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 April 30, 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
incorporation or organization) Identification Number)
400 Park Avenue, New York, NY 10022
(Address of principal executive offices) (Zip code)
(212) 888-3344
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report.)
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
9,960,422 Shares of Common Stock, $.50 par value, outstanding as of June
11, 1996
Page 1 of 16
Index to exhibits is located on page 15
<PAGE>
FINANCIAL FEDERAL CORPORATION
and Subsidiaries
Quarterly Report on Form 10-Q
for the quarter ended April 30, 1996
INDEX
Part I Page
Item 1 Financial Statements - FINANCIAL FEDERAL CORPORATION and Subsidiaries
Consolidated Balance Sheet at April 30, 1996 (unaudited)
and July 31, 1995 (audited) 3
Consolidated Statement of Income and Retained Earnings
for the three months ended April 30, 1996 (unaudited)
and April 30, 1995 (unaudited) 4
Consolidated Statement of Income and Retained Earnings
for the nine months ended April 30, 1996 (unaudited)
and April 30, 1995 (unaudited) 5
Consolidated Statement of Cash Flows for the nine months
ended April 30, 1996 (unaudited) and April 30, 1995
(unaudited) 6-7
Notes to Financial Statements 8-9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Item 4 Submission of matters to a vote of Security Holders 13
Part II
Item 2 Changes in Securities 14
Item 6 Exhibits and Reports on Form 8-K 14
Page 2
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
and Subsidiaries
Consolidated Balance Sheet
(000's)
<CAPTION>
April 30, 1996
(Unaudited) July 31, 1995*
------------------ ---------------------
<S> <C> <C>
Assets
Cash $2,396 $3,090
Finance receivables 408,429 345,694
Less allowance for possible losses (7,592) (6,395)
------------------ ---------------------
Finance receivables - net 400,837 339,299
Other assets 910 547
------------------ ---------------------
TOTAL ASSETS $404,143 $342,936
================== =====================
Liabilities
Senior Debt:
Short-Term (includes amounts due
to related parties of $6,816
at 7/31/95) $0 $99,270
Long-Term (includes amounts
due to related parties of
$8,508 at 4/30/96) 260,964 150,000
Institutional Term Notes payable 55,000 0
Accrued interest, taxes and
other liabilities 9,044 7,347
Senior subordinated note 0 15,000
Subordinated debentures 6,957 6,957
Deferred income taxes 7,167 6,287
------------------ ---------------------
TOTAL LIABILITIES 339,132 284,861
------------------ ---------------------
Stockholders' Equity
Common Stock 4,119 2,790
Additional Paid-in Capital 32,700 33,201
Warrants 29 29
Retained Earnings 28,163 23,495
Treasury Stock 0 (1,440)
------------------ ---------------------
TOTAL STOCKHOLDERS' EQUITY 65,011 58,075
------------------ ---------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $404,143 $342,936
================== =====================
<FN>
*Reproduced from balance sheet included in the 1995 Annual Report to Stockholders
The attached notes are made a part hereof
</TABLE>
Page 3
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
and Subsidiaries
Consolidated Statement of Income and Retained Earnings
(Unaudited)
(000's except share and per share data)
<CAPTION>
Three Months Ended Three Months Ended
April 30, 1996 April 30, 1995
------------------ ----------------------
<S> <C> <C>
Finance income $10,905 $9,055
Interest expense 4,695 4,284
------------------ ----------------------
Finance income before provision
for possible losses on
finance receivables 6,210 4,771
Provision for possible losses on
finance receivables 400 350
------------------ ----------------------
Net finance income 5,810 4,421
Salaries and other expenses (1,895) (1,473)
------------------ ----------------------
Earnings before income taxes 3,915 2,948
Provision for income taxes 1,476 1,113
------------------ ----------------------
NET EARNINGS 2,439 1,835
Beginning Retained Earnings 25,724 19,743
------------------ ----------------------
Ending Retained Earnings $28,163 $21,578
================== ======================
Primary Earnings Per Common Share
and Common Share Equivalents $0.27 $0.20
================== ======================
Fully Diluted Earnings Per Common
Share and Common Share
Equivalents $0.27 $0.20
================== ======================
Average Common Shares and
Common Share Equivalents
Outstanding:
Primary 9,153,099 8,986,884
================== ======================
Fully Diluted 9,153,099 8,986,884
================== ======================
<FN>
The attached notes are made a part hereof
</TABLE>
Page 4
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
and Subsidiaries
Consolidated Statement of Income and Retained Earnings
(Unaudited)
(000's except share and per share data)
<CAPTION>
Nine Months Ended Nine Months Ended
April 30, 1996 April 30, 1995
------------------ ----------------------
<S> <C> <C>
Finance income $31,821 $25,130
Interest expense 14,386 11,554
------------------ ----------------------
Finance income before provision
for possible losses on finance
receivables 17,435 13,576
Provision for possible losses on
finance receivables 1,220 1,055
------------------ ----------------------
Net finance income 16,215 12,521
Miscellaneous income 0 130
Salaries and other expenses (5,171) (4,169)
------------------ ----------------------
Earnings before income taxes 11,044 8,482
Provision for income taxes 4,164 3,190
------------------ ----------------------
NET EARNINGS 6,880 5,292
Beginning Retained Earnings 23,495 16,286
Retirement of Treasury Stock (840) 0
50% Stock Dividend (1,372) 0
------------------ ----------------------
Ending Retained Earnings $28,163 $21,578
================== ======================
Primary Earnings Per Common Share
and Common Share Equivalents $0.76 $0.59
================== ======================
Fully Diluted Earnings Per Common
Share and Common Share
Equivalents $0.75 $0.59
================== ======================
Average Common Shares and
Common Share Equivalents
Outstanding:
Primary 9,095,175 8,951,472
================== ======================
Fully Diluted 9,136,854 8,951,472
================== ======================
<FN>
The attached notes are made a part hereof
</TABLE>
Page 5
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
(000's)
<CAPTION>
Nine Months Ended Nine Months Ended
April 30, 1996 April 30, 1995
------------------ ----------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $6,880 $5,292
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 142 108
Gain on purchase of Subordinated
Debentures 0 (130)
Provision for possible losses on
finance receivables 1,220 1,055
Amortization of deferred
acquisition costs 2,520 2,132
Deferred income tax 880 225
(Increase) Decrease in
other assets (303) 5
Increase (Decrease) in accrued
interest, taxes and other
liabilities 1,697 (1,133)
------------------ ----------------------
Net cash provided by
operating activities 13,036 7,554
------------------ ----------------------
Cash flows from investing activities:
Finance receivables - originated (246,739) (188,984)
Finance receivables - collected 181,461 138,333
Payments for office
furniture and equipment (202) (209)
------------------ ----------------------
Net cash (used in)
investing activities (65,480) (50,860)
------------------ ----------------------
<FN>
(continued...)
The attached notes are made a part hereof
</TABLE>
Page 6
<PAGE>
<TABLE>
(continued)
FINANCIAL FEDERAL CORPORATION
and Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
(000's)
<CAPTION>
Nine Months Ended Nine Months Ended
April 30, 1996 April 30, 1995
------------------ ----------------------
<S> <C> <C>
Cash flows from financing activities:
Commercial Paper:
Proceeds 87,538 109,337
Repayments (85,269) (113,982)
Short-term notes
payable - bank(net) 64,425 (10,990)
Term loans payable - bank (55,000) 58,000
Proceeds from exercise of
stock options 56 305
Proceeds from issuance of
Institutional Term Notes Payable 55,000 0
Repayment of Senior
Subordinated Note (15,000) 0
Purchase of Subordinated
Debentures 0 (595)
Tax benefit relating to
stock options 0 37
------------------ ----------------------
Net cash provided by
financing activities 51,750 42,112
------------------ ----------------------
NET (DECREASE) IN CASH (694) (1,194)
------------------ ----------------------
Beginning Cash 3,090 2,805
------------------ ----------------------
Ending Cash $2,396 $1,611
================== ======================
Supplemental Disclosures of
Cash Flow Information:
Interest Paid $14,653 $11,746
================== ======================
Taxes Paid $2,481 $3,040
================== ======================
<FN>
The attached notes are made a part hereof
</TABLE>
Page 7
<PAGE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
NOTES TO THE 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 of the Company as at
April 30, 1996, and the results of operations for the three and nine
month periods ended April 30, 1996 and 1995 and the cash flows for the
nine month periods ended April 30, 1996 and 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, 1995 included in the Company's July 31, 1995
Annual Report on Form 10-K.
The consolidated results of operations for the three and nine month
periods ended April 30, 1996 and 1995 are not necessarily indicative of
the results for the respective full years.
NOTE 2 - PUBLIC OFFERING OF COMMON STOCK
On May 10, 1996, the Company completed a public offering of 1,700,000
shares of its common stock at $16.625 per share. The estimated net
proceeds to the Company were approximately $26.2 million. Proceeds of
the offering were used to repay bank debt.
NOTE 3 - INSTITUTIONAL TERM NOTES PAYABLE
On April 15, 1996, the Company borrowed $55.0 million principle amount
unsecured Senior Long-Term Notes from a group of insurance companies for
a term of 5.5 years. Interest is payable semi-annually, in arrears, at
a fixed rate of 6.76%. Proceeds of these notes were used to repay bank
debt.
NOTE 4 - STOCKHOLDERS' EQUITY
On December 20, 1995, the Board of Directors declared a three-for-two
stock split effected in the form of a 50% stock dividend distributed on
January 30, 1996 to shareholders of record on January 8, 1996. All
applicable share and per share data have been restated to reflect the
stock split.
During December of 1995, the Company retired all 96,000 common shares
held in treasury. The retirement of the treasury stock resulted in a
decrease in common stock, additional paid-in capital, and retained
earnings of $48,000, $552,000 and $840,000, respectively.
Page 8
<PAGE>
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share are computed based on the weighted average
number of common shares and common share equivalents (options and
warrants) assumed outstanding during each period, as adjusted (see Note
4). Proceeds from exercise of such options and warrants have been
assumed to be used to purchase treasury stock.
NOTE 6 - LONG-TERM DEBT
At April 30, 1996, the Company had arrangements to borrow, at its
option, up to $270.0 million from various institutions on a long-term
basis under which $137.0 million was outstanding at such date. The
Company is utilizing short-term bank facilities and commercial paper in
lieu of borrowings under the unused portions of these arrangements;
therefore, in addition to the $137.0 million outstanding under such
long-term commitments, $110.0 million in short-term bank borrowings and
$14.0 million in commercial paper have been included in long-term senior
debt, and short-term senior debt has been reduced by the same amounts.
NOTE 7 - RECENT PRONOUNCEMENTS
The Company adopted Statements of Financial Accounting Standards
("SFAS") No. 114 ("Accounting by Creditors for Impairment of a Loan")
and No. 118 ("Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures") in the first quarter of fiscal 1996.
These standards require that impaired loans be measured based on the
present value of expected cash flows, discounted at the loan's effective
interest rate or, the loan's observable market price or, the fair value
of the collateral if the loan is collateral dependent, as well as
certain related disclosures. The adoption of these statements did not
have a material effect on the consolidated financial statements of the
Company.
Page 9
<PAGE>
PART I
Item 2
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Nine Months Ended April 30, 1996 to Nine Months Ended April
30, 1995.
Finance income increased 27% to $31.8 million in the first nine
months of fiscal 1996 from $25.1 million in the first nine months of fiscal
1995. The increase was primarily the result of an increase of
approximately $77 million in the amount of average net finance receivables
(before allowance for loan loss) outstanding from the first nine months of
fiscal 1995 ($295 million) to the first nine months of fiscal 1996 ($372
million). Partially offsetting the increase in average net finance
receivables outstanding was a slight decrease in average market interest
rates from the first nine months of fiscal 1995 to the first nine months of
fiscal 1996.
Total expenses, which consist of interest expense, provision for
possible losses on finance receivables, and salaries and other expenses,
increased 24% to $20.8 million in the first nine months of fiscal 1996 from
$16.8 million in the first nine months of fiscal 1995. This increase was
mostly due to an increase in the Company's interest expense of $2.8 million
from the first nine months of fiscal 1995 ($11.6 million) to the first nine
months of fiscal 1996 ($14.4 million). During September 1995, at maturity,
the Company repaid its $15.0 million senior subordinated note. Interest
was payable monthly in arrears at a rate of 12.27%. The Company replaced
this source of funding with short-term and long-term bank credit
facilities, commercial paper and cash flows from operations. Interest
expense for the nine months ended April 30, 1996 would have been
approximately 27% higher if the senior subordinated note had been
outstanding for the full nine month period ending April 30, 1996. The
increase in interest expense was due to an increase in average borrowed
funds from $224.7 million in the first nine months of fiscal 1995 to $281.5
million in the first nine months of fiscal 1996. Additionally, average
money market interest rates paid by the Company increased slightly from the
first nine months of fiscal 1995 to the first nine months of fiscal 1996.
Of the increase in total interest expense, approximately 54% is
attributable to the increase in average borrowings and 46% to the increase
in market interest rates. Salaries and other expenses increased by $1.0
million from the first nine months of fiscal 1995 to the first nine months
of fiscal 1996. The increase was primarily the result of additional
personnel added from the prior period, as well as salary increases.
Page 10
<PAGE>
PART I
Item 2
The provision for possible losses on finance receivables increased by
16% to $1.2 million for the first nine months of fiscal 1996 from $1.1
million for the first nine months of fiscal 1995. The allowance for
possible losses was $7.6 million, or 1.9% of net finance receivables before
such allowance, at April 30, 1996, substantially equal to the allowance as
a percentage of net finance receivables before such allowance at April 30,
1995. Management continually evaluates the allowance for possible losses
in light of past and current economic, industry, and geographic business
conditions and loss experience.
During the first quarter of fiscal 1995, the Company purchased, from
a holder of its subordinated debentures, debentures in the face amount of
$725,000 for $595,000, resulting in miscellaneous income of $130,000.
As a result of the above, earnings before income taxes increased $2.6
million (30%) during the first nine months of fiscal 1996 ($11.0 million)
from the first nine months of fiscal 1995 ($8.5 million).
Net earnings increased $1.6 million (30%) from the first nine months
of fiscal 1995 ($5.3 million) to the first nine months of fiscal 1996 ($6.9
million).
Comparison of Three Months Ended April 30, 1996 to Three Months Ended April
30, 1995
Finance income increased 20% to $10.9 million in the third quarter of
fiscal 1996 from $9.1 million in the third quarter of fiscal 1995. The
increase was primarily the result of an increase in the amount of average
net finance receivables (before allowance for loan loss) outstanding from
the third quarter of fiscal 1995 ($312 million) to the third quarter of
fiscal 1996 ($391 million). Partially offsetting the increase in average
net finance receivables outstanding was a decrease in average market
interest rates from the third quarter of fiscal 1995 to the third quarter
of fiscal 1996.
Total expenses, which consist of interest expense, provision for
possible losses on finance receivables, and salaries and other expenses
increased by 14% to $7.0 million in the three months ended April 30, 1996
from $6.1 million in the three months ended April 30, 1995. This increase
was mostly due to an increase in the Company's interest expense of $412,000
from the three months ended April 30, 1995 ($4.3 million) to the three
months ended April 30, 1996 ($4.7 million). The increase in interest
expense was due to an increase in average borrowed funds from $235.1
million in the third quarter of fiscal 1995 to $303.2 million in the third
quarter of fiscal 1996. Partially offsetting the increase in interest
expense was the Company repaying its $15.0 million Senior Subordinated Note
during September of 1995. Interest was payable monthly, in arrears, at a
rate of 12.27%. The Company replaced this source of funding with short-
term and long-term bank credit facilities, commercial paper and cash flows
from operations. Additionally, average money market interest rates paid by
the Company decreased from the third quarter of fiscal 1995 to the third
quarter of fiscal 1996. Salaries and other expenses increased by $422,000
from the third quarter of fiscal 1995 to the third quarter of fiscal 1996;
Page 11
<PAGE>
PART I
Item 2
this increase was primarily the result of additional personnel added in the
third quarter of fiscal 1996, as well as salary increases.
As a result of the above, earnings before income taxes increased
$967,000 (33%) during the third quarter of fiscal 1996 ($3.9 million) from
the third quarter of fiscal 1995 ($2.9 million).
Net earnings increased $604,000 (33%) from the third quarter of
fiscal 1995 ($1.8 million) to the third quarter of fiscal 1996 ($2.4
million).
LIQUIDITY AND CAPITAL RESOURCES
The Company endeavors to maximize its liquidity by diversifying its
sources of funds, which include: (i) cash flows from operations; (ii) the
issuance of commercial paper; (iii) the issuance of unsecured debt; (iv)
borrowings from short-term and long term credit facilities with banks; and
(v) the issuance of additional equity.
At April 30, 1996, the Company had committed unsecured short-term
lines of credit aggregating $137.5 million available through financial
institutions under which $100.0 million was outstanding; commercial paper
outstanding at this date totaled $14.0 million. At April 30, 1996, the
Company had committed unsecured long-term revolving credit facilities
available in the amount of $270.0 million under which $137.0 million was
outstanding at such date. The Company is utilizing short-term facilities
and commercial paper in lieu of borrowing additional amounts under these
arrangements; therefore, in addition to the $137.0 million outstanding
under such long-term commitments, $110.0 million in short-term bank
borrowings, and $14.0 million in commercial paper have been included in
long-term senior debt, and short-term senior debt has been reduced by the
same amounts. The Company issues commercial paper with maturities of up to
270 days. During February 1996, the Company's major operating subsidiary,
Financial Federal Credit Inc., received an investment grade rating of "D-2"
on its commercial paper from Duff & Phelps Credit Rating Co. Financial
Federal Credit Inc. also has an investment grade rating of "F-2" from Fitch
Investors Service, Inc. Additionally, the commercial paper of Financial
Federal Corporation (the Parent) is rated "D-2" by Duff & Phelps. In April
1996, the Company engaged a dealer to place its commercial paper with
institutional investors. Increases in commercial paper are generally offset
by decreases in bank borrowings, and vice versa; there is generally no
seasonal influence.
On September 1, 1995, the Company repaid the $15.0 million Senior
Subordinated Note using bank borrowings. Interest was payable monthly, in
arrears, at a rate of 12.27%.
During April 1996, the Company borrowed $55.0 million of Senior Notes
from a group of insurance companies. The notes are due September 1, 2001.
Interest is payable semi-annually, in arrears, at a fixed rate of 6.76%.
Proceeds of these notes were used to repay bank debt.
Page 12
<PAGE>
PART I
Item 2
On May 10, 1996 the Company completed a public offering of 1,700,000
shares of its common stock at $16.625 per share. The estimated net
proceeds to the Company were approximately $26.2 million. The Company's
equity at April 30, 1996 would have been approximately $91,211,000 if the
above transaction had been completed at April 30, 1996. Proceeds from the
offering were used to repay bank debt.
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 April 30, 1996.
Page 13
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PART II
Item 2 CHANGES IN SECURITIES
The payment of cash dividends and the making of other
distributions to the Company by Financial Federal Credit Inc., its major
operating subsidiary ("Credit"), is restricted under the terms of various
instruments and agreements relating to Credit's unsecured committed credit
facilities and other indebtedness which could, in turn, limit the amount of
cash dividends, if any, paid by the Company on its common stock. Under the
Institutional Term Notes, which contain the most restrictive dividend
payment provisions, $4.7 million would have been available for the payment
of dividends from Credit to the Financial Federal Corporation as of April
30, 1996. Therefore, on such date, approximately $12.7 million would have
been available for the payment of dividends to stockholders of the Company.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 - Computation of earnings per share
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the
quarter ended April 30, 1996.
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/ Clarence Y. Palitz, Jr.
President and Chief
Executive Officer
/s/ Michael C. Palitz
Treasurer and Chief
Financial Officer
June 11, 1996
(Date)
Page 14
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Index to Exhibits
Exhibit No. Exhibits Page Location
11.01 Computation of Earnings
Per Share 16
Page 15
<PAGE>
<TABLE>
EXHIBIT 11.01
FINANCIAL FEDERAL CORPORATION and Subsidiaries
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Nine Months ended April 30, Three Months ended April 30
Primary 1996 1995 1996 1995
- - ---------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings for primary
per share amounts
$6,880,000 $5,292,000 $2,439,000 $1,835,000
=========== =========== =========== ===========
Weighted average number of
common shares outstanding
8,235,342 8,190,564 8,235,342 8,208,882
Add-common equivalent shares
(using the "treasury
stock" method) representing
shares issuable upon exercise
of options and warrants
859,833 760,908 917,757 778,002
----------- ----------- ----------- -----------
Weighted average number of shares
used in calculation of primary
net earnings per common share
9,095,175 8,951,472 9,153,099 8,986,884
=========== =========== =========== ===========
Primary net earnings per
common share
$0.76 $0.59 $0.27 $0.20
=========== =========== =========== ===========
Fully Diluted
- - ----------------------
Net earnings for fully diluted
per share amounts
$6,880,000 $5,292,000 $2,439,000 $1,835,000
=========== =========== =========== ===========
Weighted average number of shares
used in calculation of fully
diluted net earnings per
common share
9,136,854 8,951,472 9,153,099 8,986,884
=========== =========== =========== ===========
Fully diluted net earnings per
common share
$0.75 $0.59 $0.27 $0.20
=========== =========== =========== ===========
</TABLE>
PAGE 16
