SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Quarter Ended June 30, 1994
Commission File No. 1-10176
Mercury Finance Company
(Exact name of registrant as specified in its charter)
Delaware 36-3627010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
40 Skokie Boulevard, Northbrook, Illinois 60062
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (708) 564-3720
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 such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each issuer's class of
common stock, as of the latest practicable date.
Common Stock - $1 par value, 115,997,152 shares as of August 10,
1994.
MERCURY FINANCE COMPANY
FORM 10-Q
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 4
Consolidated Statements of Income 6
Consolidated Statements of Changes
in Stockholders' Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 11
Consolidated Average Balance Sheets 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote
of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
INDEX OF EXHIBITS 25
Exhibit No. 11 - Computation of Net Income Per Share 26
Exhibit No. 12 - Ratio of Earnings to Fixed Charges 27
Exhibit No. 15 - Report of KPMG Peat Marwick regarding
unaudited interim financial information 28
Exhibit No. 23 - Consent of KPMG Peat Marwick 29
Exhibit No. 28 - Quarterly Report to Stockholders 30
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCURY FINANCE COMPANY
CONSOLIDATED BALANCE SHEETS
June 30 Dec. 31
(Dollars in thousands)
1994 1993 1993
(Unaudited)
ASSETS
Cash $13,164 $7,898 $11,621
Investments 10,732 9,754 10,533
Finance receivables 913,607 744,604 820,287
Less allowance for finance
credit losses (19,995) (17,224) (18,344)
Finance receivables,
net 893,612 727,380 801,943
Prepaid pension
expense 860 1,479 1,040
Deferred income taxes 6,568 4,248 5,511
Premises, fixtures and equipment at cost, net of accumulated
depreciation 3,350 2,443 2,745
Goodwill 9,850 10,349 10,113
Other assets (including
repossessions) 10,756 11,215 10,825
TOTAL ASSETS $948,892 $774,766 $854,331
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial
paper $309,209 $260,000 $260,260
Senior debt, term
notes 266,000 215,500 266,000
Subordinated debt 35,000 35,000 35,000
Accounts payable and other
liabilities 47,421 40,365 39,076
Income taxes payable 2,791 2,430 3,227
Reserves withheld,
dealers 67,580 52,373 57,241
TOTAL LIABILITIES 728,001 605,668 660,804
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value:
300,000,000 shares authorized
Jun 30 1994 - 115,976,409 shares outstanding
Jun 30 1993 - 115,364,504 shares outstanding
Dec 31 1993 - 115,648,624 shares outstanding
115,976 115,365 115,649
Paid in capital 5,541 499 2,856
Retained earnings 99,545 53,405 75,193
Treasury stock 63,206 shares
at cost (171) (171) (171)
TOTAL STOCKHOLDERS'
EQUITY 220,891 169,098 193,527
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY. $948,892 $774,766 $854,331
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands except per share amounts)
1994 1993 1994 1993
INTEREST INCOME
Finance charges, fees and other
interest $50,818 $41,106 $98,635 $75,570
Interest expense 9,302 8,635 17,831 16,034
Net interest income 41,516 32,471 80,804 59,536
Provision for finance
credit losses 1,409 1,722 3,175 3,286
Net interest income after provision for finance
credit losses 40,107 30,749 77,629 56,250
OTHER INCOME
Insurance
commissions 4,053 3,175 8,084 5,695
Insurance premiums 2,039 2,318 4,255 3,843
Fees and other 2,496 2,187 4,766 3,841
Total other income 8,588 7,680 17,105 13,379
OTHER EXPENSES
Salaries and employee
benefits 8,678 7,751 17,085 13,450
Occupancy expense 884 842 1,759 1,458
Equipment expense 408 315 801 549
Data processing
expense 636 503 1,255 943
Insurance claims
expense 544 1,309 1,260 1,799
Other operating
expenses 3,373 3,066 6,556 4,997
Total other
expenses 14,523 13,786 28,716 23,196
Income before
income taxes 34,172 24,643 66,018 46,433
Applicable income
taxes 13,170 9,299 25,461 17,387
Income before effect of accounting
change 21,002 15,344 40,557 29,046
Cumulative effect of accounting
change 0 0 0 234
NET INCOME $21,002 $15,344 $40,557 $29,280
NET INCOME PER COMMON SHARE
(adjusted for all
stock splits) $0.18 $0.13 $0.35 $0.25
Weighted average number of common and common share equivalents
outstanding 117,221 116,840 117,223 116,705
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands) 1994 1993 1994 1993
COMMON STOCK
Balance at beginning
of period $115,769 $ 86,309 $115,649 $86,125
Stock options
exercised 207 235 327 419
Stock split 0 28,821 0 28,821
Balance at June 30 $115,976 $115,365 $115,976 $115,365
PAID IN CAPITAL
Balance at beginning
of period $3,900 $6,888 $2,856 $5,274
Stock options
exercised 857 1,582 1,460 2,429
Tax benefit from stock options
exercised 784 774 1,225 1,541
Transfer from Retained
Earnings 0 20,076 0 20,076
Stock split 0 (28,821) 0 (28,821)
Balance at June 30 $5,541 $499 $5,541 $499
RETAINED EARNINGS
Balance at beginning of
period $86,654 $62,889 $75,193 $53,692
Net income 21,002 15,344 40,557 29,280
Dividends (8,111) (4,752) (16,205) (9,491)
Transfer to Paid
in Capital 0 (20,076) 0 (20,076)
Balance at June 30 $99,545 $53,405 $99,545 $53,405
TREASURY STOCK
Balance at beginning of
period ($171) ($171) ($171) ($171)
Purchases 0 0 0 0
Retirements 0 0 0 0
Balance at June 30 ($171) ($171) ($171) ($171)
Total stockholders'
equity $220,891 $169,098 $220,891 $169,098
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands) 1994 1993 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $21,002 $15,344 $40,557 $29,280
Adjustments to reconcile net income to net cash
provided by operating activities: Provision for finance
credit losses 1,409 1,722 3,175 3,286
Net finance receivables charged off against allowance for finance
credit losses (692) (990) (1,524) (1,716)
Provision for deferred income
taxes (366) 117 (1,057) (42)
Depreciation 214 168 426 283
Amortization of
goodwill 132 128 264 128
Net (increase) decrease in other
assets (1,656) (1,325) 249 (769)
Net increase (decrease) in other
liabilities (6,756) 2,521 18,248 20,849
Net cash provided by operating
activities 13,287 17,685 60,338 51,299
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance
receivables 173,702 151,590 340,546 269,686
Finance receivables originated
or acquired (214,796) (186,527) (433,866) (346,350)
Net (increase) decrease in investment
securities 1,026 8,267 (199) (3,575)
Purchases of properties and
equipment (264) (171) (1,031) (340)
Net cash used in investing
activities (40,332) (26,841) (94,550) (80,579)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in
commercial paper 33,358 46,560 48,949 55,029
Senior debt retired 0 (30,000) 0 (30,000)
Senior debt issued 0 0 0 35,000
Subordinated debt
retired 0 (6,000) 0 (6,000)
Stock options
exercised 1,848 2,591 3,012 4,389
Dividends paid (8,111) (4,752) (16,206) (9,491)
Assets acquired 0 (55,519) 0 (55,519)
Liabilities assumed 0 43,746 0 43,746
Net assets acquired 0 (11,773) 0 (11,773)
Excess of purchase price over net
assets acquired 0 (10,477) 0 (10,477)
Net cash provided by financing
activities 27,095 (13,851) 35,755 26,677
Net increase (decrease) in cash and
cash equivalents 50 (23,007) 1,543 (2,603)
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 13,114 25,224 11,621 4,820
CASH AND CASH EQUIVALENTS
ACQUIRED 0 5,681 0 5,681
CASH AND CASH EQUIVALENTS END
OF PERIOD $13,164 $7,898 $13,164 $7,898
SUPPLEMENTAL DISCLOSURES
Income taxes paid to federal and state
governments $24,667 $16,384 $25,896 $17,316
Interest paid to
creditors $10,404 $9,037 $17,877 $15,302
MERCURY FINANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Mercury Finance
Company and Subsidiaries are unaudited, but in the opinion of
management reflect all necessary adjustments, consisting only of
normal recurring accruals, for a fair presentation of results as of
the dates and for the periods covered by the financial statements.
The results for the interim periods are not necessarily indicative
of the results of operations that may be expected for the fiscal
year. It is suggested that the unaudited interim consolidated
financial statements contained herein be used in conjunction with
the financial statements and the accompanying notes to the
financial statements included in the Company's 1993 Annual Report.
2. Net income per common share amounts are based on the average
number of common shares and common stock equivalents outstanding.
All per share amounts have been adjusted to reflect all stock
splits declared by the Company.
3. During the first quarter of 1993 the Company recognized a one
time tax benefit of $234 thousand upon implementation of FASB #109.
This resulted primarily from taxable temporary differences
associated with the loss reserve.
4. On August 4, 1994, a jury verdict of $90,000.00 in actual
damages and $50,000,000.00 in punitive damages was entered in
Barbour County, Alabama against a subsidiary of the Company.
Management considers the verdict eminently unjust, and intends to
pursue all possible post-trial legal remedies. Although the
ultimate resolution can not be predicted with certainty, Management
does not believe such resolution will have a material effect on the
Company's financial position.
MERCURY FINANCE COMPANY
CONSOLIDATED AVERAGE BALANCE SHEETS
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands) 1994 1993 1994 1993
ASSETS
Cash $12,629 $10,934 $13,047 $9,551
Investments 11,746 12,101 11,497 8,500
Finance receivables 892,076 726,745 865,564 681,735
Less allowance for finance
credit losses (19,617) (16,852) (19,149) (15,203)
Finance receivables,
net 872,459 709,893 846,415 666,532
Prepaid pension
expense 1,040 1,479 1,040 1,479
Deferred income
taxes 6,377 4,143 6,075 4,219
Furniture, fixtures and equipment, net of accumulated
depreciation 3,314 2,446 3,243 2,022
Other assets (including repossessions &
goodwill) 19,422 15,078 19,620 11,983
TOTAL ASSETS $926,987 $756,074 $900,937 $704,286
LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES
Senior debt,
commercial paper $288,452 $225,477 $273,517 $209,630
Senior debt,
term notes 266,000 232,167 266,000 206,750
Subordinated debt 35,000 40,000 35,000 40,500
Accounts payable and other
liabilities 52,605 41,659 51,140 40,981
Income taxes payable 8,439 6,590 8,791 6,338
Reserves withheld,
dealers 65,818 49,170 62,747 45,395
TOTAL LIABILITIES 716,314 595,063 697,195 549,594
STOCKHOLDERS' EQUITY
Common stock 115,871 91,232 115,787 88,716
Paid in capital 4,694 6,786 4,026 6,355
Retained earnings 90,279 63,164 84,100 59,792
Treasury stock (171) (171) (171) (171)
TOTAL STOCKHOLDERS'
EQUITY 210,673 161,011 203,742 154,692
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $926,987 $756,074 $900,937 $704,286
NUMBER OF DAYS 91 91 181 181
MONTHS COMPLETED 3 3 6 6
RATIOS
Return on average
equity 39.88% 38.12% 39.81% 37.86%
Return on average
assets 9.06% 8.12% 9.00% 8.31%
Yield on earning
assets 22.49% 22.25% 22.49% 21.90%
Rate on interest bearing
liabilities 6.33% 6.96% 6.26% 7.08%
Net interest margin 18.36% 17.57% 18.39% 17.21%
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Mercury Finance Company ("Mercury"), ("Company") is a consumer
finance company engaged in the business of purchasing individual
installment sales finance contracts from automobile dealers and
retail vendors, extending short term installment loans directly to
consumers and selling credit insurance and other related products.
Mercury's operating subsidiaries commenced operations in February
1984 for the purpose of penetrating the market for small dollar
amount consumer loans (average of $3,000 or less). The initial
focus was toward small, short term, direct installment loans made
to U.S. military servicemen. Building on this direct lending
niche, Mercury has also built a substantial, diversified consumer
finance portfolio by purchasing individual sales finance contracts
from automobile dealers and retail vendors.
On April 1, 1993 Mercury acquired all the shares of Gulfco
Investment Inc. for $22.3 million in cash. Gulfco Investment Inc.
was the parent company which owned all of the stock of Gulfco
Finance Company and Gulfco Life Insurance Company. Gulfco Finance
Company conducted its consumer finance business through a branch
network of 62 offices located in Louisiana, Mississippi, and Texas.
The acquisition was accounted for under the purchase method of
accounting. Accordingly their results of operations have been
included in the consolidated financial statements since the date of
acquisition. The excess of cost over fair value of net assets
acquired (goodwill) relating to the acquisition is being amortized
over twenty years on the straight line method.
Mercury's loans range from periods from 3 months to 48 months at
annual interest rates ranging, with minor exceptions, from 18% to
40%. Generally all loans are repayable in monthly installments.
Generally late payment fees are assessed to accounts which fail to
make their scheduled payments within 10 days of the schedule due
date.
Direct finance receivables on which no payment is received within
149 days, on a recency basis, are charged off. Sales finance
receivables which are contractually delinquent 150 days are charged
off in the month before they become 180 days delinquent. Accounts
which are deemed uncollectible prior to the maximum charge off
period are charged off immediately. Management may authorize an
extension if collection appears imminent during the next calendar
month.
Accounts which become 60 or more days contractually delinquent and
no full contractual payment is received in the month the account
attains such delinquency status cease earning interest.
The following is management's discussion and analysis of the
consolidated financial condition of the Company at June 30, 1994
(unaudited) when compared with June 30, 1993 (unaudited) and
December 31, 1993, and the results of operations for the three and
six months ended June 30, 1994 and 1993 (unaudited). This
discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto
appearing elsewhere in this quarterly report.
FINANCIAL CONDITION
Assets and Finance Receivables
Total assets of the Company increased 22% to $948.9 million from
$774.8 million one year ago. Finance receivables increased 23% to
$913.6 million at June 30, 1994. The increase in assets and
finance receivables were primarily attributable to the production
of receivables from the increase number of offices operated by the
Company and increased volume in existing offices.
During the period from December 31, 1993 through June 30, 1994
total assets and finance receivables increased 22% and 23%
respectively on an annualized basis.
The Company's offices in Florida, Texas and Illinois accounted for
approximately 49% of all finance receivables, with the remainder
being originated in the other 21 states where offices are located.
The total number of offices at June 30, 1994 was 232 compared to
210 at June 30, 1993 and 218 at December 31, 1993.
The following table summarizes the composition of finance
receivables at the dates indicated (dollars in thousands):
June 30, 1994 June 30, 1993 Dec. 31, 1993
% of % of % of
Amount Total Amount Total Amount Total
Sales finance
receivables $1,024,551 91% $825,672 90% $905,223 90%
Direct finance
receivables 96,101 9% 89,561 10% 99,294 10%
Total gross finance
receivables 1,120,652 100% 915,233 100% 1,004,517 100%
Unearned finance
charges (197,511) (158,830) (174,440)
Unearned insurance commissions, insurance premiums and insurance
reserves (9,534) (11,799) (9,790)
Finance
receivables $913,607 $744,604 $820,287
Allowance and Provision for Finance Credit Losses
The Company maintains an allowance for finance credit losses at a
level which, in the opinion of management, provides adequately for
current and possible future losses in the finance receivables
portfolio. Management evaluates allowance requirements by
examining current delinquencies, the characteristics of the
accounts, the value of the underlying collateral, and general
economic conditions and trends. Management also evaluates the
availability of dealer reserves to absorb finance credit losses.
A provision for losses is charged to earnings in an amount
sufficient to maintain the allowance. The following table sets
forth a reconciliation of the changes in the allowance for finance
credit losses for the six month periods ended June 30, 1994
(dollars in thousands):
1994 1993
Balance at beginning of period $18,344 $13,198
Acquisition 0 2,456
Provision charged to expense 3,175 3,286
Finance receivables charged-off (2,263) (2,185)
Recoveries 739 469
Balance at June 30 $19,995 $17,224
Allowance as a percent of finance receivables
outstanding at end of period 2.19% 2.32%
The increase in the provision and allowance for finance credit
losses in 1994 is primarily attributable to the increase in finance
receivables outstanding.
Reserves Withheld, Dealers
Individual sales finance contracts are purchased pursuant to formal
agreements with local merchants negotiated at the branch office
level. As part of Mercury's financing of sales finance contracts,
arrangements are entered into with dealers, whereby reserves are
established to protect Mercury from potential losses associated
with such contracts. As part of Mercury's agreement with the
dealers, a portion of the proceeds from the sales finance contracts
are retained by Mercury and are available to Mercury to charge
specific accounts against. Mercury negotiates the amount of the
reserves with the dealers based upon various criteria, one of which
is the credit risk associated with the sales finance contracts
being purchased. Dealer reserves amounted to $67.6 million and
$52.4 million at June 30, 1994 and 1993 respectively.
Debt
The primary source for funding the Company's finance receivables
comes from the issuance of debt. At June 30, 1994 the Company had
total debt of $610.2 million which compares with $510.5 million at
June 30, 1993.
In addition to the Company's outstanding debt the Company has
revolving credit facilities and a back up line of credit which
total $330 million. The new revolving credit facilities were
entered into on September 15, 1993 and and replaced a prior
revolving credit facility which totalled $225.0 million. The
revolving credit facilities and the back up line are totally
available for use by the Company and at June 30, 1994 nothing was
outstanding under these arrangements.
The following table presents the Company's debt instruments and the
stated interest rates on the debt at the periods indicated (dollars
in thousands):
June 30, 1994 June 30, 1993 Dec. 31, 1993
Balance Rate Balance Rate Balance Rate
Senior Debt: Commercial
paper $309,209 4.5% $260,000 3.4% $260,260 3.5%
Term notes 266,000 7.2% 215,500 8.2% 266,000 7.2%
Subordinated
debt 35,000 10.2% 35,000 10.2% 35,000 10.2%
Total $610,209 6.0% $510,500 5.9% $561,260 5.7%
The interest rates reflected in the preceding table do not include
amortized costs related to the issuance of debt, costs related to
the maintenance of credit line facilities and the interest
differential related to interest exchange agreements. The effect
of these costs, which are included in interest expense in the
consolidated financial statements, increases the effective interest
rate by approximately 36 basis points at June 30, 1994.
The following table sets forth information with respect to
maturities of senior and subordinated debt at June 30, 1994
(dollars in thousands):
Senior Debt Senior Debt Subordinated
Maturity Commercial Paper Term Notes Debt Total
1994 $309,209 33,500 - $342,709
1995 - 25,000 - 25,000
1996 - 40,000 - 40,000
1997 - 56,500 20,000 76,500
1998 - 111,000 15,000 126,000
1999 - - - -
Total $309,209 $266,000 $35,000 $610,209
The Company has also entered into various interest exchange
agreements in order to effectively fix the rate of interest paid on
various variable rate and short term debt instruments. The
following table provides the detail of the interest exchange
agreements at June 30, 1994 (dollars in thousands):
Notional Interest
Maturity Amount Rate
1994 $5,000 8.55%
Stockholders' Equity
The other primary source for funding the growth in finance
receivables comes from the retention of earnings by the Company and
the exercise of stock options by eligible employees. Total
stockholders' equity at June 30, 1994 was $220.9 million which
compares with $169.1 million at June 30, 1993 and $193.5 million at
December 31, 1993. For the six months ended June 30, 1994 the
Company had net income of $40.6 million and paid cash dividends of
$16.2 million resulting in a retention of 60% of current earnings.
In addition, eligible employees of the Company exercised options to
purchase shares resulting in $2.7 million also being added to the
equity of the Company.
At June 30, 1994 stockholders' equity stated as a percent of total
assets was 23.3% which compares with 21.8% at June 30, 1993 and
22.7% at December 31, 1993.
RESULTS OF OPERATIONS
Net Income
For the three and six months ended June 30, 1994 the Company had
net income of $21.0 million and $40.6 million which represent
increases of 37% and 39% from the $15.3 million and $29.3 million
earned in 1993. The increase in net income is primarily
attributable to income derived from increased finance receivables
outstanding resulting from additional offices opened in 1994 and
1993 and increased volume in existing offices, and a reduction in
overall interest rates paid on debt placed by the Company.
Interest Income and Interest Expense
The largest single component of net income is net interest income
which is the difference between interest earned on finance
receivables and interest paid on borrowings. For the three and six
months ended June 30, 1994 the Company's net interest income was
$41.5 million and $80.8 million an increase of 28% and 36% from
1993. The net interest margin which is the ratio of net interest
income divided by average interest earning assets was 18.36% for
the three months ended June 30, 1994 and 18.39% for the six months
ended June 30, 1994. This compares with a net interest margin of
17.57% and 17.21% for the three and six months ended June 30, 1993.
The change in net interest margin is primarily attributable to
interest rate changes on the Company's various debt instruments.
The following tables summarize the amount of the net interest
margin for the three and six months ended June 30 (dollars in
thousands):
1994 1993
Three Months Ended Annualized Annualized
Average Interest Rate Average Interest Rate
Out- Income/ Earned Out- Income/ Earned
standing Expense and Paid standing Expense and Paid
Interest earning
assets $903,822 $50,818 22.49% $738,846 $41,106 22.25%
Interest bearing
liabilities 589,452 9,302 6.33% 497,644 8,635 6.96%
Net $314,370 $41,516 16.16% $241,202 $32,471 15.29%
Net interest margin as a percentage of average interest
earning assets 18.36% 17.57%
1994 1993
Six Months Ended Annualized Annualized
Average Interest Rate Average Interest Rate
Out- Income/ Earned Out- Income/ Earned
standing Expense and Paid standing Expense and Paid
Interest earning
assets $877,061 $98,635 22.49% $690,235 $75,570 21.90%
Interest bearing
liabilities 574,517 17,831 6.26% 456,880 16,034 7.08%
Net $302,544 $80,804 16.23% $233,355 $59,536 14.82%
Net interest margin as a percentage of average interest
earning assets 18.39% 17.21%
Other Income
In addition to finance charges and interest, the Company derives
commission income from the sale of other credit related products.
These products include insurance relating to the issuance of credit
life, accident and health and other credit insurance policies to
borrowers of the Company. Other credit-related sources of revenue
are derived from the sale of other products and services.
Insurance premiums are earned by the life insurance subsidiary as
a reinsurer of credit life and accident and health policies issued
through the Company's branch offices.
For the three and six months ended June 30, 1994, the Company
experienced increases in its insurance commissions which are
attributable to the additional loan volume, the inclusion of the
Gulfco branches acquired in 1993 and the increased number of
borrowers obtaining these types of products and the acquisition of
Gulfco Investment, Inc. The following table summarizes the amounts
earned from these products for the three and six months ended June
30 (dollars in thousands):
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Insurance
commissions $4,053 $3,175 $8,084 $5,695
Insurance premiums 2,039 2,318 4,255 3,843
Vehicle protection club
memberships 1,016 974 1,852 1,709
Fees and other 1,480 1,213 2,914 2,132
Total $8,588 $7,680 $17,105 $13,379
Other income as a % of average interest earnings assets
(Annualized) 3.80% 4.16% 3.90% 3.88%
Other Expenses
In addition to interest expense and the provision for finance
credit losses, the Company incurs other operating expenses in the
conduct of its business.
The following table summarizes the components of other expenses for
the three and six months ended June 30 (dollars in thousands):
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Salaries and employees
benefits $8,678 $7,751 $17,085 $13,450
Insurance claims
expense 544 1,309 1,260 1,799
Other operating
expenses 5,301 4,726 10,371 7,947
Total $14,523 $13,786 $28,716 $23,196
Other expenses as a % of average interest earning assets
(Annualized) 6.43% 7.47% 6.54% 6.73%
Income Taxes
Income taxes increased due to a higher level of pretax income in
1994. The increase in the effective tax rate from 37.4% in 1993 to
38.6% in 1994 was primarily due to the increase in the Federal
income tax rate from 34% to 35%.
During the first quarter of 1993 the Company recognized a one time
tax benefit of $234 thousand upon implementation of FASB #109.
CREDIT LOSSES AND DELINQUENCIES
Credit Losses
Direct finance receivables on which no payment is received within
149 days, on a recency basis, are charged off. Sales finance
receivable accounts which are contractually delinquent 150 days are
charged off monthly before they become 180 days delinquent.
Accounts which are deemed uncollectible prior to the maximum charge
off period are charged off immediately. Management may authorize
an extension if collection appears imminent during the next
calendar month. The following table sets forth information
relating to charge-offs, the allowance for finance credit losses
and dealer reserves:
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Loss provision charged
to income $1,409 $1,722 $3,175 $3,286
Charge-offs net
of recoveries 692 990 1,524 1,716
Allowance for finance credit losses at end
of period 19,995 17,224
Dealer reserves at end of period 67,580 52,373
Ratios:
Net charge offs (annualized) against allowance to average finance
receivables .31% .54% .35% .50%
Allowance for finance credit losses to net finance receivables at
end of period 2.19% 2.32%
Dealer reserves to gross sales finance receivables
at end of period 6.60% 6.39%
Delinquencies
If an account becomes 60 or more days contractually delinquent and
no full contractual payment is received in the month the account
attains such delinquency status, it is classified as delinquent.
The following table sets forth certain information regarding 60 day
and greater contractually delinquent accounts at June 30 (dollars
in thousands):
June 30, 1994 June 30, 1993
% of related % of related
Gross Outstanding Gross Outstanding
Receivable Receivable
Amount Balance Amount Balance
Sales finance
receivables $4,985 .49% $5,444 .66%
Direct finance
receivables 2,969 3.09% 2,977 3.32%
Total $7,954 .71% $8,421 .92%
The increase in delinquency rate for direct finance receivables was
primarily attributable to the inclusion of receivables and
delinquency from the Gulfco acquisition.
LIQUIDITY AND FINANCIAL RESOURCES
Because the consumer finance business involves the purchase and
carrying of receivables, a relatively high ratio of borrowings to
net worth is customary and is an important element in the Company's
operations. The Company endeavors to maximize its liquidity by
diversifying its sources of funds which include (a) cash from
operations, (b) the issuance of short term commercial paper, and
(c) direct borrowings available from commercial banks and insurance
companies, consisting of short term lines of credit and long term
senior and subordinated notes. Most of the assets are at fixed
rates, and have an average initial maturity of approximately 26
months. Of the Company's total debt, 50% has an original maturity
of greater than one year at a fixed rate of interest or is hedged
with interest rate exchange agreements.
The Company also maintains back up lines of credit totalling $20
million and revolving credit facilities totalling $310 million. At
June 30, 1994 the Company had no debt outstanding under these
credit arrangements.
SUBSEQUENT EVENT
On August 4, 1994, a jury verdict of $90,000.00 in actual damages
and $50,000,000.00 in punitive damages was entered in Barbour
County, Alabama against a subsidiary of the Company. Management
considers the verdict eminently unjust, and intends to pursue all
post-trial legal remedies. Although the ultimate resolution can
not be predicted with certainty, Management does not believe such
resolution will have a material effect on the Company's financial
position.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders -
None
Item 5. Other Information - Not Applicable
Item 6. (a) Exhibits - See Exhibit Index following the signature
page
(b) Reports on Form 8-K - No reports on Form 8-K
were filed during the second quarter of 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MERCURY FINANCE COMPANY
(Registrant)
Date: August 12, 1994 /s/ John N. Brincat
John N. Brincat
President & Chief
Executive Officer
(Duly Authorized Officer)
Date: August 12, 1994 /s/ James A. Doyle
James A. Doyle
Senior Vice President,
Controller & Principal
Accounting Officer
Date: August 12, 1994 /s/ Charley A. Pond
Charley A. Pond
Vice President, Treasurer
& Principal Financial Officer
INDEX OF EXHIBITS
Exhibit No. Description
11. Computation of Net Income Per Share
12. Ratio of Earnings to Fixed Charges
15. Report of KPMG Peat Marwick regarding
unaudited interim financial information.
23. Consent of KPMG Peat Marwick.
28. Quarterly Report to Stockholders
MERCURY FINANCE COMPANY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Net income per share is computed by dividing net income by the
total of the weighted average common shares and common stock
equivalents outstanding during the period. Average common shares
and common stock equivalents have been adjusted to reflect the
four-for-three stock splits of Mercury Finance Company distributed
to stockholders on December 28, 1989, October 31, 1990, June 10,
1991 and December 5, 1991, the two-for-one stock split distributed
on June 19, 1992 and the four-for-three stock split distributed on
June 22, 1993.
Three Months Ended Six Months Ended
(Dollars in thousands except per share amounts)
1994 1993 1994 1993
INCOME DATA:
1. Net income Mercury Finance
Company $21,002 $15,344 $40,557 $29,280
2. Weighted average common shares outstanding (adjusted for
stock split) 115,872 115,237 115,788 115,087
3. Treasury stock (64) (64) (64) (64)
EFFECT OF COMMON STOCK EQUIVALENTS (C.S.E.):
4. Weighted average shares reserved for
stock options 1,413 1,667 1,499 1,682
NET INCOME PER COMMON SHARE:
5. Weighted average common share and common stock equivalents
(line 2+3+4) 117,221 116,840 117,223 116,705
6. Mercury Finance Company net income per share
(line 1 line 5) $0.18 $0.13 $0.35 $0.25
MERCURY FINANCE COMPANY
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
(Dollars in thousands except per share amounts)
1994 1993 1994 1993
Net income $21,002 $15,344 $40,557 $29,280
Provision for income
taxes 13,170 9,299 25,461 17,387
Add Fixed Charges:
Cost of borrowings 9,302 8,635 17,831 16,034
One-thrid of rentals 254 224 502 401
Total fixed charges 9,556 8,859 18,333 16,435
Total net income, provision for income taxes and fixed charges
"earnings" $43,728 $33,502 $84,351 $63,102
Ratio of earnings to
fixed charges 4.58 3.78 4.60 3.84
KPMG Peat Marwick Exhibit No. 15
Certified Public Accountants
Independent Auditors' Report
The Board of Directors
Mercury Finance Company
Northbrook, Illinois
We have reviewed the consolidated balance sheets of Mercury Finance
Company and Subsidiaries as of June 30, 1994 and 1993, and the
related consolidated statements of income, changes in stockholders'
equity and cash flows for the three month and six month periods
then ended, in accordance with the standards established by the
American Institute of Certified Public Accountants.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of
interim financial information, applying analytical review
procedures to financial data, and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Mercury
Finance Company and subsidiaries as of December 31, 1993, and the
related consolidated statements of income, changes in stockholders'
equity and cash flows for the year then ended (not presented
herein); and in our report dated January 21, 1994, we expressed an
unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1993, is fairly
presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick
Chicago, Illinois
July 3, 1994
KPMG Peat Marwick Exhibit No. 23
Certified Public Accountants
The Board of Directors
Mercury Finance Company
Northbrook, Illinois
Re: Registration Statement No. 33-28513 on Form S-8
Registration Statement No. 33-28693 on Form S-8
Registration Statement No. 33-29587 on Form S-8
Gentlemen:
With respect to the subject Registration Statements, we acknowledge
our awareness of the incorporation by reference therein of our
report dated July 3, 1994 related to our review of interim
financial information.
Pursuant to Rule 436(c) under the Securities Act, such a report is
not considered a part of a Registration Statement prepared or
certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG Peat Marwick
Chicago, Illinois
August 12, 1994
QUARTERLY REPORT TO STOCKHOLDERS
