<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 1996
Commission file number 1-12006
FINANCIAL FEDERAL CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88-0244792
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
400 Park Avenue, New York, NY 10022
(Address of principal executive offices)
(Zip code)
(212) 888-3344
(Registrant's telephone number, including area code)
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 requirements for the past 90 days. Yes X No
At December 2, 1996, 9,890,808 shares of the Registrant's common stock,
$.50 par value, were outstanding.
<PAGE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the quarter ended October 31, 1996
INDEX
Part I - Financial Information Page No.
Item 1 Financial Statements - FINANCIAL FEDERAL CORPORATION AND
SUBSIDIARIES
Consolidated Balance Sheet at October 31, 1996 (unaudited) and July 31, 1996
(audited) 3
Consolidated Statement of Operations and Retained Earnings for the three
months ended October 31, 1996 and October 31, 1995 (unaudited) 4
Consolidated Statement of Cash Flows for the three months ended October 31,
1996 and October 31, 1995 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-8
Part II - Other Information
Item 4 Submission of matters to a vote of Security Holders 8
Item 6 Exhibits and Reports on Form 8-K 8
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
October 31, 1996
(Unaudited) July 31, 1996*
------------- -------------
<S> <C> <C>
ASSETS
Cash $2,559,000 $2,426,000
Finance receivables 468,536,000 437,706,000
Less allowance for possible losses (8,446,000) (8,008,000)
------------- -------------
Finance receivables - net 460,090,000 429,698,000
------------- -------------
Other assets 1,644,000 963,000
------------- -------------
TOTAL ASSETS $464,293,000 $433,087,000
============= =============
LIABILITIES
Senior debt:
Short - term $14,266,000 $830,000
Long - term ($10,327,000 at October 31, 1996
and $9,376,000 at July 31, 1996 due to
related parties) 330,000,000 310,000,000
Accrued interest, taxes and other liabilities 12,017,000 12,160,000
Subordinated debentures ($2,181,000 at October
31, 1996 and $3,178,000 at July 31, 1996 due
to related parties) 2,290,000 6,957,000
Deferred income taxes 9,454,000 8,949,000
------------- -------------
Total liabilities 368,027,000 338,896,000
------------- -------------
STOCKHOLDERS' EQUITY
Common stock 4,945,000 4,980,000
Additional paid-in capital 57,671,000 58,289,000
Warrants 29,000 29,000
Retained earnings 33,621,000 30,893,000
------------- -------------
Total stockholders' equity 96,266,000 94,191,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $464,293,000 $433,087,000
============= =============
*Reproduced from balance sheet included in 1996 Annual Report to Stockholders.
The notes to consolidated financial statements are made a part hereof.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (UNAUDITED)
<CAPTION>
Three Months Ended October 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Finance income $12,530,000 $10,175,000
Interest expense 5,147,000 4,771,000
------------- -------------
Finance income before provision for possible
losses on finance receivables 7,383,000 5,404,000
Provision for possible losses on finance
receivables 525,000 410,000
------------- -------------
Net finance income 6,858,000 4,994,000
Salaries and other expenses 2,028,000 1,585,000
------------- -------------
Earnings before income taxes 4,830,000 3,409,000
Provision for income taxes 1,858,000 1,285,000
------------- -------------
NET EARNINGS 2,972,000 2,124,000
Retirement of treasury stock (244,000)
Retained earnings - beginning of period 30,893,000 23,495,000
------------- -------------
RETAINED EARNINGS - END OF PERIOD $33,621,000 $25,619,000
============= =============
Earnings per common share:
Primary $0.28 $0.24
============= =============
Fully diluted $0.28 $0.23
============= =============
Average number of shares used:
Primary 10,732,417 9,032,345
============= =============
Fully diluted 10,732,417 9,074,321
============= =============
</TABLE>
The notes to consolidated financial statements are made a part hereof.
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended October 31,
------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,972,000 $2,124,000
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 52,000 42,000
Provision for possible losses on finance
receivables 525,000 410,000
Amortization of deferred origination costs 993,000 795,000
Deferred income tax 505,000 120,000
Decrease (increase) in other assets 46,000 (22,000)
(Decrease) in accrued interest, taxes
and other liabilities (143,000) (42,000)
------------- -------------
Net cash provided by operating activities 4,950,000 3,427,000
------------- -------------
Cash flows from investing activities:
Finance receivables:
Originated (106,960,000) (76,286,000)
Collected 75,050,000 55,940,000
Investment in marketable securities (750,000)
Payments for office furniture and equipment (29,000) (13,000)
------------- -------------
Net cash (used in) investing activities (32,689,000) (20,359,000)
-------------- -------------
Cash flows from financing activities:
Commercial paper:
Maturities 90 days or less (net) 19,524,000 876,000
Maturities greater than 90 days:
Proceeds 38,279,000 3,899,000
Repayments (6,577,000) (3,182,000)
Notes payable - banks (net) (17,790,000) 29,921,000
Repayment of senior subordinated note (15,000,000)
Repayments of subordinated debentures (4,667,000)
Acquisition of treasury stock - 74,300 shares (941,000)
Proceeds from exercise of stock options 44,000
------------- -------------
Net cash provided by financing activities 27,872,000 16,514,000
------------- -------------
NET INCREASE (DECREASE) IN CASH 133,000 (418,000)
Cash - beginning of period 2,426,000 3,090,000
------------- -------------
CASH - END OF PERIOD $2,559,000 $2,672,000
============= =============
Supplemental disclosures of cash flow information:
Interest paid $4,909,000 $4,810,000
============= =============
Income taxes paid $529,000 $440,000
============= =============
</TABLE>
The notes to consolidated financial statements are made a part hereof.
<PAGE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of Financial Federal Corporation and Subsidiaries (the
"Company"), the accompanying consolidated financial statements contain
all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position as at October 31,
1996, and the results of operations and cash flows for the three month
periods ended October 31, 1996 and October 31, 1995.
It is suggested that these condensed financial statements be read in
conjunction with the consolidated financial statements and footnote
disclosures of Financial Federal Corporation and Subsidiaries for the
fiscal year ended July 31, 1996 included in the Company's July 31, 1996
Annual Report on Form 10-K.
The consolidated results of operations for the three month periods ended
October 31, 1996 and 1995 are not necessarily indicative of the results
for the respective full years.
NOTE 2 - EARNINGS PER COMMON SHARE
Earnings per common share is calculated by dividing net earnings by the
weighted average number of shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents
consist of dilutive stock options and warrants that are assumed to be
exercised for the calculation.
NOTE 3 - LONG-TERM DEBT
At October 31, 1996, the Company had $275.0 million of committed
unsecured revolving credit facilities from various banks expiring after
one year. Long-term debt at October 31, 1996 includes $275.0 million of
bank borrowings and commercial paper which are supported by these
facilities.
NOTE 4 - SUBORDINATED DEBENTURES
In July 1996, the Company called its subordinated debentures at face
value, offering holders the option to receive amended debentures. As a
result, $4,667,000 of these debentures were repaid and $2,290,000 of
amended debentures were issued on September 1, 1996. The amended
debentures, due March 1, 2003, bear interest, payable semi-annually, at
an annual rate of 8.0%, contain a penalty for prepayments made prior to
September 1, 1999 and are subordinated to senior debt and other debt
designated by the Board of Directors of the Company and to certain other
liabilities as provided for in the debentures. The original debentures
bore interest at the prime rate with minimum and maximum rates of 8.0%
and 13.0%.
NOTE 5 - COMMON STOCK REPURCHASE PROGRAM
In August 1996, the Company established a program to repurchase its
common stock. Total repurchases are limited to $2,500,000 under the
program. As of November 29, 1996, 124,300 shares have been repurchased
for $1,630,000. Shares repurchased are retired.
NOTE 6 - RECENT PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." This standard requires either the recognition
or disclosure of compensation expense based on the fair value of equity
instruments granted to employees. The Company has elected to adopt the
disclosure provisions of this standard commencing in the fiscal year
ending July 31, 1997.
PART I
Item 2
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended October 31, 1996 to Three Months Ended
October 31, 1995
Finance income increased 23% to $12.5 million in the first quarter of
fiscal 1997 from $10.2 million in the first quarter of fiscal 1996. The
increase was primarily the result of the $98 million, or 28%, increase
in the amount of average finance receivables outstanding from the first
quarter of fiscal 1996 ($356 million) to the first quarter of fiscal
1997 ($454 million) and was partially offset by decreased finance rates
charged by the Company on new financings and variable rate finance
receivables as a result of the quarter to quarter decline in market
interest rates. New financings increased 41% to $106 million in the
first quarter of fiscal 1997 from $75 million in the first quarter of
fiscal 1996. The increase in new financings was primarily the result of
a realignment and wider geographic dispersion of the Company's marketing
personnel.
Interest expense increased 8% to $5.1 million in the first quarter of
fiscal 1997 from $4.8 million in the first quarter of fiscal 1996. The
overall increase was mainly due to the 19% increase in average
borrowings during the first quarter of fiscal 1997 from the first
quarter of fiscal 1996, offset by decreases in costs of funds and
average market interest rates.
Since the increase in finance income exceeded the increase in interest
expense, finance income before provision for possible losses on finance
receivables increased by 37% to $7.4 million in the first quarter of
fiscal 1997 from $5.4 million in the first quarter of fiscal 1996.
Finance income before provision for possible losses, expressed as a
percentage of average finance receivables outstanding, increased to 6.5%
in the first quarter of fiscal 1997 from 6.1% in the first quarter of
fiscal 1996. The increase was primarily due to the interest savings of
approximately $400,000 on the debt repaid from the net proceeds of the
Company's 1.7 million share public offering of its common stock in May
1996.
The provision for possible losses on finance receivables increased by
28% to $525,000 in the first quarter of fiscal 1997 from $410,000 in the
first quarter of fiscal 1996. The increase was primarily due to the 28%
increase in finance receivables. The allowance for possible losses,
$8.4 million at October 31, 1996, expressed as a percentage of finance
receivables, was 1.80% at October 31, 1996 as compared to 1.83% at
October 31, 1995. Management continually evaluates the allowance for
possible losses in light of past, current and projected economic,
industry and geographic conditions. Finance receivables on which the
Company has suspended the recognition of income, $5.2 million at October
31, 1996, expressed as a percentage of total finance receivables,
increased to 1.1% at October 31, 1996 from 0.8% at October 31, 1995.
Salaries and other expenses increased 28% to $2.0 million in the first
quarter of fiscal 1997 from $1.6 million in the first quarter of fiscal
1996. The increase was primarily due to increased marketing costs and
salary increases.
Net earnings increased by 40% to $3.0 million in the first quarter of
fiscal 1997 from $2.1 million in the first quarter of fiscal 1996.
Primary earnings per share increased by 17% to $0.28 per share in the
first quarter of fiscal 1997 from $0.24 per share in the first quarter
of fiscal 1996. On a fully diluted basis, earnings per share increased
by 22% to $0.28 per share in the first quarter of fiscal 1997 from $0.23
per share in the first quarter of fiscal 1996. The increase in earnings
per share was lower than the increase in net earnings primarily due to
the sale of 1.7 million shares of the Company's common stock in a public
offering in May 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company endeavors to maximize its liquidity by diversifying its
sources of funds, which include cash flows from operations, direct
issuance of and dealer placed commercial paper, borrowings under short-
term and long-term revolving credit facilities with banks, sales of
additional equity and placement of term debt.
The Company issues investment garde commercial paper directly and
through a program with recognized commercial paper dealers. In
September 1996, the Company increased the size of the dealer program
from $200 million to $250 million. Commercial paper outstanding at
October 31, 1996 was $241.2 million. All of the Company's commercial
paper is unsecured and matures within 270 days. Increases in commercial
paper are generally offset by decreases in bank borrowings, and vice
versa. The Company's policy is to maintain unused committed revolving
credit facilities from banks greater than the amount of commercial paper
outstanding.
At October 31, 1996, the Company had $107.5 million of short-term
committed unsecured revolving credit facilities with various banks under
which $13.0 million was outstanding and $275.0 million of long-term
committed unsecured revolving credit facilities with various banks under
which $35.1 million was outstanding.
At October 31, 1996, the Company also had $55.0 million of institutional
term notes payable on September 1, 2001.
In September 1996, the Company invested $750,000 in equity securities.
The Company may make additional investments in the future.
<PAGE>
PART I
Item 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter ended
October 31, 1996.
PART II
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 - Computation of earnings per share
27 - Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter ended
October 31, 1996.
<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.
FINANCIAL FEDERAL CORPORATION
(Registrant)
By: /s/ Michael C. Palitz
Executive Vice President and Treasurer
By: /s/ David H. Hamm
Controller and Assistant Treasurer
December 5, 1996
(Date)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibits Page Location
11 Computation of Earnings Per Share 11
27 Financial Data Schedule (EDGAR version only)
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION & SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three Months Ended October 31,
------------------------------
1996 1995
----------- ------------
<S> <C> <C>
Primary
- -------------------------
Net earnings for primary per share amounts $2,972,000 $2,124,000
========== ==========
Weighted average number of common
shares outstanding 9,897,904 8,226,750
Add - common equivalent shares
(determined using the
"treasury stock" method) 834,513 805,595
---------- ---------
Weighted average number of shares
used in calculation of primary net
earnings per common share 10,732,417 9,032,345
========== =========
Primary net earnings per common share $0.28 $0.24
========== =========
Fully Diluted
- --------------------------
Net earnings for fully diluted per share
amounts $2,972,000 $2,124,000
========== ==========
Weighted average number of shares
used in calculation of fully diluted
net earnings per common share 10,732,417 9,074,321
========== ==========
Fully diluted net earnings per common
share $0.28 $0.23
========= =========
</TABLE>
<PAGE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
AS OF OCTOBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS FOR THE THREE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> OCT-31-1996
<CASH> 2559
<SECURITIES> 0
<RECEIVABLES> 468536
<ALLOWANCES> 8446
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 464293
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 4945
<OTHER-SE> 91321
<TOTAL-LIABILITY-AND-EQUITY> 464293
<SALES> 0
<TOTAL-REVENUES> 12530
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 525
<INTEREST-EXPENSE> 5147
<INCOME-PRETAX> 4830
<INCOME-TAX> 1858
<INCOME-CONTINUING> 2972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2972
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<FN>
<F1>THE FINANCIAL STATEMENTS INCLUDE AN UNCLASSIFIED BALANCE SHEET.
</FN>
