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, 1997
Commission file number 1-12006
FINANCIAL FEDERAL CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 88-0244792
(State of incorporation) (I.R.S. Employer 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)
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, 1997, 14,789,337 shares of the Registrant's common stock, $.50
par value, were outstanding.
1
<PAGE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the quarter ended October 31, 1997
INDEX
Part I - Financial Information Page No.
Item 1 Financial Statements - FINANCIAL FEDERAL CORPORATION AND
SUBSIDIARIES
Consolidated Balance Sheet at October 31, 1997 (unaudited)
and July 31, 1997 (audited) 3
Consolidated Statement of Operations and Retained Earnings
for the three months ended October 31, 1997 and 1996
(unaudited) 4
Consolidated Statement of Cash Flows for the three months
ended October 31, 1997 and 1996 (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 6 Exhibits and Reports on Form 8-K 8
2
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
October 31, 1997
(Unaudited) July 31, 1997 *
------------ ------------
ASSETS
<S> <C> <C>
Cash $ 2,012,000 $ 2,532,000
Finance receivables 613,048,000 581,363,000
Less allowance for possible losses (11,003,000) (10,303,000)
------------ ------------
Finance receivables - net 602,045,000 571,060,000
Other assets 1,196,000 1,172,000
------------ ------------
TOTAL ASSETS $605,253,000 $574,764,000
============ ============
LIABILITIES
Senior debt:
Short - term $ 14,654,000 $ 4,681,000
Long - term ($21,329,000 at October 31, 1997 and
$16,986,000 at July 31, 1997 due to related parties) 453,928,000 434,680,000
Accrued interest, taxes and other liabilities 12,959,000 16,224,000
Subordinated debentures ($2,181,000 at October 31, 1997
and July 31, 1997 due to related parties) 2,290,000 2,290,000
Deferred income taxes 11,785,000 11,285,000
------------ ------------
Total liabilities 495,616,000 469,160,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 7,395,000 7,382,000
Additional paid-in capital 57,461,000 57,315,000
Warrants 29,000 29,000
Retained earnings 44,752,000 40,878,000
------------ ------------
Total stockholders' equity 109,637,000 105,604,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $605,253,000 $574,764,000
============ ============
<FN>
* Reproduced from balance sheet included in the 1997 Annual Report to Stockholders.
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (UNAUDITED)
<CAPTION>
Three Months Ended October 31,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Finance income $16,369,000 $12,530,000
Interest expense 7,229,000 5,147,000
----------- -----------
Finance income before provision for possible
losses on finance receivables 9,140,000 7,383,000
Provision for possible losses on finance receivables 625,000 525,000
----------- -----------
Net finance income 8,515,000 6,858,000
Salaries and other expenses 2,182,000 2,028,000
----------- -----------
Earnings before income taxes 6,333,000 4,830,000
Provision for income taxes 2,459,000 1,858,000
----------- -----------
NET EARNINGS 3,874,000 2,972,000
Retirement of treasury stock (244,000)
Retained earnings - beginning of period 40,878,000 30,893,000
----------- -----------
RETAINED EARNINGS - END OF PERIOD $44,752,000 $33,621,000
=========== ===========
Earnings per common share:
Primary $0.24 $0.18
=========== ===========
Fully diluted $0.24 $0.18
=========== ===========
Average number of shares used:
Primary 16,404,379 16,098,626
=========== ===========
Fully diluted 16,463,782 16,098,626
=========== ===========
<FN>
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended October 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,874,000 $ 2,972,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 57,000 52,000
Provision for possible losses on finance receivables 625,000 525,000
Amortization of deferred origination costs 1,137,000 993,000
Deferred income tax 500,000 505,000
Decrease in other assets 43,000 46,000
(Decrease) in accrued interest, taxes and other
liabilities (3,265,000) (143,000)
------------ ------------
Net cash provided by operating activities 2,971,000 4,950,000
------------ ------------
Cash flows from investing activities:
Finance receivables:
Originated (130,383,000) (106,960,000)
Collected 97,636,000 75,050,000
Other (124,000) (779,000)
------------ ------------
Net cash (used in) investing activities (32,871,000) (32,689,000)
------------ ------------
Cash flows from financing activities:
Commercial paper:
Maturities 90 days or less (net) (9,321,000) 19,524,000
Maturities greater than 90 days:
Proceeds 34,883,000 38,279,000
Repayments (21,169,000) (6,577,000)
Bank borrowings (net) 20,580,000 (17,790,000)
Proceeds from variable rate senior term notes 4,248,000
Repayments of subordinated debentures (4,667,000)
Acquisition of treasury stock - 74,300 shares (941,000)
Proceeds from exercise of stock options 159,000 44,000
------------ ------------
Net cash provided by financing activities 29,380,000 27,872,000
------------ ------------
NET INCREASE (DECREASE) IN CASH (520,000) 133,000
Cash - beginning of period 2,532,000 2,426,000
------------ ------------
CASH - END OF PERIOD $ 2,012,000 $ 2,559,000
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 6,959,000 $ 4,909,000
============ ============
Income taxes paid $ 406,000 $ 529,000
============ ============
<FN>
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
5
<PAGE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
In the opinion of the management 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, 1997, and the results of operations and cash flows for the three month
periods ended October 31, 1997 and 1996.
These condensed financial statements should be read in conjunction with the
consolidated financial statements and note disclosures of Financial Federal
Corporation and Subsidiaries for the fiscal year ended July 31, 1997
included in the Company's July 31, 1997 Annual Report on Form 10-K.
The consolidated results of operations for the three month periods ended
October 31, 1997 and 1996 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.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
standard replaces the current presentation of primary and fully diluted
earnings per share, which both include the effects of common stock
equivalents, with basic and diluted earnings per share effective in the
Company's fiscal quarter ending January 31, 1998. Under SFAS 128, basic
earnings per share, calculated by dividing net income by the weighted average
number of common shares outstanding during the period, would be $0.26 and
$0.20 per share for the three months ended October 31, 1997 and 1996,
respectively. Diluted earnings per share would be the same as primary
earnings per share for both of the three month periods.
NOTE 3 - LONG-TERM DEBT
At October 31, 1997, the Company had $335.0 million of committed unsecured
revolving credit facilities expiring after one year from various banks. Long-
term debt of $453.9 million at October 31, 1997 includes $75.4 million of
borrowings under these facilities, $259.6 million of commercial paper and
short-term bank borrowings supported by these facilities and $118.9 million of
term notes payable.
NOTE 4 - COMMON STOCK REPURCHASE PROGRAM
The Company has a program to repurchase up to $4.1 million of its common
stock. To date, 124,300 shares have been repurchased (prior to the July 1997
three-for-two stock split) for $1.6 million. Shares repurchased are retired.
6
<PAGE>
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended October 31, 1997 to Three Months Ended
October 31, 1996
Finance income increased 31% to $16.4 million in the first quarter of fiscal
1998 from $12.5 million in the first quarter of fiscal 1997. The increase was
primarily the result of the $140 million, or 31%, increase in average finance
receivables outstanding to $594 million in the first quarter of fiscal 1998
from $454 million in the first quarter of fiscal 1997. Finance receivables
booked in the first quarter of fiscal 1998 increased 22% to $129 million from
$106 million in the first quarter of fiscal 1997 primarily as a result of the
expansion of the Company's marketing efforts into new geographic areas and
further penetration in its existing areas.
Interest expense, incurred on borrowings used to fund finance receivables,
increased 40% to $7.2 million in the first quarter of fiscal 1998 from $5.1
million in the first quarter of fiscal 1997. The increase was primarily due
to the 36% increase in average debt in the first quarter of fiscal 1998 from
the first quarter of fiscal 1997 and to slight increases in average market
interest rates and in the Company's cost of funds due to the $50.0 million of
term debt issued in July 1997.
Finance income before provision for possible losses on finance receivables
increased by 24% to $9.1 million in the first quarter of fiscal 1998 from $7.4
million in the first quarter of fiscal 1997. Finance income before provision
for possible losses, expressed as a percentage of average finance receivables
outstanding, decreased to 6.1% in the first quarter of fiscal 1998 from 6.5%
in the first quarter of fiscal 1997 primarily due to the increase in the
Company's debt-to-equity ratio to 4.3 in the first quarter of fiscal 1998 from
3.6 in the first quarter of fiscal 1997, and the slight increase in interest
costs.
The provision for possible losses on finance receivables increased by 19% to
$625,000 in the first quarter of fiscal 1998 from $525,000 in the first
quarter of fiscal 1997. The increase was primarily due to the increase in
finance receivables. The allowance for possible losses, which increased to
$11.0 million at October 31, 1997 from $8.4 million at October 31, 1996, was
1.8% of finance receivables at October 31, 1997 and 1996. The allowance is
periodically reviewed by the Company's management and is based on management's
current assessment of the risks inherent in the Company's finance receivables
from national and regional economic conditions, industry conditions,
concentrations, the financial condition of counterparties and other factors.
Future additions to the allowance may be necessary based on changes in these
factors. Finance receivables that the Company has suspended income
recognition on decreased to $4.7 million, or 0.8% of total finance
receivables, at October 31, 1997, from $5.2 million, or 1.1% of total finance
receivables, at October 31, 1996.
Salaries and other expenses increased 8% to $2.2 million in the first quarter
of fiscal 1998 from $2.0 million in the first quarter of fiscal 1997 primarily
due to the increase in the number of employees and salary increases, partially
offset by the reduction in overhead costs that resulted from the relocation of
the Company's machine tool division into the Company's Charlotte, NC office in
November 1996.
Net earnings increased by 30% to $3.9 million in the first quarter of fiscal
1998 from $3.0 million in the first quarter of fiscal 1997. Primary and fully
diluted earnings per share increased by 33% to $0.24 per share in the first
quarter of fiscal 1998 from $0.18 per share in the first quarter of fiscal
1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company is dependent upon the continued availability of funds primarily to
originate or acquire finance receivables and to purchase portfolios of finance
7
<PAGE>
receivables. The Company may obtain required funds from a variety of sources,
including internal generation, direct issuance of and dealer placed commercial
paper, borrowings under revolving credit facilities, sales of common and
preferred equity and placements of term debt. Management believes that the
Company has available sufficient liquidity to support its operations.
The Company issues investment grade commercial paper directly and through a
program with recognized commercial paper dealers. Commercial paper
outstanding at October 31, 1997 was $249.0 million. 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 committed revolving credit facilities from
banks so that the aggregate amount available thereunder exceeds commercial
paper outstanding.
At October 31, 1997, the Company had $80.0 million of short-term committed
unsecured revolving credit facilities with various banks under which $25.3
million was outstanding, and $335.0 million of long-term committed unsecured
revolving credit facilities with various banks under which $75.4 million was
outstanding.
OTHER
The Company has reviewed its various computer applications and systems and has
determined that they are primarily Year 2000 compliant. Therefore, the future
costs to the Company for becoming Year 2000 compliant are not expected to be
significant.
FORWARD-LOOKING STATEMENTS
The above discussion contains forward-looking statements that involve certain
risks and uncertainties. The Company's actual results could differ materially
from those anticipated by such forward-looking statements due to the impact of
many factors outside the Company's control including economic, geographic and
industry conditions, fluctuations in market interest rates, prepayments,
competitive conditions and changes in existing laws or regulations.
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, 1997.
8
<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, 1997
(Date)
9
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibits Page
11 Computation of Earnings Per Share 11
27 Financial Data Schedule (EDGAR version only)
10
<PAGE>
Exhibit 11
<TABLE>
FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three months ended October 31,
------------------------------
1997 1996
---------- ----------
Primary
- ------------------------------------------
<S> <C> <C>
Net earnings for primary per share amounts $3,874,000 $2,972,000
========== ==========
Weighted average number of common
shares outstanding 14,769,783 14,846,856
Add - common equivalent shares
(determined using the
"treasury stock" method) 1,635,480 1,251,770
---------- ----------
Weighted average number of shares
used in calculation of primary
earnings per common share 16,405,263 16,098,626
========== ==========
Primary net earnings per common share $0.24 $0.18
===== =====
Fully Diluted
- ------------------------------------------
Net earnings for fully diluted per share
amounts $3,874,000 $2,972,000
========== ==========
Weighted average number of shares
used in calculation of fully diluted
earnings per common share 16,463,782 16,098,626
========== ==========
Fully diluted net earnings per common
share $0.24 $0.18
====== =====
</TABLE>
11
<TABLE> <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, 1997 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-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 2012
<SECURITIES> 0
<RECEIVABLES> 613048
<ALLOWANCES> 11003
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 605253
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 7395
<OTHER-SE> 102242
<TOTAL-LIABILITY-AND-EQUITY> 605253
<SALES> 0
<TOTAL-REVENUES> 16369
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 625
<INTEREST-EXPENSE> 7229
<INCOME-PRETAX> 6333
<INCOME-TAX> 2459
<INCOME-CONTINUING> 3874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3874
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
<FN>
<F1>THE FINANCIAL STATEMENTS INCLUDE A NONCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
