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, 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 June 6, 1997, 9,842,482 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 April 30, 1997
INDEX
Part I - Financial Information Page No.
Item 1 Financial Statements - FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheet at April 30, 1997
(unaudited) and July 31, 1996 (audited) 3
Consolidated Statement of Operations and Retained
Earnings for the three months and nine months
ended April 30, 1997 and 1996 (unaudited) 4
Consolidated Statement of Cash Flows for the nine
months ended April 30, 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 4 Submission of matters to a vote of Security
Holders 9
Item 6 Exhibits and Reports on Form 8-K 9
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
April 30, 1997
(Unaudited) July 31, 1996 *
------------ ------------
ASSETS
<S> <C> <C>
Cash $2,569,000 $2,426,000
Finance receivables 541,369,000 437,706,000
Less allowance for possible losses (9,638,000) (8,008,000)
------------ ------------
Finance receivables - net 531,731,000 429,698,000
Other assets 1,036,000 963,000
------------ ------------
TOTAL ASSETS $535,336,000 $433,087,000
============ ============
LIABILITIES
Senior debt:
Short - term $38,829,000 $830,000
Long - term ($12,713,000 at April 30, 1997 and
$9,376,000 at July 31, 1996 due to related parties) 370,000,000 310,000,000
Accrued interest, taxes and other liabilities 11,749,000 12,160,000
Subordinated debentures ($2,181,000 at April 30, 1997
and $3,178,000 at July 31, 1996 due to related parties) 2,290,000 6,957,000
Deferred income taxes 10,379,000 8,949,000
------------ ------------
Total liabilities 433,247,000 338,896,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 4,921,000 4,980,000
Additional paid-in capital 57,316,000 58,289,000
Warrants 29,000 29,000
Retained earnings 39,823,000 30,893,000
------------ ------------
Total stockholders' equity 102,089,000 94,191,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $535,336,000 $433,087,000
============ ============
<FN>
<F1>
* Reproduced from balance sheet included in the 1996 Annual Report to Stockholders.
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS (UNAUDITED)
<CAPTION>
Three Months Ended April 30, Nine Months Ended April 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Finance income $13,999,000 $10,905,000 $39,885,000 $31,821,000
Interest expense 5,942,000 4,695,000 16,698,000 14,386,000
------------ ------------ ------------ ------------
Finance income before provision for possible losses
on finance receivables 8,057,000 6,210,000 23,187,000 17,435,000
Provision for possible losses on finance receivables 650,000 400,000 1,800,000 1,220,000
------------ ------------ ------------ ------------
Net finance income 7,407,000 5,810,000 21,387,000 16,215,000
Salaries and other expenses 2,062,000 1,895,000 6,116,000 5,171,000
------------ ------------ ------------ ------------
Earnings before income taxes 5,345,000 3,915,000 15,271,000 11,044,000
Provision for income taxes 2,058,000 1,476,000 5,878,000 4,164,000
------------ ------------ ------------ ------------
NET EARNINGS 3,287,000 2,439,000 9,393,000 6,880,000
Retirements of treasury stock (463,000) (840,000)
Three-for-two stock split (1,372,000)
Retained earnings - beginning of period 36,536,000 25,724,000 30,893,000 23,495,000
------------ ------------ ------------ ------------
RETAINED EARNINGS - END OF PERIOD $39,823,000 $28,163,000 $39,823,000 $28,163,000
============ ============ ============ ============
Earnings per common share:
Primary $0.31 $0.27 $0.87 $0.76
============ ============ ============ ============
Fully diluted $0.31 $0.27 $0.87 $0.75
============ ============ ============ ============
Average number of shares used:
Primary 10,765,208 9,153,099 10,741,687 9,095,175
============ ============ ============ ============
Fully diluted 10,765,208 9,153,099 10,765,661 9,136,854
============ ============ ============ ============
<FN>
<F1>
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
<PAGE>
<TABLE>
FINANCIAL FEDERAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended April 30,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $9,393,000 $6,880,000
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 163,000 142,000
Provision for possible losses on finance receivables 1,800,000 1,220,000
Amortization of deferred origination costs 3,049,000 2,520,000
Deferred income taxes 1,430,000 880,000
(Increase) in other assets (112,000) (303,000)
Increase (decrease) in accrued interest, taxes and other
liabilities (411,000) 1,697,000
------------ ------------
Net cash provided by operating activities 15,312,000 13,036,000
------------ ------------
Cash flows from investing activities:
Finance receivables:
Originated (332,188,000) (246,739,000)
Collected 225,306,000 181,461,000
Other (124,000) (202,000)
------------ ------------
Net cash (used in) investing activities (107,006,000) (65,480,000)
------------ ------------
Cash flows from financing activities:
Commercial paper:
Maturities 90 days or less (net) 10,422,000 4,418,000
Maturities greater than 90 days:
Proceeds 115,167,000 10,179,000
Repayments (75,690,000) (12,328,000)
Notes payable - banks:
Maturities 90 days or less (net) 43,100,000 64,425,000
Maturities greater than 90 days:
Proceeds 5,000,000
Repayments (55,000,000)
Proceeds from institutional term notes 55,000,000
Repayment of senior subordinated note (15,000,000)
Repayments of subordinated debentures (4,667,000)
Acquisitions of treasury stock - 124,300 shares (1,630,000)
Proceeds from exercise of stock options 61,000 56,000
Tax benefit relating to stock options 74,000
------------ ------------
Net cash provided by financing activities 91,837,000 51,750,000
------------ ------------
NET INCREASE (DECREASE) IN CASH 143,000 (694,000)
Cash - beginning of period 2,426,000 3,090,000
------------ ------------
CASH - END OF PERIOD $2,569,000 $2,396,000
============ ============
Supplemental disclosures of cash flow information:
Interest paid $16,453,000 $14,653,000
============ ============
Income taxes paid $4,322,000 $2,481,000
============ ============
<FN>
<F1>
The notes to consolidated financial statements are made a part hereof.
</FN>
</TABLE>
<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 April 30, 1997, and the results of operations and
cash flows for the three and nine month periods ended April 30,
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, 1996 included in the Company's
July 31, 1996 Annual Report on Form 10-K.
The consolidated results of operations for the three and nine
month periods ended April 30, 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.
NOTE 3 - LONG-TERM SENIOR DEBT
At April 30, 1997, the Company had $315.0 million of committed
unsecured revolving credit facilities expiring after one year from
various banks. Long-term senior debt of $370.0 million at April 30,
1997 includes $89.0 million of borrowings under these facilities,
$226.0 million of commercial paper and short-term bank borrowings
which are supported by these facilities and $55.0 million of term
notes payable in September 2001.
The Company is presently negotiating the private placement of
$50.0 million of senior term notes with maturities expected to be
in the range of three to three and one half years.
NOTE 4 - COMMON STOCK REPURCHASE PROGRAM
In May 1997, the Board of Directors authorized an increase in the
size of Company's common stock repurchase program from $2.5
million to $4.1 million. As of June 6, 1997, 124,300 shares have
been repurchased for $1.6 million. Shares repurchased are
retired.
NOTE 5 - RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." This standard, which
becomes effective in the Company's quarter ending January 31,
1998, replaces the current primary and fully diluted earnings per
share presentation, both of which include the effects of common
stock equivalents, with basic and diluted earnings per share.
Under SFAS 128, basic earnings per share, which is calculated by
dividing net income by the weighted average number of common
shares outstanding during the period, would be $0.33 and $0.95
per share for the three and nine months ended April 30, 1997,
respectively. Diluted earnings per share would be the same as
primary earnings per share for the three and nine months ended
April 30, 1997.
In October 1995, the FASB issued SFAS 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 adopted the disclosure provisions of this standard in
this fiscal year ending July 31, 1997.
<PAGE>
PART I
Item 2
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of Three Months Ended April 30, 1997 to Three Months
Ended April 30, 1996
Finance income increased 28% to $14.0 million in the third
quarter of fiscal 1997 from $10.9 million in the third quarter of
fiscal 1996. The increase was primarily the result of the $132
million, or 34%, increase in the amount of average finance
receivables outstanding from the third quarter of fiscal 1996
($391 million) to the third quarter of fiscal 1997 ($523 million)
and was partially offset by lower finance rates charged by the
Company. Financings booked in the third quarter of fiscal 1997
increased 23% to $111 million from $90 million in the third
quarter of fiscal 1996 primarily as a result of the expansion of
the Company's marketing efforts into new geographic areas and
further penetration into its existing areas.
Interest expense increased 27% to $5.9 million in the third
quarter of fiscal 1997 from $4.7 million in the third quarter of
fiscal 1996. The overall increase was mainly due to the 29%
increase in average borrowings during the third quarter of fiscal
1997 from the third quarter of fiscal 1996, partially offset by
decreases in costs of funds.
Finance income before provision for possible losses on finance
receivables increased by 30% to $8.1 million in the third quarter
of fiscal 1997 from $6.2 million in the third quarter of fiscal
1996. Finance income before provision for possible losses,
expressed as an annual percentage of average finance receivables
outstanding, decreased to 6.2% in the third quarter of fiscal
1997 from 6.3% in the third quarter of fiscal 1996. The decrease
was primarily due to a decrease in the Company's net interest
spread, partially offset by the interest savings of approximately
$400,000 on the debt repaid from the net proceeds of the
Company's public offering of 1.7 million shares of its common
stock in May 1996.
The provision for possible losses on finance receivables
increased by 63% to $650,000 in the third quarter of fiscal 1997
from $400,000 in the third quarter of fiscal 1996. The increase
was primarily due to the increase in finance receivables. The
allowance for possible losses, which increased to $9.6 million at
April 30, 1997 from $7.6 million at April 30, 1996, was 1.8% of
finance receivables at April 30, 1997 as compared to 1.9% at
April 30, 1996. Management continually evaluates the allowance
for possible losses based on past, current and projected
economic, industry and geographic conditions. Finance
receivables on which the Company has suspended income recognition
decreased to $4.8 million, or 0.9% of total finance receivables,
at April 30, 1997, from $5.8 million, or 1.4% of total finance
receivables, at April 30, 1996.
Salaries and other expenses increased 9% to $2.1 million in the
third quarter of fiscal 1997 from $1.9 million in the third
quarter of fiscal 1996. The increase was primarily due to
increased marketing costs and salary increases.
Net earnings increased by 35% to $3.3 million in the third
quarter of fiscal 1997 from $2.4 million in the third quarter of
fiscal 1996. Primary and fully diluted earnings per share
increased by 15% to $0.31 per share in the third quarter of
fiscal 1997 from $0.27 per share in the third quarter of fiscal
1996. The percentage increase in earnings per share was lower
than the percentage 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.
Comparison of Nine Months Ended April 30, 1997 to Nine Months
Ended April 30, 1996
Finance income increased 25% to $39.9 million in the first nine
months of fiscal 1997 from $31.8 million in the first nine months
of fiscal 1996. The increase was primarily the result of the
$117 million, or 31%, increase in the amount of average finance
receivables outstanding from the first nine months of fiscal 1996
($372 million) to the first nine months of fiscal 1997 ($489
million) and was partially offset by decreased finance rates
charged by the Company on new financings and on variable rate
finance receivables as a result of the period to period decline
in average market interest rates. Financings booked in the first
nine months of fiscal 1997 increased 35% to $329 million from
$244 million in the first nine months of fiscal 1996 primarily as
a result of the expansion of the Company's marketing efforts into
new geographic areas and further penetration into its existing
areas. In November 1996, the Company opened a new full service
office in Mesa, Arizona.
<PAGE>
Interest expense increased 16% to $16.7 million in the first nine
months of fiscal 1997 from $14.4 million in the first nine months
of fiscal 1996. The overall increase was mainly due to the 24%
increase in average borrowings during the first nine months of
fiscal 1997 from the first nine months of fiscal 1996, partially
offset by decreases in costs of funds and average market interest
rates.
Finance income before provision for possible losses on finance
receivables increased by 33% to $23.2 million in the first nine
months of fiscal 1997 from $17.4 million in the first nine months
of fiscal 1996. Finance income before provision for possible
losses, expressed as an annual percentage of average finance
receivables outstanding, increased to 6.3% in the first nine
months of fiscal 1997 from 6.2% in the first nine months of
fiscal 1996. The increase was primarily due to the interest
savings of approximately $1.2 million on the debt repaid from the
net proceeds of the Company's public offering of 1.7 million
shares of its common stock in May 1996, offset by a slight
decrease in the Company's net interest spread.
The provision for possible losses on finance receivables
increased by 48% to $1.8 million in the first nine months of
fiscal 1997 from $1.2 million in the first nine months of fiscal
1996. The increase was primarily due to the increase in finance
receivables.
Salaries and other expenses increased 18% to $6.1 million in the
first nine months of fiscal 1997 from $5.2 million in the first
nine months of fiscal 1996. The increase was primarily due to
increased marketing costs and salary increases.
Net earnings increased by 37% to $9.4 million in the first nine
months of fiscal 1997 from $6.9 million in the first nine months
of fiscal 1996. Primary earnings per share increased by 14% to
$0.87 per share in the first nine months of fiscal 1997 from
$0.76 per share in the first nine months of fiscal 1996 and fully
diluted earnings per share increased by 16% to $0.87 per share in
the first nine months of fiscal 1997 from $0.75 per share in the
first nine months of fiscal 1996. The increases in earnings per
share were 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,
dealer placed and direct issuance of commercial paper, borrowings
under long-term and short-term revolving credit facilities with
banks, placements of term debt and sales of additional equity.
The Company issues investment grade commercial paper directly and
through a $250.0 million program with recognized commercial paper
dealers. Commercial paper outstanding at April 30, 1997 was
$239.9 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 April 30, 1997, the Company had $315.0 million of long-term
committed unsecured revolving credit facilities with various
banks under which $89.0 million of borrowings were outstanding
and $70.0 million of short-term committed unsecured revolving
credit facilities with various banks under which $25.0 million of
borrowings were outstanding.
At April 30, 1997, the Company also had $55.0 million of
institutional term notes due on September 1, 2001 and was
negotiating the private placement of $50.0 million of senior term
notes with maturities expected to be in the range of three to
three and one half years.
<PAGE>
PART II
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, 1997.
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 April 30, 1997.
<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
June 9, 1997
(Date)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Page
11 Computation of Earnings Per Share 12
27 Financial Data Schedule (EDGAR version only)
Exhibit 11
<TABLE>
FINANCIAL FEDERAL CORPORATION & SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Three months ended April 30, Nine months ended April 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ------------ ---------- -----------
PRIMARY
<S> <C> <C> <C> <C>
Net earnings for primary per share
amounts $3,287,000 $2,439,000 $9,393,000 $6,880,000
========== ========== ========== ==========
Weighted average number of common
shares outstanding 9,842,390 8,235,342 9,862,800 8,235,342
Add - common equivalent shares
(determined using the
"treasury stock" method) 922,818 917,757 878,887 859,833
--------- --------- --------- ---------
Weighted average number of shares
used in calculation of primary net
earnings per common share 10,765,208 9,153,099 10,741,687 9,095,175
========== ========= ========== =========
Primary net earnings per common share $0.31 $0.27 $0.87 $0.76
===== ===== ===== =====
FULLY DILUTED
Net earnings for fully diluted per share
amounts $3,287,000 $2,439,000 $9,393,000 $6,880,000
========== ========== ========== ==========
Weighted average number of shares
used in calculation of fully diluted
net earnings per common share 10,765,208 9,153,099 10,765,661 9,136,854
========== ========= ========== =========
Fully diluted net earnings per common
share $0.31 $0.27 $0.87 $0.75
===== ===== ===== =====
</TABLE>
<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 APRIL 30, 1997 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS AND
RETAINED EARNINGS FOR THE NINE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 2569
<SECURITIES> 0
<RECEIVABLES> 541369
<ALLOWANCES> 9638
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 535336
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 4921
<OTHER-SE> 97168
<TOTAL-LIABILITY-AND-EQUITY> 535336
<SALES> 0
<TOTAL-REVENUES> 39885
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1800
<INTEREST-EXPENSE> 16698
<INCOME-PRETAX> 15271
<INCOME-TAX> 5878
<INCOME-CONTINUING> 9393
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9393
<EPS-PRIMARY> .87
<EPS-DILUTED> .87
<FN>
<F1>THE FINANCIAL STATEMENTS INCLUDE A NONCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
