SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A No. 1
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For The Quarter Ended June 30, 1996
Commission File No. 1-10176
Mercury Finance Company
(Exact name of registrant as specified in its charter)
Delaware 36-3627010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
100 Field Drive, Suite 340, Lake Forest, Illinois 60045
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 295-8600
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each issuer's class of
common stock, as of the latest practicable date.
Common Stock - $1 par value, 177,522,152 shares as of August 12,
1996.
Treasury Stock - 4,236,557 shares as of August 12, 1996
<PAGE>
MERCURY FINANCE COMPANY
FORM 10-Q
<TABLE>
INDEX PAGE
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Changes in
Stockholders' Equity 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 6
Consolidated Average Balance Sheets 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
INDEX OF EXHIBITS 19
Exhibit No. 11 - Computation of Net Income Per Share 20
Exhibit No. 12 - Ratio of Earnings to Fixed Charges 21
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MERCURY FINANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
(Dollars in thousands) June 30 Dec. 31
1996 1995 1995
<S> <C> <C> <C>
(Unaudited)
ASSETS
Cash $24,629 $10,803 $22,967
Investments 211,719 11,966 242,043
Finance receivables 1,212,230 1,152,491 1,196,737
Less allowance for
finance credit losses (45,242) (24,610) (44,566)
Less Nonrefundable
dealer reserves (61,442) (71,344) (63,761)
------------ ----------- -----------
Finance receivables,
net 1,105,546 1,056,537 1,088,410
Deferred income taxes 17,089 8,619 22,031
Premises, fixtures and
equipment at cost,
net of accumulated
depreciation 8,256 4,499 7,022
Goodwill 14,868 15,679 15,274
Reinsurance
receivable 34,055 0 89,962
Deferred acquisition
costs 47,338 817 26,171
Other assets
(including
repossessions) 128,531 19,434 121,038
---------- --------- --------
TOTAL ASSETS $1,592,031 $1,128,354 $1,634,918
===== ===== =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt,
commercial paper $414,918 $354,713 $489,990
Senior debt,
term notes 503,750 423,875 438,750
Subordinated debt 26,000 35,500 29,500
Accounts payable and
other liabilities 65,156 42,353 68,931
Unearned premium and
claim reserves 199,508 950 195,761
Reinsurance payable 40,797 0 105,081
Income taxes payable 15,037 4,444 22,640
---------- --------- --------
TOTAL LIABILITIES 1,265,166 861,835 1,350,653
---------- --------- --------
STOCKHOLDERS' EQUITY
Common stock - $1.00
par value:
5000,000,000 shares
authorized
Jun 30 1996 -
177,403,354 shares
outstanding
Jun 30 1995 -
117,332,000 shares
outstanding
Dec 31 1995 -
176,478,520 shares
outstanding 177,403 117,332 176,478
Paid in capital 4,113 13,769 39
Retained earnings 183,704 160,488 142,916
Unrealized
appreciation (130) 0 1,969
Treasury stock at cost
Jun 30, 1996 -
3,996,557 shares
Jun 30, 1995 -
1,983,105 shares
Dec 31, 1995 -
3,896,557 shares (38,225) (25,070) (37,137)
---------- --------- --------
TOTAL STOCKHOLDERS'
EQUITY 326,865 266,519 284,265
---------- --------- --------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $1,592,031 $1,128,354 $1,634,918
===== ===== =====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INTEREST INCOME
Finance charges, fees and
other interest $72,904 $65,523 $144,675 $127,717
Investment income 2,989 195 5,598 395
------- ------- -------- --------
Total interest income 75,893 65,718 150,273 128,112
Interest expense 15,983 13,897 32,019 27,006
------- -------- -------- -------
Net interest income 59,910 51,821 118,254 101,106
Provision for finance
credit losses 2,838 2,426 5,717 4,850
------- -------- -------- -------
Net interest income after
provision for finance
credit losses 57,072 49,395 112,537 96,256
------- -------- -------- -------
OTHER INCOME
Insurance premiums and
commissions 28,244 10,492 50,941 20,465
Fees and other 2,110 2,812 4,147 5,581
------- -------- -------- -------
Total other income 30,354 13,304 55,088 26,046
------- -------- -------- -------
OTHER EXPENSES
Salaries and employee
benefits 13,167 11,916 26,707 23,120
Occupancy expense 1,453 1,160 2,871 2,286
Equipment expense 678 504 1,229 966
Data processing expense 706 734 1,516 1,475
Insurance claims expense 9,332 720 15,636 1,348
Other operating expenses 6,512 5,313 12,599 10,394
------- -------- -------- -------
Total other expenses 31,848 20,347 60,558 39,589
------- -------- -------- -------
Income before income taxes 55,578 42,352 107,067 82,713
Applicable income taxes 21,157 15,534 40,391 30,884
------- -------- -------- -------
NET INCOME $34,421 $26,818 $66,676 $51,829
===== ===== ===== ====
NET INCOME PER COMMON SHARE
(adjusted for all
stock splits) $0.20 $0.15 $0.38 $0.30
===== ===== ===== ====
Weighted average number of
common and common share
equivalents outstanding 173,937 173,764 173,998 173,391
===== ===== ===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
COMMON STOCK
Balance at beginning of
period $176,580 $116,251 $176,478 $116,080
Stock options exercised 1,085 1,257 1,187 1,428
Stock traded in to
exercise stock options (262) (176) (262) (176)
------- -------- -------- -------
Balance at June 30 $177,403 $117,332 $177,403 $117,332
===== ===== ===== ====
PAID IN CAPITAL
Balance at beginning
of period $621 $7,621 $39 $6,384
Stock options exercised 48 734 256 1,423
Tax benefit from stock
options exercised 3,444 5,414 3,818 5,962
------- -------- -------- -------
Balance at June 30 $4,113 $13,769 $4,113 $13,769
===== ===== ===== ====
RETAINED EARNINGS
Balance at beginning of
period $162,232 $133,755 $142,916 $128,157
Net income 34,424 26,818 66,676 51,829
Dividends (12,949) (85) (25,888) (19,498)
------- -------- -------- -------
Balance at June 30 $183,704 $160,488 $183,704 $160,488
===== ===== ===== ====
UNREALIZED APPRECIATION
Balance at beginning
of period $341 $0 $1,969 $0
Change during the period (471) 0 (2,099) 0
-------- -------- -------- --------
Balance at end of period ($130) $0 ($130) $0
===== ===== ===== =====
TREASURY STOCK
Balance at beginning of
period ($38,225) ($25,070) ($37,137) ($23,107)
Purchases 0 0 (1,088) (1,963)
------- -------- -------- -------
Balance at June 30 ($38,225) ($25,070) ($38,225) ($25,070)
===== ===== ===== =====
Total stockholders' equity $326,865 $266,519 $326,865 $266,519
===== ===== ===== =====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $34,421 $26,818 $66,676 $51,829
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for finance
credit losses 2,838 2,426 5,717 4,850
Net finance receivables
charged off against
allowance for finance
credit losses (2,481) (1,422) (5,041) (2,728)
Provision for deferred
income taxes 652 (620) 2206 (1,329)
Depreciation 364 271 728 522
Amortization of goodwill 203 203 406 406
Net (increase) decrease
in other assets (37,920) 1,139 29,803 4,219
Net increase (decrease)
in other liabilities (1,671) (32,931) (71,917) (10,324)
Net increase (decrease)
in dealer reserve (2,903) 1,436 (2,319) 4,867
------- -------- -------- -------
Net cash provided by
operating activities (6,497) (2,680) 26,439 52,312
------- -------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES
Cash collected on
finance receivables 283,824 269,407 576,716 529,460
Finance receivables
originated or acquired (280,294) (333,293) (590,769) (662,954)
Net change in unearned
finance charges and
unearned insurance
commissions (4,819) 10,568 (1,440) 20,870
Net (increase) decrease in
investment securities 9,310 1,830 30,324 2,219
Net increase (decrease)
in unrealized
appreciation (471) 0 (2,099)
Purchases of properties
and equipment (605) (1,293) (1,962) (1,529)
------- -------- -------- -------
Net cash used in
investing activities 6,945 (52,781) 10,770 (111,934)
------- -------- -------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES
Net increase (decrease)
in commercial paper (49,209) (115,353) (75,072) (95,232)
Senior debt retired 0 (1,500) (25,000) (1,500)
Senior debt issued 60,000 160,000 90,000 160,000
Subordinated debt retired 3,500 0 3,500 0
Stock options exercised 4,315 7,230 4,999 8,638
Dividends paid (12,949) (85) (25,886) (19,498)
Treasury stock acquired 0 0 (1,088) (1,963)
------- -------- -------- -------
Net cash provided by
financing activities (1,343) 50,292 (35,547) 50,445
------- -------- -------- -------
Net increase (decrease)
in cash and cash
equivalents (895) 5,169) 1,662 (9,177)
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 25,524 15,972 22,967 19,980
------- -------- -------- -------
CASH AND CASH EQUIVALENTS
END OF PERIOD $24,629 $10,803 $24,629 $10,803
===== ===== ===== ====
</TABLE>
<PAGE>
<TABLE>
Three Months Ended Six Months Ended
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES
Income taxes paid to
federal and state
governments $25,385 $24,157 $47,995 $26,605
===== ===== ===== ====
Interest paid to creditors $11,750 $13,897 $23,354 $25,885
===== ===== ===== ====
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Mercury Finance
Company and Subsidiaries are unaudited, but in the opinion of
management reflect all necessary adjustments, consisting only of
normal recurring accruals, for a fair presentation of results as of
the dates and for the periods covered by the financial statements.
The results for the interim periods are not necessarily indicative
of the results of operations that may be expected for the fiscal
year. It is suggested that the unaudited interim consolidated
financial statements contained herein be used in conjunction with
the financial statements and the accompanying notes to the
financial statements included in the Company's 1995 Annual Report.
2. Net income per common share amounts are based on the average
number of common shares and common stock equivalents outstanding.
All per share amounts have been adjusted to reflect all stock
splits declared by the Company.
3. Certain data from the prior year has been reclassified to
conform to the 1996 presentation.
4. During 1996, the Company identified certain 1995 fourth quarter
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.
<PAGE>
MERCURY FINANCE COMPANY
CONSOLIDATED AVERAGE BALANCE SHEETS
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
(Dollars in thousands)
<TABLE>
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
ASSETS
Cash $25,116 $15,252 $23,883 $16,519
Investments 216,708 14,048 224,247 13,644
Finance receivables 1,210,168 1,130,040 1,204,921 1,100,133
Less allowance for
finance credit losses (45,087) (24,163) (44,873) (23,559)
Less nonrefundable
dealer reserves (64,893) (70,723) (65,262) (69,327)
------- -------- -------- -------
Finance receivables,
net 1,100,188 1,035,154 1,094,786 1,007,247
Deferred income taxes 17,469 8,327 17,959 7,929
Furniture, fixtures
and equipment, net
of accumulated
depreciation 8,148 4,302 7,907 3,892
Other assets
(including
repossessions
& goodwill) 182,582 33,377 198,874 33,253
------- -------- -------- -------
TOTAL ASSETS $1,550,211 $1,110,460 $1,567,656 $1,082,484
===== ===== ===== ====
LIABILITIES AND
STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt,
commercial paper $410,676 $493,654 $444,200 $473,624
Senior debt,
term notes 493,750 267,641 466,667 266,508
Subordinated debt 28,417 35,500 28,958 35,500
Accounts payable and
other liabilities 303,325 60,634 318,390 60,819
Income taxes payable 11,752 6,091 15,927 8,474
------- -------- -------- -------
TOTAL LIABILITIES 1,247,920 863,520 1,274,142 844,925
------- -------- -------- -------
STOCKHOLDERS' EQUITY
Common stock 176,782 117,010 176,650 116,606
Paid in capital 1,679 11,408 983 9,319
Retained earnings 162,055 143,592 154,016 136,541
Unrealized appreciation 0 0 0 0
Treasury stock (38,225) (25,070) (38,135) (24,907)
------- -------- -------- -------
TOTAL STOCKHOLDERS'
EQUITY 302,291 246,940 293,514 237,559
------- -------- -------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,550,211 $1,110,460 $1,567,656 $1,082,484
===== ===== ===== ====
NUMBER OF DAYS 91 91 182 181
MONTHS COMPLETED 3 3 6 6
RATIOS
Return on
average equity 45.55% 43.44% 45.43% 43.63%
Return on
average assets 8.88% 9.66% 8.51% 9.58%
Yield on
earning assets 21.28% 22.98% 21.03% 23.00%
Rate on interest
bearing liabilities 6.87% 7.00% 6.83% 7.02%
Net interest margin 16.79% 18.10% 16.55% 18.12%
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Mercury Finance Company ("Mercury") ("Company") is a consumer
finance concern engaged in the business of purchasing individual
installment sales finance contracts from automobile dealers and
retail vendors, extending short-term installment loans directly
to consumers and selling credit insurance and other related products.
Mercury's operating subsidiaries commenced operations in February 1984
for the purpose of penetrating the market for small dollar amount
consumer loans (average of $3,000 or less). The initial focus was
toward small, short term, direct installment loans made to the U.S.
military servicemen. Building on this direct lending niche,
Mercury has also built a substantial, diversified consumer finance
portfolio by purchasing individual installment sales finance contracts
from retail vendors and automobile dealers.
On April 1, 1993 Mercury acquired all the shares of Gulfco Investment
Inc. for $22.3 million in cash. Gulfco Investment Inc. was the parent
company which owned all of the stock of Gulfco Finance Company and
Gulfco Life Insurance Company. Gulfco Finance Company conducted its
consumer finance business through a branch network of 62 offices located
in Louisiana, Mississippi and Texas. 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
financial statements of income and statements of cash flow since the dates of
acquisitions. 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
nets 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.
Direct finance receivables on which no payment is received within 149
days, on a recency basis, are charged off. Sales finance receivables
which are contractually delinquent 150 days are charged off in the
month before they become 180 days delinquent. Accounts which are
deemed uncollectible prior to the maximum charge off period are charged
off immediately. Management may authorize an extension if collection
appears imminent during the next calendar month.
Accounts which become 60 or more days contractually delinquent and
no full contractual payment is received in the month the account
attains such delinquency status cease earning interest.
The following is management's discussion and analysis of the consolidated
financial condition of the Company at June 30, 1996 (unaudited) when
compared with June 30, 1995 (unaudited) and December 31, 1995 and the
results of operations for the three and six months ended June 30, 1996
and 1995 (unaudited). This discussion should be read in conjunction with
the Company's consolidated financial statements and notes thereto appearing
elsewhere in this quarterly report.
<PAGE>
FINANCIAL CONDITION
Assets and Finance Receivables
Total assets of the Company increased 41% to $1,592.0 million from
$1,128.4 million one year ago. Finance receivables increased 5% to
$1,212.2 million at June 30, 1996.
The increase in assets, exclusive of the growth in finance receivables,
was primarily the result of the October 1995 acquisition of Lyndon. The
increase in finance receivables was primarily attributable to production
of receivables from the increased number of offices operated by the
Company.
During the period from December 31, 1995 through June 30, 1996 total
assets decreased $42.9 million principally because of offsetting
reductions in reinsurance receivable and payable.
The Company's offices in Florida, Texas and Illinois accounted for
approximately 46% of all finance receivables, with the remainder
being originated in the other 28 states where offices are located.
The total number of offices at June 30, 1996 was 287 compared to
260 at June 30, 1995 and 276 at December 31, 1995.
The following table summarizes the composition of finance
receivables at the dates indicated (dollars in thousands):
<PAGE>
<TABLE>
June 30, 1996 June 30, 1995 Dec. 31, 1995
% of % of % of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Sales finance
receivables $1,272,861 87% $1,271,322 90% $1,256,977 87%
Direct finance
receivables 182,478 13% 134,602 10% 184,309 13%
----- --- ------- -- ------ ---
Total gross
finance
receivables 1,455,339 100% 1,405,924 100% 1,441,286 100%
=== == === == ===== ==
Unearned
finance
charges (231,458) (244,124) (231,791)
Unearned
insurance
commissions,
insurance
premiums
and
insurance
reserves (11,624) (9,309) (12,758)
--- ---- ----
Finance
receivables $1,212,230 $1,152,491 $1,196,737
===== ===== =====
</TABLE>
<PAGE>
Allowance and Provision for Finance Credit Losses
The Company maintains an allowance for finance credit losses at a
level which, in the opinion of management, provides adequately for
current and possible future losses in the finance receivables
portfolio. Management evaluates allowance requirements by
examining current delinquencies, the characteristics of the
accounts, the value of the underlying collateral, and general
economic conditions and trends. Management also evaluates the
availability of dealer reserves to absorb finance credit losses.
A provision for losses is charged to earnings in an amount
sufficient to maintain the allowance. The following table sets
forth a reconciliation of the changes in the allowance for finance
credit losses for the six month periods ended June 30, 1995
(dollars in thousands):
<TABLE>
1996 1995
<S> <C> <C>
Balance at beginning of period $44,566 $22,488
Acquisition 0 0
Provision charged to expense 5,717 4,850
Finance receivables charged-off (6,158) (3,506)
recoveries 1,117 778
---- ----
Balance at June 30 $45,242 $24,610
===== =====
Allowance as a percent of finance
receivables outstanding at end
of period 3.73% 2.14%
===== =====
</TABLE>
<PAGE>
The increase in the provision and allowance for finance credit
losses in 1996 is primarily attributable to the increase in finance
receivables outstanding.
Nonrefundable Dealer Reserves
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 discounts 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 six month periods ended
June 30.
<TABLE>
1996 1995
<S> <C> <C>
Balance at beginning of period 63,761 66,477
Discounts acquired on new volume 38,640 45,424
Losses absorbed (40,959) (40,557)
-------- --------
Balance at June 30 61,442 71,344
===== =====
</TABLE>
Debt
The primary source for funding the Company's finance receivables
comes from the issuance of debt. At June 30, 1996 the Company had
total debt of $944.7 million which compares with $814.1 million at
June 30, 1995.
In addition to the Company's outstanding debt the Company has
revolving credit facilities and a back up line of credit which
total $500 million. The revolving credit facilities and the back
up line are totally available for use by the Company and at June
30, 1996 nothing was outstanding under these arrangements.
The following table presents the Company's debt instruments and the
stated interest rates on the debt at the periods indicated (dollars
in thousands):
<PAGE>
<TABLE>
June 30, 1996 June 30, 1995 Dec. 31, 1995
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial
paper $414,918 5.7% $354,713 6.2% $489,990 6.0%
Term notes 503,750 7.2% 423,875 7.1% 438,750 7.2%
Subordinated
debt 26,000 10.2% 35,500 10.2% 29,500 10.2%
---- --- ---- -- ---- ---
Total $944,668 6.5% $814,088 6.7% $958,240 6.6%
==== == ===== == ===== ==
</TABLE>
The interest rates reflected in the preceding table do not include
amortized costs related to the issuance of debt, costs related to
the maintenance of credit line facilities and the interest
differential related to interest exchange agreements. The effect
of these costs, which are included in interest expense in the
consolidated financial statements, increases the effective interest
rate by approximately 23 basis points at June 30, 1996.
The following table sets forth information with respect to
maturities of senior and subordinated debt at June 30, 1996
(dollars in thousands):
<TABLE>
Senior Debt Senior Debt
Maturity Commercial Term Subordinated
Paper Notes Debt Total
<S> <C> <C> <C> <C>
1996 $414,918 15,125 0 430,043
1997 0 96,625 14,000 110,625
1998 0 167,000 12,000 179,000
1999 0 81,000 81,000
After 1999 0 144,000 144,000
--- ---- ---- ----
Total $414,918 $503,750 $26,000 $944,668
=== === === ===
</TABLE>
<PAGE>
Stockholders' Equity
The other primary source for funding the growth in finance
receivables comes from the retention of earnings by the Company and
the exercise of stock options by eligible employees. Total
stockholders' equity at June 30, 1996 was $326.9 million which
compares with $266.5 million at June 30, 1995 and $284.3 million at
December 31, 1995. For the six months ended June 30, 1996 the
Company had net income of $66.7 million and paid cash dividends of
$25.9 million resulting in a retention of 61% of current earnings.
In addition, eligible employees of the Company exercised options to
purchase shares resulting in $8.6 million also being added to the
equity of the Company.
At June 30, 1996 stockholders' equity stated as a percent of total
assets was 20.53% which compares with 23.6% at June 30, 1995 and
17.39% at December 31, 1995.
RESULTS OF OPERATIONS
Net Income
For the three and six months ended June 30, 1996 the Company had
net income of $34.4 million and $66.7 million which represent
increases of 28% and 29% from the $26.8 million and $51.8 million
earned in 1995. The increase in net income is primarily
attributable to income derived from increased finance receivables
outstanding resulting from additional offices opened in 1996 and
1995 and increased volume in existing offices.
Interest Income and Interest Expense
The largest single component of net income is net interest income
which is the difference between interest earned on finance
receivables and interest paid on borrowings. For the three and six
months ended June 30, 1996 the Company's net interest income was
$59.9 million and $118.3 million an increase of 16% and 17% from
1995. The net interest margin which is the ratio of net interest
income divided by average interest earning assets was 16.79% for
the three months ended June 30, 1996 and 16.55% for the six months
ended June 30, 1996. This compares with a net interest margin of
18.10% and 18.12% for the three and six months ended June 30, 1995.
The change in net interest margin is primarily attributable to
lower yielding investment assets associated with the Lyndon
acquisition and interest rate changes on the Company's various
debt instruments. The following tables summarize the amount of the
net interest margin for the three and six months ended June 30 (dollars
in thousands):
<PAGE>
<TABLE>
1996
Annualized
Three Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Finance receivables $1,210,168 $72,9904 24.10%
Investments 216,708 2,989 5.52%
-------- -------- --------
Total interest earning
assets $1,426,876 $75,893 21.28%
Interest bearing liabilities 932,843 15,983 6.87%
---- ---- ---
Net $494,033 $59,910 14.41%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 16.79%
===
</TABLE>
<TABLE>
1995
Annualized
Three Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Finance receivables $1,130,040 $65,523 23.19%
Investments 14,048 195 5.55%
-------- -------- --------
Total interest earning
assets $1,144,088 $65,718 22.98%
Interest bearing liabilities 796,795 13,897 7.00%
---- ---- ---
Net $347,293 $51,821 15.98%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 18.10%
===
</TABLE>
<TABLE>
1996
Annualized
Six Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Finance receivables $1,204,921 $144,675 24.01%
Investments 224,247 5,598 4.99%
-------- -------- --------
Total interest earning
assets $1,429,168 $150,273 21.03%
Interest bearing liabilities 939,825 32,019 6.83%
---- ---- ---
Net $489,343 $118,254 14.20%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 16.55%
===
</TABLE>
<TABLE>
1995
Annualized
Six Months Ended Average Interest Rate
Out- Income Earned
standing Expense and Paid
<S> <C> <C> <C>
Finance receivables $1,100,133 $127,717 23.22%
Investments 13,644 395 5.79%
-------- -------- --------
Total interest earning
assets $1,113,777 $128,112 23.00%
Interest bearing liabilities 775,632 27,006 7.02%
---- ---- ---
Net $338,145 $101,106 15.98%
==== ==== ===
Net interest margin as a
percentage of average
interest earning assets 18.12%
===
</TABLE>
<PAGE>
Other Income
In addition to finance charges and interest, the Company derives
commission income from the sale of other credit related products.
These products include insurance relating to the issuance of credit
life, accident and health and other credit insurance policies to
borrowers of the Company. Other credit-related sources of revenue
are derived from the sale of other products and services.
Insurance premiums are earned by the life insurance subsidiaries as
direct writers and reinsurers of credit life and accident and health
policies issued through the Company's branch offices.
For the three and six months ended June 30, 1996, the Company
experienced increases in its insurance premiums which are
primarily attributable to the acquisition of Lyndon Insurance Companies
in 1995. The following table summarizes the amounts earned from these
products for the three and six months ended June 30 (dollars in thousands):
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Insurance premiums and
commissions $28,244 $10,492 $50,941 $20,465
Vehicle protection club
memberships 792 1,050 ?1,398 2,035
Fees and other 1,318 1,762 2,748 3,546
--- --- --- ---
Total $30,354 $13,304 $55,088 $26,046
==== ==== ==== ====
Other income as a %
of average interest
earnings assets
(Annualized) 8.51% 4.65% 7.71% 4.68%
==== ==== ==== ====
</TABLE>
Other Expenses
In addition to interest expense and the provision for finance
credit losses, the Company incurs other operating expenses in the
conduct of its business.
The following table summarizes the components of other expenses for
the three and six months ended June 30 (dollars in thousands):
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Salaries and employees
benefits $13,167 $11,916 $26,707 $23,120
Insurance claims expense 9,332 720 15,636 1,348
Other operating expenses 9,349 7,711 18,215 15,121
--- --- --- ---
Total $31,848 $20,347 $60,558 $39,589
==== ==== ==== ====
Other expenses as a % of
average interest
earning assets
(Annualized) 8.93% 7.11% 8.47% 7.11%
==== ==== ==== ====
</TABLE>
Income Taxes
Income taxes increased due to a higher level of pretax income in
1996. The effective tax rate was 37.7% in 1996 and 37.3% in 1995.
<PAGE>
CREDIT LOSSES AND DELINQUENCIES
Credit Losses
Direct finance receivables on which no payment is received within
149 days, on a recency basis, are charged off. Sales finance
receivable accounts which are contractually delinquent 150 days are
charged off monthly before they become 180 days delinquent.
Accounts which are deemed uncollectible prior to the maximum charge
off period are charged off immediately. Management may authorize
an extension if collection appears imminent during the next
calendar month. The following table sets forth information
relating to charge-offs, the allowance for finance credit losses
and dealer reserves:
<TABLE>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Loss provision charged to
income $2,838 $2,426 $5,717 $4,850
Charge-offs net of
recoveries 2,481 1,422 5,041 2,728
Net charge-offs against
nonrefundable dealer
reserves 19,926 21,455 40,959 40,557
Allowance for finance
credit losses at end
of period 45,242 24,610
Dealer reserves at end
of period 61,442 71,344
Ratios:
Net charge offs
(annualized) against
allowance to average
finance receivables .82% .50% .84% .49%
Net charge-offs against
nonrefundable dealer
reserves 6.59% 7.59% 6.80% 7.37%
Allowance for finance
credit losses to net
finance receivables
at end of period 3.71% 2.14%
Dealer reserves to
net sales finance
receivables at end
of period 5.82% 6.85%
</TABLE>
Delinquencies
If an account becomes 60 or more days contractually delinquent and
no full contractual payment is received in the month the account
attains such delinquency status, it is classified as delinquent.
The following table sets forth certain information regarding 60 day
and greater contractually delinquent accounts at June 30 (dollars
in thousands):
<TABLE>
June 30, 1996 June 30, 1995
% of related % of related
Gross Outstanding Gross Outstanding
Receivable Receivable
Amount Balance Amount Balance
<S> <C> <C> <C> <C>
Sales finance
receivables $10,022 .79% $8,387 .66%
Direct finance
receivables 3,412 1.87% 2,859 2.12%
--- --- --- --
Total $13,434 .92% $11,246 .80%
=== == ==== ==
</TABLE>
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
Because the consumer finance business involves the purchase and
carrying of receivables, a relatively high ratio of borrowings to
net worth is customary and is an important element in the Company's
operations. The Company endeavors to maximize its liquidity by
diversifying its sources of funds which include (a) cash from
operations, (b) the issuance of short term commercial paper, and
(c) direct borrowings available from commercial banks and insurance
companies, consisting of short term lines of credit and long term
senior and subordinated notes. Most of the assets are at fixed
rates, and have an average initial maturity of approximately 26
months. Of the Company's total debt, 56% has an original maturity
of greater than one year at a fixed rate of interest.
The Company also maintains back up lines of credit totalling $ 25
million and revolving credit facilities totalling $500 million. At
June 30, 1996 the Company had no debt outstanding under these
credit arrangements.
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 vigourously defend litigation, but Mercury
and (or) its subisidiaries 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.
PART II OTHER INFORMATION
Item 1. Legal Proceedings - Not Applicable
Item 2. Changes in Securities - Not Applicable
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - Not Applicable
Item 6. (a) Exhibits - See Exhibit Index following the signature
page
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the second quarter of 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
MERCURY FINANCE COMPANY
(Registrant)
Date: August 12, 1996 /s/ John N. Brincat
John N. Brincat
Chairman of the Board,
President & Chief
Executive Officer
(Duly Authorized Officer)
Date: August 12, 1996 /s/ James A. Doyle
James A. Doyle
Senior Vice President,
Controller & Principal
Accounting Officer
Date: August 12, 1996 /s/ Bradley S. Vallem
Bradley S. Vallem
Treasurer
& Principal Financial Officer
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
11. Computation of Net Income Per Share
12. Ratio of Earnings to Fixed Charges
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
Net income per share is computed by dividing net income by the
total of the weighted average common shares and common stock
equivalents outstanding during the period. Average common shares
and common stock equivalents have been adjusted to reflect the
four-for-three stock splits of Mercury Finance Company distributed
to stockholders on December 28, 1989, October 31, 1990, June 10,
1991 and December 5, 1991, the two-for-one stock split distributed
on June 19, 1992, the four-for-three stock split distributed on
June 22, 1993 and the three-for-two stock split distributed on
October 31, 1995.
<TABLE>
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
INCOME DATA:
1. Net income
Mercury Finance
Company $34,421 $26,818 $66,676 $51,829
2. Weighted
average common
shares
outstanding
(adjusted for
stock split) 176,782 175,514 176,651 174,909
3. Treasury stock (3,997) (2,974) (3,997) (2,974)
EFFECT OF COMMON
STOCK EQUIVALENTS
(C.S.E.):
4. Weighted
average shares
reserved for
stock options 1,152 1,224 1,344 1,456
NET INCOME PER
COMMON SHARE:
5. Weighted
average common
share and common
stock equivalents
(line 2+3+4) 173,937 173,764 173,998 173,391
6. Mercury
Finance Company
net income per
share
(line 1/line 5) $0.20 $0.15 $0.38 $0.30
</TABLE>
<PAGE>
MERCURY FINANCE COMPANY
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
THREE AND SIX MONTHS ENDED JUNE 30
(Unaudited)
<TABLE>
(Dollars in thousands except per share amounts)
Three Months Ended Six Months Ended
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income $34,421 $26,818 $66,676 $51,829
Provision for
income taxes 21,157 15,534 40,391 30,884
---- ---- ---- ---
Add Fixed Charges:
Cost of
borrowings 15,983 13,897 32,019 27,006
One-thrid of
rentals 425 327 829 644
---- ---- ---- ---
Total fixed
charges 16,408 14,224 32,848 27,650
---- ---- ---- ---
Total net income,
provision for
income taxes and
fixed charges
"earnings" $71,986 $56,576 $139,915 $110,363
===== ===== ===== ====
Ratio of earnings
to fixed charges 4.39 3.98 4.26 3.99
===== ===== ===== ====
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 24629
<SECURITIES> 211719
<RECEIVABLES> 1212230
<ALLOWANCES> (45242)
<INVENTORY> 0
<CURRENT-ASSETS> 241881
<PP&E> 15042
<DEPRECIATION> 6786
<TOTAL-ASSETS> 1592031
<CURRENT-LIABILITIES> 320498
<BONDS> 944668
<COMMON> 177403
0
0
<OTHER-SE> 161462
<TOTAL-LIABILITY-AND-EQUITY> 1604031
<SALES> 150273
<TOTAL-REVENUES> 205361
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 60558
<LOSS-PROVISION> 5717
<INTEREST-EXPENSE> 32019
<INCOME-PRETAX> 107067
<INCOME-TAX> 40391
<INCOME-CONTINUING> 66676
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66676
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
