Unassociated Document
 
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 September 30, 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.)

South Carolina
 
57-0425114
(State or other jurisdiction of
 
(I.R.S. Employer Identification
incorporation or organization)
 
Number)

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, ever 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):
Large Accelerated Filer ¨
 
Accelerated Filer x
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
 
Smaller reporting company ¨

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 November 2, 2009 was 16,249,812.
 


WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES

TABLE OF CONTENTS

       
Page
         
PART I - FINANCIAL INFORMATION
   
         
Item 1.
 
Consolidated Financial Statements (unaudited):
   
         
   
Consolidated Balance Sheets as of September 30, 2009, March 31, 2009 and September 30, 2008
 
3
         
   
Consolidated Statements of Operations for the three and six months ended September 30, 2009 and 2008
 
4
         
   
Consolidated Statements of Shareholders' Equity and Comprehensive Income (loss) for the year ended March 31, 2009 and the six months ended September 30, 2009
 
5
         
   
Consolidated Statements of Cash Flows for the six months ended September 30, 2009 and 2008
 
6
         
   
Notes to Consolidated Financial Statements
 
7
         
Item 2.
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
21
         
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
26
         
Item 4.
 
Controls and Procedures
 
26
         
PART II - OTHER INFORMATION
   
         
Item 1.
 
Legal Proceedings
 
27
         
Item 1A.
 
Risk Factors
 
27
         
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
27
         
Item 4.
 
Submission of Matters of a Vote of Security Holders
 
27
         
Item 6.
 
Exhibits
 
28
         
Signatures
 
30
 
2


WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
September 30,
   
March 31,
   
September 30,
 
   
2009
   
2009
   
2008
 
         
As adjusted (Note 2)
 
ASSETS
                 
                   
Cash and cash equivalents
  $ 7,287,502       6,260,410       8,070,083  
Gross loans receivable
    754,853,611       671,175,985       667,178,690  
Less:
                       
Unearned interest and fees
    (198,898,768 )     (172,743,440 )     (175,250,949 )
Allowance for loan losses
    (43,682,344 )     (38,020,770 )     (38,120,647 )
Loans receivable, net
    512,272,499       460,411,775       453,807,094  
Property and equipment, net
    23,120,785       23,060,360       22,969,529  
Deferred income taxes
    12,975,338       12,250,834       12,629,849  
Other assets, net
    10,249,313       9,541,757       9,285,885  
Goodwill
    5,580,946       5,580,946       5,384,021  
Intangible assets, net
    8,045,652       8,987,551       9,927,166  
Total assets
  $ 579,532,035       526,093,633       522,073,627  
                         
LIABILITIES & SHAREHOLDERS' EQUITY
                       
                         
Liabilities:
                       
Senior notes payable
    145,400,000       113,310,000       146,700,000  
Convertible senior subordinated notes payable
    85,000,000       95,000,000       110,000,000  
Debt discount
    (8,135,041 )     (11,268,462 )     (15,464,789 )
Income taxes payable
    4,761,236       11,412,722       367,598  
Accounts payable and accrued expenses
    23,679,446       21,304,466       16,406,308  
Total liabilities
    250,705,641       229,758,726       258,009,117  
                         
Shareholders' equity:
                       
Preferred stock, no par value
                       
Authorized 5,000,000 shares, no shares issued or outstanding
    -       -       -  
Common stock, no par value
                       
Authorized 95,000,000 shares; issued and Outstanding 16,244,062 and 16,211,659 shares at September 30, 2009 and March 31, 2009, respectively
    -       -       -  
Additional paid-in capital
    19,311,095       17,046,310       16,054,120  
Retained earnings
    312,765,165       283,518,260       248,411,201  
Accumulated other comprehensive loss
    (3,249,866 )     (4,229,663 )     (400,811 )
Total shareholders' equity
    328,826,394       296,334,907       264,064,510  
Commitments and contingencies
                       
    $ 579,532,035       526,093,633       522,073,627  

See accompanying notes to consolidated financial statements.

3


WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
  
   
Three months ended
   
Six months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
         
As adjusted
         
As adjusted
 
         
(Note 2)
         
(Note 2)
 
                         
Revenues:
                       
Interest and fee income
  $ 91,540,199       80,053,547       176,607,997       156,403,033  
Insurance and other income
    12,665,568       11,667,020       27,828,135       23,738,565  
Total revenues
    104,205,767       91,720,567       204,436,132       180,141,598  
                                 
Expenses:
                               
Provision for loan losses
    25,156,035       23,307,132       45,584,298       41,164,045  
General and administrative expenses:
                               
Personnel
    33,911,917       31,199,851       70,203,226       64,515,626  
Occupancy and equipment
    7,113,165       6,477,994       13,816,838       12,531,644  
Data processing
    494,415       580,950       1,028,011       1,170,397  
Advertising
    2,448,594       2,531,623       4,821,094       5,241,588  
Amortization of intangible assets
    567,688       623,200       1,132,458       1,223,547  
Other
    7,219,156       6,965,683       14,086,053       12,486,354  
      51,754,935       48,379,301       105,087,680       97,169,156  
                                 
Interest expense
    3,617,034       3,891,920       6,727,181       7,500,483  
Total expenses
    80,528,004       75,578,353       157,399,159       145,833,684  
                                 
Income before income taxes
    23,677,763       16,142,214       47,036,973       34,307,914  
                                 
Income taxes
    9,065,930       6,196,833       17,790,068       13,019,334  
                                 
Net income
  $ 14,611,833       9,945,381       29,246,905       21,288,580  
                                 
Net income per common share:
                               
Basic
  $ 0.90       0.61       1.80       1.31  
Diluted
  $ 0.89       0.60       1.79       1.29  
                                 
Weighted average common shares outstanding:
                               
Basic
    16,235,346       16,213,658       16,230,347       16,242,334  
Diluted
    16,418,257       16,492,710       16,369,820       16,534,674  

See accompanying notes to consolidated financial statements.
 
4

 
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)

               
Accumulated
             
               
Other
             
   
Additional
         
Comprehensive
   
Total
   
Total
 
   
Paid-in
   
Retained
   
Income
   
Shareholders’
   
Comprehensive
 
   
Capital
   
Earnings
   
(Loss)
   
Equity
   
Income
 
                               
Balances at March 31, 2008
  $ 1,323,001       232,812,768       169,503       234,305,272        
Cumulative effect of change in accounting principle (Note 2)
    14,961,722       (4,466,014 )     -       10,495,708        
Proceeds from exercise of stock options (142,683 shares), including tax benefits of $1,320,974
    2,975,335       -       -       2,975,335        
Common stock repurchases (288,700 shares)
    (6,527,680 )     (1,321,084 )     -       (7,848,764 )      
Issuance of restricted common stock under stock option plan (78,592 shares)
    1,418,031       -       -       1,418,031        
Stock option expense
    3,232,229       -       -       3,232,229        
Repurchase and cancellation of convertible notes
    (336,328 )     -       -       (336,328 )      
Other comprehensive loss
    -       -       (4,399,166 )     (4,399,166 )     (4,399,166 )
Net income
    -       56,492,590       -       56,492,590       56,492,590  
Total comprehensive income
    -       -       -       -       52,093,424  
Balances at March 31, 2009 (As Adjusted – Note 2)
    17,046,310       283,518,260       (4,229,663 )     296,334,907          
                                         
Proceeds from exercise of stock options (15,700 shares), including tax benefits of $107,369
    247,666       -       -       247,666          
Issuance of restricted common stock under stock option plan (16,703 shares)
    956,268       -       -       956,268          
Stock option expense
    1,486,500       -       -       1,486,500          
Repurchase and cancellation of convertible notes
    (425,649 )     -       -       (425,649 )           
Other comprehensive income
    -       -       979,797       979,797       979,797  
Net income
    -       29,246,905       -       29,246,905       29,246,905  
Total comprehensive income.
    -       -       -       -       30,226,702  
Balances at September 30, 2009
  $ 19,311,095       312,765,165       (3,249,866 )     328,826,394          
 
See accompanying notes to consolidated financial statements.
 
5

 
WORLD ACCEPTANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
Six months ended
 
   
September 30,
 
   
2009
   
2008
 
         
As adjusted
 
         
(Note 2)
 
Cash flows from operating activities:
           
Net income
  $ 29,246,905       21,288,580  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization of intangible assets
    1,132,458       1,223,547  
Amortization of loan costs and discounts
    215,958       381,631  
Provision for loan losses
    45,584,298       41,164,045  
Gain on the extinguishment of debt
    (2,361,180 )     -  
Amortization of convertible note discount
    1,984,432       2,356,836  
Depreciation
    2,738,254       2,198,658  
Deferred income tax benefit (expense)
    (724,504 )     2,869,226  
Compensation related to stock option and restricted stock plans
    2,442,768       2,668,042  
Unrealized gains on interest rate swap
    (568,588 )     (749,925 )
                 
Change in accounts:
               
Other assets, net
    (1,031,973 )     (13,828 )
Income taxes payable
    (6,616,041 )     (17,768,065 )
Accounts payable and accrued expenses
    2,896,712       (1,709,680 )
Net cash provided by operating activities
    74,939,499       53,909,067  
                 
Cash flows from investing activities:
               
                 
Increase in loans receivable, net
    (96,103,452 )     (75,558,979 )
Assets acquired from office acquisitions, primarily loans
    (628,363 )     (7,883,393 )
Increase in intangible assets from acquisitions
    (190,559 )     (1,184,732 )
Purchases of property and equipment, net
    (2,628,868 )     (6,478,677 )
                 
Net cash used in investing activities
    (99,551,242 )     (91,105,781 )
                 
Cash flows from financing activities:
               
                 
Proceeds of senior revolving notes payable, net
    32,090,000       42,200,000  
Repayment of convertible senior subordinated notes payable
    (6,750,000 )     -  
Repurchases of common stock
    -       (6,159,203 )
Repayment of other notes payable
    -       (400,000 )
Proceeds from exercise of stock options
    140,297       1,327,435  
Excess tax benefit from exercise of stock options
    107,369       708,990  
                 
Net cash provided by financing activities
    25,587,666       37,677,222  
                 
Increase in cash and cash equivalents
    975,923       480,508  
                 
Cash and cash equivalents at beginning of period
    6,260,410       7,589,575  
                 
Effect of foreign currency fluctuation on cash
    51,169       -  
                 
Cash and cash equivalents at end of period
  $ 7,287,502       8,070,083  

See accompanying notes to consolidated financial statements.
 
6


WORLD ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2009 and 2008
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The Consolidated Financial Statements of the Company at September 30, 2009, and for the three and six 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 September 30, 2009, and the results of operations and cash flows for the periods ended September 30, 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:

   
Three Months Ended September 30,
 
   
2008
   
2007
 
               
Upon
               
Upon
 
   
As
   
Impact of
   
Adoption
   
As
   
Impact of
   
Adoption
 
   
Previously
   
FASB
   
of FASB
   
Previously
   
FASB
   
FASB
 
   
Reported
   
ASC 470-20
   
ASC 470-20
   
Reported
   
ASC 470-20
   
ASC 470-20
 
   
(in thousands, except per share data)
 
Consolidated Statements of Operations
                                   
Interest expense
  $ 2,749       1,143       3,892       2,932       1,085       4,017  
Income before income taxes
    17,285       (1,143 )     16,142       16,919       (1,085 )     15,834  
Income taxes
    6,622       (425 )     6,197       6,454       (404 )     6,050  
Net income
    10,663       (718 )     9,945       10,465       (681 )     9,784  
                                                 
Earnings per common share
                                               
Basic
  $ 0.66       (0.05 )     0.61       0.61       (0.04 )     0.57  
Diluted
    0.65       (0.05 )     0.60       0.60       (0.04 )     0.56  
 
7


   
Six Months Ended September 30,
 
   
2008
   
2007
 
               
Upon
               
Upon
 
   
As
   
Impact of
   
Adoption
   
As
   
Impact of
   
Adoption
 
   
Previously
   
FASB
   
of FASB
   
Previously
   
FASB
   
FASB
 
   
Reported
   
ASC 470-20
   
ASC 470-20
   
Reported
   
ASC 470-20
   
ASC 470-20
 
   
(in thousands, except per share data)
 
Consolidated Statements of Operations
                                   
Interest expense
  $ 5,229       2,272       7,501       5,268       2,156       7,424  
Income before income taxes
    36,580       (2,272 )     34,308       34,565       (2,157 )     32,408  
Income taxes
    13,865       (846 )     13,019       13,249       (803 )     12,446  
Net income
    22,715       (1,426 )     21,289       21,316       (1,354 )     19,962  
                                                 
Earnings per common share
                                               
Basic
  $ 1.40       (0.09 )     1.31       1.23       (0.08 )     1.15  
Diluted
    1.37       (0.08 )     1.29       1.20       (0.07 )     1.13  

   
As of March 31, 2009
   
As of September 30, 2008
 
               
Upon
               
Upon
 
   
As
   
Impact of
   
Adoption
   
As
   
Impact of
   
Adoption
 
   
Previously
   
FASB
   
of FASB
   
Previously
   
FASB
   
FASB
 
   
Reported
   
ASC 470-20
   
ASC 470-20
   
Reported
   
ASC 470-20
   
ASC 470-20
 
   
(in thousands)
 
Consolidated Balance Sheets
                                   
Deferred income taxes
  $ 16,983       (4,732 )     12,251       18,387       (5,757 )     12,630  
Other assets, net
    9,970       (428 )     9,542       9,795       (509 )     9,286  
Total assets
    531,254       (5,160 )     526,094       528,341       (6,267 )     522,074  
                                                 
Convertible senior subordinated notes payable, net of discount
    95,000       (11,269 )     83,731       110,000       (15,465 )     94,535  
Income taxes payable
    11,253       160       11,413       239       129       368  
Total liabilities
    240,868       (11,109 )     229,759       273,346       (15,337 )     258,009  
                                                 
Additional paid-in capital
    2,421       14,625       17,046       1,092       14,962       16,054  
Retained earnings
    292,195       (8,677 )     283,518       254,304       (5,893 )     248,411  
Total shareholders’ equity
    290,386       5,949       296,335       254,995       9,070       264,065  
                                                 
Total liabilities and shareholders’ equity
    531,254       (5,160 )     526,094       528,341       (6,267 )     522,074  

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.

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.
 
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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 at the beginning of the fiscal year 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 which 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 November 2, 2009, which is the date these Consolidated Financial Statements are filed.

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 is effective for interim reporting periods ending after June 15, 2009, and did not have a significant impact on the Company’s Consolidated Financial Statements.
 
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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:

 
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 September 30, 2009:

   
Fair Value Measurements Using
 
         
Quoted Prices
             
         
In Active
   
Significant
       
         
Markets for
   
Other
   
Significant
 
         
Identical
   
Observable
   
Unobservable
 
   
September 30,
   
Assets
   
Inputs
   
Inputs
 
   
2009
   
(Level 1)
   
(Level 2)
   
(Level 3)
 
Interest rate swaps
                       
2009
  $ 1,875,077     $ -     $ 1,875,077     $ -  
2008
  $ 920,693     $ -     $ 920,693     $ -  
 
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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 six 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):

   
September 30,
   
March 31,
   
September 30,
 
   
2009
   
2009
   
2008
 
                   
Book value:
                 
Senior Note Payable
  $ 145,400       113,310       146,700  
Convertible Notes, net of discount
    76,865       83,732       94,535  
    $ 222,265       197,042       241,235  
                         
Estimate fair value:
                       
Senior Note Payable
  $ 145,400       113,310       146,700  
Convertible Notes
    73,644       61,702       92,004  
    $ 219,044       175,012       238,704  

The difference between the estimated fair value of long-term debt compared with its historical cost reported in our Condensed Consolidated Balance Sheets at September 30, 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 September 30:
 
   
Three months
   
Six months
 
   
ended September 30,
   
ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Balance at beginning of period
  $ (2,616,950 )     630,931       (4,229,663 )     169,503  
                                 
Unrealized income (loss) from foreign Exchange translation adjustment
    (632,916 )     (1,031,742 )     979,797       (570,314 )
                                 
Balance at end of period
  $ (3,249,866 )     (400,811 )     (3,249,866 )     (400,811 )

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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):

   
Three months
   
Six months
 
   
ended September 30,
   
ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Balance at beginning of period
  $ 40,786,537       35,288,061       38,020,770       33,526,147  
                                 
Provision for loan losses
    25,156,035       23,307,132       45,584,298       41,164,045  
Loan losses
    (24,228,011 )     (22,115,145 )     (43,943,362 )     (40,288,288 )
Recoveries
    2,009,248       1,627,137       3,958,386       3,375,249  
Translation adjustment
    (41,465 )     (73,599 )     62,252       (44,715 )
Allowance on acquired loans
    -       87,061       -       388,209  
Balance at end of period
  $ 43,682,344       38,120,647       43,682,344       38,120,647  

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 pay 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 six months ended September 30, 2008, the Company recorded adjustments of approximately $87,000 and $388,000, 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 six months ended September 30, 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:

   
Three months ended September 30,
   
Six months ended September 30,
 
   
2009
   
2008
   
2009
   
2008
 
                         
Basic:
                       
Weighted average common shares outstanding (denominator)
    16,235,346       16,213,658       16,230,347       16,242,334  
                                 
Diluted:
                               
Weighted average common shares outstanding
    16,235,346       16,213,658       16,230,347       16,242,334  
Dilutive potential common shares
    182,911       279,052       139,473       292,340  
Weighted average diluted shares outstanding (denominator)
    16,418,257       16,492,710       16,369,820       16,534,674  

Options to purchase 133,474 and 49,251 shares of common stock at various prices were outstanding during the three months ended September 30, 2009 and 2008, respectively, but were not included in the computation of diluted EPS because the options are anti-dilutive.  Options to purchase 183,472 and 40,801 shares of common stock at various prices were outstanding during the six months ended September 30, 2009 and 2008.  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.
 
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NOTE 7 – STOCK-BASED COMPENSATION

Stock Option Plans

The Company has a 1992 Stock Option Plan, 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, 6,010,000 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 September 30, 2009, there were 823,023 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.

There were no option grants during the three or six months ended September 30, 2009 and 2008.

Option activity for the six months ended September 30, 2009 was as follows:

         
Weighted
 
Weighted
     
         
Average
 
Average
     
         
Exercise
 
Remaining
 
Aggregated
 
   
Shares
   
Price
 
Contractual Term
 
Intrinsic Value
 
                     
Options outstanding, beginning of year
    1,390,900     $ 25.00          
Granted
    -       -          
Exercised
    (15,700 )     8.94          
Forfeited
    (1,150 )     46.29          
Options outstanding, end of period
    1,374,050     $ 25.16  
6.74
  $
6,062,990
 
Options exercisable, end of period
    591,550     $ 23.20  
5.09
  $
3,490,508
 

The aggregate intrinsic value reflected in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on September 30, 2009 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.  The total intrinsic value of options exercised during the periods ended September 30, 2009 and 2008 were as follows:

   
2009
   
2008
 
Three months ended
  $ 235,131       529,773  
Six months ended
  $ 288,897       2,234,833  

As of September 30, 2009, total unrecognized stock-based compensation expense related to non-vested stock options amounted to approximately $4.8 million, which is expected to be recognized over a weighted-average period of approximately 3.02 years.

Restricted Stock

On April 30, 2009 and May 11, 2009 the Company granted 15,000 shares and 3,000 shares of restricted stock (which are equity classified), respectively, with a grant date fair value of $29.68 and $20.41, respectively, per share to independent directors and a certain officer.  All of these grants vested immediately.
 
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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 executive 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 29,100 shares of restricted stock (which are equity classified), with a grant date fair value of $16.85 per share, to the same 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:

   
Compounded
 
Vesting
 
Annual
 
Percentage
 
EPS Growth
 
100%
 
15% or higher
 
67%
 
12% - 14.99%
 
33%
 
10% - 11.99%
 
0%
 
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 its independent directors and a certain officer.  One-half of the restricted stock vested immediately and the other half vested on the first anniversary of the grant.

On November 28, 2007, the Company granted 20,800 shares of restricted stock (which are equity classified), with a grant date fair value of $30.94 per share, to certain executive officers.  One-third of the restricted stock vested immediately and one-third will vest on the first and second anniversary of grant.  On that same date, the Company granted an additional 15,150 shares of restricted stock (which are equity classified), with a grant date fair value of $30.94 per share, to the same executive officers.  The 15,150 shares will vest in three years based on the Company’s compounded annual EPS growth according to the following schedule:

   
Compounded
 
Vesting
 
Annual
 
Percentage
 
EPS Growth
 
100%
 
15% or higher
 
67%
 
12% - 14.99%
 
33%
 
10% - 11.99%
 
0%
 
Below 10%
 

On November 12, 2007, the Company granted 8,000 shares of restricted stock (which are equity classified), with a grant date fair value of $28.19 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 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 $221,000 and $279,000, respectively, of compensation expense for the quarters ended September 30, 2009 and 2008 and recognized $982,000 and $790,000, respectively, for the six months ended September 30, 2009 and 2008 related to restricted stock. Compensation expense related to restricted stock is included as a component of general and administrative expenses in the Company’s Consolidated Statements of Operations.  All shares are expected to vest.

As of September 30, 2009, there was approximately $0.7 million of unrecognized compensation cost related to unvested restricted stock awards granted, which is expected to be recognized over the next 1.6 years.

A summary of the status of the Company’s restricted stock as of September 30, 2009, and changes during the six months ended September 30, 2009, is presented below:

   
Number of
Shares
   
Weighted Average Fair Value
at Grant Date
 
Outstanding at March 31, 2009
    80,246     $ 22.94  
Granted during the period
    18,000       28.14  
Vested during the period
    (24,000 )     32.02  
Cancelled during the period
    (1,297 )     19.75  
Outstanding at September 30, 2009
    72,949     $ 21.29  
 
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Total share-based compensation included as a component of net income during the three months ended and six months ended September 30, 2009 and 2008 was as follows:

   
Three months ended
   
Six months ended
 
   
2009
   
2008
   
2009
   
2008
 
Share-based compensation related to equity classified units:
                       
Share-based compensation related to stock options
  $ 744,159       942,060     $ 1,486,500       1,892,205  
Share-based compensation related to restricted stock units
    221,393       278,662       981,888       789,986  
                                 
Total share-based compensation related to equity classified awards
  $ 965,552       1,220,722       2,468,388       2,682,191  

NOTE 8 – ACQUISITIONS

The following table sets forth the acquisition activity of the Company for the six months ended September 30, 2009 and 2008:

   
2009
   
2008
 
             
Number of offices purchased
    2