March 31, 2011 and March 31, 2010, the Company had $2,271,345 and $5,762,087 of total gross
unrecognized tax benefits including interest, respectively. Of this total, approximately $957,773 and $3,168,539,
respectively, represents the amount of unrecognized tax benefits that are permanent in nature and, if recognized,
would affect the annual effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Unrecognized tax benefits balance at March 31, 2010
Gross increases for tax positions of current year
Federal and state tax settlements
Lapse of statute of limitations
Unrecognized tax benefits balance at March 31, 2011
$
$
4,685,520
1,027,439
(3,172,172)
(445,574)
2,095,213
At March 31, 2011, approximately $858,000 of gross unrecognized tax benefits are expected to be resolved during
the next 12 months through settlements with taxing authorities or the expiration of the statute of limitations. The
Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax
expense. As of March 31, 2011, the Company had $176,132 accrued for gross interest, of which $117,240 was a
current period expense.
The Company is subject to U.S. and Mexican income taxes, as well as various other state and local jurisdictions.
With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2007, although carryforward attributes that were generated prior to
2007 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a
future period. On August 12, 2010, the Company entered into an agreement with the state of South Carolina which
settled all issues related to tax years March 31, 1997 through March 31, 2006. The settlement resulted in the
Company recognizing a net tax benefit of $919,373.
World Acceptance Corporation
37
Notes to Consolidated Financial Statements
(14) Earnings Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted EPS calculations:
Basic EPS
Income available to common shareholders
$
91,249,180
15,833,983
$
5.76
For the year ended March 31, 2011
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Effect of Dilutive Securities
Options and restricted stock
-
376,250
Diluted EPS
Income available to common shareholders
plus assumed exercises of stock options
$
91,249,180
16,210,233
$
5.63
For the year ended March 31, 2010
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Basic EPS
Income available to common shareholders
$
73,661,308
16,304,207
$
4.52
Effect of Dilutive Securities
Options and restricted stock
Diluted EPS
Income available to common shareholders
plus assumed exercises of stock options
241,496
$
73,661,308
16,545,703
$
4.45
For the year ended March 31, 2009
Income
(Numerator)
Shares
(Denominator)
Per Share
Amount
Basic EPS
Income available to common shareholders
$
56,492,590
16,239,883
$
3.48
Effect of Dilutive Securities
Options and restricted stock
-
224,520
Diluted EPS
Income available to common shareholders
plus assumed exercises of stock options
$
56,492,590
16,464,403
$
3.43
Options to purchase 29,450, 100,152 and 130,583 shares of common stock at various prices were outstanding
during the years ended March 31, 2011, 2010 and 2009, 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
shares related to the Convertible Notes and related warrants that were not included in the computation of diluted
EPS were 1,233,763 for 2011 and 1,762,519 for 2010 and 2009 because the effect of such instruments was
antidilutive.
38
World Acceptance Corporation
Notes to Consolidated Financial Statements
(15) Benefit Plans
Retirement Plan
The Company provides a defined contribution employee benefit plan (401(k) plan) covering full-time employees,
whereby employees can invest up to the maximum designated for that year. 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 $1,175,574, $1,059,884 and $1,078,987, for the years ended March 31, 2011, 2010 and 2009,
respectively.
Supplemental Executive Retirement Plan
The Company has instituted a Supplemental Executive Retirement Plan (“SERP”), which is a non-qualified
executive benefit plan in which the Company agrees to pay the executive additional benefits in the future, usually at
retirement, in return for continued employment by the executive. The Company selects the key executives who
participate in the SERP. The SERP is an unfunded plan, which means there are no specific assets set aside by the
Company in connection with the establishment of the plan. The executive has no rights under the agreement
beyond those of a general creditor of the Company. In May 2009, the Company instituted a second Supplemental
Executive Retirement Plan (“SERP”) to provide to one executive the same type of benefits as are in the original
SERP but for which he would not have qualified due to age. This second SERP is also an unfunded plan with no
specific assets set aside by the Company in connection with the plan. For the years ended March 31, 2011, 2010
and 2009, contributions of $924,177, $928,407 and $806,792, respectively, were charged to operations related to
the SERP. The unfunded liability was $6,044,528, $5,385,106 and $4,722,000, as of March 31, 2011, 2010 and
2009, respectively.
For the three years presented, the unfunded liability was estimated using the following assumptions; an annual
salary increase of 3.5% for all 3 years; a discount rate of 6% for all 3 years; and a retirement age of 65.
Executive and Director Deferred Compensation Plans
The Company has a Board of Directors Deferred Compensation Plan and an Executive Deferral Plan. Eligible
executives may elect to defer all or a portion of their incentive compensation to be paid under their respective Plan.
Eligible directors may elect to defer all or a portion of their compensation to be paid under their respective Plan. As
of March 31, 2011 and 2010, one director and no executive had deferred compensation under the plans.
Stock Option Plans
The Company has a 1994 Stock Option Plan, a 2002 Stock Option Plan, a 2005 Stock Option Plan, and a 2008
Stock Option Plan for the benefit of certain directors, officers, and key employees. Under these plans, 4,850,000
shares of authorized common stock have been reserved for issuance pursuant to grants approved by the
Compensation and Stock Option Committee of the Board of Directors. Stock options granted under these plans
have a maximum duration of 10 years, may be subject to certain vesting requirements, which are generally one year
for directors and five years for officers and key employees, and are priced at the market value of the Company's
common stock on the date of grant of the option. At March 31, 2011, there were 233,244 shares available for grant
under the plans.
Stock-based compensation is recognized as provided under FASB ASC Topic 718-10 and FASB ASC Topic 505-
50. FASB ASC Topic 718-10 requires all share-based payments to employees, including grants of employee stock
options, to be recognized as compensation expense over the requisite service period (generally the vesting period) in
the financial statements based on their fair values. The impact of forfeitures that may occur prior to vesting is also
estimated and considered in the amount recognized. Stock option compensation is recognized as an expense over
the unvested portion of all stock option awards granted based on the fair values estimated at grant date in
accordance with the provisions of FASB ASC Topic 718-10. The Company has applied the Black-Scholes
valuation model in determining the fair value of the stock option awards. Compensation expense is recognized only
for those options expected to vest, with forfeitures estimated based on historical experience and future expectations.
The weighted-average fair value at the grant date for options issued during the years ended March 31, 2011, 2010
and 2009 was $23.96, $15.32 and $8.51 per share, respectively. The following is a summary of the Company’s
World Acceptance Corporation
39
Notes to Consolidated Financial Statements
weighted-average assumptions used to estimate the weighted-average per share fair value of options granted on the
date of grant using the Black-Scholes option-pricing model:
Dividend yield
Expected voliatility
Average risk-free interest rate
Expected life
Vesting period
2011
2010
2009
0%
57.41%
1.55%
6.4 years
5 years
0%
56.69%
2.69%
6.6 years
5 years
0%
50.67%
2.75%
5.9 years
5 years
The expected stock price volatility is based on the historical volatility of the Company’s stock for a period
approximating the expected life. The expected life represents the period of time that options are expected to be
outstanding after their grant date. The risk-free interest rate reflects the interest rate at grant date on zero-coupon
U.S. governmental bonds that have a remaining life similar to the expected option term.
Option activity for the year ended March 31, 2011, was as follows:
Weighted
Average
Exercise
Price
26.23
43.04
26.57
28.21
41.10
30.02
26.46
Shares
$
1,393,350
289,300
(447,250)
(46,200)
(10,600)
1,178,600 $
$
365,500
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic
Value
7.19
4.55
$ 41,464,921
$ 14,158,714
Options outstanding, beginning of year
Granted
Exercised
Forfeited
Expired
Options outstanding, end of period
Options exercisable, end of period
The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference
between the closing stock price on March 31, 2011 and the exercise price, multiplied by the number of in-the-
money options) that would have been received by option holders had all option holders exercised their options as of
March 31, 2011. This amount will change as the market price per share changes. The total intrinsic value of
options exercised during the periods ended March 31, 2011, 2010 and 2009 were as follows:
2011
$ 11,151,259
2010
$ 4,638,423
2009
$ 2,833,497
As of March 31, 2011, total unrecognized stock-based compensation expense related to non-vested stock options
amounted to $9,778,309 which is expected to be recognized over a weighted-average period of approximately 3.9
years.
40
World Acceptance Corporation
Notes to Consolidated Financial Statements
The following table summarizes information regarding stock options outstanding at March 31, 2011:
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Options
Exercisable
1.29
2.13
6.79
3.19
4.81
8.62
5.88
9.56
5.50
7.19
$
$
8.54
11.44
16.71
23.53
25.08
26.73
28.22
43.04
48.65
30.02
13,750
31,500
53,500
19,400
94,700
13,000
80,350
1,500
57,800
365,500
$
$
8.54
11.44
16.26
23.53
25.08
26.73
28.26
43.00
48.61
26.46
Range of
Exercise Price
Options
Outstanding
$ 8.00 - $ 9.99
$10.00 - $11.99
$15.00 - $16.99
$23.00 - $23.99
$25.00 - $25.99
$26.00 - $27.99
$28.00 - $28.99
$43.00 - $43.99
$46.00 - $49.00
$ 8.00 - $49.00
Restricted Stock
13,750
31,500
219,850
19,400
94,700
239,800
177,350
287,600
94,650
1,178,600
On November 8, 2010, the Company granted 29,080 shares of restricted stock (which are equity classified), with a
grant date fair value of $43.04 per share, to certain officers. One-third of the restricted stock vested immediately
and one-third will vest on the first and second anniversary of the grant. On that same date, the Company granted an
additional 15,871 shares of restricted stock (which are equity classified), with a grant date fair value of $43.04 per
share, to certain executive officers. The 15,871 shares will vest on April 30, 2013 based on the Company’s
compounded annual EPS growth according to the following schedule:
Vesting
Percentage
100%
67%
33%
0%
Compounded
Annual
EPS Growth
15% or higher
12% - 14.99%
10% - 11.99%
Below 10%
On April 30, 2010, the Company granted 10,000 shares of restricted stock (which are equity classified) with a grant
date fair value of $35.28 per share to its independent directors. All of the shares granted vested immediately.
On November 9, 2009, the Company granted 41,346 shares of restricted stock (which are equity classified), with a
grant date fair value of $26.73 per share, to certain officers. One-third of the restricted stock vested immediately,
another third vested on the first anniversary of the grant and the final third is scheduled to vest on the second
anniversary of the grant. On that same date, the Company granted an additional 23,159 shares of restricted stock
(which are equity classified), with a grant date fair value of $26.73 per share, to certain executive officers. The
23,159 shares will vest on April 30, 2012 based on the Company’s compounded annual EPS growth according to
the following schedule:
Vesting
Percentage
100%
67%
33%
0%
Compounded
Annual
EPS Growth
15% or higher
12% - 14.99%
10% - 11.99%
Below 10%
On November 10, 2008, the Company granted 50,000 shares of restricted stock (which are equity classified), with a
grant date fair value of $16.85 per share, to certain officers. One-third of the restricted stock vested immediately
and one-third vested on each of the first and second anniversaries of the grant. On that same date, the Company
World Acceptance Corporation
41
Notes to Consolidated Financial Statements
granted an additional 29,100 shares of restricted stock (which are equity classified), with a grant date fair value of
$16.85 per share, to certain executive officers. The 29,100 shares will vest in three years based on the Company’s
compounded annual EPS growth according to the following schedule:
Vesting
Percentage
100%
67%
33%
0%
Compounded
Annual
EPS Growth
15% or higher
12% - 14.99%
10% - 11.99%
Below 10%
On May 19, 2008 the Company granted 12,000 shares of restricted stock (which are equity classified) with a grant
date fair value of $43.67 per share to independent directors and a certain officer. One-half of the restricted stock
vested immediately and the other half vested on the first anniversary of grant.
Compensation expense related to restricted stock is based on the number of shares expected to vest and the fair
market value of the common stock on the grant date. The Company recognized $2.1 million, $1.95 million and $1.7
million of compensation expense for the years ended March 31, 2011, 2010 and 2009, respectively, related to
restricted stock, which is included as a component of general and administrative expenses in the Consolidated
Statements of Operations. For purposes of accruing the expense, all shares are expected to vest.
As of March 31, 2011, there was approximately $1.7 million of unrecognized compensation cost related to unvested
restricted stock awards granted, which is expected to be recognized over the next two years.
A summary of the status of the Company’s restricted stock as of March 31, 2011, and changes during the year
ended March 31, 2011, are presented below:
Outstanding at March 31, 2010
Granted during the period
Vested during the period
Cancelled during the period
Outstanding at March 31, 2011
Shares
84,227
54,951
(65,010)
(14,332)
59,836
Weighted
Average Fair
Value at
Grant Date
$
23.52
41.63
28.96
43.77
22.62
$
Total share-based compensation included as a component of net income during the years ended March 31, was as
follows:
Share-based compensation related to equity classified units:
Share-based compensation related to stock options
Share-based compensation related to restricted stock
$
3,855,348
2,112,721
3,281,556
1,950,488
3,232,229
1,685,616
2011
2010
2009
Total share-based compensation related to equity
classified awards
$
5,968,069
5,232,044
4,917,845
42
World Acceptance Corporation
Notes to Consolidated Financial Statements
(16) Acquisitions
The following table sets forth the acquisition activity of the Company for the last three fiscal years ($ in thousands):
Number of offices purchased
Merged into existing offices
Purchase Price
Tangible assets:
Net Loans
Furniture, fixtures & equipment
Other
Excess of purchase prices over carrying value of
net tangible assets
Customer lists
Non-compete agreements
Goodwill
Total intangible assets
2011
2010
2009
20
14
23
22
22
11
$
3,725
3,742
10,826
2,974
4
-
2,978
2,832
3
3
2,838
9,083
68
2
9,153
$
$
747
607
96
44
747
904
1,673
783
86
35
904
1,360
85
228
1,673
The Company evaluates each acquisition to determine if the transaction meets the definition of a business
combination. Those transactions that meet the definition of a business combination are accounted for as such under
FASB ASC Topic 805-10 and all other acquisitions are accounted for as asset purchases. All acquisitions have
been with independent third parties.
When the acquisition results in a new office, the Company records the transaction as a business combination, since
the office acquired will continue to generate loans. The Company typically retains the existing employees and the
office location. The purchase price is allocated to the estimated fair value of the tangible assets acquired and to the
estimated fair value of the identified intangible assets acquired (generally non-compete agreements and customer
lists). The remainder is allocated to goodwill. During the year ended March 31, 2011, six acquisitions were
recorded as business combinations.
When the acquisition is of a portfolio of loans only, the Company records the transaction as an asset purchase. In an
asset purchase, no goodwill is recorded. The purchase price is allocated to the estimated fair value of the tangible
and intangible assets acquired. During the year ended March 31, 2011, 14 acquisitions were recorded as asset
acquisitions.
The Company’s acquisitions include tangible assets (generally loans and furniture and equipment) and intangible
assets (generally non-compete agreements, customer lists, and goodwill), both of which are recorded at their fair
values, which are estimated pursuant to the processes described below.
Acquired loans are valued at the net loan balance. Given the short-term nature of these loans, generally four
months, and that these loans are subject to continual repricing at current rates, management believes the net loan
balances approximate their fair value.
Furniture and equipment are valued at the specific purchase price as agreed to by both parties at the time of
acquisition, which management believes approximates their fair values.
Non-compete agreements are valued at the stated amount paid to the other party for these agreements, which the
Company believes approximates the fair value. The fair value of the customer lists is based on a valuation model
that utilizes the Company’s historical data to estimate the value of any acquired customer lists. In a business
World Acceptance Corporation
43
Notes to Consolidated Financial Statements
combination the remaining excess of the purchase price over the fair value of the tangible assets, customer list, and
non-compete agreements is allocated to goodwill. The offices the Company acquires are small, privately-owned
offices, which do not have sufficient historical data to determine attrition. The Company believes that the customers
acquired have the same characteristics and perform similarly to its customers. Therefore, the Company utilized the
attrition patterns of its customers when developing the method. This method is re-evaluated periodically.
Customer lists are allocated at an office level and are evaluated for impairment at an office level when a triggering
event occurs, in accordance with FASB ASC Topic 360-10-05. If a triggering event occurs, the impairment loss to
the customer list is generally the remaining unamortized customer list balance. In most acquisitions, the original
fair value of the customer list allocated to an office is generally less than $100,000, and management believes that in
the event a triggering event were to occur, the impairment loss to an unamortized customer list would be immaterial.
The results of all acquisitions have been included in the Company’s consolidated financial statements since the
respective acquisition dates. The pro forma impact of these purchases as though they had been acquired at the
beginning of the periods presented would not have a material effect on the results of operations as reported.
(17) Fair Value
The Company carries certain financial instruments (derivative assets and liabilities) at fair value on a recurring
basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The Company determines the fair values of its financial instruments
based on the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
Financial assets and liabilities measured at fair value are grouped in three levels. The levels prioritize the inputs
used to measure the fair value of the assets or liabilities. These levels are:
o Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
o Level 2 – Inputs other than quoted prices that are observable for assets and liabilities, either directly
or indirectly. These inputs include quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in market that are less active.
o Level 3 – Unobservable inputs for assets or liabilities reflecting the reporting entity’s own assumptions.
The following financial liabilities were measured at fair value on a recurring basis at March 31:
Fair Value Measurements Using
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observabl
e Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
March 31,
Interest rate swaps
2011
2010
$319,235
$1,336,269
$ -
$ -
$319,235
$1,336,269
$ -
$ -
The Company’s interest rate swaps were valued using the “income approach” valuation technique. This method
used valuation techniques to convert future amounts to a single present amount. The measurement was based on the
value indicated by current market expectations about those future amounts.
44
World Acceptance Corporation
Notes to Consolidated Financial Statements
Fair Value of Debt
The book value and estimated fair value of our debt was as follows (in thousands):
March 31,
2011
March 31,
2010
Book value:
Senior notes payable
Junior subordinated note payable
Convertible notes
Estimated fair value:
Senior notes payable
Junior subordinated note payable
Convertible notes
$
$
$
$
82,250
30,000
75,180
187,430
82,250
30,000
85,616
197,866
99,150
-
71,492
170,642
99,150
-
73,389
172,539
The difference between the estimated fair value of debt compared with its historical cost reported in our
Consolidated Balance Sheets at March 31, 2011 and March 31, 2010 relates primarily to market quotations for the
Company’s 3.0% Convertible Senior Subordinated Notes due October 1, 2011.
The carrying value of the senior notes payable and the junior subordinated note payable approximated the fair value
as the notes payable are at a variable interest rate.
Other
There were no assets or liabilities measured at fair value on a non-recurring basis during fiscal 2011 or fiscal 2010.
(18) Quarterly Information (Unaudited)
The following sets forth selected quarterly operating data:
2011
2010
First
Second
Third
Fourth
First
Second
Third
Fourth
(Dollars in thousands, except for earnings per share data)
$
110,398
19,698
118,066
27,275
126,039
31,962
136,942
16,973
100,230
20,428
104,206
25,156
112,310
29,633
123,890
15,082
57,298
3,354
11,334
18,714
56,091
4,096
10,369
20,235
61,393
3,803
10,817
18,064
62,733
3,520
19,480
34,236
53,333
3,110
8,724
14,635
51,755
3,617
9,066
14,612
55,537
3,756
8,633
14,751
56,387
3,398
19,360
29,663
1.16
1.14
1.29
1.26
1.15
1.12
2.16
2.11
0.90
0.90
0.90
0.89
0.91
0.89
1.80
1.76
$
$
$
Total revenues
Provision for loan losses
General and administrative
expenses
Interest expense
Income tax expense
Net income
Earnings per share:
Basic
Diluted
(19) Litigation
At March 31, 2011, the Company and certain of its subsidiaries have been named as defendants or are otherwise
involved in various legal actions and proceedings arising from their normal business activities, including matters in
World Acceptance Corporation
45
Notes to Consolidated Financial Statements
which damages in various amounts are claimed. In view of the inherent difficulty in predicting the outcome of legal
matters, theories, potentially involve a large number of parties or are in the early stages, the Company generally
cannot predict the eventual outcome of these pending matters, nor the timing of the ultimate resolution of such
matters or the eventual loss, fines, penalties, settlement or other impact, if any, related to such matters, including
those described below, will have a material adverse effect on the Company’s results of operations or financial
condition taken as a whole. However, in light of the inherent uncertainties involved in such matters, there can be no
assurance that an adverse outcome in one or more of these matters will not be material to the Company or will not
materially and adversely affect its results of operations or cash flows in any particular reporting period.
On September 24, 2010, the Company and World Finance Corporation of Georgia were served with a summons and
complaint in the case of Rita Hopkins vs. World Acceptance Corporation; World Finance Corporation of Georgia;
Fortegra Financial Corporation, f/k/a Life of the South; and Life of the South Insurance Company, in the Superior
Court of Fulton County, Georgia (case number 2010CV191370), alleging violations of Georgia and other
potentially applicable states’ laws in connection with the sale of non-file insurance products and seeking class
certification and unspecified monetary damages, injunctive relief and attorney’s fees. On October 22, 2010, the
Company removed this action to the United States District Court for the Northern District of Georgia, Atlanta
Division (case number1:10-cv-03429). Ms. Hopkins subsequently amended her complaint to assert violations of
federal laws, in addition to state laws, and added Insurance Company of the South and Lyndon Southern Insurance
Company as defendants. The Company filed a Motion to Compel Arbitration and Stay Action. The Court has not
yet decided that motion. The Company intends to defend itself vigorously in this matter.
(20) Subsequent events
On May 23, 2011 and April 26, 2011, the Board of Directors authorized the Company to repurchase up to $50
million of the Company’s common stock. This repurchase authorization follows, and is in addition to, a similar
repurchase authorization of $20 million announced August 4, 2010. After taking into account all shares
repurchased through June 3, 2011 (including pending repurchase orders subject to settlement), the Company has
$16.0 million in aggregate remaining repurchase capacity under all of the company’s outstanding repurchase
authorizations. The timing and actual number of shares repurchased will depend on a variety of factors, including
the stock price, corporate and regulatory requirements and other market and economic conditions. Although the
repurchase authorizations above have no stated expiration date, the Company’s stock repurchase program may be
suspended or discontinued at any time.
46
World Acceptance Corporation
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules
13a – 15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of internal control over financial
reporting as of March 31, 2011. Our assessment was based on criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions
and dispositions of the assets;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and board of
directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
any assumptions regarding internal control over financial reporting in future periods based on an evaluation of effectiveness
in a prior period are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Based on using the COSO criteria, we believe our internal control over financial reporting as of March 31, 2011 was
effective.
Our independent registered public accounting firm has audited the consolidated financial statements included in this Annual
Report and has issued an attestation report on the effectiveness of our internal control over financial reporting, as stated in
their report.
A. A. McLean III
Chairman and Chief Executive Officer
Kelly M. Malson
Senior Vice President and Chief Financial Officer
World Acceptance Corporation
47
REPORT ON INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
World Acceptance Corporation:
We have audited the accompanying consolidated balance sheets of World Acceptance Corporation and subsidiaries (the
“Company”) as of March 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and
comprehensive income, and cash flows for each of the years in the three-year period ended March 31, 2011. These
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 the standards of the Public Company Accounting Oversight Board (United
States). 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, 2011 and 2010, and the results of their
operations and their cash flows for each of the years in the three-year period ended March 31, 2011, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
World Acceptance Corporation’s internal control over financial reporting as of March 31, 2011, based on criteria established
in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated June 3, 2011 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Greenville, South Carolina
June 3, 2011
48
World Acceptance Corporation
REPORT ON INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
World Acceptance Corporation:
We have audited World Acceptance Corporation and subsidiaries’ (the “Company’s”) internal control over financial
reporting as of March 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
March 31, 2011, based on criteria established in Internal Control –Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of the Company as of March 31, 2011 and 2010, and the related consolidated statements of
operations, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period
ended March 31, 2011, and our report dated June 3, 2011 expressed an unqualified opinion on those consolidated financial
statements.
Greenville, South Carolina
June 3, 2011
World Acceptance Corporation
49
BOARD OF DIRECTORS
Ken R. Bramlett Jr.
Private Investor
James R. Gilreath
Attorney
The Gilreath Law Firm, P.A.
William S. Hummers III
Retired
A. Alexander McLean III
Chairman of the Board and Chief Executive Officer
World Acceptance Corporation
Darrell E. Whitaker
President and Chief Operating Officer
IMI Resort Holdings, Inc.
Charles D. Way
Private Investor
Mark C. Roland
President and Chief Operating Officer
World Acceptance Corporation
50
World Acceptance Corporation
COMPANY OFFICERS
A. Alexander McLean III
Chairman of the Board and Chief Executive Officer
Delia A. Brigman
Vice President of Operations, TexasCaliente
Rodney D. Ernest
Vice President of Operations, Northeast Texas
Rudolph R. Cruz
Vice President of Operations, Northwest Texas
James E. Creagor
Vice President of Operations, Southeast Texas
Jackie C. Willyard
Vice President of Operations, Kentucky
James W. Littlepage
Vice President of Operations, Tennessee
D. Scott Phillips
Vice President of Operations, South Carolina
Erik T. Brown
Vice President of Operations, Missouri
Rodney Owens
Vice President of Operations, Oklahoma
Anthony B. Seney
Vice President of Operations, Louisiana
Henry R. Blalock
Vice President of Operations, Alabama
Fidencio Reyna
Vice President of Operations, Mexico
Pedro Arizpe
Vice President of Operations, Mexico
Ricardo Cavazos
Vice President of Operations, Mexico
Juan Valdez
Vice President of Operations, Mexico
Mark C. Roland
President and Chief Operating Officer
Kelly M. Malson
Senior Vice President, Chief Financial Officer and
Treasurer
James D. Walters
Senior Vice President, Southern Division
D. Clinton Dyer
Senior Vice President, Central Division
Jeff L. Tinney
Senior Vice President, Western Division
Francisco Javier Sauza Del Pozo
Senior Vice President, Mexico
James J. Rosenauer
President, ParaData Financial Systems
Judson K. Chapin III
Senior Vice President, Secretary and General Counsel
Marilyn Messer
Senior Vice President, Human Resources
Brent R. Cooler
Vice President, Accounting
Robyn D. Yarborough
Vice President, Internal Audit
Stacey K. Estes
Vice President, Lease Administration
Yvette Drake
Vice President, Director of Marketing
Keith T. Littrell
Vice President, Tax
Scot H. Mozingo
Vice President of Operations, Georgia
Stephen A. Bifano
Vice President of Operations, Illinois
Jeanne Davis
Vice President of Operations, New Mexico
World Acceptance Corporation
51
CORPORATE INFORMATION
Common Stock
World Acceptance Corporation’s common stock
trades on The Nasdaq Stock Market under the
symbol: WRLD. As of June 3, 2011, there were 57
shareholders of record and the Company believes
there are a significant number of persons or entities
who hold their stock in nominee or “street” names
through various brokerage firms. On this date there
were 15,428,365
stock
shares of
outstanding.
common
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 2,
2011, was $64.76.
Market Price of Common Stock
Fiscal 2011
Quarter
High
Low
First
Second
Third
Fourth
$ 41.56
46.08
55.24
65.95
$ 31.56
36.74
37.27
50.12
Fiscal 2010
Quarter
High
Low
First
Second
Third
Fourth
$ 30.87
28.16
37.42
44.10
$16.09
18.12
23.25
35.67
The Company has never paid a dividend on its
Common Stock. The Company presently intends to
retain its earnings to finance the growth and
development of its business and does not expect to
pay cash dividends in the foreseeable future. The
Company’s debt agreements also contain certain
limitations on
to pay
the Company’s
dividends.
Consolidated Financial Statements.
the Company’s ability
See note 7
to
Executive Offices
World Acceptance Corporation
Post Office Box 6429 (29606)
108 Frederick Street (29607)
Greenville, South Carolina
(864) 298-9800
Transfer Agent
American Stock Transfer & Trust Company
10150 Mallard Creek Drive, Suite 307
Charlotte, North Carolina 28262
(718) 921-8522
Legal Counsel
Robinson, Bradshaw, & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Independent Registered Public Accounting Firm
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. The Form 10-K also can be
reviewed or downloaded from
the Company’s
website: http://www.worldacceptance.com.
For Further Information
A. Alexander McLean III
Chief Executive Officer
World Acceptance Corporation
(864) 298-9800
52
World Acceptance Corporation
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