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 March 31, 1995 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, 117,039,126 shares as of April 28,
1995.
Treasury Stock - 1,983,105 shares as of April 28, 1995.
<PAGE>
MERCURY FINANCE COMPANY
FORM 10-Q
<TABLE>
INDEX PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5
Consolidated Average Balance Sheets 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
INDEX OF EXHIBITS 19
Exhibit No. 11 - Computation of Net Income Per Share 20
Exhibit No. 12 - Ratio of Earnings to Fixed Charges 21
Exhibit No. 15 - Report of KPMG Peat Marwick LLP
regarding unaudited interim financial
information 22
Exhibit No. 23 - Consent of KPMG Peat Marwick LLP 23
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MERCURY FINANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 Dec. 31
(Dollars in thousands) 1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash $15,972 $13,114 $19,980
Investments 13,795 11,758 14,184
Finance receivables 1,099,173 872,513 1,039,867
Less allowance for finance
credit losses (23,606) (19,278) (22,488)
Less Nonrefundable dealer
reserves (69,908) (63,689) (66,477)
-------- --------- --------
Finance receivables, net 1,005,659 789,546 950,902
Prepaid pension expense 507 1,040 507
Deferred income taxes 7,999 6,202 7,290
Furniture, fixtures and
equipment, net of
accumulated depreciation 3,477 3,300 3,492
Goodwill 15,201 9,981 15,404
Other assets (including
repossessions) 21,565 8,921 24,644
-------- -------- --------
TOTAL ASSETS $1,084,175 $843,862 $1,036,403
===== ===== =====
LIABILITIES AND STOCKHOLDERS'
EQUITY
LIABILITIES
Senior debt, commercial
paper and notes $470,066 $275,851 $449,945
Senior debt, term notes 265,375 266,000 265,375
Subordinated debt 35,500 35,000 35,500
Accounts payable and other
liabilities 62,932 46,571 53,401
Income taxes payable 17,745 14,288 4,668
-------- --------- ---------
TOTAL LIABILITIES 851,618 637,710 808,889
-------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock - $1.00 par
value: 300,000,000 shares
authorized
Mar 31 1995 - 116,250,826
shares outstanding
Mar 31 1994 - 115,769,306
shares outstanding
Dec 31 1994 - 116,079,703
shares outstanding 116,251 115,769 116,080
Paid in capital 7,621 3,900 6,384
Retained earnings 133,755 86,654 128,157
Treasury stock 1,983,105
shares at cost at
March 31, 1995 (25,070) (171) (23,107)
-------- -------- ---------
TOTAL STOCKHOLDERS' EQUITY 232,557 206,152 227,514
-------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,084,175 $843,862 $1,036,403
===== ===== =====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
<TABLE>
(Unaudited) Three Months Ended
(Dollars in thousands except
per share amounts) 1995 1994
<S> <C> <C>
INTEREST INCOME
Finance charges, fees and other interest $62,395 $47,816
Interest expense 13,110 8,528
-------- ----------
Net interest income 49,285 39,288
Provision for finance credit losses 2,424 1,766
---------- --------
Net interest income after provision for
finance credit losses 46,861 37,522
---------- ---------
OTHER INCOME
Insurance commissions 7,530 4,030
Insurance premiums 2,443 2,216
Fees and other 2,768 2,270
---------- --------
Total other income 12,741 8,516
---------- --------
OTHER EXPENSES
Salaries and employee benefits 11,203 8,406
Occupancy expense 1,127 875
Equipment expense 461 393
Data processing expense 741 619
Insurance claims expense 627 716
Other operating expenses 5,082 3,183
---------- --------
Total other expenses 19,241 14,192
---------- --------
Income before income taxes 40,361 31,846
Applicable income taxes 15,350 12,290
---------- --------
NET INCOME $25,011 $19,556
===== ====
NET INCOME PER COMMON SHARE
(adjusted for all stock splits) $0.22 $0.17
===== ====
Weighted average number of common and
common share equivalents outstanding 115,346 117,224
===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'EQUITY
THREE MONTHS ENDED MARCH 31
<TABLE>
(Unaudited) Three Months Ended
(Dollars in thousands) 1995 1994
<S> <C> <C>
COMMON STOCK
Balance at beginning of period $116,080 $115,649
Stock options exercised 171 120
Stock split 0 0
---------- --------
Balance at March 31 $116,251 $115,769
===== =====
PAID IN CAPITAL
Balance at beginning of period $6,384 $2,856
Stock options exercised 689 603
Tax benefit from stock options exercised 548 441
Transfer from Retained Earnings 0 0
Stock split 0 0
---------- --------
Balance at March 31 $7,621 $3,900
===== ====
RETAINED EARNINGS
Balance at beginning of period $128,157 $75,193
Net income 25,011 19,556
Dividends (19,413) (8,095)
Transfer to Paid in Capital 0 0
---------- --------
Balance at March 31 $133,755 $86,654
===== =====
TREASURY STOCK
Balance at beginning of period ($23,107) ($171)
Purchases (143,400 shares) (1,963) 0
Retirements 0 0
Balance at March 31 ($25,070) ($171)
===== ====
Total stockholders' equity $232,557 $206,152
===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
<TABLE>
(Unaudited) Three Months Ended
(Dollars in thousands) 1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $25,011 $19,556
Adjustments to reconcile net income
to net cash provided by
operating activities:
Provision for finance credit losses 2,424 1,766
Net finance receivables charged off
against allowance for finance
credit losses (1,306) (832)
Provision for deferred income taxes (709) (691)
Depreciation 251 212
Amortization of goodwill 203 132
Net (increase) decrease in other assets 3,079 1,904
Net increase (decrease) in other
liabilities 22,608 18,556
Net increase (decrease) in
nonrefundable dealer reserves 3,431 6,448
---------- --------
Net cash provided by operating
activities 54,992 47,051
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance
receivables 187,331 166,844
Finance receivables originated or
acquired (246,637) (219,070)
Net (increase) decrease in
investment securities 389 (1,225)
Purchases of properties and equipment (236) (767)
---------- --------
Net cash used in investing activities (59,153) (54,218)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in commercial
paper and notes 20,121 15,591
Stock options exercised 1,408 1,164
Dividends paid (19,413) (8,095)
Treasury stock acquired (1,963) 0
---------- --------
Net cash provided by financing activities 153 8,660
---------- --------
Net increase (decrease) in cash and
cash equivalents (4,008) 1,493
CASH AND CASH EQUIVALENTS BEGINNING
OF PERIOD 19,980 11,621
---------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $15,972 $13,114
===== =====
SUPPLEMENTAL DISCLOSURES
Income taxes paid to federal and
state governments $2,448 $1,229
===== =====
Interest paid to creditors $11,988 $7,473
===== =====
</TABLE>
<PAGE>
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 1994 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. Certain data from the prior year has been reclassified to
conform to the 1995 presentation.
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED AVERAGE BALANCE SHEETS
THREE MONTHS ENDED MARCH 31
<TABLE>
(Unaudited) Three Months Ended
(Dollars in thousands) 1995 1994
<S> <C> <C>
ASSETS
Cash $17,786 $13,464
Investments 13,240 11,248
Finance receivables 1,065,226 839,051
Less allowance for finance credit losses (22,955) (18,681)
Less nonrefundable dealer reserves (67,931) (59,675)
---------- --------
Finance receivables, net 974,340 760,695
Prepaid pension expense 507 1,040
Deferred income taxes 7,531 5,772
Furniture, fixtures and equipment,
net of accumulated depreciation 3,482 3,172
Other assets (including
repossessions & goodwill) 37,622 19,821
---------- --------
TOTAL ASSETS $1,054,508 $815,212
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper $453,593 $258,582
Senior debt, term notes 265,375 266,000
Subordinated debt 35,500 35,000
Accounts payable and other liabilities 61,004 49,677
Income taxes payable 10,857 9,143
---------- --------
TOTAL LIABILITIES 826,329 618,402
---------- --------
STOCKHOLDERS' EQUITY
Common stock 116,202 115,703
Paid in capital 7,230 3,358
Retained earnings 129,490 77,920
Treasury stock (24,743) (171)
---------- --------
TOTAL STOCKHOLDERS' EQUITY 228,179 196,810
---------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,054,508 $815,212
===== =====
NUMBER OF DAYS 90 90
MONTHS COMPLETED 3 3
RATIOS (Annualized)
Return on average equity 43.84% 39.75%
Return on average assets 9.49% 9.60%
Yield on earning assets 23.14% 22.49%
Rate on interest bearing liabilities 7.05% 6.18%
Net interest margin 18.21% 18.43%
</TABLE>
<PAGE>
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 concern 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 the U.S. military servicemen. Building on this direct lending
niche, Mercury has also built a substantial, diversified consumer
finance portfolio by purchasing individual installment sales
finance contracts from retail vendors and automobile dealers.
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.
On September 30, 1994 Mercury acquired all the shares of Midland
Finance Co. for $15.1 million in cash and the assumption of its net
liabilities. Midland Finance Co. conducted its consumer finance
business through a central office in Chicago, Illinois. The
acquisition was accounted for under the purchase method of
accounting. Accordingly their results of operations have been
included in the consolidated financial statements of income and
statements of cash flow 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 for periods from 3 months to 48 months at
annual interest rates ranging, with minor exception, 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 scheduled due
date.
<PAGE>
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 March 31, 1995
(unaudited) when compared with March 31, 1994 (unaudited) and
December 31, 1994 and the results of operations for the three
months ended March 31, 1995 and 1994 (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 28% to $1,084.2 million from
$843.9 million one year ago. Finance receivables increased 26% to
$1,099.2 million at March 31, 1995. The increase in assets and
finance receivables were primarily attributable to the production
of receivables from the increased number of offices operated by the
Company, the inclusion of the Midland branch acquired in 1994 and
increased volume in existing offices.
During the period from December 31, 1994 through March 31, 1995
total assets and finance receivables increased 18% and 22%
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 23 states where offices are located.
The total number of offices at March 31, 1995 was 252 compared to
224 at March 31, 1994 and 247 at December 31, 1994.
<PAGE>
The following table summarizes the composition of finance
receivables at the dates indicated (dollars in thousands):
<TABLE>
March 31, 1995 March 31, 1994 Dec. 31, 1994
% of % of % of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Sales finance
receivables $1,210,507 90% $977,978 91% $1,136,958 89%
Direct finance
receivables 131,531 10% 93,184 9% 135,472 11%
---------- --- --------- --- ---------- ---
Total gross
finance
receivables 1,342,038 100% 1,071,162 100% 1,272,430 100%
=== === ===
Unearned finance
charges (233,627) (189,062) (222,284)
Unearned insurance
commissions,
insurance
premiums and
insurance
reserves (9,238) (9,587) (10,279)
---------- --------- ----------
Finance
receivables $1,099,173 $872,513 $1,039,867
===== ===== =====
</TABLE>
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 three month periods ended March 31 (dollars
in thousands):
<TABLE>
1995 1994
<S> <C> <C>
Balance at beginning of period $22,488 $18,344
Provision charged to expense 2,424 1,766
Finance receivables charged-off (1,707) (1,220)
Recoveries 401 388
--------- ---------
Balance at March 31 $23,606 $19,278
===== =====
Allowance as a percent of finance
receivables outstanding at end
of period 2.15% 2.21%
===== =====
</TABLE>
The increase in the provision and allowance for finance credit
losses in 1995 is primarily attributable to the increase in finance
receivables outstanding.
Nonrefundable Dealer Reserves
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 $69.9 million and
$63.7 million at March 31, 1995 and 1994 respectively.
<PAGE>
Debt
The primary source for funding the Company's finance receivables
comes from the issuance of debt. At March 31, 1995 the Company had
total debt of $770.9 million which compares with $576.9 million at
March 31, 1994.
In addition to the Company's outstanding debt the Company has
revolving credit facilities and a back up line of credit which
total $460 million. The revolving credit facilities and the back
up line are totally available for use by the Company, and at March
31, 1995 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):
<TABLE>
March 31, 1995 March 31, 1994 Dec. 31, 1994
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial paper $470,066 6.3% $275,851 3.7% $449,945 6.4%
Term notes 265,375 7.1% 266,000 7.2% 265,375 7.1%
Subordinated debt 35,500 10.2% 35,000 10.2% 35,500 10.2%
------- ---- -------- ---- -------- ----
Total $770,941 6.8% $576,851 5.8% $750,820 6.8%
===== === ===== === ===== ===
</TABLE>
The interest rates in the preceding table do not include certain
costs related to the placement of debt, costs associated with debt
assumed in the acquisition of Gulfco, fees associated with the
revolving credit facility and interest associated with interest
exchange agreements which are amortized to interest expense. The
effect of these costs, which are included in interest expense in
the consolidated financial statements, increases the effective
interest rate by approximately 23 basis points at March 31, 1995.
The following table sets forth information with respect to
maturities of senior and subordinated debt at March 31, 1995
(dollars in thousands):
<TABLE>
Senior Debt Senior Debt Subordinated
Maturity Commercial Paper Term Notes Debt Total
<S> <C> <C> <C> <C>
1995 $470,066 25,125 0 495,191
1996 0 40,125 0 40,125
1997 0 59,125 20,000 79,125
1998 0 141,000 15,500 156,500
-------- ------- ------ -------
Total $470,066 $265,375 $35,500 $770,941
====== ====== ===== ======
</TABLE>
<PAGE>
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 March 31, 1995 was $232.5 million which
compares with $206.2 million at March 31, 1994 and $227.5 million
at December 31, 1994. For the three months ended March 31, 1995
the Company had net income of $25.0 million and declared cash
dividends of $19.4 million. In addition, eligible employees of the
Company exercised options to purchase shares resulting in $1.4
million also being added to the equity of the Company.
At March 31, 1995 stockholders' equity stated as a percent of total
assets was 21.5% which compares with 24.4% at March 31, 1994 and
22.0% at December 31, 1994.
RESULTS OF OPERATIONS
Net Income
For the three months ended March 31, 1995 the Company had net
income of $25.0 million which represent an increase of 28% from the
$19.6 million earned in 1994. The increase in net income is
primarily attributable to income derived from increased finance
receivables outstanding resulting from additional offices opened in
1995 and 1994 and increased volume in existing offices.
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 months
ended March 31, 1995 the Company's net interest income increased
25% to $49.3 million when compared with $39.3 million in 1994. The
net interest margin which is the ratio of net interest income
divided by average interest earning assets was 18.21% in 1995
compared with 18.43% in 1994. The change in net interest margin is
primarily attributable to interest rate changes on the Company's
various debt instruments. The changes in interest rates are
reflective of general interest rate trends in the U.S. economy.
The following table summarizes the amount of the net interest
margin for the three months ended March 31 (dollars in thousands):
<TABLE>
1995 1994
Annualized Annualized
Three Months Average Interest Rate Average Interest Rate
Ended Out- Income/ Earned Out- Income/ Earned
standing Expense and Paid standing Expense and Paid
<S> <C> <C> <C> <C> <C> <C>
Interest
earning
assets $1,078,466 $62,395 23.14% $850,299 $47,816 22.49%
Interest
bearing
liabilities 754,468 13,110 7.05% 559,582 8,528 6.18%
------- ------ ----- ------- ----- -----
Net $323,998 $49,285 16.09% $290,717 $39,288 16.31%
===== ==== ==== ===== ==== ====
Net interest
margin as a
percentage
of average
interest
earning
assets
18.21% 18.43%
==== ====
</TABLE>
<PAGE>
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 subsidiaries as
reinsurers of credit life and accident and health policies issued
through the Company's branch offices.
For the three months ended March 31, 1995, the Company experienced
increases in its insurance commissions and insurance premiums which
are attributable to the additional loan volume, the inclusion of
the Midland branch acquired in 1994 and the increased number of
borrowers obtaining these types of products. The following table
summarizes the amounts earned from these products for the three
months ended March 31 (dollars in thousands):
<TABLE>
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Insurance commissions $7,530 $4,030
Insurance premiums 2,443 2,216
Vehicle protection club memberships 985 836
Fees and other 1,783 1,434
------ ------
Total $12,741 $8,516
==== ====
Other income as a % of average
interest earnings assets
(Annualized) 4.73% 4.01%
==== ====
</TABLE>
<PAGE>
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.
During 1995 other operating expenses increased 35.6% over 1994.
The following table summarizes the components of other expenses for
the three months ended March 31 (dollars in thousands):
<TABLE>
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Salaries and employees benefits $11,203 $8,406
Insurance claims expense 627 716
Other operating expenses 7,411 5,070
------ ------
Total $19,241 $14,192
==== ====
Other expenses as a % of average
interest earning assets
(Annualized) 7.13% 6.67%
==== ====
</TABLE>
Income Taxes
Income taxes increased due to a higher level of pretax income in
1995. The effective tax rate was 38.0% in 1995 and 38.6% in 1994.
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:
<PAGE>
<TABLE>
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Loss provision charged to income $2,424 $1,766
Charge-offs net of recoveries 1,306 832
Allowance for finance credit losses
at end of period 23,606 19,278
Dealer reserves at end of period 69,908 63,689
Ratios:
Net charge offs (annualized) against
allowanceto average finance
receivables .49% .40%
Allowance for finance credit losses
to net finance receivables at
end of period 2.15% 2.21%
Dealer reserves to gross sales
finance receivables at end
of period 5.78% 6.51%
</TABLE>
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 March 31 (dollars
in thousands):
<TABLE>
March 31, 1995 March 31, 1994
% of related % of related
Gross Outstanding Gross Outstanding
Receivable Receivable
Amount Balance Amount Balance
<S> <C> <C> <C> <C>
Sales finance
receivables $8,068 .67% $5,315 .54%
Direct finance
receivables 2,761 2.10% 3,067 3.29%
------ ----- ------ -----
Total $10,829 .81% $8,382 .78%
==== === ==== ===
</TABLE>
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, 39% has an original maturity
of greater than one year at a fixed rate of interest.
<PAGE>
The Company also maintains back up lines of credit totalling $20
million and revolving credit facilities totalling $440 million. At
March 31, 1995, the Company had no debt outstanding under these
credit arrangements.
CONTINGENCIES AND LEGAL MATTERS
In the normal course of its business, the Company and its
subsidiaries are named as defendants in legal proceedings. A
number of such actions are pending in the various states in which
subsidiaries of the Company do business. It is the policy of the
Company and its subsidiaries to vigorously defend litigation, but
the Company and (or) its subsidiaries have and may in the future
enter into settlements of claims where management deems
appropriate.
On August 4, 1994, a verdict of $90,000 in compensatory damages and
$50,000,000 in punitive damages was rendered against Mercury
Finance Corporation of Alabama ("Mercury Alabama"), a subsidiary of
the Company, in the Circuit Court of Barbour County, Alabama. On
January 26, 1995, the Circuit Court of Barbour County, Alabama,
entered an order requiring a new trial unless the plaintiff
accepted a reduction of the punitive damage award from $50,000,000
to $2,000,000. Following the entry of the January 26, 1995 order,
parties entered into a joint motion to vacate the verdict and
judgment and dismiss the case pursuant to a settlement of the
plaintiff's claim for an amount less than the reduced punitive
damage award. Mercury Alabama had accrued the cost of the
settlement as of December 31, 1994, and the consolidated statement
of income for the year ended December 31, 1994 reflected this
accrual.
As of March 31, 1995, Mercury Alabama was a defendant or
counterclaim defendant in approximately 30 other lawsuits pending
in state and federal courts in Alabama, the majority of which had
been filed since the entry of the August 4, 1994 Barbour County
jury verdict. The cases (some of which also name the Company as a
defendant) include claims for alleged truth-in-lending violations,
nondisclosures, misrepresentations, wrongful repossessions of
vehicles and deceptive trade practices, among other things. The
relief requested by the plaintiffs varies but includes requests for
compensatory, statutory and punitive damages, as well as
declaratory and equitable relief.
A number of the pending Alabama cases are brought as putative class
actions. On October 14, 1994, the Circuit Court of Barbour County,
Alabama, certified a plaintiff class in a case alleging breach of
contract and fraud claims against Mercury Alabama and the Company
in connection with Alabama financing transactions. The court has
not yet ordered the transmittal of notice to the class.
Although management is of the opinion that the resolution of these
proceedings will not have a material effect on the financial
position of the Company, it is not possible at this time to
estimate the amount of damages or settlement expenses that may be
incurred. Accordingly, no provision has been made in the
consolidated financial statements for any of the pending
proceedings.
<PAGE>
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
On April 10, 1995 the Company Conducted its Annual Meeting of
Shareholders for the purpose of electing the following directors to
serve for one year:
John N. Brincat Andrew McNally IV
Dennis H. Chookaszian Bruce I. McPhee
William C. Croft Fred G. Steingraber
Clifford R. Johnson Daniel J. Terra
Philip J. Wicklander
All directors were elected to serve a term of one year.
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(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 first quarter of 1995.
<PAGE>
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: May 11, 1995 /s/ John N. Brincat
John N. Brincat
President & Chief
Executive Officer
(Duly Authorized Officer)
Date: May 11, 1995 /s/ James A. Doyle
James A. Doyle
Senior Vice President,
Controller & Principal
Accounting Officer
Date: May 11, 1995 /s/ Charley A. Pond
Charley A. Pond
Vice President, Treasurer
& Principal Financial Officer
<PAGE>
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 LLP regarding unaudited
interim financial information.
23. Consent of KPMG Peat Marwick LLP.
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
THREE MONTHS ENDED MARCH 31
(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.
<TABLE>
Three Months Ended
(Dollars in thousands
except per share amounts)
1995 1994
<S> <C> <C>
INCOME DATA:
1. Net income Mercury Finance Company $25,011 $19,556
2. Weighted average common shares
outstanding (adjusted for stock split) 116,201 115,703
3. Treasury stock (1,983) (63)
EFFECT OF COMMON STOCK EQUIVALENTS
(C.S.E.):
4. Weighted average shares reserved
for stock options 1,128 1,584
NET INCOME PER COMMON SHARE:
5. Weighted average common share and
common stock equivalents (line 2+3+4) 115,346 117,224
6. Mercury Finance Company
net income per share
(line 1 / line 5) $0.22 $0.17
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
Three Months Ended
(Dollars in thousands except
per share amounts)
1995 1994
<S> <C> <C>
Net income $25,011 $19,556
Provision for income taxes 15,350 12,290
-------- -------
Add Fixed Charges:
Cost of borrowings 13,110 8,528
One-third of rentals 317 247
-------- -------
Total fixed charges 13,427 8,775
-------- -------
Total net income, provision for
income taxes and fixed
charges "earnings" $53,788 $40,621
===== =====
Ratio of earnings to fixed charges 4.01 4.63
===== =====
</TABLE>
<PAGE>
KPMG Peat Marwick LLP
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 March 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders'
equity and cash flows for the three 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, 1994, 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 14, 1995, 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, 1994, is fairly
presented, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
May 11, 1995
<PAGE>
KPMG Peat Marwick LLP
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 April 10, 1995 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 LLP
May 11, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 15972
<SECURITIES> 13795
<RECEIVABLES> 1099173
<ALLOWANCES> (23606)
<INVENTORY> 0
<CURRENT-ASSETS> 45272
<PP&E> 8753
<DEPRECIATION> 5476
<TOTAL-ASSETS> 1084175
<CURRENT-LIABILITIES> 80677
<BONDS> 770941
<COMMON> 116251
0
0
<OTHER-SE> 116306
<TOTAL-LIABILITY-AND-EQUITY> 1084175
<SALES> 62395
<TOTAL-REVENUES> 75136
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 19241
<LOSS-PROVISION> 2424
<INTEREST-EXPENSE> 13110
<INCOME-PRETAX> 40361
<INCOME-TAX> 15350
<INCOME-CONTINUING> 25011
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25011
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
