SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For The Quarter Ended March 31, 1995 Commission File No. 1-10176
MERCURY FINANCE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3627010
(State or other jurisdiction of (I.R.S. Employer identification no.)
incorporation or organization)
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 No X
Indicate the number of shares outstanding of each issuer's class of common
stock, as of the latest practicable date.
Common Stock - $1 par value, 117,039,126 shares as of April 28, 1995.
Treasury Stock - 1,983,105 shares as of April 28, 1995.
MERCURY FINANCE COMPANY
FORM 10-Q
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets . . . . . . . . . . . 1
Consolidated Statements of Income . . . . . . . . 2
Consolidated Statements of Changes in Stockholders'
Equity . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows . . . . . . 4
Notes to Consolidated Financial Statements . . . 5
Consolidated Average Balance Sheets . . . . . . . 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 . . . . . . . . . . . . . . . . 18
Item 2. Changes in Securities . . . . . . . . . . . . . . 18
Item 3. Defaults Upon Senior Securities . . . . . . . . . 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information . . . . . . . . . . . . . . . . 18
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . 19
INDEX OF EXHIBITS . . . . . . . . . . . . . . . . . . . . . 20
Exhibit No. 11 - Computation of Net Income Per
Share . . . . . . . . . . . . . . . . . . . . . 21
PART 1 - FINANCIAL INFORMATION
As more fully described in the Notes to Consolidated Financial Statements,
financial information in this Report has been restated to correct improper
adjustments reflected in previous reports which had the effect of overstating
earnings.
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MERCURY FINANCE COMPANY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31 Dec. 31
(Dollars in thousands) 1995 1994 1994
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,972 $13,114 $19,980
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . 13,795 11,758 14,184
Finance receivables . . . . . . . . . . . . . . . . . . . . . . 1,095,675 872,513 1,039,867
Less allowance for finance credit losses . . . . . . . . . . . (23,606) (19,278) (22,488)
Less Nonrefundable dealer reserves . . . . . . . . . . . . . . (69,908) (63,689) (66,477)
Finance receivables, net . . . . . . . . . . . . . . . . . . . 1,002,161 789,546 950,902
Prepaid pension expense . . . . . . . . . . . . . . . . . . . . 507 1,040 507
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 7,999 6,202 7,290
Furniture, fixtures and equipment, net of
accumulated depreciation . . . . . . . . . . . . . . . . 3,477 3,300 3,492
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,201 9,981 15,404
Other assets (including repossessions) . . . . . . . . . . . . 20,356 8,921 24,644
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $1,079,468 $843,862 $1,036,403
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper and notes . . . . . . . . . . . . $470,066 $275,851 $449,945
Senior debt, term notes . . . . . . . . . . . . . . . . . . . . 265,375 266,000 265,375
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . 35,500 35,000 35,500
Accounts payable and other liabilities . . . . . . . . . . . . 63,607 46,571 53,401
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 15,734 14,288 4,668
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 850,282 637,710 808,889
STOCKHOLDERS' EQUITY
Common stock - $1.00 par value:
300,000,000 shares authorized
Mar 31 1995 - 116,250,826 shares outstanding
Mar 31 1994 - 115,769,306 shares outstanding
Dec 31 1994 - 116,079,703 shares outstanding . . . . 116,251 115,769 116,080
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . 7,621 3,900 6,384
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 130,384 86,654 128,157
Treasury stock 1,983,105 shares at cost at March 31, 1995 . . . (25,070) (171) (23,107)
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . 229,186 206,152 227,514
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . . $1,079,468 $843,862 $1,036,403
</TABLE>
<TABLE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31
(Unaudited)
<CAPTION>
Three Months Ended
(Dollars in thousands except per share amounts) 1995 1994
<S> <C> <C>
INTEREST INCOME
Finance charges, fees and other interest . . . . . . . . . . . . . . . . . . . . $59,270 $47,816
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,110 8,528
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,160 39,288
Provision for finance credit losses . . . . . . . . . . . . . . . . . . . . . . . 2,424 1,766
Net interest income after provision for
finance credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,736 37,522
OTHER INCOME
Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,830 4,030
Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,584 2,216
Fees and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,968 2,270
Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,382 8,516
OTHER EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . 11,203 8,406
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,127 875
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461 393
Data processing expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 741 619
Insurance claims expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 716
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,382 3,183
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,030 14,192
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,088 31,846
Applicable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,448 12,290
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,640 $19,556
NET INCOME PER COMMON SHARE
(adjusted for all stock splits) . . . . . . . . . . . . . . . . . . . . . . $0.19 $0.17
Weighted average number of common and
common share equivalents outstanding . . . . . . . . . . . . . . . . . . . . 115,346 117,224
</TABLE>
<TABLE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31
(Unaudited)
<CAPTION>
Three Months Ended
(Dollars in thousands) 1995 1994
<S> <C> <C>
COMMON STOCK
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $116,080 $115,649
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 120
Stock split . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Balance at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $116,251 $115,769
PAID IN CAPITAL
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $6,384 $2,856
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689 603
Tax benefit from stock options exercised . . . . . . . . . . . . . . . . . . . . 548 441
Transfer from Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Stock split . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Balance at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,621 $3,900
RETAINED EARNINGS
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . $128,157 $75,193
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,640 19,556
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,413) (8,095)
Transfer to Paid in Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Balance at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,384 $86,654
TREASURY STOCK
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . ($23,107) ($171)
Purchases (143,400 shares) . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,963) 0
Retirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0
Balance at March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($25,070) ($171)
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . $229,186 $206,152
</TABLE>
<TABLE>
MERCURY FINANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31
(Unaudited)
<CAPTION>
Three Months Ended
(Dollars in thousands) 1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21,640 $19,556
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for finance credit losses . . . . . . . . . . . . . . . . . . . . 2,424 1,766
Net finance receivables charged off against
allowance for finance credit losses . . . . . . . . . . . . . . . . . . (1,306) (832)
Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . (709) (691)
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251 212
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . 203 132
Net (increase) decrease in other assets . . . . . . . . . . . . . . . . . . 4,288 1,904
Net increase (decrease) in other liabilities . . . . . . . . . . . . . . . . 21,272 18,556
Net increase (decrease) in nonrefundable dealer reserves . . . . . . . . . . 3,431 6,448
Net cash provided by operating activities . . . . . . . . . . . . . . . 51,494 47,051
CASH FLOWS FROM INVESTING ACTIVITIES
Principal collected on finance receivables . . . . . . . . . . . . . . . . . . . 187,331 166,844
Finance receivables originated or acquired . . . . . . . . . . . . . . . . . . . (243,139) (219,070)
Net (increase) decrease in investment securities . . . . . . . . . . . . . . . . 389 (1,225)
Purchases of properties and equipment . . . . . . . . . . . . . . . . . . . . . . (236) (767)
Net cash used in investing activities . . . . . . . . . . . . . . . . . (55,655) (54,218)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in commercial paper and notes . . . . . . . . . . . . . . 20,121 15,591
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,408 1,164
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,413) (8,095)
Treasury stock acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,963) 0
Net cash provided by financing activities . . . . . . . . . . . . . . . 153 8,660
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,008) 1,493
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 19,980 11,621
CASH AND CASH EQUIVALENTS END OF PERIOD . . . . . . . . . . . . . . . . . . . . . $15,972 $13,114
SUPPLEMENTAL DISCLOSURES
Income taxes paid to federal and state governments . . . . . . . . . . . . . . . $2,448 $1,229
Interest paid to creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,988 $7,473
</TABLE>
MERCURY FINANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements of Mercury Finance Company and
Subsidiaries are unaudited, but in the opinion of management reflect all
necessary adjustments, consisting only of normal recurring accruals, for a fair
presentation of results as of the dates and for the periods covered by the
financial statements. The results for the interim periods are not necessarily
indicative of the results of operations that may be expected for the fiscal
year. It is suggested that the unaudited interim consolidated financial
statements contained herein be used in conjunction with the financial statements
and the accompanying notes to the financial statements included in the Company's
1994 Annual Report.
2. Net income per common share amounts are based on the average number of
common shares and common stock equivalents outstanding. All per share amounts
have been adjusted to reflect all stock splits declared by the Company.
3. Certain data from the prior year has been reclassified to conform to the
1995 presentation.
4. Restatement of Financial Statements.
In January, 1997, Mercury discovered that certain improper adjustments had
been made to overstate earnings in previously issued financial statements. As a
result, a Special Committee of the Board of Directors commenced an investigation
of the misstatements of previously issued financial statements. As a result of
this investigation, Mercury has restated the previously reported financial
statements for 1995 as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1995
<S> <C>
Decrease in finance charges and loan fees $3,125
Decrease in other income 2,359
(Decrease) in other expenses (211)
Decrease in income before income taxes 5,273
Decrease in provision for income taxes 1,902
Decrease in net income for 1995 and
decrease in retained earnings as of
December 31, 1995 $3,371
Decrease in net income per common share $.03
</TABLE>
5. See Current Report on Form 8-K filed November 6, 1997, containing 1996,
1995 (as restated) and 1994 financial statements for additional information
regarding the impact of the overstatement of earnings and the restatement of
previously issued financial statements.
<TABLE>
MERCURY FINANCE COMPANY
CONSOLIDATED AVERAGE BALANCE SHEETS
THREE MONTHS ENDED MARCH 31
(Unaudited)
<CAPTION>
Three Months Ended
(Dollars in thousands) 1995 1994
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,786 $13,464
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,240 11,248
Finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,064,352 839,051
Less allowance for finance credit losses . . . . . . . . . . . . . . . . . . . (22,955) (18,681)
Less nonrefundable dealer reserves . . . . . . . . . . . . . . . . . . . . . . (67,931) (59,675)
Finance receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 973,466 760,695
Prepaid pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 507 1,040
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,531 5,772
Furniture, fixtures and equipment, net of accumulated depreciation . . . . . . . 3,482 3,172
Other assets (including repossessions & goodwill) . . . . . . . . . . . . . . . . 37,319 19,821
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,053,331 $815,212
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Senior debt, commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . $453,593 $258,582
Senior debt, term notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,375 266,000
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,500 35,000
Accounts payable and other liabilities . . . . . . . . . . . . . . . . . . . . . 61,173 49,677
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,354 9,143
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 825,995 618,402
STOCKHOLDERS' EQUITY
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,202 115,703
Paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,230 3,358
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,647 77,920
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,743) (171)
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . 227,336 196,810
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,053,331 $815,212
NUMBER OF DAYS 90 90
MONTHS COMPLETED 3 3
RATIOS (Annualized)
Return on average equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.08% 39.75%
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.22% 9.60%
Yield on earning assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.00% 22.49%
Rate on interest bearing liabilities . . . . . . . . . . . . . . . . . . . . . . 7.05% 6.18%
Net interest margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.07% 18.43%
</TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
As more fully described in the Notes to Consolidated Financial Statements,
financial information in this Report has been restated to correct improper
adjustments reflected in previous reports which had the effect of overstating
earnings.
Mercury Finance Company ("Mercury") ("Company") is a consumer finance concern
engaged in the business of purchasing individual installment sales finance
contracts from automobile dealers and retail vendors, extending short-term
installment loans directly to consumers and selling credit insurance and other
related products.
Mercury's operating subsidiaries commenced operations in February 1984 for the
purpose of penetrating the market for small dollar amount consumer loans
(average of $3,000 or less). The initial focus was toward small, short term,
direct installment loans made to the U.S. military servicemen. Building on this
direct lending niche, Mercury has also built a substantial, diversified consumer
finance portfolio by purchasing individual installment sales finance contracts
from retail vendors and automobile dealers.
On April 1, 1993 Mercury acquired all the shares of Gulfco Investment Inc. for
$22.3 million in cash. Gulfco Investment Inc. was the parent company which
owned all of the stock of Gulfco Finance Company and Gulfco Life Insurance
Company. Gulfco Finance Company conducted its consumer finance business through
a branch network of 62 offices located in Louisiana, Mississippi and Texas. The
acquisition was accounted for under the purchase method of accounting.
Accordingly their results of operations have been included in the consolidated
financial statements since the date of acquisition. The excess of cost over
fair value of net assets acquired (goodwill) relating to the acquisition is
being amortized over twenty years on the straight line method.
On September 30, 1994 Mercury acquired all the shares of Midland Finance Co. for
$15.1 million in cash and the assumption of its net liabilities. Midland
Finance Co. conducted its consumer finance business through a central office in
Chicago, Illinois. The acquisition was accounted for under the purchase method
of accounting. Accordingly their results of operations have been included in
the consolidated financial statements of income and statements of cash flow
since the date of acquisition. The excess of cost over fair value of net assets
acquired (goodwill) relating to the acquisition is being amortized over twenty
years on the straight line method.
Mercury's loans range for periods from 3 months to 48 months at annual interest
rates ranging, with minor exception, from 18% to 40%. Generally all loans are
repayable in monthly installments. Generally late payment fees are assessed to
accounts which fail to make their scheduled payments within 10 days of the
scheduled due date.
Direct finance receivables on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance receivables which are
contractually delinquent 150 days are charged off in the month before they
become 180 days delinquent. Accounts which are deemed uncollectible prior to
the maximum charge off period are charged off immediately. Management may
authorize an extension if collection appears imminent during the next calendar
month.
Accounts which become 60 or more days contractually delinquent and no full
contractual payment is received in the month the account attains such
delinquency status cease earning interest.
The following is management's discussion and analysis of the consolidated
financial condition of the Company at March 31, 1995 (unaudited) when compared
with March 31, 1994 (unaudited) and December 31, 1994 and the results of
operations for the three months ended March 31, 1995 and 1994 (unaudited). This
discussion should be read in conjunction with the Company's consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report.
FINANCIAL CONDITION
ASSETS AND FINANCE RECEIVABLES
Total assets of the Company increased 27% to $1,079.5 million from $843.9
million one year ago. Finance receivables increased 25% to $1,095.7 million at
March 31, 1995. The increase in assets and finance receivables were primarily
attributable to the production of receivables from the increased number of
offices operated by the Company, the inclusion of the Midland branch acquired in
1994 and increased volume in existing offices.
During the period from December 31, 1994 through March 31, 1995 total assets and
finance receivables increased 17% and 21% respectively on an annualized basis.
The Company's offices in Florida, Texas and Illinois accounted for approximately
49% of all finance receivables, with the remainder being originated in the other
23 states where offices are located. The total number of offices at March 31,
1995 was 252 compared to 224 at March 31, 1994 and 247 at December 31, 1994.
The following table summarizes the composition of finance receivables at the
dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1994 DEC. 31, 1994
% of % of % of
Amount Total Amount Total Amount Total
<S> <C> <C> <C> <C> <C> <C>
Sales finance receivables . . . . . . . . $1,209,257 90% $977,978 91% $1,136,958 89%
Direct finance receivables . . . . . . . 131,531 10% 93,184 9% 135,472 11%
Total gross finance receivables . . . . . 1,340,788 100% 1,071,162 100% 1,272,430 100%
Unearned finance charges . . . . . . . . (236,627) (189,062) (222,284)
Unearned insurance commissions,
insurance premiums and
insurance reserves . . . . . . . . . (8,486) (9,587) (10,279)
Finance receivables . . . . . . . . . . . $1,095,675 $872,513 $1,039,867
</TABLE>
ALLOWANCE AND PROVISION FOR FINANCE CREDIT LOSSES
The Company maintains an allowance for finance credit losses at a level which,
in the opinion of management, provides adequately for current and possible
future losses in the finance receivables portfolio. Management evaluates
allowance requirements by examining current delinquencies, the characteristics
of the accounts, the value of the underlying collateral, and general economic
conditions and trends. Management also evaluates the availability of dealer
reserves to absorb finance credit losses. A provision for losses is charged to
earnings in an amount sufficient to maintain the allowance. The following table
sets forth a reconciliation of the changes in the allowance for finance credit
losses for the three month periods ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance at beginning of period . . . . . . . . . . . . . . . . . . $22,488 $18,344
Provision charged to expense . . . . . . . . . . . . . . . . . . . 2,424 1,766
Finance receivables charged-off . . . . . . . . . . . . . . . . . . (1,707) (1,220)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401 388
Balance at March 31 . . . . . . . . . . . . . . . . . . . . . . . . $23,606 $19,278
Allowance as a percent of finance receivables
outstanding at end of period . . . . . . . . . . . . . . . . . 2.15% 2.21%
</TABLE>
The increase in the provision and allowance for finance credit losses in 1995 is
primarily attributable to the increase in finance receivables outstanding.
NONREFUNDABLE DEALER RESERVES
Individual sales finance contracts are purchased pursuant to formal agreements
with local merchants negotiated at the branch office level. As part of
Mercury's financing of sales finance contracts, arrangements are entered into
with dealers, whereby reserves are established to protect Mercury from potential
losses associated with such contracts. As part of Mercury's agreement with the
dealers, a portion of the proceeds from the sales finance contracts are retained
by Mercury and are available to Mercury to charge specific accounts against.
Mercury negotiates the amount of the reserves with the dealers based upon
various criteria, one of which is the credit risk associated with the sales
finance contracts being purchased. Dealer reserves amounted to $69.9 million
and $63.7 million at March 31, 1995 and 1994 respectively.
DEBT
The primary source for funding the Company's finance receivables comes from the
issuance of debt. At March 31, 1995 the Company had total debt of $770.9
million which compares with $576.9 million at March 31, 1994.
In addition to the Company's outstanding debt the Company has revolving credit
facilities and a back up line of credit which total $460 million. The revolving
credit facilities and the back up line are totally available for use by the
Company, and at March 31, 1995 nothing was outstanding under these arrangements.
The following table presents the Company's debt instruments and the stated
interest rates on the debt at the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1994 DEC. 31, 1994
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
Senior Debt:
Commercial paper . . . . . . . . . . . $470,066 6.3% $275,851 3.7% $449,945 6.4%
Term notes . . . . . . . . . . . . . . 265,375 7.1% 266,000 7.2% 265,375 7.1%
Subordinated debt . . . . . . . . . . . . 35,500 10.2% 35,000 10.2% 35,500 10.2%
Total . . . . . . . . . . . . . . $770,941 6.8% $576,851 5.8% $750,820 6.8%
</TABLE>
The interest rates in the preceding table do not include certain costs related
to the placement of debt, costs associated with debt assumed in the acquisition
of Gulfco, fees associated with the revolving credit facility and interest
associated with interest exchange agreements which are amortized to interest
expense. The effect of these costs, which are included in interest expense in
the consolidated financial statements, increases the effective interest rate by
approximately 23 basis points at March 31, 1995.
The following table sets forth information with respect to maturities of senior
and subordinated debt at March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
SENIOR DEBT SENIOR DEBT SUBORDINATED
MATURITY COMMERCIAL PAPER TERM NOTES DEBT TOTAL
<S> <C> <C> <C> <C>
1995 . . . . . . . . . . . . . $470,066 25,125 - 495,191
1996 . . . . . . . . . . . . . - 40,125 - 40,125
1997 . . . . . . . . . . . . . - 59,125 20,000 79,125
1998 . . . . . . . . . . . . . - 141,000 15,500 156,500
Total . . . . . . . . . . . . . $470,066 $265,375 $35,500 $770,941
</TABLE>
STOCKHOLDERS' EQUITY
The other primary source for funding the growth in finance receivables comes
from the retention of earnings by the Company and the exercise of stock options
by eligible employees. Total stockholders' equity at March 31, 1995 was $229.2
million which compares with $206.2 million at March 31, 1994 and $227.5 million
at December 31, 1994. For the three months ended March 31, 1995 the Company had
net income of $21.6 million and declared cash dividends of $19.4 million. In
addition, eligible employees of the Company exercised options to purchase shares
resulting in $1.4 million also being added to the equity of the Company.
At March 31, 1995 stockholders' equity stated as a percent of total assets was
21.2% which compares with 24.4% at March 31, 1994 and 22.0% at December 31,
1994.
RESULTS OF OPERATIONS
NET INCOME
For the three months ended March 31, 1995 the Company had net income of $21.6
million which represent an increase of 11% from the $19.6 million earned in
1994. The increase in net income is primarily attributable to income derived
from increased finance receivables outstanding resulting from additional offices
opened in 1995 and 1994 and increased volume in existing offices.
INTEREST INCOME AND INTEREST EXPENSE
The largest single component of net income is net interest income which is the
difference between interest earned on finance receivables and interest paid on
borrowings. For the three months ended March 31, 1995 the Company's net
interest income increased 17% to $46.2 million when compared with $39.3 million
in 1994. The net interest margin (annualized) which is the ratio of net
interest income divided by average interest earning assets was 17.07% in 1995
compared with 18.43% in 1994. The change in net interest margin is primarily
attributable to interest rate changes on the Company's various debt
instruments. The changes in interest rates are reflective of general
interest rate trends in the U.S. economy. The following table summarizes
the amount of the net interest margin for the three months ended March 31
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
Annualized Annualized
THREE MONTHS ENDED Average Interest Rate Average Interest Rate
Out- Income/ Earned Out- Income/ Earned
standing Expense and Paid standing Expense and Paid
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets . . . . $1,077,592 $59,270 22.00% $850,299 $47,816 22.49%
Interest bearing liabilities . 754,468 13,110 6.95% 559,582 8,528 6.18%
Net . . . . . . . . . . . . . . $323,124 $46,160 15.05% $290,717 $39,288 16.31%
Net interest margin as a
percentage of average interest
earning assets . . . . . . . . 17.07% 18.43%
</TABLE>
OTHER INCOME
In addition to finance charges and interest, the Company derives commission
income from the sale of other credit related products. These products include
insurance relating to the issuance of credit life, accident and health and other
credit insurance policies to borrowers of the Company. Other credit-related
sources of revenue are derived from the sale of other products and services.
Insurance premiums are earned by the life insurance subsidiaries as reinsurers
of credit life and accident and health policies issued through the Company's
branch offices.
For the three months ended March 31, 1995, the Company experienced increases in
its insurance commissions and insurance premiums which are attributable to the
additional loan volume, the inclusion of the Midland branch acquired in 1994 and
the increased number of borrowers obtaining these types of products. The
following table summarizes the amounts earned from these products for the three
months ended March 31 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1995 1994
<S> <C> <C>
Insurance commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,830 $4,030
Insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,584 2,216
Fees and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,968 2,270
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,382 $8,516
Other income as a % of average interest
earning assets (Annualized) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.85% 4.01%
</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.
During 1995 other operating expenses increased 34.1% over 1994. The following
table summarizes the components of other expenses for the three months ended
March 31 (dollars in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1995 1994
<S> <C> <C>
Salaries and employees benefits . . . . . . . . . . . . . . . . . . . . . . . . . $11,203 $8,406
Insurance claims expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116 716
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,711 5,070
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,030 $14,192
Other expenses as a % of average interest
earning assets (Annualized) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06% 6.67%
</TABLE>
INCOME TAXES
Income taxes increased due to a higher level of pretax income in 1995. The
effective tax rate was 38.3% in 1995 and 38.6% in 1994.
CREDIT LOSSES AND DELINQUENCIES
CREDIT LOSSES
Direct finance receivables on which no payment is received within 149 days, on a
recency basis, are charged off. Sales finance receivable accounts which are
contractually delinquent 150 days are charged off monthly before they become 180
days delinquent. Accounts which are deemed uncollectible prior to the maximum
charge off period are charged off immediately. Management may authorize an
extension if collection appears imminent during the next calendar month. The
following table sets forth information relating to charge-offs, the allowance
for finance credit losses and dealer reserves:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1995 1994
<S> <C> <C>
Loss provision charged to income . . . . . . . . . . . . . . . . . . . . . . . . $2,424 $1,766
Charge-offs net of recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . 1,306 832
Allowance for finance credit losses at end of period . . . . . . . . . . . . . . 23,606 19,278
Dealer reserves at end of period . . . . . . . . . . . . . . . . . . . . . . . . 69,908 63,689
Ratios:
Net charge offs (annualized) against allowance
to average finance receivables . . . . . . . . . . . . . . . . . . . . . . . . . .49% .40%
Allowance for finance credit losses to net finance
receivables at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . 2.15% 2.21%
Dealer reserves to gross sales finance receivables
at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.78% 6.51%
</TABLE>
DELINQUENCIES
If an account becomes 60 or more days contractually delinquent and no full
contractual payment is received in the month the account attains such
delinquency status, it is classified as delinquent. The following table sets
forth certain information regarding 60 day and greater contractually delinquent
accounts at March 31 (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1995 MARCH 31, 1994
% of related % of related
Gross Outstanding Gross Outstanding
Receivable Receivable
Amount Balance Amount Balance
<S> <C> <C> <C> <C>
Sales finance receivables . . . . . . . . . . $8,068 .67% $5,315 .54%
Direct finance receivables . . . . . . . . . 2,761 2.10% 3,067 3.29%
Total $10,829 .81% $8,382 .78%
</TABLE>
LIQUIDITY AND FINANCIAL RESOURCES
Because the consumer finance business involves the purchase and carrying of
receivables, a relatively high ratio of borrowings to net worth is customary and
is an important element in the Company's operations. The Company endeavors to
maximize its liquidity by diversifying its sources of funds which include (a)
cash from operations, (b) the issuance of short term commercial paper, and (c)
direct borrowings available from commercial banks and insurance companies,
consisting of short term lines of credit and long term senior and subordinated
notes. Most of the assets are at fixed rates, and have an average initial
maturity of approximately 26 months. Of the Company's total debt, 39% has an
original maturity of greater than one year at a fixed rate of interest.
The Company also maintains back up lines of credit totalling $20 million and
revolving credit facilities totalling $440 million. At March 31, 1995, the
Company had no debt outstanding under these credit arrangements.
CONTINGENCIES AND LEGAL MATTERS
In the normal course of its business, the Company and its subsidiaries are named
as defendants in legal proceedings. A number of such actions are pending in the
various states in which subsidiaries of the Company do business. It is the
policy of the Company and its subsidiaries to vigorously defend litigation, but
the Company and (or) its subsidiaries have and may in the future enter into
settlements of claims where management deems appropriate.
On August 4, 1994, a verdict of $90,000 in compensatory damages and $50,000,000
in punitive damages was rendered against Mercury Finance Corporation of Alabama
("Mercury Alabama"), a subsidiary of the Company, in the Circuit Court of
Barbour County, Alabama. On January 26, 1995, the Circuit Court of Barbour
County, Alabama, entered an order requiring a new trial unless the plaintiff
accepted a reduction of the punitive damage award from $50,000,000 to
$2,000,000. Following the entry of the January 26, 1995 order, parties entered
into a joint motion to vacate the verdict and judgment and dismiss the case
pursuant to a settlement of the plaintiff's claim for an amount less than the
reduced punitive damage award. Mercury Alabama had accrued the cost of the
settlement as of December 31, 1994, and the consolidated statement of income for
the year ended December 31, 1994 reflected this accrual.
As of March 31, 1995, Mercury Alabama was a defendant or counterclaim defendant
in approximately 30 other lawsuits pending in state and federal courts in
Alabama, the majority of which had been filed since the entry of the August 4,
1994 Barbour County jury verdict. The cases (some of which also name the
Company as a defendant) include claims for alleged truth-in-lending violations,
nondisclosures, misrepresentations, wrongful repossessions of vehicles and
deceptive trade practices, among other things. The relief requested by the
plaintiffs varies but includes requests for compensatory, statutory and punitive
damages, as well as declaratory and equitable relief.
A number of the pending Alabama cases are brought as putative class actions. On
October 14, 1994, the Circuit Court of Barbour County, Alabama, certified a
plaintiff class in a case alleging breach of contract and fraud claims against
Mercury Alabama and the Company in connection with Alabama financing
transactions. The court has not yet ordered the transmittal of notice to the
class.
Although management is of the opinion that the resolution of these proceedings
will not have a material effect on the financial position of the Company, it is
not possible at this time to estimate the amount of damages or settlement
expenses that may be incurred. Accordingly, no provision has been made in the
consolidated financial statements for any of the pending proceedings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - See footnote 10 of the 1996, 1995 (as restated)
and 1994 financial statements contained in the Current Report on Form
8-K filed November 6, 1997.
Item 2. Changes in Securities - Not Applicable.
Item 3. Defaults Upon Senior Securities - See Current Report on Form 8-K filed
November 6, 1997, containing 1996, 1995 (as restated) and 1994
financial statements.
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index following the signature page
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the first quarter of 1995.
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: January 7, 1998 /s/ William A. Brandt, Jr.
William A. Brandt, Jr.
President and
Chief Executive Officer
INDEX OF EXHIBITS
Exhibit No. Description
11. Computation of Net Income Per Share
MERCURY FINANCE COMPANY
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
THREE MONTHS ENDED MARCH 31
(Unaudited)
Net income per share is computed by dividing net income by the total of the
weighted average common shares and common stock equivalents outstanding during
the period. Average common shares and common stock equivalents have been
adjusted to reflect the four-for-three stock splits of Mercury Finance Company
distributed to stockholders on December 28, 1989, October 31, 1990, June 10,
1991 and December 5, 1991, the two-for-one stock split distributed on June 19,
1992 and the four-for-three stock split distributed on June 22, 1993.
<TABLE>
<CAPTION>
Three Months Ended
(Dollars in thousands except per share amounts) 1995 1994
<S> <C> <C>
INCOME DATA:
1. Net income Mercury Finance Company . . . . . . . . . . . . . . . . . . . . $21,640 $19,556
2. Weighted average common shares
outstanding (adjusted for stock split) . . . . . . . . . . . . . . . . . . 116,201 115,703
3. Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,983) (63)
EFFECT OF COMMON STOCK EQUIVALENTS (C.S.E.):
4. Weighted average shares reserved for
stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,128 1,584
NET INCOME PER COMMON SHARE:
5. Weighted average common share and
common stock equivalents (line 2+3+4) . . . . . . . . . . . . . . . . . . 115,346 117,224
6. Mercury Finance Company
net income per share (line 1 / line 5) . . . . . . . . . . . . . . . . . . $0.19 $0.17
</TABLE>
