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, 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, 117,473,772 shares as of August 10,
1995.
Treasury Stock - 1,983,105 shares as of August 10, 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 6
Consolidated Average Balance Sheets 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
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 24
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCURY FINANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Dollars in thousands) June 30 Dec. 31
1995 1994 1994
<S> <C> <C> <C>
(Unaudited)
ASSETS
Cash $10,803 $13,164 $19,980
Investments 11,966 10,732 14,184
Finance receivables 1,152,491 913,607 1,039,867
Less allowance for
finance credit losses (24,610) (19,995) (22,488)
Less Nonrefundable
dealer reserves (71,344) (67,580) (66,477)
------------ ----------- -----------
Finance receivables,
net 1,056,537 826,032 950,902
Prepaid pension
expense 507 860 507
Deferred income taxes 8,619 6,568 7,290
Premises, fixtures and
equipment at cost,
net of accumulated
depreciation 4,499 3,350 3,492
Goodwill 15,679 9,850 15,404
Other assets
(including
repossessions) 19,744 10,756 24,644
---------- --------- --------
TOTAL ASSETS $1,128,354 $881,312 $1,036,403
===== ===== =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt,
commercial paper $354,713 $309,209 $449,945
Senior debt,
term notes 423,875 266,000 265,375
Subordinated debt 35,500 35,000 35,500
Accounts payable and
other liabilities 43,303 47,421 53,401
Income taxes payable 4,444 2,791 4,668
---------- --------- --------
TOTAL LIABILITIES 861,835 660,421 808,889
---------- --------- --------
STOCKHOLDERS' EQUITY
Common stock - $1.00
par value:
300,000,000 shares
authorized
Jun 30 1995 -
117,332,000 shares
outstanding
Jun 30 1994 -
115,976,409 shares
outstanding
Dec 31 1994 -
116,079,703 shares
outstanding 117,332 115,976 116,080
Paid in capital 13,769 5,541 6,384
Retained earnings 160,488 99,545 128,157
Treasury stock at cost
Jun 30, 1995 -
1,983,105 shares
Jun 30, 1994 -
63,205 shares
Dec 31, 1994 -
1,839,705 shares (25,070) (171) (23,107)
---------- --------- --------
TOTAL STOCKHOLDERS'
EQUITY 266,519 220,891 227,514
---------- --------- --------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,128,354 $881,312 $1,036,403
===== ===== =====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INTEREST INCOME
Finance charges, fees and
other interest $65,718 $50,818 $128,112 $98,635
Interest expense 13,897 9,302 27,006 17,831
------- -------- -------- -------
Net interest income 51,821 41,516 101,106 80,804
Provision for finance
credit losses 2,426 1,409 4,850 3,175
------- -------- -------- -------
Net interest income after
provision for finance
credit losses 49,395 40,107 96,256 77,629
------- -------- -------- -------
OTHER INCOME
Insurance commissions 7,915 4,053 15,745 8,084
Insurance premiums 2,577 2,039 4,720 4,255
Fees and other 2,812 2,496 5,581 4,766
------- -------- -------- -------
Total other income 13,304 8,588 26,046 17,105
------- -------- -------- -------
OTHER EXPENSES
Salaries and employee
benefits 11,916 8,678 23,120 17,085
Occupancy expense 1,160 884 2,286 1,759
Equipment expense 504 408 966 801
Data processing expense 734 636 1,475 1,255
Insurance claims expense 720 544 1,348 1,260
Other operating expenses 5,313 3,373 10,394 6,556
------- -------- -------- -------
Total other expenses 20,347 14,523 39,589 28,716
------- -------- -------- -------
Income before income taxes 42,352 34,172 82,713 66,018
Applicable income taxes 15,534 13,170 30,884 25,461
------- -------- -------- -------
NET INCOME $26,818 $21,002 $51,829 $40,557
===== ===== ===== ====
NET INCOME PER COMMON SHARE
(adjusted for all
stock splits) $0.23 $0.18 $0.45 $0.35
===== ===== ===== ====
Weighted average number of
common and common share
equivalents outstanding 115,843 117,221 115,594 117,223
===== ===== ===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
COMMON STOCK
Balance at beginning of
period $116,251 $115,769 $116,080 $115,649
Stock options exercised 1,257 207 1,428 327
Stock traded in to
exercise stock options (176) 0 (176) 0
------- -------- -------- -------
Balance at June 30 $117,332 $115,976 $117,332 $115,976
===== ===== ===== ====
PAID IN CAPITAL
Balance at beginning
of period $7,621 $3,900 $6,384 $2,856
Stock options exercised 734 857 1,423 1,460
Tax benefit from stock
options exercised 5,414 784 5,962 1,225
------- -------- -------- -------
Balance at June 30 $13,769 $5,541 $13,769 $5,541
===== ===== ===== ====
RETAINED EARNINGS
Balance at beginning of
period $133,755 $86,654 $128,157 $75,193
Net income 26,818 21,002 51,829 40,557
Dividends (85) (8,111) (19,498) (16,205)
------- -------- -------- -------
Balance at June 30 $160,488 $99,545 $160,488 $99,545
===== ===== ===== ====
TREASURY STOCK
Balance at beginning of
period ($25,070) ($171) ($23,170) ($171)
Purchases 0 0 (1,963) 0
------- -------- -------- -------
Balance at June 30 ($25,070) ($171) ($25,070) ($171)
===== ===== ===== ====
Total stockholders' equity $266,519 $220,891 $266,519 $220,891
===== ===== ===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $26,818 $21,002 $51,829 $40,557
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for finance
credit losses 2,426 1,409 4,850 3,175
Net finance receivables
charged off against
allowance for finance
credit losses (1,422) (692) (2,728) (1,524)
Provision for deferred
income taxes (620) (366) (1,329) (1,057)
Depreciation 271 214 522 426
Amortization of goodwill 203 132 406 264
Net (increase) decrease
in other assets 1,139 (1,656) 4,219 249
Net increase (decrease)
in other liabilities (32,931) (10,497) (10,324) 7,729
Net increase (decrease)
in dealer reserve 1,436 3,741 4,867 10,519
------- -------- -------- -------
Net cash provided by
operating activities (2,680) 13,287 52,312 60,338
------- -------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES
Principal collected on
finance receivables 221,650 173,702 408,981 340,546
Finance receivables
originated or acquired (274,968) (214,796) (521,605) (433,866)
Net (increase) decrease in
investment securities 1,830 1,026 2,219 (199)
Purchases of properties
and equipment (1,293) (264) (1,529) (1,031)
------- -------- -------- -------
Net cash used in
investing activities (52,781) (40,332) (111,934) (94,550)
------- -------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease)
in commercial paper (115,353) 33,358 (95,232) 48,949
Senior debt retired (1,500) 0 (1,500) 0
Senior debt issued 160,000 0 160,000 0
Subordinated debt retired 0 0 0 0
Stock options exercised 7,230 1,848 8,638 3,012
Dividends paid (85) (8,111) (19,498) (16,206)
Treasury stock acquired 0 0 (1,963) 0
------- -------- -------- -------
Net cash provided by
financing activities 50,292 27,095 50,445 35,755
------- -------- -------- -------
Net increase (decrease)
in cash and cash
equivalents (5,169) 50 (9,177) 1,543
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 15,972 13,114 19,980 11,621
------- -------- -------- -------
CASH AND CASH EQUIVALENTS
END OF PERIOD $10,803 $13,164 $10,803 $13,164
===== ===== ===== ====
</TABLE>
<PAGE>
<TABLE>
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Income taxes paid to
federal and state
governments $24,157 $24,667 $26,605 $25,896
===== ===== ===== ====
Interest paid to creditors $13,897 $10,404 $25,885 $17,877
===== ===== ===== ====
</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 AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
ASSETS
Cash $15,252 $12,629 $16,519 $13,047
Investments 14,048 11,746 13,644 11,497
Finance receivables 1,130,040 892,076 1,100,133 865,564
Less allowance for finance
credit losses (24,163) (19,617) (23,559) (19,149)
Less nonrefundable dealer
reserves (70,723) (65,818) (69,327) (62,747)
------- -------- -------- -------
Finance receivables, net 1,035,154 806,641 1,007,247 783,668
Prepaid pension expense 507 1,040 507 1,040
Deferred income taxes 8,327 6,377 7,929 6,075
Furniture, fixtures and
equipment, net of
accumulated depreciation 4,302 3,314 3,892 3,243
Other assets (including
repossessions & goodwill) 32,870 19,422 32,746 19,620
------- -------- -------- -------
TOTAL ASSETS $1,110,460 $861,169 $1,082,484 $838,190
===== ===== ===== ====
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt,
commercial paper $493,654 $288,452 $473,624 $273,517
Senior debt, term notes 267,641 266,000 266,508 266,000
Subordinated debt 35,500 35,000 35,500 35,000
Accounts payable and other
liabilities 60,634 52,605 60,819 51,140
Income taxes payable 6,091 8,439 8,474 8,791
------- -------- -------- -------
TOTAL LIABILITIES 863,520 650,496 844,925 634,448
------- -------- -------- -------
STOCKHOLDERS' EQUITY
Common stock 117,010 115,871 116,606 115,787
Paid in capital 11,408 4,694 9,319 4,026
Retained earnings 143,592 90,279 136,541 84,100
Treasury stock (25,070) (171) (24,907) (171)
------- -------- -------- -------
TOTAL STOCKHOLDERS' EQUITY 246,940 210,673 237,559 203,742
------- -------- -------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,110,460 $861,169 $1,082,484 $838,190
===== ===== ===== ====
NUMBER OF DAYS 91 91 181 181
MONTHS COMPLETED 3 3 6 6
RATIOS
Return on average equity 43.44% 39.88% 43.63% 39.81%
Return on average assets 9.66% 9.76% 9.58% 9.68%
Yield on earning assets 22.98% 22.49% 23.00% 22.49%
Rate on interest bearing
liabilities 7.00% 6.33% 7.02% 6.26%
Net interest margin 18.10% 18.36% 18.12% 18.39%
</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 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.
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 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, 1995
(unaudited) when compared with June 30, 1994 (unaudited) and
December 31, 1994, and the results of operations for the three and
six months ended June 30, 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.
<PAGE>
FINANCIAL CONDITION
Assets and Finance Receivables
Total assets of the Company increased 28% to $1,128.4 million from
$881.3 million one year ago. Finance receivables increased 26% to
$1,152.5 million at June 30, 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 and increased volume in existing offices.
During the period from December 31, 1994 through June 30, 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 48% of all finance receivables, with the remainder
being originated in the other 24 states where offices are located.
The total number of offices at June 30, 1995 was 260 compared to
232 at June 30, 1994 and 247 at December 31, 1994.
The following table summarizes the composition of finance
receivables at the dates indicated (dollars in thousands):
<PAGE>
<TABLE>
June 30, 1995 June 30, 1994 Dec. 31, 1994
% of % of % of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Sales finance
receivables $1,271,322 90% $1,024,551 91% $1,136,958 89%
Direct finance
receivables 134,602 10% 96,101 9% 135,472 11%
----- --- ------- -- ------ ---
Total gross
finance
receivables 1,405,924 100% 1,120,652 100% 1,272,430 100%
=== == === == ===== ==
Unearned
finance
charges (244,124) (197,511) (222,284)
Unearned
insurance
commissions,
insurance
premiums
and
insurance
reserves (9,309) (9,534) (10,279)
--- ---- ----
Finance
receivables $1,152,491 $913,607 $1,039,867
===== ===== =====
</TABLE>
<PAGE>
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, 1995
(dollars in thousands):
<TABLE>
1995 1994
<S> <C> <C>
Balance at beginning of period $22,488 $18,344
Acquisition 0 0
Provision charged to expense 4,850 3,175
Finance receivables charged-off (3,506) (2,263)
Recoveries 778 739
---- ----
Balance at June 30 $24,610 $19,995
===== =====
Allowance as a percent of finance
receivables outstanding at end
of period 2.14% 2.19%
===== =====
</TABLE>
<PAGE>
The increase in the provision and allowance for finance credit
losses in 1995 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 $71.3 million and
$67.6 million at June 30, 1995 and 1994 respectively.
Debt
The primary source for funding the Company's finance receivables
comes from the issuance of debt. At June 30, 1995 the Company had
total debt of $814.1 million which compares with $610.2 million at
June 30, 1994.
In addition to the Company's outstanding debt the Company has
revolving credit facilities and a back up line of credit which
total $510 million. The revolving credit facilities and the back
up line are totally available for use by the Company and at June
30, 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):
<PAGE>
<TABLE>
June 30, 1995 June 30, 1994 Dec. 31, 1994
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial
paper $354,713 6.2% $309,209 4.5% $449,945 6.4%
Term notes 423,875 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 $814,088 6.9% $610,209 6.0% $750,820 6.8%
==== == ===== == ===== ==
</TABLE>
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 23 basis points at June 30, 1995.
The following table sets forth information with respect to
maturities of senior and subordinated debt at June 30, 1995
(dollars in thousands):
<TABLE>
Senior Debt Senior Debt
Maturity Commercial Term Subordinated
Paper Notes Debt Total
<S> <C> <C> <C> <C>
1995 $354,713 25,125 0 379,838
1996 0 40,125 0 40,125
1997 0 57,625 20,000 77,625
1998 0 166,000 15,500 181,500
After 1998 0 135,000 135,000
--- ---- ---- ----
Total $354,713 $423,875 $35,500 $814,088
=== === === ===
</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 June 30, 1995 was $266.5 million which
compares with $220.9 million at June 30, 1994 and $227.5 million at
December 31, 1994. For the six months ended June 30, 1995 the
Company had net income of $51.8 million and paid cash dividends of
$19.5 million resulting in a retention of 62% of current earnings.
In addition, eligible employees of the Company exercised options to
purchase shares resulting in $8.6 million also being added to the
equity of the Company.
At June 30, 1995 stockholders' equity stated as a percent of total
assets was 23.6% which compares with 25.1% at June 30, 1994 and
22.0% at December 31, 1994.
RESULTS OF OPERATIONS
Net Income
For the three and six months ended June 30, 1995 the Company had
net income of $26.8 million and $51.8 million which represent
increases of 28% and 28% from the $21.0 million and $40.6 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 and six
months ended June 30, 1995 the Company's net interest income was
$51.8 million and $101.1 million an increase of 25% and 25% from
1994. The net interest margin which is the ratio of net interest
income divided by average interest earning assets was 18.10% for
the three months ended June 30, 1995 and 18.12% for the six months
ended June 30, 1995. This compares with a net interest margin of
18.36% and 18.39% for the three and six months ended June 30, 1994.
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):
<PAGE>
<TABLE>
1995
Annualized
Three Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Interest earning assets $1,144,088 $65,718 22.98%
Interest bearing liabilities 796,795 13,897 7.00%
---- ---- ---
Net $347,293 $51,821 15.98%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 18.10%
===
</TABLE>
<TABLE>
1994
Annualized
Three Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Interest earning assets $903,822 $50,818 22.49%
Interest bearing liabilities 589,452 9,302 6.33%
---- ---- ---
Net $314,370 $41,516 16.16%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 18.36%
===
</TABLE>
<TABLE>
1995
Annualized
Six Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Interest earning assets $1,113,777 $128,112 23.00%
Interest bearing liabilities 775,632 27,006 7.02%
---- ---- ---
Net $338,145 $101,106 15.98%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 18.12%
===
</TABLE>
<TABLE>
1994
Annualized
Six Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Interest earning assets $877,061 $98,635 22.49%
Interest bearing liabilities 574,517 17,831 6.26%
---- ---- ---
Net $302,544 $80,804 16.23%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 18.39%
===
</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 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, 1995, the Company
experienced increases in its insurance commissions 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 and
six months ended June 30 (dollars in thousands):
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Insurance commissions $7,915 $4,053 $15,745 $8,084
Insurance premiums 2,577 2,039 4,720 4,255
Vehicle protection club
memberships 1,050 1,016 2,035 1,852
Fees and other 1,762 1,480 3,546 2,914
--- --- --- ---
Total $13,304 $8,588 $26,046 $17,105
==== ==== ==== ====
Other income as a %
of average interest
earnings assets
(Annualized) 4.65% 3.80% 4.68% 3.90%
==== ==== ==== ====
</TABLE>
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):
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Salaries and employees
benefits $11,916 $8,678 $23,120 $17,085
Insurance claims expense 720 544 1,348 1,260
Other operating expenses 7,711 5,301 15,121 10,371
--- --- --- ---
Total $20,347 $14,523 $39,589 $28,716
==== ==== ==== ====
Other expenses as a % of
average interest
earning assets
(Annualized) 7.11% 6.43% 7.11% 6.54%
==== ==== ==== ====
</TABLE>
Income Taxes
Income taxes increased due to a higher level of pretax income in
1995. The effective tax rate was 37.3% in 1995 and 38.6% in 1994.
<PAGE>
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:
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Loss provision charged to
income $2,426 $1,409 $4,850 $3,175
Charge-offs net of
recoveries 1,422 692 2,728 1,524
Allowance for finance
credit losses at end
of period 24,610 19,995
Dealer reserves at end
of period 71,344 67,580
Ratios:
Net charge offs
(annualized) against
allowance to average
finance receivables .50% .31% .49% .35%
Allowance for finance
credit losses to net
finance receivables
at end of period 2.14% 2.19%
Dealer reserves to
gross sales finance
receivables at end
of period 5.61% 6.60%
</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 June 30 (dollars
in thousands):
<TABLE>
June 30, 1995 June 30, 1994
% of related % of related
Gross Outstanding Gross Outstanding
Receivable Receivable
Amount Balance Amount Balance
<S> <C> <C> <C> <C>
Sales finance
receivables $8,387 .66% $4,985 .49%
Direct finance
receivables 2,859 2.12% 2,969 3.09%
--- --- --- --
Total $11,246 .80% $7,954 .71%
=== == ==== ==
</TABLE>
<PAGE>
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, 56% has an original maturity
of greater than one year at a fixed rate of interest.
The Company also maintains back up lines of credit totalling $110
million and revolving credit facilities totalling $400 million. At
June 30, 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.
<PAGE>
As of June 30, 1995, Mercury Alabama was a defendant or
counterclaim defendant in approximately 13 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.
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.
SEBSEQUENT EVENT
On August 8, 1995 the Company announced that it had reached an
agreement to acquire ITT Lyndon Life and Property Insurance
Companies for $72.5 million. Lyndon Life and Property Insurance
Companies are wholly owned subsidiaries of ITT Corporation. The
transaction requires regulatory approvals and is expected to close
by October 30, 1995.
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 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: August 11, 1995 /s/ John N. Brincat
John N. Brincat
President & Chief
Executive Officer
(Duly Authorized Officer)
Date: August 11, 1995 /s/ James A. Doyle
James A. Doyle
Senior Vice President,
Controller & Principal
Accounting Officer
Date: August 11, 1995 /s/ Bradley S. Vallem
Bradley S. Vallem
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 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.
<TABLE>
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INCOME DATA:
1. Net income
Mercury Finance
Company $26,818 $21,002 $51,829 $40,557
2. Weighted
average common
shares
outstanding
(adjusted for
stock split) 117,010 115,872 116,606 115,788
3. Treasury stock (1,983) (64) (1,983) (64)
EFFECT OF COMMON
STOCK EQUIVALENTS
(C.S.E.):
4. Weighted
average shares
reserved for
stock options 816 1,413 971 1,499
NET INCOME PER
COMMON SHARE:
5. Weighted
average common
share and common
stock equivalents
(line 2+3+4) 115,843 117,221 115,594 117,223
6. Mercury
Finance Company
net income per
share
(line 1/line 5) $0.23 $0.18 $0.45 $0.35
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
<TABLE>
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income $26,818 $21,002 $51,829 $40,557
Provision for
income taxes 15,534 13,170 30,884 25,461
---- ---- ---- ---
Add Fixed Charges:
Cost of
borrowings 13,897 9,302 27,006 17,831
One-thrid of
rentals 327 254 644 502
---- ---- ---- ---
Total fixed
charges 14,224 9,556 27,650 18,333
---- ---- ---- ---
Total net income,
provision for
income taxes and
fixed charges
"earnings" $56,576 $43,728 $110,363 $84,351
===== ===== ===== ====
Ratio of earnings
to fixed charges 3.98 4.58 3.99 4.60
===== ===== ===== ====
</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 June 30, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders'
equity and cash flows for the three month and six month periods
then ended. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review
of interim financial information consists principally of apply
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 conducted
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
herin); and in our report dated January 31, 1995, except as to note
9, which is as of February 20, 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 consoldiated balance sheet
from which it has been derived.
Our report dated January 31, 1995, except as to note 9, which is as
of February 20, 1995, on the consolidated balance sheets of Mercury
Finance Company and subsidiaries as of and for the year ended
December 31, 1994, contains an explanatory paragraph that states
that Mercury Finance Company and its subsidiary Mercury Finance
Company of Alabama are named as defendants in a number of lawsuits
pending is state and Federal Courts in Alabama. These cases
include claims for alleged truth-in-lending violations,
nondisclosures, misrepresentations, wrongful repossessions of
vehicles, and deceptive trade practices, among other things.
Mercury Finance Company is vigorously defending this litigation,
however, the outcome of this litigation and the amount of damages,
if any, that may ultimately be incurred cannot presently be
determined. Accordingly, no provision for any liability that may
result from such litigation has been recognized in the consolidated
financial statements except for the Circuit court of Barbour
County, Alabama case as discussed in note 9.
/s/ KPMG Peat Marwick LLP
July 10, 1995
<PAGE>
KPMG Peat Marwick LLP
Exhibit No. 24
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 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
July 11, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 10803
<SECURITIES> 11966
<RECEIVABLES> 1152491
<ALLOWANCES> (24610)
<INVENTORY> 0
<CURRENT-ASSETS> 44549
<PP&E> 11160
<DEPRECIATION> 6661
<TOTAL-ASSETS> 1128354
<CURRENT-LIABILITIES> 47
<BONDS> 814088
<COMMON> 117332
0
0
<OTHER-SE> 149187
<TOTAL-LIABILITY-AND-EQUITY> 1128354
<SALES> 128112
<TOTAL-REVENUES> 154158
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39589
<LOSS-PROVISION> 4850
<INTEREST-EXPENSE> 27006
<INCOME-PRETAX> 82713
<INCOME-TAX> 30884
<INCOME-CONTINUING> 51829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51829
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
