UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
10-K405/A No. 2
ANNUAL REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 1-10176
MERCURY FINANCE COMPANY (Exact name of registrant as specified in
its charter)
DELAWARE (State or other jurisdiction of incorporation or
organization) 36-3627010 (I.R.S. Employer Identification No.)
100 Field Drive, Suite 340, Lake Forest, Illinois 60045
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: 847-295-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK ($1 par value) (Title of Class)
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
and (2) has been subject to such filing requirements for the past
90 days. Yes XX No
Indicate by check mark if disclosure statement of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of registrant's knowledge, in
definitive Proxy or information statements incorporated by
reference in Part III of this form 10-K or any amendment to this
for. XX
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant. SUCH AGGREGATE MARKET VALUE
TOTALED $1,923,995,444 (BASED ON THE CLOSING PRICE OF THE COMPANY'S
COMMON STOCK ON THE NEW YORK STOCK EXCHANGE, AS REPORTED BY THE
WALL STREET JOURNAL (MIDWEST EDITION FOR MARCH 26, 1996)).
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable
date.
COMMON STOCK, $1 PAR VALUE 172,583,306 SHARES OUTSTANDING AT MARCH
26, 1996 (NET OF TREASURY STOCK).
Documents incorporated by reference: List the following documents
if incorporated by reference and the part of the form 10-K into
which the document is incorporated: (1) Any annual report to
security holders; and (2) Proxy or information statement; and (3)
Any prospectus files pursuant to Rule 424(B) Or (C) Under the
Securities Act of 1933.
PORTIONS OF THE 1995 ANNUAL REPORT TO SHAREHOLDERS AND THE
DEFINITIVE PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF
SHAREHOLDERS (FILED ON MARCH 6, 1996 ARE INCORPORATED HEREIN BY
REFERENCE).
<PAGE>
PART I
THE COMPANY
ITEM 1.
BUSINESS - GENERAL
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 was organized in 1988, as a wholly owned subsidiary of
First Illinois Corporation (an Evanston, Illinois based bank
holding company), in order to hold 100% of the outstanding
common stock of First Illinois Finance Company and First Illinois
Life Insurance Company. On March 4, 1989 the Board of Directors of
First Illinois Corporation approved a plan to spin-
off Mercury in a stock distribution to its shareholders. On April
24, 1989, First Illinois Corporation distributed to its
shareholders of record on April 10, 1989 one share of Mercury
for each two shares of First Illinois Corporation stock held.
Following the stock distribution, First Illinois Finance Company
was dissolved and Mercury became the sole shareholder of each of
the state consumer finance subsidiaries. First Illinois
Life Insurance Company was renamed Mercury Life Insurance Company
("Mercury Life").
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.
On October 20, 1995 Mercury acquired all the shares of ITT Lyndon
Property and ITT Lyndon Life Insurance Company for $72.5 million in
cash and the assumption of their net liabilities. ITT Lyndon
Property and ITT Lyndon Life Insurance Company conducted their
business through a central office in St. Louis, Missouri.
Following the acquisition, the names of the companies
were changed to Lyndon Property and Lyndon Life Insurance Companies
("Lyndon"). The acquisition was accounted for under the purchase
method of accounting. Accordingly their results of operations have
been included in the consolidated statements of income and
statements of cash flow since the date of acquisition. The excess
of fair value over cost of net assets acquired (negative goodwill
of $10,299) relating to the acquisition was offset against the
present value of future profits of acquired insurance in force.
The balance of the present value of future profits was $16.6
million at December 31, 1995 and is being amortized over an
approximate three year period.
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.
Mercury has certain legal remedies in the event of defaulted loans.
Remedies include the repossession of secured collateral.
Repossession of such collateral is determined and executed
on individual contract basis at various stages of delinquency. In
addition, Mercury may also pursue legal remedies toward any
deficiency balances created by the repossession.
Mercury believes its growth is due to its targeted marketing
strategy and its experienced consumer finance professionals who are
able to assess, structure and initiate or purchase high margin
consumer loans. Growth has come from an increase in existing
office volume as well as new office openings and the acquisitions
of Gulfco Investment Inc. and Midland Finance Co..
BRANCH OFFICE NETWORK/OPERATIONS
Mercury's branch office network consists of 276 offices in 28
states located primarily in the southeastern, central and western
United States. An office typically starts with 2 employees and
is expanded based on receivables generated. The largest office has
approximately 20 people with a network average of approximately 6
people per office. Mercury is divided into 30 geographically
organized districts, with each district headed by a district
supervisor. A district supervisor is generally responsible for 7
to 11 offices (depending on size and geographical dispersion).
District supervisors report directly to five group Vice Presidents
of Operations.
Management has developed its workforce by attracting and training
experienced consumer lending professionals. The training program
includes classroom simulation of branch operations, actual training
at branch offices and personal interviews by senior operating
management of the Company. The training program which is called
"Pride Program" is administered by the branch managers and district
supervisors and is a requirement for all branch personnel. In
addition the Company also conducts a Manager's Qualification
Program (MQP) for prospective managers.
<PAGE>
The Company instituted an Accelerated Training Program (ATP) in
July, 1991. The program is designed for either college graduates
or individuals with comparable work experience who, in the opinion
of the management of the Company, possess an above average ability
to learn and succeed in the consumer finance business. The ATP
supplements the Company's supply of promotable employees from the
regular training program. ATP is a highly structured training
program that is designed to be completed within a maximum of 12
months. Currently, there are 26 individuals participating at
different training phases in the program. All ATP trainees must
be willing to relocate. The Company has specific training offices
with experienced training managers who are responsible for an ATP
employee's development. In addition, to ensure broad based
development of the trainees, the program is structured
so as to include all levels of Operating Management in the training
process.
Mercury locates and opens new offices based on availability of
branch managers and the conclusions reached from market research.
The market research conducted includes population and income
demographics, regulatory issues, on-site visitations and
introductory sales calls. The conclusion reached from the market
research enables the Company to estimate growth and earnings
potential for a possible branch location. On the average
Mercury's offices are generally profitable within 9 to 12 months of
commencing operations.
Mercury's 276 offices are strategically located in areas of high
traffic density for potential customers. Such sites are determined
during the market research process. The traffic patterns are
periodically reviewed. This process of site selection and
review allows Mercury to maximize market potential and availability
of potential borrowers. Since inception, Mercury has
closed two branch offices because traffic patterns and market
potential changed from the original site selection.
Mercury's borrowers represent a broad cross section of the military
and non-military population. Approximately 25% of Mercury's branch
offices are located in the general vicinity of major U.S. military
installations. These offices generally lend to both military and
non-military personnel. The remaining offices are located in urban
areas and primarily provide services to civilians. Recently
proposed military base closings will have, in management's opinion,
no material effect on the operations of the Company.
The business mix of Mercury's branch office network between sales
finance receivables which constitutes 87% of total receivables, and
direct consumer loans constituting 13% of total receivables is
generally consistent with the 30 supervisory districts of the
country. The business mix in any one branch office is dependent
upon the location of the office and the background of an office's
loan personnel.
<PAGE>
The geographic distribution of Mercury's offices are as follows:
<TABLE>
<CAPTION>
State Office Locations
<S> <C>
Alabama 4
Arizona 5
California 5
Delaware 2
Colorado 2
Florida 37
Georgia 14
Illinois 20
Indiana 8
Kansas 1
Kentucky 5
Louisiana 42
Michigan 5
Mississippi 15
Missouri 3
Nevada 4
New Mexico 2
North Carolina 12
Ohio 12
Oklahoma 3
Oregon 1
Pennsylvania 3
South Carolina 5
Tennessee 8
Texas 37
Virginia 13
Washington 2
Wisconsin 6
TOTAL 276
</TABLE>
LOAN ORIGINATION AND MARKETING
Mercury originates loans and purchases individual sale finance
contracts through its office network based on a decentralized
approval process tailored to the market in which the specific
offices operates. All credit extensions are reviewed and approved
at the branch level. Each branch office has specific credit limit
authorization and any extension of credit above the branch
limit must be approved by the district supervisor. Although
Mercury's branch offices maintain local credit authority, all
credit extensions must conform to the objective credit worthiness
policies of Mercury. These policies require completed
applications, background credit investigations, employment
verification and evaluation and decision guidelines. While the
ability and intent of the consumer to repay are essential
prerequisites to any loan, collateral provides additional security
for the lender. All of Mercury's sales finance contracts are
secured with collateral while the majority of its direct consumer
loans are also secured with collateral. The amount of collateral
required depends upon the purpose of the loan, the size of the loan
and the risk factors associated with the loan.
Applications for installment sales finance receivables originate
from local dealers (household goods, appliance and automobile) and
are subjected to the same credit review and credit worthiness
policies as direct consumer loans. A specific installment sales
finance contract is purchased only after objective investigations
of the credit worthiness of the borrower and a determination of the
underlying value of the asset through use of industry publications,
combined with the subjective assessment by an office's loan
personnel. Every sales finance contract is reviewed individually
and extensions of credit are made based upon the credit worthiness
of each contract.
<PAGE>
Individual sales finance contracts are purchased pursuant to formal
agreements with local merchants negotiated at the branch office
level and subsequently approved by supervision. Mercury purchases
sales finance contracts from local dealers with which Mercury has
established ongoing relationships. A relationship with a dealer
begins only after the soundness of their business is determined.
Mercury conducts credit investigations, independent interviews with
state regulatory agencies and inquiries to local civic and
community organizations to aid in this determination.
Relationships with dealer and volume of contracts
purchased are conducted and developed on an ongoing basis. Mercury
branch offices have conducted business with many dealers since the
inception of a branch.
As part of certain dealer arrangements, dealers reserve and
recourse agreements are entered into to protect Mercury from credit
losses and early prepayments on installment sales finance
contracts. These nonrefundable reserves are negotiated on a dealer
by dealer basis and are subject to change based upon the
performance of the sales finance contracts purchased.
Mercury encourages a decentralized marketing approach which allows
each office to pursue and develop business leads which are unique
to individual markets. Mercury does no national advertising.
Branch offices may advertise in local publications and most branch
offices rely on the endorsement of customers to build upon its
client base. Mercury believes that client service in the form of
timely loan application processing makes customer referrals the
most cost effective primary marketing tool.
INSURANCE OPERATIONS
In conjunction with their lending practices, the consumer finance
subsidiaries, as agents for Gulfco Life, Lyndon and unaffiliated
insurers, offer credit life, accident and health and property
insurance to borrowers who obtain finance receivables directly from
the consumer finance subsidiaries, and to borrowers under sales
finance contracts and financing contracts purchased from merchants
and automobile dealers. Commissions on credit life insurance and
credit accident and health insurance from unaffiliated insurers are
earned by Mercury over the average terms of the related policies on
the sum-of-the-months digits method.
Lyndon is engaged in the business of direct writing of credit life,
accident and health and health and various other credit related
insurance policies for customers of Mercury and other companies.
Lyndon Life is licensed in forty-eight (48) states and Lyndon
Property is licensed in forty-seven (47) states. Mercury Life and
Gulfco Life are engaged primarily in the business of reinsuring and
direct writing respectively, of credit life and accident and health
insurance policies issued to borrowers of finance receivables and
sales finance contracts originated by Mercury. The policies insure
the holder of a sales finance contract or other debt instrument for
the outstanding balance payable in the event of death or disability
of the debtor. Premiums are earned over the life of the contracts
principally using pro-rata and sum-of-the months digits
methods or in relation to anticipated benefits to the policy
holder.
Mercury Life, Gulfco Life and Lyndon have established policy
liabilities and claim reserves. The claim reserves are based upon
accumulated estimates of claims reported, plus estimates of
incurred but unreported claims.
<PAGE>
SOURCE OF FUNDS
Mercury funds its operations through payments of principal and
interest from finance receivables, capital funds and the sale of
debt securities. At December 31, 1995, Mercury had total debt of
$958.2 million. Of this total, 51% was in commercial paper and
notes, 46% was in fixed rate senior term notes, 3% in fixed rate
subordinated term notes.
In addition to its outstanding debt Mercury has unused bank lines
of credit and maintains bank revolving credit facilities which
totaled $500 million at December 31, 1995. These funds were
totally available to Mercury at December 31, 1995.
In the past, Mercury had entered into interest exchange agreements
ranging in maturity from one to five years. These agreements
called for Mercury to pay interest at a fixed rate and receive
interest at a floating rate on notional amounts. At December 31,
1995 Mercury was not a party to open interest exchange agreements.
Related to its placement of commercial paper Mercury maintains an
investment grade rating of F-2 (upgraded in May 1990) with Fitch
Investors Service Inc., D-1-, with Duff and Phelps Inc.
(upgraded in May 1992) a A2 with Standard & Poors, a P2 with
Moody's Investors Service, Inc., and Thomson BankWatch 1.
COMPETITION
The consumer finance business is intensely competitive. Mercury
competes with other consumer finance companies, personal loan
departments and commercial banks, federally insured credit
unions, industrial banks, credit card issuers and companies which
finance the sales of their own merchandise or the merchandise of
others.
All lending institutions compete in the area of customer service,
response time and interest rate charges. Although in some
instances Mercury's interest rate charges may be greater than some
of its competitors Mercury believes that its decentralized approval
process provides Mercury with excellent customer service in the
form of quicker response time to potential customers.
EMPLOYEES
As of December 31, 1995, Mercury had approximately 1,800 employees.
Mercury expects the total number of employees to increase as it
continues to expand and believes that it has excellent
relationships with its employees. None of its employees are
represented by a collective bargaining agreement.
<PAGE>
GOVERNMENT REGULATION
All consumer finance operations are subject to federal and state
regulations. Personal loan lending laws generally require
licensing of the lender; limitations on the amount, duration and
charges for various categories of loans, adequate disclosure of
certain contract terms; and limitations on certain collection
policies and creditor remedies. Federal consumer credit statutes
primarily require disclosures of credit terms in consumer finance
transactions. In general, the business is conducted under licenses
issued by individual states. Each office is subject to
periodic examination by state regulatory authorities. The state
licenses are revocable for cause. Mercury believes it complies in
all aspect with these regulations. Mercury is also subject to the
provisions of the Federal Consumer Credit Protection Act and its
related regulations.
Credit insurance offered in connection with the direct lending and
sales finance activities of Mercury and the premiums payable by
credit customers and commissions payable to insurers to the
originators of such insurance are also subject to state laws
and regulations. Mercury Life is subject to regulation and
supervision by the Arizona Department of Insurance. Gulfco Life
is subject to regulation and supervision by the Louisiana
Department of Insurance.
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
Period Served as
Officer of the
Company, Affiliated
Company, or
Name Age The Company Predecessor Company
<S> <C> <C> <C>
John N. Brincat 59 President, Director and 1983 to Date
Chief Executive Officer of
the Company since 1989.
Formerly Chairman of the
Board and Chief Executive
Officer of the First
Illinois Finance Company (
the Company's predecessor)
from 1985 to 1989. Executive
Vice President prior thereto.
President and Chief Operating
Officer of the financial ser
vice group of First Illinois
Corporation, 1987 to 1989.
James A. Doyle 44 Senior Vice President, 1977 to Date
Controller and Secretary
of the Company since
January 1991. Formerly
Vice President, Controller
and Secretary of the Company
since 1989. Formerly
Executive Vice President and
Chief Financial Officer of
First Illinois Corporation
from 1987 to 1989.
<PAGE>
Rich P. Bosson 53 Vice President - Operations 1986 to Date
of the Company since October
1991. Formerly Assistant
Vice President/Regional
Director of Company and
First Illinois Finance
Company (the Company's
predecessor) from 1987,
Branch Manager prior thereto.
Edward G.
Stautzenbach 57 Vice President. Marketing 1988 to Date
since 1991. Formerly
Assistant Vice President
from 1988. Formerly part
owner of a mail marketing
company from 1984.
John J. Pratt 56 Vice President - Operations 1985 to Date
of the Company since
September 1992. Formerly
Assistant Vice President/
Regional Director of
Company and First Illinois
Finance Company (the
Company's predecessor)
from 1986. Branch Manager
prior thereto.
Sheila M. Tilson 44 Vice President - Operations 1984 to Date
Assistant Secretary since
1995. Assistant Vie President
Operations from
January 1987. Administrative
Assistant prior thereto.
<PAGE>
John N. Brincat
, Jr. 34 Vice President - Operations 1985 to Date
of the Company since July
1994. Formerly Assistant
Vice President/Regional
Director of Company from
1991. Branch Manager prior
thereto.
Jeffrey R.
Brincat 33 Vice President, Administration
1994 to date.
Formerly Assistant Vice
President from 1993 to
November 1994. Formerly
Branch Manager from 1992 to
1993. Formerly Management
Trainee 1991 to 1992. Waste
Management Inc. from 1990 to
1991. Formerly Captain U.S.
Marine Corps 1984 to 1990.
Charles H. Lam 44 Vice President - Operations 1987 to Date
of the Company since
February, 1996. Formerly
Assistant Vice President/
Regional Director of Company
from October 1990. Branch
Manager prior thereto.
Geral M. Mizel 62 Vice President - Operations 1994 to Date
since October 1994. Formerly
Executive Vice President
Midland Finance.
Bradley S.
Vallem 42 Assistant Vice President 1995 to Date
and Treasurer since July
1995. Formerly Vice President -
Finance Bank One,
Chicago, from 1992 to 1995.
Prior thereto Senior Vice
President and Controller
with First Illinois Bank of
Evanston and First Illinois
Corporation.
Michael W.
Stremlau 33 Vice President of Insurance 1993 to Date
since February 1996. Assist
ant Vice President of
Insurance from 1993.
Formerly Vice Presidents
of Insurance American
Bankers Insurance Group
prior thereto.
</TABLE>
<PAGE>
ITEM 2.
PROPERTIES
The executive offices of Mercury are located at 100 Field Drive,
Lake Forest, Illinois 60045, telephone number (847)295-8600.
Mercury occupies approximately 11,750 square feet of a
modern office building and is under a lease having a six year
initial term expiring on April 1, 1996 with an option to extend for
an additional five years. Mercury also leases space for all its
branch offices. The leases for the branch offices are generally
for terms from 3 to 5 years. Total rent expense for the Company
approximated $4,176,000, $3,169,000, $2,619,000 in 1995, 1994 and
1993 respectively.
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of its business, Mercury and its subsidiaries
are named as defendants in legal proceedings. A number of such
actions, including two cases which have been brought as
putative class actions, are pending in the various states in which
subsidiaries of Mercury do business. It is the policy of Mercury
and its subsidiaries do vigorously defend litigation, but
Mercury and (or) its subsidiaries have and may in the future enter
into settlements of claims where management deems appropriate.
Although management is of the opinion that the resolution of these
proceedings will not have a material effect on the financial
position of Mercury, 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.
At December 31, 1995, Lyndon was a party to a number of reinsurance
agreements entered into by its former reinsurance operation. These
agreements resulted in Lyndon assuming business on low risk basis
primarily form large and highly rated life and health insurers for
the purpose of providing statutory surplus to the ceding companies.
Prior to the acquisition of Lyndon by Mercury, this business was
retroceded to a joint venture of third party reinsurers under
similar terms as the original agreements. Al the risks of this
business have been effectively transferred to the third party
reinsurers. ITT Corporation has also agreed to indemnify Mercury
Finance in the event any losses are incurred by Lyndon under the
agreements. There was approximately $567 million of statutory
surplus provided (assumed and ceded) under these agreements as of
December 31, 1995. Virtually all of these reinsurance agreements
are expected to be either terminated or novated during 1996 which
will remove Lyndon from any potential contingent liabilities
related to these agreements.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information is presented on page 26 of the Registrant's Annual Report and is
incorporated herein by reference.
<PAGE>
ITEM 6.
SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in thousands except per share amounts)
<TABLE>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
SUMMARY INCOME STATEMENT
Interest income $270,416 $211,565 $165,054 $121,531 $99,199
Interest expense 57,303 39,375 32,933 29,525 28,796
Net interest
income 213,113 172,190 132,121 92,006 70,403
Provision for
finance credit
losses 30,841 7,376 6,392 4,330 3,984
Net 182,272 164,814 125,729 87,676 66,419
Other income 77,911 40,907 29,342 20,345 16,339
Other expenses 101,233 64,731 50,204 34,359 29,256
Income before
income taxes and
cumulative effect
of change in
accounting
principle 158,950 140,990 104,867 73,662 53,502
Income taxes 60,043 54,445 40,174 27,939 20,686
Income before
cumulative effect
of change in
accounting
principle 98,907 86,545 64,693 45,723 32,816
Cumulative effect
of change in
accounting
principle - - 234 - -
Net income 98,907 86,545 64,927 45,723 32,816
Net income per
share .57 .49 .37 .26 .19
Dividends per
share .25 .19 .14 .10 .06
Market value per
share 13.25 8.67 12.75 7.44 6.31
SELECTED BALANCES AT YEAR END
Total assets $1,634,918 $1,036,403 $797,090 $593,703 $498,437
Finance receivables
(gross) 1,441,286 1,272,430 1,004,517 747,573 618,455
Finance receivables
(Net of unearned
charges) 1,196,737 1,039,867 820,287 618,648 514,586
Allowance for
finance credit
losses 44,566 22,488 18,344 13,198 11,334
Nonrefundable
dealer reserves 63,761 66,477 57,241 38,262 28,226
Senior debt,
commercial paper
and other notes 489,990 449,945 260,260 200,000 169,135
Senior debt, term
notes 438,750 265,375 266,000 175,500 143,000
Subordinated debt 29,500 35,500 35,000 41,000 51,000
Shareholders'
equity 284,265 227,514 193,527 144,920 105,089
SELECTED RATIOS
Net income average
assets 8.12% 9.71% 9.12% 8.36% 7.24%
Net income to
average share-
holders' equity 38.63 40.23 38.95 37.62 36.91
Earnings to fixed
charges 3.71 4.48 4.10 3.44 2.82
Shareholders'
equity to assets 17.39 21.95 24.28 24.41 21.08
</TABLE>
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
The following discussion is intended to assist readers in their
analysis of the accompanying consolidated financial statements and
notes that are presented
elsewhere in this Annual Report of Mercury Finance Company.
FINANCIAL CONDITION
ASSETS AND FINANCE RECEIVABLES
Total assets of Mercury increased 58% to $1.6 billion at December
31, 1995. This follows an increase of 30% during 1994. Finance
receivables increased 16% to $1.2 billion at December
31, 1995 which compared to an increase of 27% during 1994. $416
million of the increase in assets was attributable to Lyndon
Insurance Companies, which Mercury acquired in October
1995. The remaining increases in assets and finance receivables
are primarily attributable to the production of receivables from
the increased number of offices operated by Mercury, the
Midland acquisition and increased volume in existing offices. The
Mercury offices in Florida, Texas and Illinois accounted for
approximately 50% of all finance receivables in the 28 states where
Mercury offices are located. The total number of offices was 276
at December 31, 1995, 247 at December 31, 1994 and 218 at December
31, 1993. The following tables summarize the
composition of finance receivables at December 31:
<PAGE>
<TABLE>
Text 1995 1994 1993
<S> <C> <C> <C>
Sales finance receivables $1,256,977 $1,136,958 $905,223
Direct finance receivables 184,309 135,472 99,294
Total gross finance
receivables 1,441,286 1,272,430 1,004,517
Less: Unearned finance
charges 231,791 222,284 174,440
Unearned commissions,
insurance premiums and
insurance claim reserves 12,758 10,279 9,790
Finance receivables $1,196,737 $1,039,867 $820,287
</TABLE>
<TABLE>
Gross Finance Receivables By Year of Office Openings
1995 1994 1993
<S> <C> <C> <C>
Offices open at 12/31/93 $1,265,615 $1,190,723 $1,004,517
1994 office openings 92,525 41,060 0
1995 office openings 32,946 0 0
1994 Acquisition of Midland 50,200 40,647 0
Total gross finance receivables $1,441,286 $1,272,430 $1,004,517
</TABLE>
<PAGE>
ALLOWANCE AND PROVISION FOR FINANCE CREDIT LOSSES
Mercury maintains an allowance for 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 years ended December 31:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $22,488 $18,344 $13,198
Allowance acquired 0 1,052 2,456
Provision charged to expense 30,841 7,376 6,392
Finance receivables
charged-off (12,846) (6,467) (4,882)
Recoveries 4,083 2,183 1,180
Balance at year end $44,566 $22,488 $18,344
Allowance as a percent of
finance
receivables outstanding 3.72% 2.16% 2.24%
</TABLE>
The increase in the provision and allowance for finance credit
losses in 1995 and 1994 is attributable to the increase in finance
receivables outstanding and the increase in net charge-offs,
including amounts related to insurance add-on products.
Mercury purchases a majority of its sales finance contracts from
dealers at a discount. A significant portion of the discount
represents anticipated credit losses and, based upon projected loss
experience, is allocated to nonrefundable dealer reserves. Mercury
negotiates the amount of the discount with the dealers based upon
various criteria, one of which is the credit risk associated with
the sales finance contracts being purchased. The following table
sets forth a reconciliation of the changes in nonrefundable dealer
reserves for the years ended December 31:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $66,477 $57,241 $38,262
Discounts acquired on
new volume 100,359 84,252 71,400
Losses absorbed (96,117) (70,419) (50,281)
Other (6,958) (4,597) (2,140)
Balance at end of year 63,761 66,477 57,241
</TABLE>
<PAGE>
DEBT
The primary source for funding Mercury's finance receivables comes
from debt issued by Mercury. At December 31, 1995, Mercury had
total debt of $958.2 million, which compares to $750.8 million and
$561.3 million at December 31, 1994 and 1993, respectively. During
1995 Mercury issued $200.0 million in senior term notes at an
average rate of 7.2%. The following table represents Mercury's debt
instruments and the corresponding rates on the debt at the end of
the periods indicated:
<TABLE>
Dec. 31, 1995 Dec. 31,1994 Dec. 31, 1993
Text Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial
paper $489,990 6.0% $449,945 6.4% $260,260 3.5%
Term notes 438,750 7.2 265,375 7.1 266,000 7.2
Subordinated
debt 29,500 10.2 35,000 10.2 35,000 10.2
Total $958,240 6.6% $750,820 6.8% $561,260 5.7%
</TABLE>
The interest rates in the preceding table do not include certain
costs related to the placement of debt 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
such costs which are included in interest expense in the
consolidated financial statements increases the effective interest
rate by approximately 20 basis points in 1995 and 30 basis points
in both 1994 and 1993.
SHAREHOLDERS' EQUITY
The other primary source for funding the growth in finance
receivables comes from the retention of earnings by Mercury. Total
shareholders' equity at December 31, 1995 was $284.3 million which
compares with $227.5 million at December 31, 1994. During the year
Mercury had net income of $98.9 million, paid dividends of $42.8
million and purchased back 1.1 million shares costing $14.0
million. At December 31, 1995, Mercury's shareholders' equity as a
percent of total assets was 17.39% which compares with 21.95% at
December 31, 1994. The decrease in the percentage of shareholders'
equity to total assets resulted from the purchase of the assets of
the Lyndon Insurance Companies.
RESULTS OF OPERATIONS
NET INCOME
For the year ended December 31, 1995, Mercury had net income of
$98.9 million, which represents an increase of 14% from the $86.5
million earned in 1994. The increase in net income is primarily
attributable to income derived from increased finance receivables
outstanding caused by additional offices opened during 1994 and
1995 and increased volume in existing offices.
<PAGE>
INTEREST INCOME AND INTEREST EXPENSE
The largest single component of net income is net interest income
which is the difference between interest income and interest
expense. For the year ended December 31, 1995, net interest income
was $213.1 million, which compares with $172.2 million and $132.1
million in 1994 and 1993, respectively. The primary factor
attributable to the growth in net interest income is the volume
increase in finance receivables outstanding. Also impacting growth
in interest income was the investment portfolio of the Lyndon
Insurance Companies, acquired in October 1995.
For the year ended December 31, 1995, Mercury's net interest
margin, which is the ratio of net interest income divided by
average interest earning assets, was 17.64%. This compares with a
net interest margin of 18.55% and 17.73% in 1994 and 1993,
respectively. The change in the net interest margin is primarily
attributable to interest rate changes on interest earning assets
and interest bearing liabilities. The changes in interest rates
are reflective of general interest rate trends in the U.S. economy.
In addition, the investment portfolio of Lyndon (which yields
approximately 7% vs. approximately 23% for the finance receivable
portfolio), contributed to the reduction in the margin percentage
in 1995 from 1994.
The following table summarizes net interest income and the net
interest margin for the three years ended December 31:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Average interest earning
assets $1,208,235 $928,060 $745,164
Average interest bearing
liabilities 816,182 612,700 494,590
Net $392,053 $315,360 $250,574
Interest income $270,416 $211,565 $165,054
Interest expense 57,303 39,375 32,933
Net interest income $213,113 $172,190 $132,121
Rate earned 22.38% 22.80% 22.15%
Rate paid 7.02 6.43 6.65
Net 15.36% 16.37% 15.50%
Net interest margin 17.64% 18.55% 17.73%
</TABLE>
OTHER INCOME
In addition to finance charges and interest, Mercury 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 Mercury. Other credit-related sources of revenue are
derived from the sale of other products and services.
<PAGE>
Lyndon earns insurance premiums on business it has underwritten
through outside distributors, business in a run-off mode from
subsidiaries of its prior owner, and going forward, through
Mercury's branch offices. Insurance premiums are also earned by
Mercury's other insurance subsidiaries as a reinsurers of credit
life and accident and health policies issued through Mercury branch
offices.
For the year ended December 31, 1995, Mercury experienced increases
primarily in its insurance commissions and insurance premiums.
This is primarily attributable to the fourth quarter acquisition of
Lyndon as well as to additional loan volume, increased commission
rates, income from Gulfco and the increased number of borrowers
obtaining these types of products. Excluding Lyndon, 1995 other
income would have been 28% higher than in 1994.The following table
summarizes the amounts earned from these products for the three
years ended December 31:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Insurance commissions $32,187 $20,507 $12,318
Insurance premiums 35,076 9,056 8,648
Vehicle protection club
memberships 3,992 3,929 3,478
Fees and other 6,656 7,415 4,898
Total $77,911 $40,907 $29,342
Other income as a % of
average interest earning
assets 6.45% 4.41% 3.94%
</TABLE>
<PAGE>
OTHER EXPENSES
In addition to interest expense and the provision for finance
credit losses, Mercury incurs other operating expenses in the
conduct of its business. During 1995 other operating expenses
increased 56% over 1994, which in turn had increased 30% over 1993.
Excluding Lyndon, other expenses increased 26% over the 1994
amount. During the same period, total assets of Mercury have
increased 58% and 30%. During 1994 additional legal fees and
settlement costs were incurred associated with a judgement which
was rendered against one of Mercury's subsidiaries in Alabama. The
following table summarizes the components of other expenses for the
three years ended December 31:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Salaries and employee
benefits $48,590 $36,852 $29,058
Incurred insurance claims
expense
and other underwriting
expense 21,073 2,722 3,338
Other operating expenses 31,570 25,157 17,808
Total $101,233 $64,731 $50,204
Operating expenses as a % of
average interest earning
assets 8.38% 6.97% 6.74%
</TABLE>
<PAGE>
INCOME TAXES
Income taxes increased 10% to $60.0 million when compared with
$54.4 million and $40.2 million in 1994 and 1993, respectively.
The increase in income taxes is primarily attributable
to a higher level of pretax earnings including Lyndon during the
fourth quarter of 1995. The effective tax rates on income before
income taxes were 37.8%, 38.6% and 38.3% in 1995, 1994 and 1993,
respectively.
CREDIT LOSSES AND DELINQUENCIES
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 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
(dollars in thousands):
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Loss provision charged to income $30,841 $7,376 $6,392
Charge-offs net of recoveries 8,763 4,284 3,702
Net charge-offs against
nonrefundable dealer reserves 96,117 70,419 50,281
Allowance for finance credit
losses at end of period 44,566 22,488 18,344
Dealer reserves at end of period 63,761 66,477 57,241
</TABLE>
RATIOS
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Net charge-offs against allowance
to average finance receivables .77% .47% .49%
Net charge-offs against
nonrefundable dealer reserves to
average finance receivables 8.47% 7.69% 6.84%
Allowance for finance credit
losses at end of period 3.72% 2.16% 2.24%
Dealer reserves to net sales
finance receivables at end of
period 6.13% 7.11% 7.65%
</TABLE>
<PAGE>
The increase in net charge-offs is attributable to changes in the
mix of the finance receivables portfolio during 1994 and 1995, the
decline in economic conditions of consumer borrowers which is
reflective of general trends in the economy and charge offs
resulting from certain insurance add-on products which were not
collected from borrowers.
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 December 31
(dollars in thousands):
<TABLE>
60 Days and Over Delinquencies 1995 1994 1993
<S> <C> <C> <C>
Sales finance receivables $13,965 $7,492 $5,366
Direct finance receivables 2,782 2,709 3,099
Total $16,747 $10,201 $8,465
Outstanding
Sales finance receivables $1,256,977 $1,136,958 $905,223
Direct finance receivables 184,309 135,472 99,294
Total $1,441,286 $1,272,430 $1,004,517
Delinquency as a % of
Receivables Outstanding
Sales finance receivables 1.11% .66% .59%
Direct finance receivables 1.51% 2.00% 3.12%
Total 1.16% .80% .84%
</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 Mercury's
operations. Mercury 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 of Mercury are
at fixed rates, and have an average initial maturity of
approximately 24 months. Of Mercury's total debt, 49% has an
original maturity of greater than one year at a fixed rate of
interest.
<PAGE>
ACCOUNTING CHANGES
In December 1986, the Financial Accounting Standards Board issued
FASB Statement No. 91 which relates to the accounting for
nonrefundable fees and cost associated with originating or
acquiring loans. The statement requires that loan origination and
commitment fees and certain direct loan origination costs be
deferred and amortized as an adjustment to the related loan's
yield. Mercury has not adopted the provisions of this statement
because adoption would not have a material effect on Mercury's
reported results of operation or financial condition.
Effective January 1, 1993 Mercury adopted the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, and has reported the cumulative effect of that change
in the method of accounting for income taxes in the 1993
consolidated statement of income. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. Prior to adoption of
FASB 109 Mercury accounted for income taxes under APB 11.
The Financial Accounting Standards Board has issued FASB Statement
No. 121, Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of. Statement 121 will be
effective for financial statements for the fiscal years beginning
after December 15, 1995. Statement 121 requires entities to perform
separate calculations for long-lived assets to determine whether
recognition of an impairment loss is required and, if so, to
measure that impairment. Management believes that the impact of the
adoption of this statement will not have any impact on the
financial position of Mercury.
The Financial Accounting Standards Board has issued FASB Statement
No. 123, Accounting for Stock-Based Compensation. Statement 123
allows companies to retain the current approach for recognizing
stock-based expense in the financial statements; however, companies
are encouraged to adopt a new accounting method based on the
estimated fair value of employee stock options. Companies that do
not elect the new fair value based method will be required to
provide expanded disclosures in the footnotes. Statement 123 is
effective for fiscal years beginning after December 15, 1995. At
this time management expects to comply with the disclosure
alternative provide by Statement 123.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
MERCURY FINANCE COMPANY
We have audited the accompanying consolidated balance sheets of
Mercury Finance Company and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the
years in the three year period ended December 31, 1995. These
consolidated financial statements are the responsibility of
Mercury Finance Company's management. Our responsibility is to
express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Mercury Finance Company and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the years in the three year
period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
February 12, 1996, except as to notes 1, 4, 7, 12, 14, 15, 16 and
17, which are dated as of October 23, 1996.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
Text 1995 1994
<S> <C> <C>
ASSETS
Cash $22,967 $19,980
Investments available-for-sale at fair value 229,418 -
Investments to be held-to-maturity
(fair value of $12,209 and $13,942) 12,625 14,184
Finance receivables 1,196,737 1,039,867
Less allowance for finance credit losses (44,566) (22,488)
Less nonrefundable dealer reserves (63,761) (66,477)
Finance receivables, net 1,088,410 950,902
Deferred income taxes 22,031 7,290
Premises and equipment (at cost less
accumulated depreciation of $7,247 and
$6,158) 7,022 3,492
Goodwill 15,274 15,404
Reinsurance receivable 89,962 -
Deferred acquisition costs and present
value of future profits 26,171 243
Other assets (including repossessions) 121,038 24,908
TOTAL ASSETS 1,634,918 1,036,403
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper and notes $489,990 $449,945
<PAGE>
Senior debt, term notes 438,750 265,375
Subordinated debt 29,500 35,500
Accounts payable and other liabilities 68,931 52,635
Unearned premium and claim reserves 195,761 766
Reinsurance payable 105,081 -
Income taxes payable 22,640 4,668
TOTAL LIABILITIES 1,350,653 808,889
SHAREHOLDERS' EQUITY
Common stock - $1.00 par value:
300,000,000 shares authorized
1995 - 176,477,520 shares outstanding
1994 - 116,079,703 shares outstanding 176,478 116,080
Paid in capital 39 6,384
Retained earnings 142,916 128,157
Unrealized appreciation on available-for-
sale securities, net of tax 1,969 -
Treasury stock, 3,896,557 and 1,839,705
shares at cost (37,137) (23,107)
TOTAL SHAREHOLDERS' EQUITY 284,265 227,514
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,634,918 1,036,403
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
Years ended December 31,
Text 1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Finance charges and loan
fees $265,263 $210,891 $164,572
Investment income 5,153 674 482
Total finance charges, fees
and investment income 270,416 211,565 165,054
Interest expense 57,303 39,375 32,933
Net interest income 213,113 172,190 132,121
Provision for finance credit
losses 30,841 7,376 6,392
Net interest income after
provision for finance
credit losses 182,272 164,814 125,729
OTHER INCOME
Insurance commissions 32,187 20,507 12,318
Insurance premiums 35,076 9,056 8,648
Fees and other 10,648 11,344 8,376
Total other income 77,911 40,907 29,342
OTHER EXPENSES
Salaries and employee
benefits 48,590 36,852 29,058
Occupancy expense 4,880 3,730 3,216
Equipment expense 2,041 1,665 1,244
Data processing expense 3,071 2,551 1,984
Incurred insurance claims
and other underwriting
expense 21,073 2,722 3,338
Other operating expenses 21,578 17,211 11,364
Total other expenses 101,233 64,731 50,204
Income before income taxes
and cumulative effect of
change in accounting
principle 158,950 140,990 104,867
Applicable income taxes 60,043 54,445 40,174
Income before cumulative
effect of change in
accounting principle 98,907 86,545 64,693
Cumulative effect of change
in accounting principle - - 234
NET INCOME 98,907 86,545 64,927
NET INCOME PER SHARE $ .57 $ .49 $ .37
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts)
Common Paid in Retained Unrealized Treasury
Stock Capital Earnings Appreciation Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1993 $86,125 $5,274 $53,692 $0 ($171) $144,920
1993 net income 64,927
64,927
Stock options
exercised 703 6,328 7,031
Cash dividends
($.14 per share) (23,351) (23,351)
Transfer to Paid
in Capital 20,075 (20,075)
-
Two for one stock
split 28,821 (28,821)
-
Balance at December
31, 1993 115,649 2,856 75,193 0 (171) 193,527
1994 net income 86,545 86,545
Stock options
exercised 431 3,528 3,959
Cash dividends
($.19) per share (33,581) (33,581)
Treasury stock
acquired (22,936) (22,936)
Balance at December
31, 1994 116,080 6,384 128,157 0 (23,107) 227,514
1995 net income 98,907 98,907
Stock options
exercised 1,573 11,181 12,754
Cash dividends
($.25) per share (42,849) (42,849)
Transfer to Paid
in Capital 41,299 (41,299) -
Three for two
stock split 58,825 (58,825) -
Unrealized
appreciation on
available-for-
sale securities
net of tax 1,969 1,969
Treasury stock
acquired (14,030) (14,030)
BALANCE AT
DECEMBER 31,
1995 $176,478 $39 $142,916 $1,969 ($37,137) $284,265
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands) Years ended December 31,
Text 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $98,907 $86,545 $64,927
Adjustments to reconcile net income to
cash provided by operating activities:
Provision for finance credit losses 30,841 7,376 6,392
Net finance receivables charged off
against allowance for finance credit
losses (8,763) (4,284) (3,702)
Provision for deferred income taxes (9,911) (1,779) (1,305)
Depreciation 1,153 902 673
Amortization of goodwill and purchase
accounting adjustments 3,208 596 385
Gain on sale of investment securities (19) (24) (28)
Net (increase) decrease in
reinsurance receivable (37,476) - -
Net (increase) decrease in deferred
acquisition costs and present value
of future profits (5,208) (220) (23)
Net (increase) decrease in other
assets (48,191) (13,008) (1,166)
Net increase (decrease) in
reinsurance payable (14,116) - -
Net increase (decrease) in
unearned premium and claim reserves 10,970 10 (157)
Net increase (decrease) in other
liabilities 18,392 14,919 6,402
Net increase (decrease)in
nonrefundable dealer
reserves (2,716) 5,727 18,979
Net cash provided by operating
activities 37,071 96,760 91,377
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance
receivables 835,580 694,792 572,992
Finance receivables originated or
acquired (992,450)(887,902)(724,104)
Purchases of investment securities (24,010) (7,896) (3,646)
Proceeds from sales of investment
securities 55,694 3,938 2,165
Proceeds from maturities of
investment securities 3,413 331 2,320
Purchase of premises and equipment (4,683) (1,456) (1,032)
Assets acquired (393,318)(26,014) (55,504)
Liabilities assumed 310,519 16,866 43,746
Net assets acquired (82,799) (9,148) (11,758)
Purchase price less than (in excess
of) fair value of net assets
acquired 10,299 (5,905) (10,498)
Net cash used in investing
activities (198,956)(213,246)(173,561)
CASH FLOW FROM FINANCING ACTIVITIES
Net increase (decrease) in senior
debt, commercial paper 40,045 184,485 55,289
Senior debt, term notes retired (26,625) (35,125) (79,500)
Subordinated debt retired (6,000) (2,320) (6,000)
Senior debt, term notes issued 200,000 30,000 135,000
Stock options exercised 12,754 3,959 7,031
Dividends paid (42,849) (33,581) (23,351)
Treasury stock acquired (14,030) (22,936) -
Net cash provided by financing
activities 163,295 124,482 88,469
Net increase (decrease) in cash
and cash equivalents 1,410 7,996 6,285
CASH AT BEGINNING OF YEAR 19,980 11,621 4,820
CASH ACQUIRED 1,577 363 516
CASH AT END OF YEAR $22,967 $19,980 $11,621
Supplemental Disclosures
Income taxes paid to federal and
state governments $51,967 $53,262 $39,160
Interest Paid to Creditors $57,797 $39,502 $33,038
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993 (Dollars in thousands except per
share amounts)
1) Organization and Affiliations
Mercury Finance Company ("Mercury"), through its predecessor
companies, commenced operations in February 1984 and through
December 31, 1995 established consumer finance subsidiaries in 28
states, doing business in 276 offices under the Mercury Finance
Company, MFC Finance Company, MERC Finance Company, Gulfco
Finance Company and Midland Finance Co. names. 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.
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 acquisitions were accounted for under the purchase method of
accounting. Accordingly their results of operations have been
included in the consolidated statements of income and statements
of cash flow since the dates of acquisition. The excess of cost
over fair value of net assets acquired (goodwill) relating to the
acquisitions is being amortized over twenty years on the straight
line method.
On October 20, 1995 Mercury acquired all the shares of ITT Lyndon
Property and ITT Lyndon Life Insurance Company for $72.5 million
in cash and the assumption of their net liabilities.
ITT Lyndon Property and ITT Lyndon Life Insurance Company
conducted their business through a central office in St. Louis,
Missouri. Following the acquisition, the names of the companies
were changed to Lyndon Property and Lyndon Life Insurance
Companies "Lyndon". The acquisition was accounted for under the
purchase method of accounting. Accordingly their results of
operations have been included in the consolidated statements of
income and statements of cash flow since the date of acquisition.
The excess of fair value over cost of net assets acquired
(negative goodwill of $10,299) relating to the acquisition was
offset against the present value of future profits of acquired
insurance in force. The balance of the present value of future
profits was $16.6 million at December 31, 1995 and is being
amortized over an approximate three year period.
The following table presents unaudited, proforma financial
results for the years ended December 31, 1995 and 1994, as though
Lyndon had been acquired on January 1, 1994. These proforma
<PAGE>
results have been prepared for comparative purposes only and are
not indicative of the results of operations which actually would
have resulted had the combination been in effect on the dates
indicated, or which may result in the future. The business which
was acquired by Mercury was substantially different than the
business Lyndon had been conducting prior to the acquisition.
Lyndon is no longer underwriting certain business it previously
conducted with current and prior subsidiaries of ITT Corporation.
<TABLE>
Text 1995 1994
<S> <C> <C>
Net interest income & other income $406,004 $318,824
Net income 117,150 121,979
Net income per share $ .67 $ .70
</TABLE>
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of Mercury conform to
generally accepted accounting principles and to the general
practice within the finance and insurance industries. The
consolidated financial statements include the accounts of the
consumer finance subsidiaries, Mercury Life Insurance Company
("Mercury Life"), Gulfco Investment Inc. ("Gulfco"),
Midland Finance Co. ("Midland"), Gulfco Life Insurance Company
("Gulfco Life") and Lyndon Property and Lyndon Life Insurance
Companies ("Lyndon"). In addition certain data from prior years
has been reclassified to conform to the 1995 presentation.
REVENUE RECOGNITION
CONSUMER FINANCE SUBSIDIARIES
Finance charges on precomputed loans and sales finance contracts
are credited to unearned finance charges at the time the loans and
sales finance contracts are made or acquired. Interest income is
calculated using the interest method.
If a precompute account becomes 60 or more days contractually
delinquent and no full contractual payment is received in the month
the account attains such delinquency status, the accrual of income
is suspended until one or more full contractual monthly payments
are received. Interest on interest bearing loans and sales finance
contracts is calculated on a 360-day year basis and recorded on the
accrual basis; accrual is suspended during the time an account is
60 or more days contractually delinquent. Late charges and
deferment charges on all contracts are taken into income as
collected. Extension fees are taken into income on the same basis
as finance charges.
<PAGE>
Fees and other income are derived from the sale of other products
and services.
INSURANCE OPERATIONS
In conjunction with their lending practices, the consumer finance
subsidiaries, as agents for Gulfco Life, Lyndon and unaffiliated
insurers, offer credit life, accident and health and property
insurance to borrowers who obtain finance receivables directly from
the consumer finance subsidiaries, and to borrowers under sales
finance contracts and financing contracts purchased from merchants
and automobile dealers. Commissions on credit life insurance and
credit accident and health insurance from unaffiliated insurers are
earned by Mercury over the average terms of the related policies on
the sum-of-the months digits method.
Lyndon is engaged in the business of direct writing of credit life,
accident and health and various other credit related insurance
policies for customers of Mercury and other companies. Lyndon Life
is licensed in forty-eight (48) states and Lyndon Property is
licensed in forty-seven (47) states. Mercury Life and Gulfco Life
are engaged primarily in the business of reinsuring and
direct writing, respectively, of credit life and accident and
health insurance policies issued to borrowers of finance
receivables and sales finance contracts originated by Mercury. The
policies insure the holder of a sales finance contract or other
debt instrument for the outstanding balance payable in the event of
death or disability of the debtor. Premiums are earned over the
life of the contracts principally using pro-rata and sum-of-the
months digits methods or in relation to anticipated benefits to the
policy holders.
Mercury Life, Gulfco Life and Lyndon have established policy
liabilities and claim reserves. The claim reserves are based upon
accumulated estimates of claims reported, plus estimates of
incurred but unreported claims.
ALLOWANCE FOR FINANCE CREDIT LOSSES
Mercury maintains an allowance for finance credit losses at a level
which, in the opinion of management, provides adequately for
current and possible future losses that may develop in the present
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
(losses on sales finance contracts are primarily charged off
against nonrefundable dealer reserves). A provision for losses is
charged to earnings in an amount sufficient to maintain the
allowance.
Direct installment loans on which no payment is received within 149
days, on a recency basis, are charged off. Sales finance 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.
<PAGE>
INVESTMENTS
Mercury accounts for its investments in accordance with Statement
of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES (Statement 115).
Statement 115 addresses the accounting and reporting for
investments in equity securities that have readily determinable
fair values, and all investments in debt securities. Mercury
classifies its debt securities into one or more of three categories
specified by Statement 115: held-to-maturity, available-for-sale,
or trading. Held-to-maturity securities are those which
management has the positive intent and ability to hold to maturity.
Available-for-sale securities are those securities which management
may sell prior to maturity as a result of changes in interest
rates, prepayment factors, or as part of Mercury's overall asset
and liability strategy. Trading securities are those securities
bought and held principally for the purpose of selling them in the
near term. Mercury has no securities designated as trading.
Held-to-maturity securities are recorded at cost adjusted for
amortization of premium and accretion of discount to the earlier of
the call date or maturity date using the level yield method.
Available-for-sale securities are recorded at fair value.
Unrealized gains and losses, net of the related income tax effect,
are excluded from income and reported as a separate component of
shareholders' equity. If a decrease in the market value of a
security is expected to be other than temporary, the security is
written down to its fair value through a charge to income.
Realized gains and losses on the sale of investment securities are
recorded using the specific identification method.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated
depreciation and are depreciated on a straight-line basis over
their estimated useful lives.
NONREFUNDABLE DEALER RESERVES
Mercury purchases a majority of its sales finance contracts from
dealers at a discount. A significant portion of this discount
represents anticipated credit losses and, based upon projected loss
experience, is allocated to nonrefundable dealer reserves. Mercury
negotiates the amount of the discounts with the dealers based upon
various criteria, one of which is the credit risk associated with
the sales finance contracts being purchased.
<PAGE>
REINSURANCE ACTIVITIES
The balance sheet includes approximately $90 million and $105
million of reinsurance receivable and reinsurance payable,
respectively. These amounts relate to certain reinsurance
agreements entered into by Lyndon Insurance Companies' former
reinsurance operations (prior to acquisition by Mercury). The
business assumed by Lyndon under these agreements has been
retroceded to third parties under similar terms as the original
agreements, resulting in offsetting receivable and payable amounts
(the difference represents cash received by Lyndon). Prior to the
acquisition of Lyndon by Mercury, Lyndon's reinsurance operations
were ceded to third party reinsurers. The majority of these
reinsurance agreements are expected to be either terminated or
novated to the third parties during 1996 as part of the sale
agreement and the corresponding assets and liabilities will be
removed from Mercury's financial statements.
In the normal course of business, the insurance companies assume
and cede reinsurance on both a pro rata and excess basis.
Reinsurance provides greater diversification of business and limits
the maximum net loss potential arising from large claims. Although
the ceding of reinsurance does not discharge an insurer from its
primary legal liability to a policy holder, the reinsuring company
assumes the related liability. Lyndon monitors the financial
condition of its reinsurers on a periodic basis.
DEFERRED ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS
Policy acquisition costs, representing commissions, premium taxes
and certain other underwriting expenses, are deferred and amortized
over policy terms. Estimates of future revenues, including
investment income and tax benefits, are compared to estimates of
future costs, including amortization of policy acquisition costs,
to determine if business currently in force is expected to result
in a net loss. No revenue deficiencies have been determined in the
periods presented. The present value of future profits represents
the portion of the purchase price of Lyndon allocated to the future
profits attributable to the insurance in force at the date of
acquisition. The present value of future profits is amortized in
relationship to the expected emergence of such future profits and
is discounted at rates between 12-15%.
INTEREST EXCHANGE AGREEMENTS
The interest differential to be paid or received on interest
exchange agreements is accrued monthly and is recognized over the
life of the agreement.
INCOME TAXES
The consumer finance subsidiaries are members of Mercury's
consolidated Federal income tax group. The consumer finance
subsidiaries file individual state income tax returns.
Lyndon Insurance Companies, Mercury Life and Gulfco Life file their
own tax returns and are not part of Mercury's consolidated tax
group for Federal and state income tax purposes.
<PAGE>
Effective January 1, 1993 Mercury adopted the provisions of
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR
INCOME TAXES, and has reported the cumulative effect of that change
in the method of accounting for income taxes in the 1993
consolidated statement of income. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying
notes. The accounts which are subject to such estimation
techniques most significantly include the allowance for finance
credit losses and insurance claim reserves. Actual results could
differ from these estimates.
3) INVESTMENTS
The amortized cost, gross unrealized gains and losses and
approximate fair values for available-for-sale and held-to-maturity
securities by major security type at December 31, 1995 and 1994
were as follows:
<TABLE>
December 31, 1995
Amortized Cost Gross Unrealized Gross Unrealized Approximate
Gains Losses Fair Value
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities
and obligations of
U.S. Government
agencies and
corporations $10,802 $75 $3 $10,874
Obligations
of States
and political
subdivisions 50,864 853 142 51,575
Corporate 139,786 2,246 1 142,031
Mortgage backed
securities 14,238 37 18 14,257
Other securities 10,681 0 0 10,681
Total available-
for-sale 226,371 3,211 164 229,418
<PAGE>
HELD-TO-MATURITY:
U.S. Treasury
securities and
obligations of
U.S. Government
agencies and
corporations 1,950 27 3 1,974
Obligations of
States and
political sub-
divisions 2,994 77 1 3,070
Corporate 1,046 70 0 1,116
Other securities 6,320 0 0 6,320
Equity securities 315 121 7 429
Total held-to-
maturity 12,625 295 11 12,909
TOTAL $238,996 $3,506 $175 $242,327
</TABLE>
<TABLE>
December 31, 1994
Amortized Cost Gross Unrealized Gross Unrealized Approximate
Gains Losses Fair Value
<S> <C> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Treasury
securities and
obligations of
U.S. Government
agencies and
corporations $1,424 $5 $87 $1,342
Obligations of
States and
political
subdivisions 1,912 0 120 1,792
Corporate 1,096 2 45 1,053
Other securities 9,311 0 43 9,268
Equity securities 441 55 9 487
Total held-to-
maturity $14,184 $62 $304 $13,942
</TABLE>
Other securities include mutual fund and money market investments. Proceeds
from the sale of investment securities, gross realized gains and losses were
as follows during the years ended December 31, 1995, 1994, and 1993:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Proceed from sales $55,694 $3,938 $2,165
Gains 73 42 31
Losses 54 18 4
</TABLE>
<PAGE>
Maturities of investment securities were as follows at December
31, 1995. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Equity
securities are excluded from the table.
<TABLE>
Amortized Cost Approximate Fair
Value
<S> <C> <C>
AVAILABLE-FOR-SALE:
Due in one year or less $81,977 $81,785
Due after one thru
five years 61,091 62,177
Due after five thru ten
years 51,411 52,806
Due after ten years 31,892 32,650
TOTAL AVAILABLE-FOR-SALE
SECURITIES 226,371 229,418
HELD-TO-MATURITY:
Due in one year or less $6,496 $6,496
Due after one thru five
years 2,807 2,833
Due after five thru ten
years 2,144 2,246
Due after ten years 863 905
TOTAL HELD-TO-MATURITY
DEBT SECURITIES 12,310 12,480
TOTAL $238,681 $241,898
</TABLE>
To comply with state regulatory requirements, the company has
securities totaling $9,685 and $110 pledged to meet depository
requirements of various state insurance departments at
December 31, 1995 and 1994, respectively.
4) FINANCE RECEIVABLES
Direct loans generally have terms of 12 to 24 months with maximum
terms of 36 months; secured loans are generally collateralized by
real or personal property. Sales finance contracts are generally
accounted for on a discount basis and generally have terms of 18
to 36 months with maximum terms of 48 months. Loans outstanding
at December 31, 1995 and 1994, were as follows:
<TABLE>
Text 1995 1994
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Interest bearing $72,046 $34,191
Precompute 112,263 101,281
Total direct finance
receivables 184,309 135,472
<PAGE>
SALES FINANCE RECEIVABLES 1,256,977 1,136,958
Total gross finance receivables 1,441,286 1,272,430
Less: Unearned finance charges 231,791 222,284
Unearned commissions,
insurance premiums
and insurance claim
reserves 12,758 10,279
Finance receivables $1,196,737 $1,039,867
</TABLE>
Included in finance receivables at December 31, 1995 and 1994
were $16,747 and $10,201, respectively, of receivables for which
interest accrual had been suspended. Repossessed assets
totaled $10,621 and $8,258 at December 31, 1995 and 1994,
respectively.
Contractual maturities of the finance receivables by year are not
readily available at December 31, 1995 and 1994, but experience
has shown that such information is not significant in that
receivables may be renewed, converted, or paid in full prior to
actual maturity.
Principal cash collections (excluding finance charges earned) for
the years ended December 31, 1995 and 1994, were as follows:
<TABLE>
Text 1995 1994
<S> <C> <C>
DIRECT FINANCE RECEIVABLES
Principal cash collections $105,901 $70,892
Percent of average net balances 85.56 % 82.09%
SALES FINANCE RECEIVABLES
Principal cash collections $729,679 $623,990
Percent of average net balances 72.19% 72.60%
</TABLE>
A summary of the activity in the allowance for finance credit
losses for the years ended
December 31, was as follows:
<TABLE>
Text 1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $22,488 $18,344 $13,198
Allowance acquired - 1,052 2,456
Provision for finance credit losses 30,841 7,376 6,392
Finance receivables charged off (12,846) (6,467) (4,882)
Recoveries 4,083 2,183 1,180
Balance at end of year $44,566 $22,488 $18,344
</TABLE>
<PAGE>
A summary of the activity in nonrefundable dealer reserves for the
years ended December 31, was as follows:
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Balance at beginning of year $66,477 $57,241 $38,362
Discounts acquired on new volume 100,359 84,252 71,400
Losses absorbed (96,117) (70,419) (50,281)
Other (6,958) (4,597) (2,140)
Balance at end of year $63,761 $66,477 $57,241
</TABLE>
5) SENIOR AND SUBORDINATED DEBT, LINES OF CREDIT AND COMMITMENT
FEES
Senior and Subordinated debt at December 31, 1995 and 1994,
consisted of the following:
<TABLE>
Text 1995 1994
<S> <C> <C>
SENIOR DEBT, COMMERCIAL PAPER AND NOTES $489,990 $449,945
SENIOR DEBT, TERM NOTES
Due 1995 - interest rate 9.02% $0 $10,000
Due 1995 - interest rate 5.88% 0 15,000
Due 1995 - interest rate 7.13% 0 125
Due 1996 - interest rate 9.00% 25,000 25,000
Due 1996 - interest rate 6.41% 15,000 15,000
Due 1996 - interest rate 7.13% 125 125
Due 1997 - interest rate 7.67% 15,000 15,000
Due 1997 - interest rate 8.15% 17,500 17,500
Due 1997 - interest rate 6.29% 24,000 24,000
Due 1997 - interest rate 7.13% 125 125
Due 1997 - interest rate 6.86% 0 1,500
Due 1997 - interest rate 6.41% 40,000 0
Due 1998 - interest rate 6.70% 35,000 35,000
Due 1998 - interest rate 6.16% 76,000 76,000
Due 1998 - interest rate 8.62% 20,000 20,000
Due 1998 - interest rate 8.50% 10,000 10,000
Due 1998 - interest rate 7.13% 1,000 1,000
<PAGE>
Due 1998 - interest rate 7.16% 25,000 0
Due 1999 - interest rate 7.33% 30,000 0
Due 2000 - interest rate 7.42% 58,000 0
Due 2001 - interest rate 7.50% 30,000 0
Due 2002 - interest rate 7.59% 17,000 0
TOTAL SENIOR DEBT, TERM NOTES $438,750 $265,375
</TABLE>
<TABLE>
1995 1994
<S> <C> <C>
SUBORDINATED DEBT
Due 1995 - interest rate 9.76% $0 $4,000
Due 1995 - interest rate 10.86%. 0 1,500
Due 1996 - interest rate 9.76% 4,000 4,000
Due 1996 - interest rate 10.86% 3,000 3,000
Due 1997 - interest rate 9.76% 12,000 12,000
Due 1997 - interest rate 10.86%. 3,000 3,000
Due 1998 - interest rate 10.86%. 7,500 7,500
Due 1998 - interest rate 7.38% 0 500
TOTAL SUBORDINATED DEBT $29,500 $ 35,500
</TABLE>
<PAGE>
The following table sets forth information with respect to
maturities of senior and subordinated debt at December 31, 1995.
<TABLE>
Senior debt
commercial Senior debt Subordinated
Text Paper & Notes Term Notes Debt Total
<S> <C> <C> <C> <C>
1996 $489,990 $40,125 $7,000 $537,115
1997 0 96,625 15,000 111,625
1998 0 167,000 7,500 174,500
1999 0 30,000 0 30,000
2000 0 58,000 0 58,000
2001 0 30,000 0 30,000
2002 0 17,000 0 17,000
TOTAL $489,990 $438,750 $29,500 $958,240
</TABLE>
Credit facilities extended by banks and related commitment fees
at December 31, 1995 and 1994, were as follows:
<TABLE>
Text 1995 1994
<S> <C> <C>
Unused bank lines $0 $ 20,000
Revolving credit facilities 500,000 400,000
Total lines of credit $500,000 $420,000
Commitment fees (charged to
interest expense) $884 $928
</TABLE>
<PAGE>
The revolving credit facilities have commitment periods through
August 31, 1998 and are subject to annual extension for
additional one year periods at the request of Mercury with the
consent of each of the banks in the facility. Currently the
facilities carry a weighted average annual commitment fee of 17
basis points of the total amount. Outstanding borrowings bear
interest at floating rates, at Mercury's option, either equal to
the reference bank's prime rate, or 1/2 of 1% above LIBOR rate.
6) INTEREST EXCHANGE AGREEMENTS
In the past Mercury had entered into interest exchange agreements
ranging in maturity from one to five years. These agreements
called for Mercury to pay interest at a fixed rate and receive
interest at a floating rate on notional amounts. The net
(income) expense associated with these agreements, which is
included in interest expense in the accompanying consolidated
statements of income, was $0, $192 and $1,497 in 1995, 1994 and
1993, respectively.
At December 31, 1995 Mercury was not a party to any open interest
exchange agreements.
7) DIVIDEND RESTRICTIONS
Payment of dividends by Mercury is subject to certain limitations
in the various debt agreements and the revolving credit
facilities. Under the most restrictive provisions of these
agreements, approximately $2,176 of the retained earnings of
Mercury at December 31, 1995 were available for distribution.
Payment of dividends by the insurance subsidiaries to Mercury
from statutory- basis retained earnings (surplus) in excess of
defined limits (generally, the lesser of statutory-basis net gain
from operations or 10% of prior year-end statutory-basis surplus)
is subject to approval by state regulatory authorities. The
amount available for payment of dividends to Mercury by its
insurance subsidiaries without regulatory approval, totaled
$6,135 at December 31, 1995. <PAGE>
8) COMMON STOCK
During the period since Mercury became an independent publicly
traded company the following stock splits have been distributed:
<TABLE>
Dates Type
<S> <C>
December 28, 1989 4 for 3 split
October 31, 1990 4 for 3 split
June 10, 1991 4 for 3 split
December 5, 1991 4 for 3 split
June 19, 1992 2 for 1 split
June 22, 1993 4 for 3 split
October 31, 1995 3 for 2 split
</TABLE>
Earnings per share is computed by dividing net income by the
total of weighted average common shares and common stock
equivalents outstanding during the periods, adjusted for all
stock splits. The calculated averages were as follows:
<TABLE>
Text 1995 1994 1993
<S> <C> <C> <C>
Weighted Average:
Common Shares 175,631,175 173,864,469 172,976,916
Treasury Shares (3,182,283) (522,158) (94,808)
Common Equivalents 1,660,524 1,808,034 2,567,556
Total 174,109,416 175,150,345 175,449,664
</TABLE>
8) STOCK OPTIONS
Under the terms of Mercury's 1989 Stock Option and Incentive
Compensation Plan, 24,837,036 common shares were reserved for the
future granting of options to officers, non-employee
directors and other key employees. Options become exercisable in
whole or in part up to two years after the date of grant at the
closing price of Mercury's common stock on the date of grant.
Options are forfeited upon termination of employment. Shares
available for future grants totaled 891,055 and 2,044,680 at
December 31, 1995 and 1994 respectively.
<PAGE>
<TABLE>
<CAPTION>
Activity with respect to stock options follows:
(As adjusted for all stock splits)
Text 1995 1994
<S> <C> <C>
Outstanding January 1 10,183,320 6,252,314
Options granted (average price
of $11.38 in
1995 and $11.17 in 1994) 1,582,375 4,622,625
Forfeited (428,750) (45,000)
Options exercised (average
price of $3.12 in
1995 and $3.74 in 1994) (2,622,453) (646,619)
Outstanding December 31 8,714,492 10,183,320
</TABLE>
<PAGE>
The average option price under the plans was $9.45 and $7.53 at
December 31, 1995 and 1994 respectively.
10) CONTINGENCIES AND LEGAL MATTERS
In the normal course of its business, Mercury and its
subsidiaries are named as defendants in legal proceedings. A
number of such actions, including two cases which have been
brought as putative class actions, are pending in the various
states in which subsidiaries of Mercury do business. It is the
policy of Mercury and its subsidiaries to vigorously defend
litigation, but Mercury and (or) its subsidiaries have and may in
the future enter into settlements of claims where management
deems appropriate. Although management is of the opinion that
the resolution of these proceedings will not have a material
effect on the financial position of Mercury, 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.
At December 31, 1995, Lyndon was a party to a number of
reinsurance agreements entered into by its former reinsurance
operation. These agreements resulted in Lyndon assuming business
on a low risk basis primarily from large and highly rated life
and health insurers for the purpose of providing statutory
surplus to the ceding companies.
Prior to the acquisition of Lyndon by Mercury, this business was
retroceded to a joint venture of third party reinsurers under
similar terms as the original agreements. All the risks of this
business have been effectively transferred to the third party
reinsurers. ITT Corporation has also agreed to indemnify Mercury
Finance in the event any losses are incurred by Lyndon under the
agreements. There was approximately $567 million of statutory
surplus provided (assumed and ceded) under these agreements as of
December 31, 1995. Virtually all of these reinsurance agreements
are expected to be either terminated or novated during 1996 which
will remove Lyndon from any potential contingent liabilities
related to these agreements.
11) Pension Plan and Other Employee Benefits
Substantially all employees of Mercury are covered by a
non-contributory defined benefit pension plan. Total pension
expense aggregated $317, $654 and $554 in 1995, 1994 and 1993
respectively.
<PAGE>
The following table sets forth the funded status of Mercury's
qualified plan amounts recognized in the 1995, 1994 and 1993
consolidated financial statements.
<TABLE>
Text 1995 1994 1993
<S> <C> <C> <C>
Actuarial present value of
benefit obligation:
Accumulated benefit
obligations, including
vested benefits of $5,631,
$4,407, and $4,296 $6,430 $4,973 $4,905
Projected benefit
obligation for service
rendered to date $(9,763) $(7,596) $(8,193)
Plan assets at fair value 11,542 9,303 9,685
Plan assets in excess of
projected benefit
obligation. 1,779 1,707 1,492
Unrecognized net asset
as of December 31, being
recognized over 22 years (442) (830) (337)
Unrecognized net loss (gain)(1,397) (437) (185)
Unrecognized prior service
cost 106 67 70
Prepaid pension expense $46 $507 $1,040
Components of net pension
expense:
Service cost-benefits
earned during the period $884 $964 $764
Interest cost on projected
benefit obligation 601 567 416
Actual return on plan
assets (1,743) 321 (1,809)
Net amortization and
deferral 575 (1,198) 1,183
Net periodic pension
expense $317 $654 $554
</TABLE>
The weighted average discount rate used in determining the
actuarial present value of the projected benefit obligation was
7.50%, 8.25% and 7.25% at December 31, 1995, 1994 and 1993
respectively. The rates of increase in future compensation were
5.5% - 7% at December 31, 1995, 1994 and 1993. The expected
long-term rate of return on plan assets in 1995, 1994
and 1993 was 9%.
Mercury also maintains a nonqualified, unfunded pension benefit
plan for certain employees whose calculated benefit payments
under the qualified plan are expected to exceed the limits
imposed by Federal tax law. The projected benefit obligations of
the plan, and the expenses related to this plan, are not
material.
Mercury has an employee stock purchase plan and a tax deferred
Retirement Savings Trust (401-k) plan; employees are eligible to
participate in the plans after having attained specified terms of
service. Both plans cover substantially all full time employees
of Mercury and provide for employee contributions and partial
matching contributions by Mercury. The expenses related to these
plans are not material.
<PAGE>
12) Income Taxes
The components of the 1995, 1994 and 1993 provisions were as
follows:
<TABLE>
Text 1995 1994 1993
<S> <C> <C> <C>
CURRENT INCOME TAX EXPENSE
Federal $60,042 $48,365 $35,792
State 9,912 7,859 5,453
Total 69,954 56,224 41,245
Deferred income tax benefit (9,911) (1,779) (1,305)
Total income tax provision $60,043 $54,445 $39,940
</TABLE>
The effective tax rates on income before income taxes were 37.8%,
38.6% and 38.3% in 1995, 1994, and 1993 respectively. State
income taxes accounted for the difference between the effective
income tax rate and the statutory Federal tax rate of 35% for
1995, 1994 and 1993. The total income tax benefit reflected in
shareholders' equity for stock options exercised was $7,363,
$1,535 and $2,698 in 1995, 1994 and 1993 respectively. Temporary
differences between the amounts reported in the financial
statements and the tax basis of assets and liabilities result in
deferred taxes. Deferred tax assets and liabilities at December
31, were as follows:
<TABLE>
Text 1995 1994
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for finance credit
losses and prepaid pension expense $17,201 $8,048
Purchase accounting adjustments $4,830 $0
Deferred tax assets $22,031 $8,048
DEFERRED TAX LIABILITIES:
Unrealized appreciation on
available-for-sale securities $1,362 $0
Premises and equipment
depreciation and other miscellaneous
items 0 758
Net deferred tax assets $20,669 $7,290
</TABLE>
No valuation allowance for deferred tax assets has been recorded
at December 31, 1995 and 1994 as Mercury believes it is more
likely than not that the tax deferred tax assets will be realized
in the future.
<PAGE>
As discussed in note 1, Mercury adopted Statement 109 as of
January 1, 1993. The cumulative effect of this change in
accounting for income taxes of $234 is determined as of January
1, 1993 and is reported separately in the consolidated statement
of income for the year ended December 31, 1993.
13) Leases
Mercury and its subsidiaries lease offices generally under
cancelable operating leases expiring in various years through
2001. Most of these leases are renewable for periods ranging from
three to five years. Future minimum payments, by year and in the
aggregate, under operating leases with initial or remaining terms
of one year or more consisted of the following at December 31,
1995:
<TABLE>
Year Amount
<S> <C>
1996 $ 3,920
1997 3,323
1998 2,470
1999 1,204
2000 and after 394
Total $11,311
</TABLE>
It is expected that in the normal course of business, office
leases that expire will be renewed or replaced by leases on other
properties. Total rent expense approximated $4,176, $3,169, and
$2,619 in 1995, 1994 and 1993 respectively.
14) Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Fair value estimates are
made at a specific point in time for Mercury's financial
instruments; they are subjective in nature and involve
uncertainties, matters of significant judgment and,
therefore, cannot be determined with precision. Fair value
estimates do not reflect the total value of Mercury as a going
concern.
INVESTMENTS
For bonds the estimated fair value is based on quoted market
price. For other investments, which consist primarily of
short-term money market instruments, the carrying amount is a
reasonable estimate of fair value.
<PAGE>
FINANCE RECEIVABLES
The fair value of finance receivables is computed using estimated
market rates of return desired by bulk purchasers.
SENIOR DEBT, COMMERCIAL PAPER
The debt consists principally of short term commercial paper for
which the carrying amount is a reasonable estimate of fair value.
SENIOR AND SUBORDINATED DEBT, TERM NOTES
Rates currently available to Mercury for debt with similar terms
and remaining maturities are used to estimate the fair value of
existing debt.
The estimated fair values of Mercury's financial instruments at
December 31, were as follows:
<TABLE>
1995
Carrying Fair
Amount Value
<S> <C> <C>
FINANCIAL ASSETS:
Cash $ 22,967 $22,967
Investments 242,043 242,327
Finance Receivables 1,196,737 1,250,383
Less Allowance for Finance Credit Losses (44,566) (44,566)
Less Nonrefundable Dealer Reserves (63,761) (63,761)
Total $1,353,420 $1,407,350
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper $489,990 $489,990
Senior Debt, Term Notes 438,750 443,437
Subordinated Debt 29,500 30,715
Total $958,240 $964,142
</TABLE>
<TABLE>
1994
Carrying Fair
Amount Value
<S> <C> <C>
FINANCIAL ASSETS
Cash $19,980 $19,980
Investments 14,184 13,942
Finance Receivables 1,039,867 1,096,249
Less Allowance for Finance Credit Losses (22,488) (22,488)
Less Nonrefundable Dealer Reserves (66,477) (66,477)
Total $985,066 $1,041,206
FINANCIAL LIABILITIES:
Senior Debt, Commercial Paper $449,945 $449,945
Senior Debt, Term Notes 265,375 255,618
Subordinated Debt 35,500 35,746
Total $750,820 $741,309
</TABLE>
<PAGE>
15) BUSINESS SEGMENT DATA
The Finance segment consists of the noninsurance segment of
Mercury. The insurance segment consists of Mercury's insurance
subsidiaries including Gulfco Life, Mercury Life and the Lyndon
Insurance Companies.
Included in revenues are net interest income and other income.
Operating profit represents income before income taxes but includes
interest expense, as financing costs are integral to the Company's
operations. Income by segment assumes each business services its
own debt (including acquisition debt). The segments generally
provide for income taxes as if separate returns were filed subject
to certain consolidated return limitations and benefits. Equity is
allocated to the business segments based on underlying regulatory
and business requirements.
The following table presents the business segment data of Mercury
(in millions).
<TABLE>
<CAPTION>
Year Ended December 31
Text 1995 1994 1993
<S> <C> <C> <C>
REVENUES
Finance $253.2 $203.5 $152.4
Insurance 37.8 9.6 9.1
Total $291.0 $213.1 $161.5
OPERATING PROFITS
Finance $146.6 $137.9 $102.5
Insurance 12.4 3.1 2.4
Total $159.0 $141.0 $104.9
NET INCOME
Finance $91.1 $84.4 $63.3
Insurance 7.8 2.1 1.6
Total $98.9 $86.5 $64.9
IDENTIFIABLE ASSETS
Finance $1,204.9 $1,025.1 $789.0
Insurance 430.0 11.3 8.1
Total $1,634.9 $1,036.4 $797.1
</TABLE>
<PAGE>
16) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
BALANCE SHEET AVERAGE FOR THE QUARTER 1995
Text 4th Qrtr 3rd Qrtr 2nd Qrtr 1st Qrtr
<S> <C> <C> <C> <C> ASSETS
Cash $22,266 $13,913 $15,252 $17,786
Investments 260,312 11,885 14,048 13,240
Finance Receivables 1,174,138 1,169,045 1,130,040 1,065,226
Allowance for Credit
Losses (28,009) (24,673) (24,163) (22,955)
Nonrefundable Dealer
Reserves (64,720) (73,610) (70,723) (67,931)
Other Assets 194,340 51,294 46,006 49,142
Total Assets $1,558,327 $1,147,854 $1,110,460 $1,054,508
LIABILITIES AND
SHAREHOLDERS' EQUITY
Senior Debt, Short
Term $432,291 $363,360 $493,654 $453,593
Senior Debt, Long
Term 432,104 419,708 267,641 265,375
Subordinated Debt 32,167 33,833 35,500 35,500
Other Liabilities 381,847 61,919 66,725 71,861
Total Shareholders'
Equity 279,918 269,034 246,940 228,179
Liabilities and
Shareholders'
Equity $1,558,327 $1,147,854 $1,110,460 $1,054,508
INCOME STATEMENT
Interest Income $73,928 $68,375 $65,718 $62,395
Interest Expense 15,797 14,499 13,897 13,110
Net Interest Income 58,131 53,876 51,821 49,285
Provision for Credit
Losses 23,879 2,112 2,426 2,424
Net Interest Income
after Credit Losses 34,252 51,764 49,395 46,861
Other Income 37,954 13,912 13,304 12,741
Other Expenses 41,037 20,608 20,347 19,241
Income Before Income
Taxes 31,169 45,068 42,352 40,361
Applicable Income
Taxes 12,552 16,607 15,534 15,350
Net Income 18,617 28,461 26,818 25,011
Average Common &
Equivalent
Shares Outstanding 174,518 175,137 173,764 173,018
Per Common Share
(adjusted for
stock splits)
Net Income $.11 $.16 $.15 $.15
Cash Dividend .08 .06 .06 .05
Market Price:
High 16 3/8 16 5/8 12 7/8 11 1/4
Low 11 3/8 12 1/8 9 3/4 8 1/4
Close at End of
Period 13 1/4 16 1/4 12 7/8 10 5/8
Ratios
Net Interest Margin 16.25% 18.29% 18.10% 18.13%
Net Income to
Average Assets 4.78 9.92 9.66 9.49
Net Income to
Average
Shareholders'
Equity 26.60 42.32 43.44 43.84
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET AVERAGE FOR THE QUARTER 1994
Text 4th Qrtr 3rd Qrtr 2nd Qrtr 1st Qrtr
<S> <C> <C> <C> <C>
ASSETS
Cash $14,742 $13,859 $12,629 $13,464
Investments $12,600 $12,448 $11,746 $11,248
Finance Receivables $1,000,640 $932,434 $892,076 $839,051
Allowance for Credit
Losses (22,002) (20,331) (19,617) (18,681)
Nonrefundable Dealer
Reserves (71,261) (68,829) (65,818) (59,675)
Other Assets 48,356 34,910 30,153 29,805
Total Assets 983,075 904,491 861,169 815,212
LIABILITIES AND
SHAREHOLDERS' EQUITY
Senior Debt, Short
Term $385,243 $316,070 $288,452 $258,582
Senior Debt, Long
Term 264,533 265,167 266,000 266,000
Subordinated Debt 35,750 35,000 35,000 35,000
Other Liabilities 67,888 64,814 61,044 58,820
Total Shareholders'
Equity 229,661 223,440 210,673 196,810
Liabilities and
Shareholders' Equity $983,075 $904,491 $861,169 $815,212
INCOME STATEMENT
Interest Income $59,531 $53,399 $50,818 $47,816
Interest Expense 11,575 9,969 9,302 8,528
Net Interest Income 47,956 43,430 41,516 39,288
Provision for Credit
Losses 2,543 1,657 1,409 1,766
Net Interest Income
After Credit Losses 45,413 41,773 40,107 37,522
Other Income 13,575 10,228 8,588 8,516
Other Expenses 20,633 15,362 14,523 14,192
Income Before
Income Taxes 38,335 36,639 34,172 31,846
Applicable Income
Taxes 14,827 14,158 13,170 12,290
Net Income 23,508 22,481 21,002 19,556
Average Common and
Equivalent Shares
Outstanding 173,147 175,792 175,833 175,836
Per Common Share
(adjusted for stock
splits)
Net Income $.14 $.13 $.12 $.11
Cash Dividend .05 .05 .04 .04
Market Price:
High 10 1/8 11 3/4 12 5/8 12 3/4
Low 7 3/8 9 10 1/8 9 7/8
Close at End of
Period 8 5/8 9 5/8 11 11 1/4
Ratios:
Net Interest Margins 18.97% 18.42% 18.36% 18.43%
Net Income to
Average Assets 9.57 9.94 9.76 9.60
Net Income to Ave
rage Shareholders'
Equity 40.94 40.25 39.88 39.75
</TABLE>
The common stock of Mercury Finance Company began trading on The
New York Stock Exchange on April 11, 1989 under the symbol MFN.
Mercury common stock is also traded on The Chicago Stock Exchange.
On December 31, 1995 Mercury had approximately 4,100 holders of
record of common stock, exclusive of holders of shares in "street"
or nominee names.
17) SUBSEQUENT EVENT
During 1996, the Company identified certain 1995 fourth quarter
accounting transactions associated with single interest insurance
that were incorrectly classified with nonrefundable dealer
reserves, thereby impacting the adequacy of the allowance for loan
losses.
Accordingly, effective September 30, 1996, the Company has restated
its previously issued 1995 financial statements to appropriately
reflect aggregate nonrefundable dealer reserves and a resulting
impact on unearned single interest insurance commissions and
finance charges and the allowance for loan losses. The impact of
the restatement on the previously issued financial statements was
to decrease nonrefundable dealer reserves by $6,392, increase
unearned single interest insurance commissions by $4,794, increase
unearned single interest finance charges by $1,598, and increase,
by a charge to operations, the allowance for loan losses by
$17,583, thereby reducing net income after taxes by $12,000 from
that previously reported.
Effective August 1, 1996, the Company amended its various debt agreements. In
negotiating this amendment with the Company's lenders, it was determined that
the computation of retained earnings available for distribution under the pre-
existing agreement had been misinterpreted. The appropriate interpretation
resulted in a revised calculation of dividends available for distribution from
$54,632 as reported previously at December 31, 1995 to $2,176, including the
effect of the aforementioned restatement. After amending its various debt
agreements on August 1, 1996, the amount of retained earnings that would have
been available for distribution as of December 31, 1995 would have increased
to $44,576 from $2,176.
<PAGE>
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.
None.
<PAGE>
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is contained in Mercury's
1996 Proxy and information regarding executive officers is set
forth in Item 1 herein.
ITEM 11.
EXECUTIVE COMPENSATION
Information is contained in Mercury's 1996 Proxy and is
incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP AND CERTAIN BENEFICIAL OWNER'S AND
MANAGEMENT
Information is contained in Mercury's 1996 Proxy and is
incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information is contained in Mercury's 1996 Proxy and is
incorporated herein by reference.
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Financial Statements Filed in Mercury's 1995 Annual Report
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the Three Year Period Ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Changes in Shareholders' Equity for the
Three Year Period Ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the Three Year Period
Ended December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements for the Three Year
Period Ended December 31, 1995, 1994 and 1993.
Independent Auditors' Report.
<PAGE>
FINANCIAL STATEMENT SCHEDULE
None. All schedules omitted are inappropriate or the information
required is shown in the consolidated financial statements or notes
hereto.
REPORTS ON FORM 8-K
Mercury filed a report on Form 8-K on November 10, 1995. In that
report, Mercury disclosed that on October 23, 1995, it had acquired
all the stock of ITT Life Insurance Company and ITT
Lyndon Property Insurance Company for $72.5 million in cash.
Financial statements were filed for this acquisition in a
subsequent report on Form 8-K January 9, 1996.
EXHIBITS
A list of all exhibits included as part of this report is set forth
in the Exhibit Index accompanying this report, which is included
herein.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to signed on its behalf by the undersigned, thereunto
duly authorized.
MERCURY FINANCE COMPANY
(Registrant)
March 29, 1996 John N. Brincat
[DATE] John N. Brincat
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrants and in the capacities and on the dates
indicated.
March 29, 1996 John N. Brincat
Date John N. Brincat
Chief Executive Officer
March 29, 1996 James A. Doyle
Date James A. Doyle
Principal Accounting Officer
March 29, 1996 Bradley S. Vallem
Date Bradley S. Vallem
Principal Financial Officer
The Board of Directors of the registrant has given the following
persons its power of attorney for signing this report on its behalf
and on behalf of the individual directors of the registrant.
March 29, 1996 John N. Brincat
Date John N. Brincat
Chief Executive Officer
March 29, 1996 James A. Doyle
Date James A. Doyle
Principal Accounting Officer
March 29, 1996 Bradley S. Vallem
Date Bradley S. Vallem
Principal Financial Officer
As attorneys in fact pursuant to power of attorney granted to said
parties.
<PAGE>
The following exhibits required by Item 601 of Regulation S-K are
not contained herein (except exhibits 11, 12, 13, 22 and 24) but
are filed separately with this Form 10-K filing:
<TABLE>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS ENCLOSED
NUMBERS
<S> <C> <C>
3A *Certificate of Incorporation
3B *Bylaws
10A *1989 Stock Option Plan
10B *Employee Stock Purchase Plan
10C *Retirement Plan and Trust
10D *Deferred Compensation Plan for Directors
10E *Dividend Reinvestment Plan
10G *Employment Agreement Dated as of January 1, 1989, Between
First Illinois Corporation and John N. Brincat
10H **Employment Agreement Dated as of February 20, 1989,
Between Mercury Finance Company and Charely A. Pond
10J *Lease Dated December 6, 1985 Between Teachers Realty
Corporation and First Illinois Finance Company
10K *Life Reinsurance Agreement Between American Bankers Life
Assurance Company of Florida and First Illinois Finance
Company
10L *Accident and Health Reinsurance Agreement Between
American Bankers Life Assurance Company of Florida and
First Illinois Finance Company Dated as of June 1, 1986.
10M *Agency Agreement Dated February 1, 1985 Between American
Bankers Insurance Group and First Illinois Finance
Company
10N *Form of Mercury Finance Company Commercial Paper Note
10O *$200,000,000 Credit Agreement Dated as of December 23,
1988 Among Mercury Finance Company and Harris Trust and
Savings Bank
10P **First Amendment Dated as of December 18, 1989 to
$200,000,000 Credit Agreement Dated as of December 23,
1988 Among Mercury Finance Company and Harris Trust and
Savings Bank as agent for the Bank Parties thereto
10Q **Second Amendment Dated as of December 31, 1989 to
$200,000,000 Credit Agreement Dated as of December 23,
1988 Among Mercury Finance Company and Harris Trust and
Savings Bank as agent for the Bank Parties thereto
<PAGE>
10R Third Amendment Dated as of May 14, 1990 to
$200,000,000 Credit Agreement Dated as of December 23,
1988 Among Mercury Finance Company and Harris Trust and
Savings Bank as agent for the Bank Parties thereto
10S Fourth Amendment Dated as of December 23, 1990 to
$200,000,000 Credit Agreement Dated as of December 23,
1988 Among Mercury Finance Company and Harris Trust and
Savings Bank as agent for the Bank Parties thereto
10T *Senior Subordinated Note Dated as of March 3, 1989
Between Australia and New Zealand Banking Group Limited
and First Illinois Finance Company
10U *Note Purchase Agreement Dated as of May 30, 1986 Between
First Illinois Finance Company and American Bankers Life
Assurance Company of Florida
10V *Note Purchase Agreement Dated as of May 30, 1986 Between
First Illinois Finance Company and American Bankers Life
Assurance Company of Florida
10W *Interest Rate Swap Agreement Dated as of May 10, 1988
Between Continental Illinois National Bank and Trust
Company of Chicago and First Illinois Finance Company
10X *Master Interest Rate Swap Agreement Dated as of June 18,
1986 Between Harris Trust and Savings Bank and First
Illinois Finance Company
10Y **Term Loan Agreement Dated as of September 27, 1989
Between Mercury Finance Company and National Westminster
Bank, U.S.A
10Z **Term Loan Agreement Dated as of September 28, 1989
Between Mercury Finance Company and Northern Trust Company
10AA **Term Loan Agreement Dated as of September 29, 1989
Between Mercury Finance and Mellon Bank, N.A.
10AB **Subordinated Note Agreement Dated as of October 17,
1989, Between Mercury Finance Company and State Bank of
South Australia
10AC **Amendment Dated December 1, 1989 to Subordinated Note
Agreement Dated as of October 17, 1989 Between Mercury
Finance Company and State Bank of South Australia
<PAGE>
10AD **Senior Note Agreement Series A and B Dated as of
December 1, 1989 Between Mercury Finance Company and:
- Insurance Company of North America
- Life Insurance Company of North America
- The Lincoln National Life Insurance Company
- First-Penn Pacific Life Insurance Company
- The Mutual Life Insurance Company
- Phoenix Mutual Life Insurance Company
- Provident Mutual Life Insurance Company
- SMA Life Assurance Company
- State Mutual Life Assurance Company
- State Mutual Life Assurance Company of America
10AE **Senior Subordinated Note Agreement Series C Dated as of
December 1, 1989 Between Mercury Finance Company and:
- Cigna Property and Casualty Insurance Company
- Connecticut General Life Insurance Company
- Life Insurance Company of North America
- Phoenix Mutual Life Insurance Company
10AF ***Senior Subordinated Note Agreement Series D Dated as of
May 15, 1990 Between Mercury Finance Company and:
- Cigna Property and Casualty Company
_ Connecticut General Life Insurance Company
10AG ***Senior Note Agreement Dated as of September 1, 1990
Between Mercury Finance Company and Aetna Life Insurance
Company
10AH ****Senior Note Agreement Dated as of June 1, 1991 Between
Mercury Finance Company and Allstate Insurance Company
10AI ****Senior Note Agreement Dated as of September 1, 1991
Between Mercury Finance Company and Principal Mutual Life
Insurance Company
10AJ ****Loan Agreement Dated October 30, 1992 Between mercury
Finance Company and Allomon Funding Corporation
(Uncommitted Credit Facility)
10AK *****Senior Note Agreement Dated march 1, 1992 Between
Mercury Finance Company and Principal Mutual Life
Insurance Company
10AL *****Senior Note Agreement Dated may 1, 1992 Between
Mercury Finance Company and:
- Allstate Life Insurance Company
- State Mutual Life Assurance Company of America
10AM *****Interest Rate Swap Transaction Dated July 2, 1992
Between Mercury Finance Company and Continental Bank N.A.
10AN *****Senior Note Agreement Dated September 1, 1992 Between
Mercury Finance Company and The Equitable Life Assurance
Society of the United States
<PAGE>
10AO *****Senior Note Agreement Dated September 15, 1992
Between Mercury Finance Company and The Equitable Life
Assurance Society of the United States
10AP *****Credit Agreement Dated September 15, 1992 Between
Mercury Finance Company and:
*****Credit Agreement Dated September 15, 1992 Between
Mercury Finance Company and:
- Harris Trust and Savings Bank
- Continental Bank N.A.
- Canadian Imperial Bank of Commerce
- The Northern Trust Company
- The Daiwa Bank, Ltd.
- Mellon Bank, N.A.
- Bank One, Evanston, N.A.
- NBD Bank, N.A.
- First Wisconsin national Bank of Milwaukee
- Dresdner Bank AG/Chicago Branch/Grand Cayman Branch
- Bank Hapoalim B.M.
- Bank of Hawaii
10AQ *****Credit Agreement Dated September 15, 1992 Between
Mercury Finance Company and:
- Harris Trust and Savings Bank
- Continental Bank N.A.
- Canadian Imperial Bank of Commerce
- The Northern Trust Company
- The Daiwa Bank, Ltd.
- Mellon Bank, N.A.
- Bank One, Evanston, N.A.
- NBD Bank, N.A.
- First Wisconsin National Bank of Milwaukee
- Dresdner Bank AG/Chicago Branch/Grand Cayman Branch
- Bank Hapoalim B.M.
- Bank of Hawaii
<PAGE>
10AR ******Purchase Agreement Dated April 1, 1993 Between
Mercury Finance Company and Independent Life Insurance
Company
10AS ******Senior Note Agreement Dated March 1, 1993 Between
Mercury Finance Company and Principal Mutual Life
Insurance Company
10AT ******Senior Note Agreement Dated July 1, 1993 Between
Mercury Finance Company and Pacific Mutual Life Insurance
Company
10AU ******Senior Note Agreement Dated December 1, 1993 Between
Mercury Finance Company and:
- American United Life Insurance Company
- MONY Capital Management
- Pacific Mutual Life Insurance Company
- Principal Mutual Life Insurance Company
10AV ******Second Amendment to Revolving Credit Agreement Dated
July 15, 1993 Between Mercury Finance Company and:
- Harris Trust and Savings Bank
- Continental Bank N.A.
- Canadian Imperial Bank of Commerce
- The Northern Trust Company
- The Daiwa Bank, Ltd.
- Mellon Bank, N.A.
- Bank One, Evanston, N.A.
- NBD Bank, N.A.
- First Wisconsin National Bank of Milwaukee
- Dresdner Bank AG/Chicago Branch/Grand Cayman Branch
- Bank Hapoalim B.M.
- Bank of Hawaii
10AW ******Third Amendment to Revolving Credit Agreement Dated
July 15, 1993 Between Mercury Finance Company and:
- Harris Trust and Savings Bank
- Continental Bank N.A.
- Canadian Imperial Bank of Commerce
- The Northern Trust Company
- The Daiwa Bank, Ltd.
- Mellon Bank, N.A.
- Bank One, Evanston, N.A.
- NBD Bank, N.A.
- First Wisconsin National Bank of Milwaukee
- Dresdner Bank AG/Chicago Branch/Grand Cayman Branch
- Bank Hapoalim B.M.
- Bank of Hawaii
10AX *******Purchase Agreement Dated September 30, 1994 Between
Mercury Finance Company and Midland Finance Co.
<PAGE>
10AY ********Employment Agreement Dated January 1, 1994 Between
Mercury Finance Company and John N. Brincat
10AZ ********Senior Note Agreement Dated December 15, 1994
Between Mercury Finance Company and Norddeutsche
Landesbank Girozentrale
10BA ********Senior Note Agreement Dated December 15, 1994
Between Mercury Finance Company and The Long-Term Credit
Bank of Japan, Ltd.
10BB Senior Note Agreement Dated June 29, 1995 Between Mercury
Finance Company and:
- Allstate Life Insurance Company
- Allstate Insurance Company
- Metropolitan Life Insurance Company
- Principal Mutual Life Insurance Company
- Pacific Mutual Life Insurance Company
- PM Group Life Insurance Company
- TMG Life Insurance Company
- Lincoln-Security Life Insurance Company
- Security-Connecticut Life Insurance Company
- Oxford Life Insurance Company
- London Life International Reinsurance Corporation
- American States Life Insurance Company
- Phoenix Home Life Mutual Insurance Company
- Phoenix American Life Insurance Company
- American Guardian Life Assurance Company
10BC Senior Note Agreement Date October 3, 1995 Between Mercury
Finance Company and Bank of America Illinois
10BD Fourth Amendment to Revolving Credit Agreement Date July
15, 1993 Between Mercury Finance Company and:
- Nations Bank
- Bank One
- Harris Trust and Savings Bank
- Bank of America Illinois
- NBD Bank
- Westdeutsche Landesbank Girozentale
- The Daiwa Bank, Ltd.
- Mellon Bank, N.A.
- Dresdner Ban AG
- Bank Hapoalim B.M.
- Union Bank
- The Northern Trust Company
- Credit Lyonnais New York Branch
- LaSalle National Bank
- Bank of Hawaii
- First Interstate Bank of California
- The Boatmen's National Bank of St. Louis
- Firststar Bank Milwaukee, N.A.
- First National Bank of Chicago
<PAGE>
10BE Purchase Agreement Dated October 20, 1995 Between Mercury
Finance Company and ITT Corporation
11 Computation of Net Income Per Share
12 Ratio of Earnings to Fixed Charges
13 Annual Report to Shareholders (for information of the
Securities and Exchange Commission and not being filed
with Commission except for this portion expressly)
22 Subsidiaries of Mercury Finance Company
23 Consent of KPMG Peat Marwick LLP
* Incorporated by reference to the Form 10K filed by
Mercury Finance Company 1989
** Incorporated by reference to the 1989 Form 10K filed by
Mercury Finance Company
*** Incorporated by reference to the 1990 Form 10K filed by
Mercury Finance Company
**** Incorporated by reference to the 1991 Form 10K filed by
Mercury Finance Company
***** Incorporated by reference to the 1992 Form 10K filed by
Mercury Finance Company
****** Incorporated by reference to the 1993 Form 10K filed by
Mercury Finance Company
******* Incorporated by reference to the 1994 Form 10K filed by
Mercury Finance Company
</TABLE>
<PAGE>
EXHIBIT 11
MERCURY FINANCE COMPANY
<TABLE>
<CAPTION>
COMPUTATION OF NET INCOME PER SHARE
Year Ended December 31 (dollars in thousands except per share
amounts)
Income Data: 1995 1994 1993
<S> <C> <C> <C>
1. Net Income $98,907 $86,545 $64,927
2. Weighted average common
shares outstanding, adjusted
for stock splits 175,631 173,864 172,977
3. Weighted average shares of
treasury stock outstanding,
adjusted for stock splits 3,182 522 95
4. Weighted average shares reserved
for stock options (utilizing the
treasury stock method) 1,660 1,808 2,568
NET INCOME PER COMMON SHARE
5. Common Shares Outstanding 174,109 175,150 175,450
(Line 2-3+4)
6. Net income per common shares $.57 $.49 $.37
(Line 1 - 5)
DIVIDEND DATA
1. Dividends Declared $42,849 $33,581 $23,351
2. Average common shares
outstanding on dividend
record date 172,548 173,694 173,019
3. Dividends per common share $.25 $.19 $.14
</TABLE>
<PAGE>
EXHIBIT 12
MERCURY FINANCE COMPANY
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 (dollars in thousands)
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net Income $98,907 $86,545 $64,927 $45,723 $32,816
Added fixed charges:
Cost of Borrowing 57,303 39,375 32,993 29,525 28,796
One-third of
rentals 1,370 1,056 873 635 536
Total fixed charges$58,673 $40,431 $33,806 $30,160 $29,332
Provisions for
income taxes:
Federal 51,425 46,797 34,634 23,914 17,429
State 8,618 7,648 5,306 4,025 3,257
Total income taxes $60,043 $54,445 $39,940 $27,939 $20,686
Total "earnings"
(net income,
fixed charges
and income
taxes) $217,645 $181,421 $138,673 $103,822 $82,834
Ratio of
"earnings"
to fixed
charges 3.71 4.48 4.10 3.44 2.82
</TABLE>
<PAGE>
EXHIBIT 22
MERCURY FINANCE COMPANY
SUBSIDIARIES
Mercury Life Insurance Company (Ariz)
Mercury Finance Corporation of Alabama (Ala)
Mercury Finance Company of Arizona (Ariz)
Merc Finance Company of California (Cal)
Mercury Finance Company of Colorado (Del)
Mercury Finance Company of Delaware (Del)
Mercury Finance Company of Florida (Del)
Mercury Finance Company of Georgia (Del)
Mercury Finance Company of Illinois (Del)
Mercury Finance Company of Indiana (Del)
Mercury Finance Company of Kansas (Del)
Mercury Finance Company of Kentucky (Del)
Mercury Finance Company of Louisiana (Del)
Mercury Finance Company of Michigan (Del)
Mercury Finance Company of Mississippi (Del)
Mercury Finance Company of Missouri (Del)
Mercury Finance Company of Nevada (Nev)
Mercury Finance Company of New Mexico (Del)
Mercury Finance Company of North Carolina (Del)
Mercury Finance Company of Ohio (Del)
Mercury Finance Company of Oklahoma (Del)
Mercury Finance Company of Oregon (Del)
Mercury Finance Company of Pennsylvania (Del)
Mercury Finance Company of South Carolina (Del)
Mercury Finance Company of Tennessee (Tenn)
MFC Finance Company of Texas (Del)
Mercury Finance Company of Virginia (Del)
Mercury Finance Company of Washington (Del)
Mercury Finance Company of Wisconsin (Del)
MFC Financial Services, Inc. (Fla)
Gulfco Investment Inc. (La)
Gulfco Finance Company (La)
Gulfco Life Insurance Company (La)
Midland Finance Co.
Lyndon Life Insurance Company
Lyndon Property Insurance Company
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Mercury Finance Company:
RE: REGISTRATION STATEMENTS OF FORM S-8
* Employee Stock Purchase Plan
* 1989 Stock Option and Incentive Compensation Plan
* 401(k) Plan
We consent to incorporation by reference in the subject
Registration statements (filed with the Securities and Exchange
Commission on May 3, 1989, May 11, 1989 and June 26, 1989) of
Mercury Finance Company of our report dated February 12, 1996
except as for Notes 1, 4, 7, 12, 14, 15, 16 and 17 which are dated
October 23, 1996, relating to the consolidated balance sheets of
Mercury Finance Company and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1995, which
report appears in the December 31, 1995 annual report on
Form 10-K/A No. 1 of Mercury Finance Company.
KPMG Peat Marwick LLP
Chicago, Illinois
November 14, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> 12-31-95
<PERIOD-END> 12-31-95
<CASH> 22967
<SECURITIES> 229418
<RECEIVABLES> 1196737
<ALLOWANCES> (44566)
<INVENTORY> 0
<CURRENT-ASSETS> 274476
<PP&E> 14269
<DEPRECIATION> 7247
<TOTAL-ASSETS> 1634918
<CURRENT-LIABILITIES> 392413
<BONDS> 958240
<COMMON> 176478
0
0
<OTHER-SE> 107787
<TOTAL-LIABILITY-AND-EQUITY> 1634918
<SALES> 270416
<TOTAL-REVENUES> 348327
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 101233
<LOSS-PROVISION> 30841
<INTEREST-EXPENSE> 57303
<INCOME-PRETAX> 158950
<INCOME-TAX> 60043
<INCOME-CONTINUING> 98907
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98907
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
