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World Acceptance 10-Q 2010 UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended December 31, 2009.
or
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of
1934
For the
transition period from
to
Commission
File Number: 0-19599
WORLD ACCEPTANCE
CORPORATION
(Exact
name of registrant as specified in its charter.)
108
Frederick Street
Greenville,
South Carolina
29607
(Address
of principal executive offices)
(Zip
Code)
(864)
298-9800
(registrant's
telephone number, including area code)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
shorter period than the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One):
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
The
number of outstanding shares of the issuer’s no par value common stock as of
February 1, 2010 was 16,412,386
WORLD
ACCEPTANCE CORPORATION
AND
SUBSIDIARIES
TABLE OF
CONTENTS
2
WORLD
ACCEPTANCE CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
See
accompanying notes to consolidated financial statements.
3
WORLD
ACCEPTANCE CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
See
accompanying notes to consolidated financial statements.
4
WORLD
ACCEPTANCE CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS)
(Unaudited)
See
accompanying notes to consolidated financial statements.
5
WORLD
ACCEPTANCE CORPORATION
AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
See
accompanying notes to consolidated financial statements. 6
WORLD
ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2009 and 2008
(Unaudited)
NOTE 1 – BASIS OF
PRESENTATION
The
Consolidated Financial Statements of the Company at December 31, 2009, and for
the three and nine months then ended were prepared in accordance with the
instructions for Form 10-Q and are unaudited; however, in the opinion of
management, all adjustments (consisting only of items of a normal recurring
nature) necessary for a fair presentation of the financial position at December
31, 2009, and the results of operations and cash flows for the periods ended
December 31, 2009 and 2008, have been included. The results for the
interim periods are not necessarily indicative of the results that may be
expected for the full year or any other interim period.
Certain
reclassification entries have been made for fiscal 2009 to conform with fiscal
2010 presentation. These reclassifications had no impact on
shareholders’ equity and comprehensive income or net income.
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
These
Consolidated Financial Statements do not include all disclosures required by
U.S. generally accepted accounting principles and should be read in conjunction
with the Company's audited Consolidated Financial Statements and related notes
for the fiscal year ended March 31, 2009, included in the Company's 2009 Annual
Report to Shareholders.
NOTE 2 – SUMMARY OF
SIGNIFICANT POLICIES
Change
in Accounting Principle
In May
2008, the Financial Accounting Standards Board (“FASB”) issued FASB ASC 470-20
(Prior authoritative literature: FASB Staff Position No. APB 14-1 “Accounting for Convertible Debt
Instruments that May be Settled in Cash upon Conversion (Including Partial Cash
Settlement)”). FASB ASC 470-20 applies to any convertible debt
instrument that at conversion may be settled wholly or partly with cash,
requires cash-settleable convertibles to be separated into their debt and equity
components at issuance and prohibits the use of the fair-value option for such
instruments. FASB ASC 470-20 is effective for the first fiscal period
beginning after December 15, 2008 and must be applied retrospectively to all
periods presented with a cumulative effect adjustment being made as of the
earliest period presented. The Company adopted FASB ASC 470-20
effective April 1, 2009. The impact on our Consolidated Financial
Statements is as follows:
7
Recent
Accounting Pronouncements:
FASB
Accounting Standards Codification
In
June 2009, the FASB issued ASC 105 (“SFAS 168”), “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles.” ASC 105 replaces SFAS 162 and establishes the FASB
Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with
GAAP. ASC 105 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009. The
adoption of this pronouncement did have an impact to the Company’s financial
statement disclosures, as all references to authoritative accounting literature
have been referenced in accordance with the Codification.
8
Business
Combinations
In
December 2007, the FASB issued FASB ASC 805-10 (Prior authoritative
literature: FASB Statement 141 (R), “Business Combinations,” which
replaces FASB Statement No. 141). FASB ASC 805-10 is effective for the
Company April 1, 2009 and establishes principles and requirements for how an
acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. The Statement also establishes disclosure
requirements which will enable users to evaluate the nature and financial
effects of the business combination. FASB ASC 805-10 will change how business
combinations are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. The adoption of FASB ASC 805-10 did
not have an impact on the Company’s financial position and results of
operations, although it may have a material impact on accounting for business
combinations in the future which cannot currently be determined.
In
April 2009, the FASB issued FASB ASC 805-10-05 (Prior authoritative
literature: FSP 141(R)-1 “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arises from
Contingencies”). For business combinations, the standard requires the
acquirer to recognize at fair value an asset acquired or liability assumed from
a contingency if the acquisition date fair value can be determined during the
measurement period. FASB ASC 805-10-05 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008, with early adoption prohibited. The Company adopted
these provisions as of April 1, 2009. FASB ASC 805-10-05 will be applied
prospectively for acquisitions in fiscal 2010 or thereafter.
Subsequent
Events
In
May 2009, the FASB issued ASC Topic 855 (Prior authoritative
literature: “SFAS No. 165”), “Subsequent Events,” which
establishes general standards for accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are available
to be issued (“subsequent events”). More specifically, ASC 855 sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition in the financial statements, identifies the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements and the disclosures that should
be made about events or transactions that occur after the balance sheet date.
ASC 855 provides largely the same guidance on subsequent events that previously
existed only in auditing literature. The disclosure is required in financial
statements for interim and annual periods ending after June 15, 2009. The
Company has performed an evaluation of subsequent events through February 1,
2010, which is the date these Consolidated Financial Statements are filed and no
events required disclosure.
Useful
Life of Intangible Assets
In April
2008, the FASB issued FASB ASC 350-30-55-1c (Prior authoritative literature:
FASB Staff Position No. FAS 142-3), “Determination of the Useful Life of
Intangible Assets.” FASB ASC 350-30-55-1c applies to all
recognized intangible assets and its guidance is restricted to estimating the
useful life of recognized intangible assets. FASB ASC 350-30-55-1c is
effective for the first fiscal period beginning after December 15, 2008 and must
be applied prospectively to intangible assets acquired after the effective
date. The Company adopted FASB ASC 350-30-55-1c effective April 1,
2009 with no significant impact to the Consolidated Financial
Statements.
Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions that Are Not
Orderly
FASB ASC
820-10-65-4 (Prior authoritative literature: FASB Staff Position No. FAS 157-4),
“Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions that Are Not Orderly,” provides
additional guidance for estimating fair value in accordance with ASC 820 when
the volume and level of activity for the asset or liability have significantly
decreased. FASB ASC 820-10-65-4 also provides guidance for determining when a
transaction is an orderly one. The Company adopted FASB ASC
820-10-65-4 during the quarter ended June 30, 2009 and the adoption did not have
a significant impact on the Company’s Consolidated Financial
Statements.
Recognition
and Presentation of Other-Than-Temporary Impairments
FASB ASC
320-10-65 (Prior authoritative literature: FASB Staff Position FAS 115-2 and FAS
124-2), “Recognition and
Presentation of Other-Than-Temporary Impairments,” amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. FASB ASC 320-10-65 was effective June 30, 2009, and did not have a
significant impact on the Company’s Consolidated Financial
Statements.
9
Instruments
Indexed to an Entity’s Own Stock
In June
2008, the FASB ratified FASB ASC 815-40 (Prior authoritative literature: EITF
Issue 07-5, “Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own
Stock” ). FASB ASC 815-40 provides a new two-step model to be applied to
any freestanding financial instrument or embedded feature that has all the
characteristics of a derivative in FASB ASC 815-10-15 (Prior authoritative
literature: FASB No. 133, “Accounting for Derivative
Instruments and Hedging Activities,”) in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for scope exception. It also adds clarity on the impact of
foreign currency denominated strike prices and market-based employee stock
option valuation instruments on the evaluation. FASB ASC 815-40 also applies to
any freestanding financial instrument that is potentially settled in an entity’s
own stock, regardless of whether the instrument has all the characteristics of a
derivative in FASB ASC 815-10-15. The Company adopted FASB ASC 815-40
during the quarter ended June 30, 2009 and the adoption did not have a material
impact on the Company’s Consolidated Financial Statements.
Interim
Disclosures about Fair Value of Financial Instruments
In
April 2009, the FASB issued FASB ASC 825-10-65 (Prior authoritative
literature: FASB Staff Position No. FAS 107-1, “Disclosures about Fair Value of
Financial Instruments” and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments”), which requires disclosures about fair value
of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This Standard is effective
for interim reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. The Company
adopted FASB ASC 825-10-65 during the first quarter ended June 30,
2009. See Note 3.
NOTE 3 – FAIR
VALUE
Effective
April 1, 2008, the first day of fiscal 2009, the Company adopted the provisions
of FASB ASC 820 (Prior authoritative literature: SFAS No. 157, “Fair Value Measurements”) for
financial assets and liabilities, as well as any other assets and liabilities
that are carried at fair value on a recurring basis in financial statements.
FASB ASC 820 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FASB ASC
820 applies under other accounting pronouncements in which the FASB has
previously concluded that fair value is the relevant measurement
attribute. Accordingly, FASB ASC 820 does not require any
new fair value measurements. Effective April 1, 2009, the Company adopted
the provisions of FASB ASC 820 for nonfinancial assets and liabilities which
were previously deferred under the provisions of FASB ASC 820-10-65 (Prior
authoritative literature: FSP FAS 157-2).
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:
The
following financial liabilities were measured at fair value on a recurring basis
at December 31, 2009:
10
The
Company’s interest rate swap was 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.
There
were no assets or liabilities measured at fair value on a non recurring basis
during the first nine months of fiscal 2010.
Fair
Value of Long-Term Debt
The book
value and estimated fair value of our long-term debt was as follows (in
thousands):
The
difference between the estimated fair value of long-term debt compared with its
historical cost reported in our Condensed Consolidated Balance Sheets at
December 31, 2009 and March 31, 2009 relates primarily to market quotations for
the Company’s 3.0% Convertible Senior Subordinated Notes due October 1,
2011.
NOTE 4 – COMPREHENSIVE
INCOME (LOSS)
The
Company applies the provisions of FASB ASC 220-10 (Prior authoritative
literature: SFAS No. 130 “Reporting Comprehensive
Income”). The following summarizes accumulated other
comprehensive income (loss) as of:
11
NOTE 5 – ALLOWANCE FOR LOAN
LOSSES
The
following is a summary of the changes in the allowance for loan losses for the
periods indicated (unaudited):
The
Company adopted FASB ASC 310 (Prior authoritative literature: Statement of
Position No. 03-3, "Accounting
for Certain Loans or Debt Securities Acquired in a Transfer"), which
prohibits carry over or creation of valuation allowances in the initial
accounting of all loans acquired in a transfer that are within the scope of this
ASC. The Company believes that a loan has shown deterioration if it
is over 60 days delinquent. The Company believes that loans acquired
since the adoption of FASB ASC 310 have not shown evidence of deterioration of
credit quality since origination, and therefore, are not within the
scope of FASB ASC 310 because the Company did not allocate consideration for, or
record, acquired loans over 60 days delinquent. Loans acquired that
are more than 60 days past due are included in the scope of FASB ASC 310 and
therefore, subsequent refinances or restructures of these loans would not be
accounted for as a new loan.
For the
three months ended and nine months ended December 31, 2008, the Company recorded
adjustments of approximately $39,000 and $427,000, respectively, to the
allowance for loan losses in connection with acquisitions in accordance with
generally accepted accounting principles. No adjustments were recorded for the
three months ended or the nine months ended December 31, 2009. These
adjustments represent the allowance for loan losses on acquired loans which do
not meet the scope of FASB ASC 310.
NOTE 6 – AVERAGE SHARE
INFORMATION
The
following is a summary of the basic and diluted average common shares
outstanding:
Options
to purchase 159,370 and 309,055 shares of common stock at various prices were
outstanding during the three months ended December 31, 2009 and 2008,
respectively, but were not included in the computation of diluted EPS because
the options are anti-dilutive. Options to purchase 134,172 and 86,584
shares of common stock at various prices were outstanding during the nine months
ended December 31, 2009 and 2008, respectively, but were not included in the
computation of diluted EPS because the options were
anti-dilutive. The shares related to the convertible senior notes
payable (1,762,519) and related warrants were also not included in the
computation of diluted EPS because the effect of such instruments was
anti-dilutive. 12
NOTE 7 – STOCK-BASED
COMPENSATION
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 between two 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 December 31, 2009, there were
505,095 shares available for grant under the plans.
Stock
based compensation is recognized as provided under FASB ASC 718-10 and FASB ASC
505-50 (Prior authoritative literature: FASB Statement 123(R), “Share Based
Payment”). FASB ASC 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. The Company elected to use the modified
prospective transition method, and did not retroactively adjust results from
prior periods. Under this transition method, stock option
compensation is recognized as an expense over the remaining unvested portion of
all stock option awards granted prior to April 1, 2006, based on the fair values
estimated at grant date in accordance with the provisions of FASB ASC
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 values at the grant date for options issued during the
nine months ended December 31, 2009 and 2008 were $15.32 and $8.51,
respectively. This fair value was estimated at grant date using the
weighted-average assumptions listed below.
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
having a remaining life similar to the expected option term.
Option
activity for the nine months ended December 31, 2009 was as
follows:
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