-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q4q0F3vPA3YvgC5x2YNC1VMqtB6SxipuHBat/TSqB6JPTV52tsXmaHpzXQQixxSv Y9M7OC99aSb4XZ4ox87gjw== 0000854711-96-000012.txt : 19961029 0000854711-96-000012.hdr.sgml : 19961029 ACCESSION NUMBER: 0000854711-96-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19961028 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINANCIAL FEDERAL CORP CENTRAL INDEX KEY: 0000854711 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 880244792 STATE OF INCORPORATION: NV FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20220 FILM NUMBER: 96648425 BUSINESS ADDRESS: STREET 1: 400 PARK AVE STREET 2: 8TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128883344 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 --------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 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 No.) incorporation or organization) 400 Park Avenue New York, New York 10022 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 888-3344 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Common Stock, $.50 par value Name of exchange on which registered: American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Common Stock of the Registrant held by non-affiliates of the Registrant on October 21, 1996 was $86,439,053.00. The aggregate market value was computed by reference to the closing price of the Common Stock on the American Stock Exchange on the prior day (which was $14.50 per share). For the purposes of this response, executive officers and directors are deemed to be the affiliates of the Registrant and the holding by non-affiliates was computed as 5,961,314 shares. The number of shares of the Registrant's Common Stock outstanding as of October 21, 1996 was 9,890,246 shares. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's proxy statement for its Annual Meeting of Stockholders, to be held December 10, 1996, which will be filed pursuant to Regulation 14A within 120 days of the close of Registrant's fiscal year, is incorporated by reference in answer to Part III of this report. In addition, page 1 and pages 6 through 20 of Financial Federal Corporation's 1996 Annual Report to Stockholders is incorporated by reference in answer to Items 6, 7 and 8 of Part II. Page 1 PART I Item 1. BUSINESS The Company, founded in 1989, is an independent financial services company engaged in financing industrial, commercial and professional equipment through installment sales and leasing programs for manufacturers, dealers and users of such equipment. The Company also makes capital loans to its customers, primarily secured by the same types of equipment. The Company provides its services primarily to middle-market businesses located throughout the nation and engaged in diverse industries, such as general construction, road and infrastructure construction and repair, manufacturing, trucking, and waste disposal, the majority of which businesses have annual sales of up to $20 million. The Company finances a wide range of income- producing and labor-saving equipment such as cranes, earth-movers, machine tools, personnel lifts, trailers and trucks. In substantially all cases, the Company's finance receivables are secured by a first lien on such equipment collateral. The Company generates profits to the extent that its finance income exceeds its interest, administrative and other operating expenses and provision for possible losses. Equipment Financed The Company finances and leases equipment of major manufacturers. Generally, the equipment financed by the Company is movable, has an economic life which is longer than the term of the financing provided by the Company, is not subject to rapid technological obsolescence, has applications in a number of different industries and has a relatively broad resale market. A majority of the equipment and machinery pledged as collateral to the Company by its obligors is used late model equipment, which is generally, at the time financed, less than five years old, except for cranes and certain other items of equipment which have economic lives in excess of 15 years. Management believes this type of collateral is less subject to rapid depreciation as compared to new equipment, and, therefore, is more stable for the purposes of determining resale values. Sample types of equipment that the Company finances include air compressors, bulldozers, compactors, crawler cranes, earth-movers, excavators, generators, hydraulic truck cranes, loaders, machine tools, motor graders, pavers, personnel and material lifts, recycling equipment, resurfacers, rough terrain cranes, sanitation trucks, scrapers, trucks, truck tractors and trailers. Most of the equipment the Company finances is used in more than one industry. Business Strategy The Company's business strategy is to increase profitably the size of its portfolio of finance receivables and its share of the equipment finance and leasing market in the United States. The principal aspects of the Company's business strategy are summarized below. Commitment to Customer Service. The Company focuses on providing prompt, responsive and customized service to its customers and business prospects. The Company's senior management has, on average, in excess of 15 years of specialized expertise in the industries they serve, which generally enables them to understand and thus be responsive to customers. The Company's customer services include making prompt credit decisions, arranging financing structures which meet customers' needs and the Company's underwriting criteria, providing direct contact between customers and Company executives with decision making authority, and providing timely and knowledgeable responses to customer inquiries. Maintenance of Underwriting Standards. The Company has developed and implemented credit underwriting policies and guidelines that are designed to achieve attractive yields while minimizing delinquencies and losses. Unlike many of its competitors, the Company does not use credit scoring models but instead relies upon the experience of its credit officers to analyze the creditworthiness of the obligors and collateral values and accordingly structure transactions which provide an appropriate risk adjusted return to the Company. Each credit submission, regardless of size, requires the approval of at least two credit officers. Focus on Specific Collateral. Virtually all finance receivables originated or acquired are secured by a first lien on the pledged collateral. The Company focuses on financing income producing equipment that is movable, has an economic life which is longer than the term of the financing, is not subject to rapid technological obsolescence, has applications in a number of different industries and has a relatively broad resale market. A majority of the collateral pledged to the Company by obligors and lessees is used late model equipment. Management believes this type of collateral is less subject to rapid depreciation as compared to new equipment, and, therefore, is more stable for the purposes of determining resale values. Expansion. All of the Companys offices are located in the United States. Thirty-eight (38) full-time new business marketing representatives directly report to such offices. The obligors represented in the Company's portfolio of finance receivables are located in all fifty states. The Company believes that its share of the U.S. market for equipment finance and leasing receivables is less than one percent (1%); therefore, management believes there is substantial opportunity for growth. The Company intends to achieve such growth by employing additional marketing personnel and opening new full service offices from time to time. Personnel Policy. The Company recognizes that, in order to continue to compete profitably, it must offer to its business prospects and customers a high level of service, which the Company believes it can accomplish by attracting and retaining the services of a team of dedicated and talented managerial, marketing and administrative personnel. The present strategy used by the Company to attract and retain such personnel is to offer competitive salary arrangements, an equity interest in the Company through participation in the Stock Option Plan, and enhanced career opportunities. Approximately 74% of the Company's directors, officers and employees who had been employed by the Company for at least one year as of July 31, 1996, are presently participants in the Stock Option Plan and/or own stock in the Company. The Company attempts, whenever possible, to promote personnel from within. Improved Borrowing Spread and Diversified Funding Sources. The Company continually seeks to improve its borrowing spread (which is the spread the Company pays to its funding sources over the applicable borrowing indices) and diversify its funding sources. The Company seeks to further lengthen the maturities of its committed unsecured credit facilities to more closely match the average maturity of its finance receivables portfolio. As the Company's capital base increases, the Company should be better positioned to arrange for improved terms under its present and future committed unsecured credit facilities. Such reduction in the Company's funding costs, if achieved, should permit the Company to increase its receivables portfolio by enabling the Company to offer more competitive rates, develop additional vendor relationships and expand its customer base. Moreover, diversification in funding sources should provide the Company with greater flexibility to address possible future adverse market conditions. Marketing Strategy The Company markets its services through marketing personnel based in 23 domestic locations, and originates finance receivables through its relationships with dealers and, to a lesser extent, manufacturers (sometimes collectively called "vendors"). The Company also directly markets its finance and leasing services to users for the acquisition or use of equipment and for capital loans. The Company emphasizes credit/collateral quality in all of its originations. All of the Company's marketing personnel are salaried rather than commission-based and the majority of such personnel participate in the Stock Option Plan. Thus, the Company expects that its marketing personnel should have a close community of interest with the Company and its stockholders. The Company's marketing activities are relationship and service oriented. The Company has a team of dedicated and seasoned marketing and managerial personnel, with average industry experience of more than 15 years, who solicit new business from the vendors and users of equipment. Management believes that the experience, knowledge and relationships of its executives and managers and marketing personnel, related to its customer and prospect base, equipment values, resale markets, and local economic and industry conditions, enable the Company to effectively compete on the basis of prompt, responsive and customized service. The Company's customer services include making prompt credit decisions, arranging financing structures responsive to customer needs, providing direct contact between customers and Company executives and managers with decision-making authority and providing prompt and knowledgeable responses to inquiries and to temporary business problems which customers may encounter in the ordinary course of their business. The Company obtains business in several ways. Dealers and, to a lesser extent, manufacturers of equipment may refer their customers (users of equipment) to the Company, or such customers may directly approach the Company to finance equipment purchases. The Company also purchases installment sales contracts, leases and personal property security agreements from vendors who extend credit to purchasers of their equipment. The Company also makes direct loans to equipment users collateralized by equipment pursuant to personal property security agreements. In addition, the Company purchases equipment from vendors and, simultaneously, leases it to users, generally under non-cancelable leases. The vendors with whom the Company seeks to establish these relationships tend to be mid-sized, since the larger vendors typically generate a volume of business which is greater than the Company can presently service with its existing financial resources. The Company is not obligated to purchase any finance receivables from vendors nor are vendors obligated to sell any finance receivables to the Company. Most of the vendors with whom the Company has relationships also sell finance receivables to other financial institutions. The Company presently does business with more than 100 vendors and is not dependent on any single vendor. In all vendor generated business, the Company independently approves the credit of the prospective obligor or lessee. In order to expand its customer base and broaden its marketing coverage to other geographic areas, the Company from time to time has purchased portfolios of finance receivables from financial institutions, vendors and others generally in the range of $1.0 million to $5.0 million. These portfolios have included finance receivables secured by a broader range of equipment than that typically financed by the Company. Originating, Structuring and Underwriting of Finance Receivables The Company originates financings typically ranging in amount from $30,000 to $1.0 million per transaction. During 1996, the average finance receivable originated by the Company was approximately $140,000. The Company typically does not provide financings of less than $30,000, except in limited circumstances. The Company attempts to structure financings to meet the financial needs of its customers. Structuring includes determination of: whether the financing will be an installment sale, lease or secured loan; term and payment schedule; whether the financing provided will be funded immediately or held available (possibly subject to conditions) for future use; finance or interest rate and other fees and charges; the primary collateral, and additional equipment collateral, if any, to be pledged, and the necessity of additional credit support which may include, among other things, accounts receivable, inventory, real property, certificates of deposit and/or commercial paper, payment guarantees and full or partial recourse to the selling vendor, if any. A portion of the Company's business is the making of capital loans secured by equipment. Customers seek such capital loans for numerous reasons, including consolidation of obligations, working capital, reduction of monthly debt service costs, enhancement of bonding capacity (generally in the case of road contractors), and acquisition of additional equipment or other assets. The Company may obtain, as additional collateral, a lien on the customer's accounts receivable, inventory and real property. Such capital loans are generally four to five years in term, and the documentation in connection therewith generally contains prepayment premium provisions. When a vendor seeks to sell a finance receivable to the Company or a user seeks to obtain financing from the Company, an application for credit (including cash flow and background information) is submitted to the Company with respect to the obligor and any guarantors thereof along with a description of collateral to be pledged or leased and its present or proposed use. The Company's personnel analyze the credit application, investigate the credit of the obligor and any guarantors thereof, and evaluate the primary collateral to be pledged. The extent of such analysis depends upon, among other things, the dollar amount of the proposed transaction, the obligor's and any guarantors' financial strength, financial trade and industry references, and the obligor's payment history. The Company may also obtain reports from independent credit reporting agencies and conduct lien, litigation and tax searches. Unlike many of its competitors, the Company does not use credit scoring models. The creditworthiness of obligors and guarantors is evaluated on a case-by-case basis by the Company's credit personnel and management. The primary pledged collateral and any additional collateral are evaluated as to present and possible future resale value. If the Company approves the credit application on terms acceptable to the vendor and/or the obligor, and provided the intended purchaser/lessee acquires the equipment, then the Company either purchases an installment sales contract or lease from the vendor or enters into a direct finance or lease transaction with the obligor, the proceeds of which are remitted when applicable to the vendor. Funding occurs upon the receipt by the Company of all required documentation in form and substance satisfactory to the Company and its legal department. Under the Company's documentation, the obligor/lessee is responsible for all sales, use and property taxes. The Company maintains an operating environment which permits flexibility to its managers in structuring financing transactions subject to the Company's credit policies and procedures manual. The Company has established credit policies and procedures which are periodically reviewed and updated, which set forth detailed guidelines for credit review and approval, including maximum credit concentrations with any one obligor which are based on the Company's capital resources and other considerations. Each credit submission, regardless of size, requires the approval of at least two credit officers. The Company's credit policy provides three designations of credit officer authority levels. A credit officer's authority level is based, among other things, on his/her credit experience, managerial position and tenure with the Company. The dollar amount that a credit officer can approve for a particular transaction is based upon the credit officer's authority level, collateral coverage relative to the Company's potential lending exposure, and the extent of recourse, if any, the Company may have to financially responsible vendors. Credit officers only have authority to approve credits up to their prescribed maximum level, and only then if certain criteria have been met. Notwithstanding the foregoing, any single obligor concentration in excess of $1.5 million requires the approval of two senior credit officers, and in excess of $3.0 million, three senior credit officers. In addition to the obligor's/lessee's obligation to pay, on occasion vendors provide the Company with full or partial recourse which, among other things, obligates the vendor to pay the Company upon an obligor's default or a breach of warranty with respect to the assignment of the finance receivable to the Company by the vendor. In a small percent of cases when the Company originates or acquires a finance receivable, it may withhold an agreed upon amount from the vendor/obligor or lessee as security or obtain cash collateral from an obligated party as security (sometimes called a "dealer reserve"). The Company retains most of these dealer reserves until the Company is required (pursuant to the applicable agreement), or deems it appropriate, to release same. In most cases, the Company has the right to charge the applicable dealer reserve for any delinquent payments due on any finance receivable acquired from or originated through that vendor or obligor. In purchasing a portfolio of finance receivables, the Company reviews and analyzes the terms of the finance receivables to be purchased, the credit of the related obligors, the documentation relating to such finance receivables and the value of the related pledged collateral, the payment history of the obligors/lessees and the implicit yield to be earned by the Company. Collection and Servicing The Company collects and services all of its finance receivables. Customer payments are remitted to, and processed in, the Houston office. Collection efforts in connection with delinquent accounts, however, are handled by the collection personnel and managers in the various branch offices in conjunction with senior management and, if necessary, the Company's legal department. All past due accounts are reviewed by senior management at least monthly, and all accounts which are past due more than 60 days are continually reviewed by the Company's in-house legal staff. The decision to repossess collateral is made by the Company's senior management in conjunction with its legal staff. The Company determines, on a case-by-case basis, whether or not to use an outside source to repossess an item of collateral. The sale or other disposition of repossessed collateral is determined by the Company's senior management and legal staff in accordance with applicable law. Competition The Company's business is highly competitive. The Company competes with banks, manufacturer-owned and independent finance and leasing companies, as well as other financial institutions. Some of those competitors may be better positioned than the Company to market their services and financing programs to vendors and users of equip- ment because of their ability to offer additional services and products, and more favorable rates and terms. Many of these competitors have longer operating histories and possess greater financial and other resources than the Company. In addition, some of these competitors have sources of funds available at a lower cost than those available to the Company, thereby enabling them to provide financing at rates lower than the Company may be willing to provide. The Company typically does not compete primarily on the basis of rate. The Company competes by emphasizing a high level of equipment and financial expertise, customer service, flexibility in structuring financing transactions and significant management involvement in customer relationships. Although there is no comprehensive data that quantifies the size of the domestic market for equipment financing and leasing, the Company believes that annual sales of the principal types of new and used equipment it finances or leases is in excess of $50 billion and its share of this market is less than 1%. Employees At July 31, 1996, the Company had 124 employees. All of the Company's employees and officers are salaried. The Company provides its employees with group health and life insurance benefits and a qualified 401(k) plan. The Company does not match employee contributions to the 401(k) plan. The Company does not have any collective bargaining, employment, pension, incentive compensation arrangements or non-solicitation agreements with any of its employees other than its stock option plan (which contains a non-solicitation provision) and deferred compensation agreements. Employees who have participated in the Company's stock option plan have, among other things, agreed not to solicit customers of the Company for 90 days following termination of their employment. The Company considers its relations with its employees to be satisfactory. Regulation The Company's commercial finance activities are generally not subject to regulation, except that certain states may regulate motor vehicle transactions, impose licensing requirements, and/or restrict the amount of interest or finance rates and other amounts that the Company may charge its customers. Failure to comply with such regulations can result in loss of principal and interest or finance charges, penalties and imposition of restrictions on future business activities. Executive Officers Clarence Y. Palitz, Jr., 65, has served as Chairman of the Board of the Company since July 1996 and as Chief Executive Officer and President of the Company since its inception in 1989. From 1963 to 1988, Mr. Palitz served as President and a Director of Commercial Alliance Corporation ("CAC"), which he founded with his brother, Bernard G. Palitz, in 1963. Since October 1988, he has been a director of City and Suburban Financial Corp., a privately owned savings and loan holding company located in Westchester County, New York. Michael C. Palitz, 38, has served as Executive Vice President of the Company since July 1995, as Senior Vice President of the Company from February 1992 to July 1995 and as a Vice President of the Company from its inception in 1989 to February 1992. He has also served as Chief Financial Officer, Treasurer and Assistant Secretary of the Company since its inception in 1989. From 1985 to 1989, Mr. Palitz was an Assistant Vice President of Bankers Trust Company and, from 1980 to 1983, he was an Assistant Secretary of Chemical Bank. Paul Sinsheimer, 49, has served as Executive Vice President and a Director of the Company since its inception in 1989. From 1970 to 1989, Mr. Sinsheimer was employed by CAC, where he served successively as Credit Manager, Collections Manager, Operations Manager, Houston Branch Manager, Division Manager and, from 1988, Executive Vice President. William M. Gallagher, 47, has served as Senior Vice President of the Company since 1990 and served as a Vice President of the Company from its inception in 1989 to 1990. From 1973 to 1989, Mr. Gallagher was employed by CAC, where he served successively as Collections Manager, Accounting Manager, Operations Manager of the Chicago and Houston regions and, from 1988, Vice President and Houston Branch Manager. Troy H. Geisser, 34, has served as Senior Vice President and Secretary of the Company since February 1996. From 1990 to 1996, Mr. Geisser held several positions, including Vice President and Branch Manager. From 1986 to 1990, Mr. Geisser held several positions including Division Counsel for the Northern Division of Orix Credit Alliance, Inc. (the successor to CAC). Richard W. Radom, 48, has served as Senior Vice President of the Company since 1990 and served as a Vice President of the Company from 1989 to 1990. From 1973 to 1989, Mr. Radom was employed by CAC, where he served, from 1986, as Senior Vice President. Item 2. PROPERTIES The Company's executive offices are located at 400 Park Avenue, New York, New York and consist of approximately 6,400 rentable square feet of space. As of July 31, 1996, the Company has full service offices (where credit analysis and approval, collection and marketing functions are performed) in Houston, Texas; Westmont, Illinois; Teaneck, New Jersey; Hilton Head, South Carolina; and Charlotte, North Carolina, which generally consist of between approximately 2,000 and 4,500 square feet of space (except for the Houston office, the operating headquarters, which consists of approximately 12,500 square feet) and are occupied pursuant to leases which expire on various dates through 2004. Management believes that the Company's existing facilities are suitable and adequate for their present and proposed uses and that suitable and adequate facilities will be available on reasonable terms for any additional offices which the Company may open. Item 3. LEGAL PROCEEDINGS There are no pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company is a party or to which any of its property is subject. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended July 31, 1996. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock of the Company is listed on the American Stock Exchange under the symbol "FIF." The table below sets forth the high and low reported closing sales prices of the Common Stock as reported by the American Stock Exchange during the periods indicated, adjusted for the January 1996 stock split. Price Range Low High Fiscal year 1996 First Quarter ended October 31, 1995 $11.75 $14.59 Second Quarter ended January 31, 1996 $13.92 $16.50 Third Quarter ended April 30, 1996 $15.13 $16.88 Fourth Quarter ended July 31, 1996 $12.63 $17.13 Fiscal year 1995 First Quarter ended October 31, 1994 $10.17 $12.08 Second Quarter ended January 31, 1995 $11.59 $12.92 Third Quarter ended April 30, 1995 $11.33 $13.33 Fourth Quarter ended July 31, 1995 $11.00 $12.00 The Company presently has no intention of paying cash dividends on the Common Stock in the foreseeable future. The payment of cash dividends, if any, will depend upon the Company's earnings, financial condition, capital requirements, cash flow and long range plans and such other factors as the Board of Directors of the Company may deem relevant. Number of Record Holders The number of record holders of the Company's Common Stock as of October 21, 1996 was 69. Included in this number are several nominees which hold the Company's common stock on behalf of numerous other persons and institutions; these other persons and institutions are not included in the above number as their shares are held in "Street Name." Item 6. SELECTED FINANCIAL DATA Reference is made to information under the heading "Financial Highlights" contained in the Company's Annual Report to Stockholders for the fiscal year ended July 31, 1996, which information is incorporated herein by reference. The Company has not paid any cash dividends on its Common Stock. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to information under the heading "Management's Discussion and Analysis of Operations and Financial Condition" contained in the Company's Annual Report to Stockholders for the fiscal year ended July 31, 1996, which information is incorporated herein by reference. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to information under the headings "Consolidated Balance Sheet," "Consolidated Statement of Stockholders' Equity," "Consolidated Statement of Operations," "Consolidated Statement of Cash Flows," "Notes to Consolidated Financial Statements" and "Independent Auditors' Report" contained in the Company's Annual Report to Stockholders for the fiscal year ended July 31, 1996, which information is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 10 is incorporated by reference from the information in Registrant's proxy statement (filed or to be filed pursuant to Regulation 14A) for its Annual Meeting of Stockholders to be held December 10, 1996, except as to biographical information on Executive Officers which is contained in Item I of this Annual Report on Form 10-K. Item 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated by reference from the information in Registrant's proxy statement (filed or to be filed pursuant to Regulation 14A) for its Annual Meeting of Stockholders to be held December 10, 1996. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 is incorporated by reference from the information in Registrant's proxy statement (filed or to be filed pursuant to Regulation 14A) for its Annual Meeting of Stockholders to be held December 10, 1996. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 is incorporated by reference from the information in Registrant's proxy statement (filed or to be filed pursuant to Regulation 14A) for its Annual Meeting of Stockholders to be held December 10, 1996. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. Financial Statements Page The following financial statements are filed herewith and incorporated herein by reference from pages 11 through 20 of the Registrant's Annual Report to Stockholders for the fiscal year ended July 31, 1996, as provided in Item 8 hereof: - Consolidated Balance Sheet as at July 31, 1996 and 1995. - Consolidated Statement of Stockholders' Equity for the fiscal years ended July 31, 1996, 1995 and 1994. - Consolidated Statement of Operations for the fiscal years ended July 31, 1996, 1995 and 1994. - Consolidated Statement of Cash Flows for the fiscal years ended July 31, 1996, 1995 and 1994. - Notes to Consolidated Financial Statements. - Independent Auditors' Report. 2. Financial Statement Schedules The following financial statement schedules are filed herewith: - Independent Auditors' Report on Financial Statement Schedules. 13 - Schedule I - Condensed Financial Information of Registrant 14 All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 3. Exhibits 18 Exhibit No. Description of Exhibit 3.1* Articles of Incorporation of the Registrant 3.2* By-laws of the Registrant 3.3* Form of Restated and Amended By-laws of the Registrant 4.1* Form of Variable Rate Subordinated Debentures Due September 1, 2000 (a "Debenture") issued by Registrant 4.6****** Form of Note Agreement dated as of April 15, 1996 issued by Financial Federal Credit Inc.("Credit") to certain institutional note holders 10.2* Form of Warrant to purchase Common Stock, as amended, issued by the Registrant to stockholders in connection with its initial capitalization 10.3* Form of Warrant to purchase Common Stock issued by the Registrant to certain of its officers 10.8* Form of Commercial Paper Note issued by the Registrant 10.9* Form of Commercial Paper Note issued by Credit 10.10* Stock Option Plan of the Registrant and forms of related stock option agreements 10.11** Deferred Compensation Agreement dated June 1, 1992 between Credit and Clarence Y. Palitz, Jr. 10.12** deferred Compensation Agreement dated June 1, 1992 between Credit and Bernard G. Palitz 10.13*** Deferred Compensation Agreement dated January 1, 1993 between Credit and Clarence Y. Palitz, Jr. 10.14*** Deferred Compensation Agreement dated January 1, 1993 between Credit and Bernard G. Palitz. 10.15**** Deferred Compensation Agreement dated January 1, 1994 between Credit and Clarence Y. Palitz, Jr. 10.16**** Deferred Compensation Agreement dated January 1, 1994 between Credit and Bernard G. Palitz. 10.17***** Deferred Compensation Agreement dated January 1, 1995 between Credit and Bernard G. Palitz. 10.18***** Deferred Compensation Agreement dated January 1, 1995 between Credit and Clarence Y. Palitz, Jr. 10.19***** Deferred Compensation Agreement dated February 1, 1995 between Credit and Paul Sinsheimer 10.20******* Deferred Compensation Agreement dated January 1, 1996 between Credit and Clarence Y. Palitz, Jr. 10.21 Form of Commercial Paper Dealer Agreement of Credit 10.22 Form of Deferred Compensation Agreement with certain officers as filed under the Top Hat Plan with the Department of Labor 11.1 Computation of Earnings Per Share 13.1 1996 Annual Report to Stockholders (except for the pages and information thereof expressly incorporated by reference in this Form 10-K, the Annual Report to Stockholders is provided solely for the information of the Securities and Exchange Commission and is not deemed "filed" as part of this Form 10-K) 22.1 Subsidiaries of the Registrant 23.1 Consent of Independent Auditors 27 Financial Data Schedule (EDGAR version only) ____________ *Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-46662). **Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-K for the fiscal year ended July 31, 1992. ***Previously filed with the Securities and Exchange Commission as an exhibit to one of the Company's Forms 10-Q for the fiscal year ended July 31, 1993. ****Previously filed with the Securities and Exchange Commission as an exhibit to one of the Company's Forms 10-Q for the fiscal year ended July 31, 1994. *****Previously filed with the Securities and Exchange Commission as an exhibit to one of the Company's Forms 10-Q for the fiscal year ended July 31, 1995. ******Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Registration Statement on Form S-2 (Registration No. 333-3320). *******Previously filed with the Securities and Exchange Commission as an exhibit to one of the Company's Forms 10-Q for the fiscal year ended July 31, 1996. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the last quarter of the fiscal year ended July 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: Clarence Y. Palitz, Jr., Chairman of the Board and President October 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Clarence Y. Palitz, Jr., Chairman of the Board, President and Chief Executive Officer October 28, 1996 Lawrence B. Fisher, Director October 28, 1996 William C. MacMillen, Jr., Director October 28, 1996 Bernard G. Palitz, Director October 28, 1996 Paul Sinsheimer, Executive Vice President and Director October 28, 1996 Michael C. Palitz, Executive Vice President, Treasurer, Chief Financial Officer and Director October 28, 1996 David H. Hamm, Controller, Assistant Treasurer and Principal Accounting Officer October 25, 1996 INDEX TO FORM 10-K SCHEDULES Independent Auditors' Report Schedule I - Condensed Financial Information of Registrant Schedules other than the schedule referred to above have been omitted as the conditions requiring their filing are not present or the information has been presented elsewhere in the consolidated financial statements. Independent Auditors Report Financial Federal Corporation In connection with our audits of the consolidated financial statements included in Financial Federal Corporation's annual report to stockholders and incorporated by reference in this Form 10-K, we have also audited the schedule listed in the accompanying index. Our audits of the consolidated financial statements were made for the purpose of forming an opinion on those statements taken as a whole. The schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements /s/ Eisner & Lubin LLP CERTIFIED PUBLIC ACCOUNTANTS New York, New York August 30, 1996 Schedule I FINANCIAL FEDERAL CORPORATION CONDENSED BALANCE SHEET
July 31, 1996 1995 ASSETS Cash $ 256,000 $ 361,000 Due from subsidiaries: Advances 27,626,000 19,325,000 Subordinated notes receivable 45,000,000 25,000,000 Investment in subsidiaries - at equity 34,749,000 26,399,000 Other assets 814,000 692,000 ----------- ---------- TOTAL $108,445,000 $71,777,00 ============ ========== LIABILITIES Senior debt $ 4,966,000 $ 5,106,000 Accrued interest, taxes and other liabilities 2,331,000 1,639,000 Subordinated debt 6,957,000 6,957,000 ----------- ----------- Total liabilities 14,254,000 13,702,000 ----------- ----------- STOCKHOLDERS' EQUITY Common stock 4,980,000 2,790,000 Additional paid-in capital 58,289,000 33,201,000 Warrants 29,000 29,000 Retained earnings 30,893,000 23,495,000 Treasury stock, at cost - 96,000 shares (1,440,000) ---------- ---------- Total stockholders' equity 94,191,000 58,075,000 ----------- ---------- TOTAL $108,445,000 $71,777,000 ============ =========== The note hereto, the consolidated financial statements and the notes thereto are made a part hereof.
FINANCIAL FEDERAL CORPORATION CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
Year Ended July 31, 1996 1995 1994 Equity in earnings of subsidiaries before income taxes $14,205,000 $10,891,000 $ 9,368,000 Interest charges to subsidiaries 4,007,000 3,266,000 2,779,000 ----------- ----------- ------------ Total 18,212,000 14,157,000 12,147,000 ----------- ----------- ------------ Expenses: Interest expense 972,000 1,004,000 1,063,000 Other expenses (net) 1,811,000 1,581,000 1,600,000 ----------- ----------- ----------- Total 2,783,000 2,585,000 2,663,000 ----------- ----------- ----------- Earnings before income taxes 15,429,000 11,572,000 9,484,000 Provision for income taxes 5,819,000 4,363,000 3,540,000 ---------- ---------- ----------- NET EARNINGS 9,610,000 7,209,000 5,944,000 Retirement of treasury stock (840,000) Three-for-two stock split (1,372,000) Retained earnings - August 1 23,495,000 16,286,000 10,342,000 ------------ ----------- ---------- RETAINED EARNINGS - JULY 31 $30,893,000 $23,495,000 $16,286,000 ============ =========== ========== The consolidated financial statements and the notes thereto are made a part hereof.
FINANCIAL FEDERAL CORPORATION CONDENSED STATEMENT OF CASH FLOWS
Year Ended July 31, 1996 1995 1994 Net cash provided by operating activities $ 1,330,000 $ 381,000 $ 128,000 ------------ ----------- ---------- Cash flows from investing activities: Collections from(advances to) subsidiaries-net (8,301,000) 2,853,000 4,026,000 Subordinated notes receivable - subsidiary: Advanced (20,000,000) (25,000,000) (2,000,000) Collected 20,000,000 Dividends received from subsidiary 500,000 2,000,000 3,000,000 ------------ ----------- ---------- Net cash provided by(used in)investing activities (27,801,000) (147,000) 5,026,000 ------------ ----------- ---------- Cash flows from financing activities: Commercial paper: Proceeds 76,869,000 71,393,000 25,357,000 Repayments (76,509,000) (71,770,000) (31,860,000) Note payable - bank (500,000) 500,000 Repurchase of subordinated debt (595,000) Proceeds from sale of common stock, net 26,340,000 Proceeds from exercise of stock options and warrants 166,000 306,000 2,409,000 Acquisition of treasury stock (1,440,000) Tax benefit relating to stock options 37,000 376,000 ------------ ----------- ---------- Net cash provided by(used in)financing activities 26,366,000 (129,000) (5,158,000) NET INCREASE (DECREASE) IN CASH (105,000) 105,000 (4,000) Cash - August 1 361,000 256,000 260,000 ------------ ----------- ---------- CASH - JULY 31 $ 256,000 $ 361,000 $ 256,000 ============ ============ =========== Non-cash financing activities: In 1996, the Company retired 96,000 common shares held as treasury stock resulting in a decrease of common stock, additional paid-in capital and retained earnings of $48,000, $552,000 and $840,000, respectively. Additionally, the Company authorized a three-for-two stock split effected in the form of a stock dividend. In 1994, $1,507,000 of subordinated debentures were exchanged in connection with the exercise of 274,000 stock warrants. The consolidated financial statements and the notes thereto are made a part hereof.
FINANCIAL FEDERAL CORPORATION NOTE TO CONDENSED BALANCE SHEET Due from Subsidiaries: Advances to subsidiaries generally bore interest at 5.66% and 6.25% at July 31, 1996 and 1995, respectively. Subordinated notes receivable are due $25,000,000 on July 31, 2002, $10,000,000 on September 1, 2002 and $10,000,000 on July 31, 2004 and provide for interest, receivable quarterly, at the annual rates of 8.35%, 7.85% and 7.50%, respectively. The notes and interest thereon are subordinated to the subsidiary's borrowings from banks, institutional investors, commercial paper investors and other debt designated by the subsidiary's Board of Directors. Other assets include $744,000 and $592,000 of accrued interest receivable from subsidiaries at July 31, 1996 and 1995, respectively. EXHIBIT INDEX Exhibit No. Description of Exhibit Page No. 3.1 Articles of Incorporation of the Registrant * 3.2 By-laws of the Registrant * 3.3 Form of Restated and Amended By-laws of the Registrant * 4.1 Form of Variable Rate Subordinated Debentures Due September 1, 2000 (a "Debenture") issued by Registrant * 4.6 Form of Note Agreement, dated as of April 15, 1996, issued by Financial Federal Credit Inc. (Credit) to certain institutional note holders * 10.2 Form of Warrant to purchase Common Stock, as amended, issued by the Registrant to stockholders in connection with its initial capitalization * 10.3 Form of Warrant to purchase Common Stock issued by the Registrant to certain of its officers * 10.8 Form of Commercial Paper Note issued by the Registrant * 10.9 Form of Commercial Paper Note issued by Credit * 10.10 Stock Option Plan of the Registrant and forms of related stock option agreements * 10.11 Deferred Compensation Agreement dated June 1, 1992 between Credit and Clarence Y. Palitz, Jr. * 10.12 Deferred Compensation Agreement dated June 1, 1992 between Credit and Bernard G. Palitz * 10.13 Deferred Compensation Agreement dated January 1, 1993 between Credit and Clarence Y. Palitz, Jr. * 10.14 Deferred Compensation Agreement dated January 1, 1993 between Credit and Bernard G. Palitz. * 10.15 Deferred Compensation Agreement dated January 1, 1994 between Credit and Clarence Y. Palitz, Jr. * 10.16 Deferred Compensation Agreement dated January 1, 1994 between Credit and Bernard G. Palitz. * 10.17 Deferred Compensation Agreement dated January 1, 1995 between Credit and Bernard G. Palitz. * 10.18 Deferred Compensation Agreement dated January 1, 1995 between Credit and Clarence Y. Palitz, Jr. * 10.19 Deferred Compensation Agreement dated February 1, 1995 between Credit and Paul Sinsheimer * 10.20 Deferred Compensation Agreement dated January 1, 1996 between Credit and Clarence Y. Palitz, Jr. * 10.21 Commercial Paper Dealer Agreement, dated April 23, 1996, between Credit and BA Securities, Inc. 19 10.22 Form of Deferred Compensation Agreement with certain officers as filed under the Top Hat Plan with the Department of Labor 24 11.1 Computation of Earnings Per Share 27 13.1 1996 Annual Report to Stockholders (except for the pages and information thereof expressly incorporated by reference in this Form 10-K, the Annual Report to Stockholders is provided solely for the information of the Securities and Exchange Commission and is not deemed "filed" as part of this Form 10K) 22.1 Subsidiaries of the Registrant 28 23.1 Consent of Independent Auditors 29 27 Financial Data Schedule (EDGAR version only) ____________ *Previously filed with the Securities and Exchange Commission as an exhibit. Exhibit 10.21 COMMERCIAL PAPER DEALER AGREEMENT THIS COMMERCIAL PAPER DEALER AGREEMENT, dated as of [insert date], between [insert dealer name] (the "Dealer"), and FINANCIAL FEDERAL CREDIT INC. (the "Company"). WHEREAS, the Company desires to issue its short-term promissory notes in the United States commercial paper market, WHEREAS, the Company has requested the Dealer to act as dealer therefor and the Dealer has indicated its willingness to do so on the terms and conditions contained herein, NOW THEREFORE, the Dealer and the Company hereby agree as follow: 1. The Notes. The term "Notes" means short-term promissory notes of the Company, each such note (a) having a maturity at the time of issuance of not more than 270 days (exclusive of days of grace) and (b) not containing any provision for automatic "rollover". The proceeds from the sale of the Notes will be used by the Company for "current transactions" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended (the "1933 Act"). The Notes will be issued in such face or principal amounts (but not less than $100,000 each) and will bear such interest rates (if interest-bearing) or be sold at such discounts, if any, from their face amounts, as shall be approved in writing in advance by the Company in its sole discretion. 2. Appointment of Dealer. The Company hereby appoints the Dealer to be a dealer in respect of the Notes and the Dealer accepts such appointment subject to the terms and conditions set forth herein. Although (a) the Company has and shall have no obligation to permit the Dealer to purchase any Notes or arrange any sale of Notes for the account of the Company, and (b) the Dealer has and shall have no obligation to purchase any Notes or arrange any sale of Notes for the account of the Company, the parties hereto agree that any purchase of Notes by the Dealer and any sale of Notes arranged by the Dealer will be effected in reliance on, among other things, the representations, warranties, covenants and agreements of the Company contained herein or made pursuant hereto and on the terms and conditions and in the manner herein set forth. 3. Issuance of Notes. (a) Prior to or on the date of a proposed issuance of Notes, the Dealer and the Company shall confer as to the face or principal amounts, maturities and denominations thereof, the applicable interest rates or the discounts from the face amounts, at which the Notes are to be issued. When the Company has approved such issuance in writing, the Dealer will instruct the Issuing and Paying Agent to deliver executed and countersigned Notes to the persons specified by the Dealer on the date of issuance. (b) The authentication and delivery of Notes pursuant hereto by The First National Bank of Chicago, as issuing and paying agent (the "Issuing and Paying Agent") shall constitute the issuance of such Notes by the Company. The Company agrees that (i) signed Notes in bearer form shall be delivered to the Issuing and Paying Agent and (ii) instructions to the Issuing and Paying Agent to complete, authenticate and deliver such Notes shall be made in the manner prescribed in the agreement between the Company and the Issuing and Paying Agent (as amended from time to time, the "Issuing and Paying Agency Agreement"). The Company shall promptly give the Dealer prior written notice of any change in the entity serving as the Issuing and Paying Agent. 4. Representations and Warranties. The Company represents and warrants: (a) the Company is a duly organized and validly existing corporation in good standing under the laws of the state of its incorporation and has the corporate power and authority to own its property and to carry on its business as presently being conducted, to execute and deliver this Agreement, the Issuing and Paying Agency Agreement and the Notes, and to perform and observe the conditions hereof and thereof; (b) the execution and delivery and performance of this Agreement and the Issuing and Paying Agency Agreement and the issuance and sale of the Notes have been duly authorized by the Company, and this Agreement and the Issuing and Paying Agency Agreement constitute, and when the Notes have been duly executed by the Company and countersigned and delivered by the Issuing and Paying Agent against payment therefor, such Notes will constitute, legal, valid and binding obligations of the Company, enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws relating to or affecting generally the enforcement of creditors' rights or by general equitable principles, or by applicable federal or state securities laws; (c) no consent or action of, or filing or registration with, any governmental or public regulatory body or authority (other than as may be required under state securities laws) is required to authorize, or is otherwise required in connection with, the execution, delivery or performance of this Agreement, the Issuing and Paying Agency Agreement or the Notes, except such as have already been obtained; (d) neither the execution and delivery by the Company of this Agreement, the Issuing and Paying Agency Agreement or the Notes, nor the fulfillment of or compliance with the terms and provisions hereof or thereof by the Company, will (i) result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company; (ii) violate any of the terms of the Company's charter documents or By- laws, any contract or instrument to which the Company is a party or to which it or its property is bound, or any law or regulation or any order, writ, injunction or decree of any court or governmental instrumentality, to which the Company is subject or by which it or its property is bound; (e) each Note issued by the Company pursuant to the terms hereof and of the Issuing and Paying Agency Agreement is exempt from the registration requirements of the 1933 Act by reason of Section 3(a)(3) thereof, and neither registration of the Notes under the 1933 Act nor qualification of an indenture under the Trust Indenture Act of 1939, as amended, with respect to the Notes will be required in connection with the offer, issuance, sale or delivery of the Notes in accordance with the terms hereof and of the Issuing and Paying Agency Agreement; (f) the Company is neither an "investment company" nor a "company controlled by an investment company" within the meaning of the Investment Company Act of 1940, as amended; and (g) there are no actions, suits, proceedings, or investigations pending or, to the Company's knowledge, threatened against the Company or any of its officers, directors or persons who controls the Company (within the meaning of Section 15 of the 1933 Act or Section 20 of the Securities Exchange Act of 1934, as amended) or to which any property of the Company is subject, which could reasonably be expected to materially prevent or interfere with or materially and adversely affect the Company's execution, delivery or performance of this Agreement, the Issuing and Paying Agency Agreement or the Notes. 5. Offering Materials. (a) The Company understands that, in connection with the sale of the Notes, certain materials relating to the Company and its affiliates may be prepared (collectively referred to herein as the "Offering Materials"). To provide a basis for the preparation of the Offering Materials and to assist the Dealer's normal credit review procedures, the Company shall provide the Dealer with copies of (i) if the Company becomes a reporting company under the Securities Exchange Act of 1934, as amended, its most recent reports of the Company on Forms 10-Q and 10-K filed with the Securities and Exchange Commission ("SEC") and each report on Form 8-K filed by the Company with the SEC during the current fiscal year, and (ii) its most recent annual audited financial statements and each interim financial statements or report prepared subsequent thereto. In addition, the Company will provide the Dealer with such other information generally supplied in writing to security analysts. In addition, the Company will provide the Dealer with such other information as the Dealer may reasonably request for the purpose of its on-going credit review of the Company, which information, to the extent not required to be included in the Offering Materials, may be subject to a confidentiality agreement between the Company and the Dealer. The Company authorizes the Dealer to distribute the Offering Materials as the Dealer sees fit. (b) The Dealer agrees to furnish all Offering Materials to the Company for its written approval prior to the use thereof in offering the Notes. The Dealer shall not use any Offering Materials until it has received written approval from the Company of such Offering Materials. No materials other than the Offering Materials submitted to the Company for approval will be used to offer the Notes. The Company's approval shall not apply to information provided by the Dealer for inclusion in the Offering Materials, and the Dealer's use of Offering Materials containing information not approved by the Company shall constitute the Dealer's approval of such information. A written approval by the Company shall constitute a representation that the Offering Materials, as to that portion specifically approved, do not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If, at any time during the term of this Agreement, any event occurs or circumstances exist as a result of which any then current Offering Materials would include such untrue statement of a material fact or omission to state a material fact related to those portions of the Offering Materials previously approved by the Company, then the Company will promptly notify the Dealer and provide the Dealer with revised information that corrects such untrue statement or omission. 6. Repetition of Representations and Warranties. Each sale of Notes by the Company hereunder shall be deemed to be a representation and warranty by it that, as of the date of such sale, (a) the representations, warranties and covenants of the Company contained in Sections 4 are true and correct, and (b) the Issuing and Paying Agent has not resigned, or been terminated or replaced. 7. Conditions Precedent to Dealer's Obligations. As conditions precedent to any obligations of the Dealer hereunder, the Company shall furnish to the Dealer the following documents, in form and substance reasonably satisfactory to the Dealer: (a) a true and complete copy of the Issuing and Paying Agency Agreement; (b)(i) a certified copy of resolutions, duly adopted by the Board of Directors of the Company authorizing the issuance and sale of the Notes and (ii) a certificate as to the incumbency and signatures of certain officers authorized to act on behalf of the Company; and the acceptance by the Company of proceeds from each sale of Notes hereunder shall be deemed to constitute a representation and warranty by the Company that such certificates are accurate and complete and that such resolutions are in full force and effect, in each case, as of the date of such acceptance of proceeds; and (c) an opinion of counsel to the Company, with respect to the matters set forth in Section 4(a) through 4(g) and in form and substance acceptable to the Dealer. 8. Covenants of the Company. The Company covenants and agrees that: (a) for the benefit of the Dealer and the holders from time to time of the Notes, the Company will not permit to become effective any amendment, supplement, rider, waiver or consent to or under any Note, the Issuing and Paying Agency Agreement or any document prepared in connection with any thereof which might adversely affect the interests of the holder of any Note then outstanding. The Company will give the Dealer written notice of any such proposed amendment, supplement, rider, waiver or consent at least ten days prior to the effective date thereof; (b) the Company agrees to furnish prior notice to the Dealer of any proposed resignation, termination or replacement of the Issuing and Paying Agent. 9. Indemnification. (a) The Company will indemnify and hold harmless the Dealer and any affiliate, director, officer, employee or agent of the Dealer and any party who "controls" the Dealer within the meaning of Section 15 of the 1933 Act (each, an "indemnified party") against any and all liabilities, losses, damages, claims, costs and expenses (including, without limitation, reasonable fees and disbursements of counsel) (i) arising out of or based upon any allegation that any portions of any Offering Material approved in writing by the Company or any information provided to the Dealer in writing hereunder by the Company specifically for inclusion in the Offering Materials includes an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or (ii) arising out of the material breach by the Company of any agreement or representation or warranty made or deemed made pursuant to this Agreement. The above indemnification shall not apply to the extent that the liability, loss, damages, claims, costs and expenses arise from the inclusion by any indemnified party in any Offering Material of statements that have not been approved by the other party pursuant to Section 5 of this Agreement, of an untrue statement of a material fact or an omission to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) The Dealer shall promptly notify the Company in writing of any action or claim asserted against any indemnified party as to which indemnification may be required. The Company shall thereupon assume the defense thereof, including the employment of counsel and the payment of all expenses. The Company shall have no obligation to indemnify against any settlement, costs or expenses incurred prior to the delivery of written notice of a claim to the Company. The Dealer (but not other indemnified parties) shall have the right to employ separate counsel and to participate in the defense thereof, but such participation shall be at the Dealer's expense, unless (i) the Company has specifically authorized in writing the retention of such counsel, (ii) the Company has failed to assume the defense and employ counsel after the delivery by the Dealer of written notice as provided above, or (iii) the named parties include the Dealer and the Company, and counsel shall have advised that representation of both parties by the same counsel would be prohibited under applicable standards of professional conduct due to actual or potential differing interests between them (in which case the Company shall not assume the defense, provided that Company shall not be responsible for the fees of more than one separate firm of attorneys for all actions arising out of the same general allegations or circumstances in any one jurisdiction). The Company shall not be liable for any settlement of any such action or claim effected without its prior written consent, but if settled with written consent or if there is a final judgment, the Company agrees to indemnify and hold harmless the Dealer against any loss or liability by reason of such approved settlement or judgment. (c) If the indemnification provided for in this section is unavailable, or insufficient, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on one hand and the Dealer on the other from the offering of the Notes, or (ii) if the allocation provided in (i) above is not permitted pursuant to applicable law (or to the extent that the contribution allocated is unobtainable from one or more contributing parties), in such proportion as is appropriate to reflect not only the relative benefits referred to in (i) above, but also the relative fault of the Company on the one hand and the Dealer on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as other relevant equitable considerations. The relative benefits received by the Dealer on the one hand and the Company on the other shall be deemed to be in the same proportion as the total net proceeds from the Note offering (before deducting expenses) received by the Company bear to the total fees received by the Dealer. The relative fault of the Company on the one hand and of the Dealer on the other shall be determined by reference to, among other things, whether the claim relates to information in the Offering Materials approved by the Dealer or the Company and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the statement or action that is the basis for the claim. 10. Compensation. The Dealer shall be entitled to compensation in the amounts mutually agreed upon in writing between the Company and the Dealer from time to time. 11. Notices. All notices required or permitted under the terms and provisions hereof shall be in writing (which shall include facsimile transmission with receipt confirmed) and shall, unless otherwise provided herein, be effective when received at the address specified below or at such other address as shall be specified in a notice furnished hereunder. If to the Company: Financial Federal Credit Inc. 400 Park Avenue New York, NY 10022 Attention: Michael C. Palitz, CFO and Treasurer Tel. No.: (212) 888-3344 Facsimile No.: (212) 888-0695 If to the Dealer: 12. Miscellaneous. This Agreement is to be delivered and performed, and shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the internal laws of the State of [insert state]. (a) The Company agrees that any suit, action or proceeding brought by the company against the Dealer in connection with or arising out of this Agreement or the offer and sale of Notes shall be brought solely in federal or state court, located in [insert jurisdiction]. (b) With the prior written consent of the Company, the Dealer may share with any affiliate of the Dealer, including but not limited to [insert name of specific affiliates] (the Dealer and such affiliates, each an "Affiliated party" and collectively, the "Affiliated parties") any and all financial information in the possession of any of the Affiliated parties (including, without limitation, documents in possession of any of the Affiliated parties and any credit or other analyses prepared by a Affiliated party) concerning the Company, except to the extent that the Affiliated party is prohibited from sharing such information pursuant to a written confidentiality agreement or by law. (c) This Agreement may be terminated, at any time, by the Company, upon notice to such effect to the Dealer, or by the Dealer, upon notice to such effect to the Company. Any such termination, however, shall not affect the obligations of the Company and the Dealer under Sections 9 and 10 hereof or the rights or responsibilities of the parties arising prior to the termination of this Agreement. (d) This Agreement may not be assigned by the Company without the prior consent of the Dealer and any such assignment without such consent shall be null and void. This Agreement may be assigned or transferred by the Dealer to any affiliate of the Dealer upon at least 30 days prior written notice to the Company. (e) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any party hereto may execute this Agreement by signing one or more counterparts. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. [DEALER] By: _____________________ Title: FINANCIAL FEDERAL CREDIT INC. By: ____________________ Title: By: ____________________ Title: Exhibit 10.22 DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT, made as of the _______ day of _________, 19_____, by and between Financial Federal Credit Inc. (the "Company") and ____________________ (the "Employee"); W I T N E S S E T H : WHEREAS, Employee is an employee of the Company; and WHEREAS, the Employee and the Company desire to set forth in writing herein the terms and conditions of their agreement with respect to the payment to Employee, on a deferred basis, of some of the Employee's salary for his services to the Company for the months of ____________, 19___ through December, 19_____. NOW, THEREFORE, the parties hereto agree as follows: 1. Certain amounts of salary earned by the Employee for each of the months of ____________ 19_____ through December 19_____, shall be deferred and, in lieu of current payment thereof, the Company shall pay to the Employee the sum of $___________on ________________,______[DATE]. The amounts so deferred are shown on Exhibit 1 to this Agreement. In the event the Employee's employment is terminated for any reason whatsoever during this period, the amount payable to the Employee pursuant to this paragraph shall be proportionately reduced (in the same proportion as the number of days or portions thereof from the date of such termination of employment to the end of this period bears to the entire period), and any payment provided for in paragraphs "2", "3", "5" or "7" of this Agreement shall be further discounted as described in paragraph "4" of this Agreement. 2. In the event of i). Employee's death, ii). Employee's retirement from the Company and its affiliates (and employment is not obtained with another company in substantially the same types of business as the Company is engaged) or iii). Employee's leave of absence owing to a bona fide disability (which shall be defined as the incapacity to perform any employment which would be appropriate given the prior physical status, intellectual ability and experience of the Employee, due to a mental or physical disability which shall have been certified by an independent physician and which has lasted or can be expected to last for a continuous period of not less than twelve months), then, in the Company's sole discretion, either a). the Company shall pay the amount specified in paragraph "1" on the date there specified or b). all amounts payable pursuant to paragraph "1" of this Agreement shall be re-computed as described in paragraph "4" of this Agreement and shall be paid in total on the first day of the first month 30 days after the date of the death, retirement or disability. Payments of amounts due pursuant to the terms of this paragraph shall be made first to the Employee, if living, then to the Employee's Beneficiary, _____________________, the Employee's ________, or if he/she is not then alive, to the Employee's Estate. 3. Except for the events specified in paragraph "2" of this Agreement, in the event of termination of Employee's employment by the Company for any other reason whatsoever (other than a transfer to employment with an affiliate of the Company), or in the event the Employee terminates his employment with the Company and its affiliates, then, in either such event, the amount payable pursuant to paragraph "1" of this Agreement shall be paid to Employee on the first day of the first month following such termination of employment in an amount calculated as set forth in paragraph "4" of this Agreement. 4. If, pursuant to paragraphs "2", "3", "5" or "7" of this Agreement, payment of any amount provided for in paragraph "1" of this Agreement is to be made earlier than the due date set forth in such paragraph "1", the amount to be paid is the amount as provided in paragraph "1" of this Agreement, discounted at the rate of [Applicable Federal MidTerm Rate, monthly compounding, for prior month] per annum, compounded monthly, from the date any such payments would have been due (as set forth in paragraph "1" of the Agreement) to the actual date of payment. For purposes of illustration, a payment of $500.00 would be due with respect to a $[xxx.xx] payment which would have been due and payable forty-eight (48) months later. 5. If any federal, state or other tax law or regulation or any determination by any taxing authority with respect to the Employee would cause any amounts due pursuant to this Agreement to become taxable to the Employee before payment thereof, except for taxes owing due to FICA, FUTA, or other employment taxes, then the Employee, irrespective and notwithstanding any other provisions of this Agreement, shall have the right, upon written notice to the Company, to require payment of any of the installments or portions thereof specified in paragraph "1" of this Agreement. The notice shall specify a date within ninety (90) days of such notice when payment is to be made. The payment shall be made in an amount calculated as set forth in paragraph "4" of this Agreement. 6. Employee shall have no right to pledge, hypothecate, assign or otherwise dispose of any amounts due or to become due hereunder. Employee's right to receive payments under this Agreement shall be no greater than those of any other unsecured creditor of the Company. 7. Should, at any time, more than 50 percent of the combined voting power of the Company's then outstanding voting securities be held by any person, entity or group of persons, directly or indirectly, within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended ("Act"), other than those persons, entities or groups of persons owning over 14 percent of the combined voting power as of the date hereof, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the Company's assets, then a). the Company may, upon 30 days notice, pay to Employee the amount payable pursuant to paragraph "1" of this Agreement on the first day of the first month following such notice in an amount calculated as set forth in paragraph "4" of this Agreement, OR b). Employee may, upon 30 days notice, require that the Company pay to Employee the amount payable pursuant to paragraph "1" of this Agreement on the first day of the first month following such notice in an amount calculated as set forth in paragraph "4" of this Agreement. 8. During the term of this Agreement, the Company shall furnish to Employee, no later than the 30th day of each fiscal year, a schedule setting forth in reasonable detail the changes occurring during the preceding year and the balance as at the end of the preceding year with respect to the amount accrued by the Company on account of all sums payable hereunder to Employee. 9. Employee shall have the right at any time, by written notice to the Company, to change the Beneficiary named in paragraph "2" hereof, with such notice acknowledged in writing by the Company. 10. This Agreement contains the entire understanding of the parties hereto relating to the payments described herein; however, this Agreement shall not affect any other salary nor any other benefit that Employee may be or may become entitled to, except as required by law. This written agreement represents the entire final agreement between the parties relating to the payments described herein and may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. This agreement cannot be amended, modified or changed except by a writing signed by both parties. Only an officer of the Company with the title of Senior Vice President or a more senior officer may accept this agreement or agree to any amendments, modifications or changes. 11. This Agreement shall be governed and construed in accordance with the laws of the State of New York. If any provision of this Agreement is rendered or declared invalid, illegal or ineffective by any existing or subsequently enacted legislation or decision of a court of competent jurisdiction, such legislation or decision shall only invalidate such provision to the extent so rendered or declared invalid, illegal or ineffective in such jurisdiction only and shall not impair, invalidate or nullify the remainder of this Agreement which shall remain in full force and effect. 12. Any controversy or claim arising out of or relating to this Agreement or any alleged breach thereof shall be settled by arbitration in New York City in accordance with the rules of the American Arbitration Association governing contract disputes and judgment upon the award rendered by any arbitrator(s) may be entered in any court of appropriate jurisdiction. IN WITNESS WHEREOF, Company has caused this Agreement to be executed by its duly authorized officers and Employee has hereunto set his hand on the day and year first above written. FINANCIAL FEDERAL CREDIT INC. BY: (Title) EMPLOYEE: _____________________ Exhibit 11.1 FINANCIAL FEDERAL CORPORATION & SUBSIDIARIES CHEDULE OF COMPUTATION OF EARNINGS PER SHARE
Year Ended July 31, 1996 1995 1994 Primary - ------------------------- Net earnings for primary per share amounts $9,610,000 $7,209,000 $5,944,000 ========== ========== ========== Weighted average number of common shares outstanding 8,617,558 8,199,686 7,366,763 Add - common equivalent shares (determined using the "treasury stock" method) 865,770 756,436 1,282,221 ------- ------- --------- Weighted average number of shares used in calculation of primary net earnings per common share 9,483,328 8,956,122 8,648,984 ========= ========= ========= Primary net earnings per common share $1.01 $0.80 $0.69 ========= ===== ===== Fully Diluted - -------------------------- Net earnings for fully diluted per share amounts $9,610,000 $7,209,000 $5,944,000 ========= ========= ========= Weighted average number of shares used in calculation of fully diluted net earnings per common share 9,508,538 8,970,057 8,649,339 ========= ========= ========= Fully diluted net earnings per common share $1.01 $0.80 $0.69 ========= ========= =========
Exhibit 22.1 SUBSIDIARIES OF REGISTRANT Name State of incorporation Financial Federal Credit Inc. Texas Names of particular subsidiaries have been omitted since in the aggregate they do not constitute a significant subsidiary as of July 31, 1996 as defined by Rule 1-02(w) of Regulation S-X. Exhibit 23.1 CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-73320) of Financial Federal Corporation of our report dated August 30, 1996, included in this Annual Report on Form 10-K. We also consent to the incorporation by reference in such Registration Statement of our report on the Financial Statement Schedules, which appears on Page 13 of this Form 10-K. /s/ Eisner & Lubin LLP CERTIFIED PUBLIC ACCOUNTANTS New York, New York October 23, 1996 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Chairman of the Board and President October 28, 1996 (Date) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Clarence Y. Palitz, Jr. October 28, 1996 Chairman of the Board, President and Chief Executive Officer /s/ Lawrence B. Fisher October 28, 1996 Director /s/ William C. MacMillen, Jr. October 28, 1996 Director /s/ Bernard G. Palitz October 28, 1996 Director /s/ Paul Sinsheimer October 28, 1996 Executive Vice President and Director /s/ Michael C. Palitz October 28, 1996 Executive Vice President, Treasurer, Chief Financial Officer and Director /s/ David H. Hamm October 25, 1996 Controller, Assistant Treasurer and Principal Accounting Officer EX-13 2 ANNUAL REPORT EXHIBIT 13.1 [LOGO] FINANCIAL FEDERAL CORPORATION [GRAPHIC] VARIOUS PHOTOS 1996 ANNUAL REPORT CORPORATE PROFILE FINANCIAL FEDERAL CORPORATION IS A MAJOR, INDEPENDENT FINANCIAL SERVICES COMPANY ENGAGED IN FINANCING INDUSTRIAL, COMMERCIAL AND PROFESSIONAL EQUIPMENT THROUGH INSTALLMENT SALES, CAPITAL LOANS AND LEASING PROGRAMS FOR MANUFACTURERS, DEALERS AND USERS OF SUCH EQUIPMENT ON A NATIONWIDE BASIS. FINANCIAL HIGHLIGHTS (in thousands, except per share data)
for years ended July 31, 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------- Finance Receivables, net ............... $429,698 $339,299 $268,642 $206,145 $171,817 Total Assets ........................... 433,087 342,936 271,987 209,609 175,112 Total Senior Debt ...................... 310,830 249,270 184,848 134,628 107,884 Total Subordinated Debt ................ 6,957 21,957 22,682 24,189 24,500 Stockholders' Equity ................... 94,191 58,075 50,523 41,727 36,426 Revenues ............................... 43,523 34,951 25,866 22,911 21,903 Net Earnings ........................... 9,610 7,209 5,944 4,968 3,760 Earnings per common share, primary ..... 1.01 0.80 0.69 0.58 0.67 Earnings per common share, fully diluted 1.01 0.80 0.69 0.57 0.67
[THE FOLOWING 3 TABLES WERE REPRESENTED BY BAR GRAPHS IN THE PRINTED MATERIAL] FINANCE RECEIVABLES REVENUES NET EARNINGS (in millions) (in millions) (in millions) DEAR SHAREHOLDER: [GRAPHIC] PHOTO OF CRANE Fiscal 1996 was the Company's best year ever. Net earnings increased by over 33% to $9.6 million, net finance receivables increased by 27% to $430 million, net credit losses remained at minimal levels and tangible net worth increased from $58 million to $94 million. The Company replaced, upon maturity in September 1995, its institutional subordinated debt with senior borrowings bearing lower rates of interest which resulted in a reduction of interest expense for the year in excess of $750,000. Overall, funding costs were further reduced as the Company's credit status continued to improve and the financial community recognized Financial Federal's investment grade status. In order to accommodate portfolio and geographic growth, the Company increased its management, marketing, administrative and managerial staffing. The national economy remained strong and, during the second half of our fiscal year, market interest rates trended down. The combination of the Company's continued growth of its receivables portfolio, favorable loss experience, strong general economic conditions, the reduction of the Company's borrowing costs and the significant increase in the Company's net worth, contributed to the enhancement of the Company's earnings results for fiscal 1996. Fiscal 1996 was a dynamic and exciting year for Financial Federal. Many strategic objectives were successfully completed that have positioned the Company for significant growth. The capitalization and financial standing of the Company was substantially strengthened during the year. o In December 1995 and January 1996, Financial Federal Credit Inc. ("Credit"), the Company's major operating subsidiary, received commercial paper investment grade ratings from both Fitch Investors Services ("F-2") and Duff & Phelps Credit Rating Company ("D-2"). In addition, Fitch Investors Services assigned an investment grade rating of "BBB" to Credit's ability to meet senior obligations. Obtaining such ratings was a major achievement for our Company and was predicated on the Company's exceptional operating history and financial position. To our knowledge, in recent years, there is no other independent financial service company of our size which has obtained such investment grade ratings. o In April, Credit privately placed $55 million of 5 1/2 year senior unsecured debt at an annual interest rate of 6.76% with a group of insurance companies led by Principal Mutual Life Insurance Company. o In May, Financial Federal raised over $26 million of additional common equity through the successful completion of a 1.7 million share public offering of common stock which was managed by Prudential Securities and NatWest Markets. o The Company's investment grade status enabled the Company, in May, to commence a $100 million dealer-placed commercial paper program. The program was well-received by the investment community and quickly oversubscribed and, therefore, increased to $200 million in June and $250 million in early September. BA Securities Inc. and The Chicago Corporation have been engaged as dealers of the Company's commercial paper. As of July 31, 1996, the Company had $190 million in commercial paper outstanding, which represented 70% of its then money market borrowing requirements. o In support of its commercial paper and bank borrowings, the Company had $377.5 million of committed bank credit facilities at year end, of which over $60 million contractually expires during fiscal 1998 and $190 million expires during the ensuing two fiscal years. The Company had, as of July 31, over $120 million of unused committed bank facilities in excess of its bank borrowings and commercial paper support needs. o In December, the Company declared a 3-for-2 stock split effected in the form of a stock dividend, which was paid in January. The Company's financial strength and earnings potential have never been stronger. As of the end of the Company's fiscal year, its tangible net worth was in excess of $94 million and is expected to exceed the $100 million mark during fiscal 1997. Based on the Company's current capital structure and its maximum contractual permitted debt-to-equity ratios with its lenders, it can incur over $700 million of unsecured senior debt. Therefore, the Company, over time, is in a position to substantially increase the size of its receivables portfolio without the necessity of raising additional common or preferred equity, selling or securitizing its receivables and/or placing costly subordinated debt. 2 FINANCIAL FEDERAL CORPORATION In July 1996, the Company called its $7.0 million variable rate subordinated debt due September 1, 2000, subject to the holders of same having an option to accept replacement, fixed rate 8% subordinated debentures due March 2003. As of September 1, 1996, $4.7 million of such subordinated debt was retired at par. Over 90% of the Company's receivables are concentrated in four core business equipment categories, namely, (1) construction and material handling and processing, (2) over-the-road vehicles including trucks, trailers, vans and buses, (3) machine tool and manufacturing equipment, and (4) environmental waste equipment. The Company estimates that its market share of the domestic capital loan, financing and leasing market for such new and used equipment categories is less than one percent. Therefore, the potential for the Company to expand its lending, financing and leasing activities in such core categories is substantial. In general, middle market businesses that avail themselves of the Company's lending, finance and leasing services are privately owned, have a net worth in the $250,000 to $5 million range and sales in the $2 million to $25 million range. The average transaction when originally booked is in the range of $140,000 and is generally scheduled to be repaid in monthly installments of principal and interest over a 36 to 60 month period. The Company's present self-imposed maximum lending limit to a single customer is in the $7 million range and its single largest net receivable exposure is less than $5 million. The Company generally has a first lien on the primary equipment which is pledged to it as collateral. The Company focuses its lending, financing and leasing operations on equipment that is long-lived, not subject to major technological obsolescence, and, if need be, can be readily marketed by the Company directly or through public auction. The Company operates in a very competitive business environment. Most commercial banks offer equipment finance and/or leasing services to middle market businesses, especially those in their franchise area. In addition, there are numerous other finance and leasing companies, including some of the largest in the country, with which Financial Federal competes. To date, notwithstanding such intense competition from larger financial institutions that generally have lower funding costs, the Company has been able to grow successfully and profitably, which it attributes primarily to its managerial and marketing personnel's extensive specialized industry experience and their devotion to excel. To narrow the Company's funding cost disadvantage, vis-a-vis its larger competitors, the Company, as indicated above, has taken significant steps during fiscal 1996 to reduce its borrowing costs, primarily by accessing the commercial paper market and obtaining an investment grade rating on its ability to meet senior obligations. The Company continually endeavors to pursue ways to lower its funding costs. The Company takes great pride in the 125 men and women who comprise its management, marketing and operational teams; their dedication and commitment to the Company since its founding has been most gratifying. In order to align their interests with those of our shareholders and to focus their efforts on continued increasing profitability, the Company has granted incentive stock options to the vast majority of its employees. This gives the Company's employees the opportunity to benefit from increases in the market value of the Company's stock, providing them with a strong financial incentive consistent with the goals of our other shareholders. My brother, Bernard G. Palitz, who is one of the founding members of the Financial Federal management group, relinquished his operating duties in November, 1995 as the senior executive in charge of the Company's Liability Management Department and stepped down as Chairman of the Board in July. Bernard, who just reached his 72nd year, has had a long and distinguished career in the financial service industry. We all thank him for his untiring devotion to the Company, its employees and shareholders. I wish to thank all our employees, customers, funding sources and investors who, from the time the Company commenced business in March 1989, have continually demonstrated great confidence in us and our management team. We have, in just a few short years, built an exceptionally fine Company with a solid reputation of responsiveness, service and integrity. I am very proud of our achievements and the loyal support we have received from our stockholders. Financial Federal is a small but growing Company. We strive not to be the largest in our field of expertise, but to always be the best. /S/ CLARENCE Y. PALITZ, JR. - ---------------------------- CLARENCE Y. PALITZ, JR. President and Chief Executive Officer September 26, 1996 3 FINANCIAL FEDERAL CORPORATION BUSINESS APPROACH [GRAPHIC] PHOTO OF TRUCK In the dynamic and changing world of equipment financing, Financial Federal differentiates itself by providing the two most important ingredients--SERVICE and RELATIONSHIP. Our goal is not to be the largest finance and leasing company, nor to strain our financial and managerial resources to exponentially increase our market share, but to provide our customers with the best and most responsive financial services available. The Company's management group strives to establish and nurture long-standing and mutually rewarding relationships with its customers. While the Company's marketing representatives continually work toward introducing Financial Federal's services to new customers, the Company is also able to generate a large percentage of its new business volume from repeat business with its existing customer base. We listen to our customers and then custom-tailor a financial program that best meets the needs of all concerned. [GRAPHIC] PHOTO OF CRANE Our experienced and industry-knowledgeable specialists in credit analysis and collateral evaluation understand the intricacies and nuances of our customers' businesses and the uses and valuations of the equipment being pledged, in many fields including the construction, transportation, production and environmental service industries. We recognize that within these different industries, customers have individual and varied needs. Our management group must understand such complexities in order to achieve our goal of delivering outstanding SERVICE and retaining customer RELATIONSHIPS. Financial Federal started in business less than eight years ago, and in that short period of time, through a commitment to excellence in service to its customer base, it has been able to grow steadily and profitably and become recognized as one of the finest financial SERVICE companies in the country. 4 FINANCIAL FEDERAL CORPORATION [GRAPHIC] Photos "FISCAL 1996 WAS A DYNAMIC AND EXCITING YEAR FOR FINANCIAL FEDERAL . . . THE COMPANY'S FINANCIAL STRENGTH AND EARNINGS POTENTIAL HAVE NEVER BEEN GREATER." 5 FINANCIAL FEDERAL CORPORATION Financial Federal Corporation and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS General The Company derives profits to the extent that its income exceeds its cost of borrowed funds, operating and administrative expenses, and provision for possible losses. The Company borrows funds in the wholesale markets to lend primarily to middle market businesses throughout the United States. State usury, lending and lien perfection rules and laws can regulate the Company's activities. In addition, certain states require the Company to obtain licenses in order to engage in certain types of business activities. The Company's leasing activities are substantially identical in business terms to its lending and financing activities, differing only in legal and tax treatment.For financial reporting purposes, leases are treated as a financing arrangement. Whether a transaction is characterized and documented as a lease depends on management's evaluation of the customer's credit and the collateral, as well as the customer's desire to lease, and other factors. The types of equipment that the Company lends against, finances and leases, and the ongoing operational treatment of a transaction, is generally the same, regardless of the documentation used. Comparison of Fiscal 1996 to Fiscal 1995 Finance income increased 25% to $43.5 million in fiscal 1996 from $35.0 million in fiscal 1995. The increase was primarily attributable to the 24% increase in average finance receivables outstanding to $388.0 million in1996 from $312.3 million in 1995. The growth in finance receivables was due to new financings which totaled $334.2 million in 1996, an increase of 28% over 1995. New financings increased as a result of the hiring of additional marketing personnel in 1996 and favorable economic conditions. Interest expense, which is incurred on borrowings primarily used to fund finance receivables, increased 19% to $19.3 million in 1996 from $16.3 million in 1995. The overall increase was mainly due to the 27% increase in average borrowings during 1996 from 1995, offset by decreases in costs of funds and, to a lesser extent, 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 30% to $24.3 million in 1996 from $18.7 million in 1995. As a percentage of average finance receivables outstanding, finance income before provision for possible losses increased to 6.3% in 1996 from 6.0% in 1995. The increase was primarily due to the interest savings of approximately $750,000 from the replacement of the $15.0 million senior subordinated note, bearing a 12.27% interest rate, on September 1, 1995 with borrowings bearing lower interest rates and the interest savings of approximately $350,000 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 18% to $1.7 million in 1996 from $1.5 million in 1995. The increase was primarily due to the increase in finance receivables. See Note B(5) of Notes to Consolidated Financial Statements for the summary of activity in the allowance for possible losses. Salaries and other expenses increased 23% to $7.1 million in 1996 from $5.8 million in 1995. The increase was primarily due to the hiring of additional marketing and other personnel and salary increases. The provision for income taxes increased to $5.8 million in 1996 from $4.4 million in 1995 due to the increase in earnings before income taxes. Net earnings increased by 33% to $9.6 million in 1996 from $7.2 million in 1995. Primary and fully diluted earnings per share increased by 26% to $1.01 per share in 1996 from $0.80 per share in 1995. The increase in earnings per share was lower than the increase in net earnings primarily due to the effect of the sale of 1.7 million shares of the Company's common stock in a public offering in May 1996. Comparison of Fiscal 1995 to Fiscal 1994 Finance income increased by 35% to $35.0 million in fiscal 1995 from $25.9 million in fiscal 1994. Such increase was attributable primarily to a 32% increase in the average amount of finance receivables outstanding to $312.3 million during fiscal 1995 from $237.4 million during fiscal 1994. Additionally, average market interest rates increased from fiscal 1994 to fiscal 1995 which led to new business being booked at higher rates and to increases in rates on variable rate transactions. Additional marketing personnel have been hired which has led to increases in new business generated. To the extent new business is generated at a greater rate than collections are made, the outstanding finance receivables balance increases. 6 FINANCIAL FEDERAL CORPORATION Interest expense increased by 64% to $16.3 million in fiscal 1995 from $9.9 million in fiscal 1994. Such increase was attributable mainly to an increase in average borrowed funds outstanding during fiscal 1995 of 28%. Additionally, average market interest rates increased from fiscal 1994 to fiscal 1995. Of the increase in total interest expense, approximately 60% is attributable to the increase in average borrowings and 40% to the increase in market interest rates. Since the dollar amount of finance income increased greater than the dollar amount of interest expense increased during fiscal 1995, finance income before provision for possible losses on finance receivables increased by 17% to $18.7 million in fiscal 1995 from $16.0 million in fiscal 1994. The provision for possible losses on finance receivables remained constant at $1.5 million for fiscal 1995 and 1994. This was attributable to management's determination that the allowance for possible losses on finance receivables as a percentage of finance receivables outstanding was adequate. Management continually evaluates the allowance for possible losses in light of past and current economic, industry, and geographic conditions. Such allowance equaled 1.85% of the finance receivables outstanding at July 31, 1995 and equaled 1.90% of the finance receivables outstanding at July 31, 1994. Since finance income before such provision increased more in fiscal 1995 than such provision, net finance income increased by 19% to $17.2 million in fiscal 1995 from $14.5 million in fiscal 1994. 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 a gain of $130,000. Salaries and other expenses increased by 16% to $5.8 million in fiscal 1995 from $5.0 million in fiscal 1994. The increase was due to the hiring of additional personnel during fiscal 1995 and, to a lesser extent, to the opening of a new full service office in Charlotte, North Carolina during the second quarter of fiscal 1995, as well as salary increases. Earnings before income taxes increased by 22% to $11.6 million in fiscal 1995 from $9.5 million in fiscal 1994. The provision for income taxes increased to $4.4 million in fiscal 1995 from $3.5 million in fiscal 1994 due to the increase in such earnings. Net earnings increased by 21% to $7.2 million in fiscal 1995 from $5.9 million in fiscal 1994. Primary and fully diluted earnings per share increased by 16% to $0.80 per share in fiscal 1995 from $0.69 per share in fiscal 1994. RECEIVABLE PORTFOLIO AND ASSET QUALITY Finance receivables outstanding increased $92.0 million to $437.7 million at July 31, 1996 from $345.7 at July 31, 1995. The increase is primarily due to the amount of new financings exceeding amounts collected. At July 31, 1996, Financial Federal Credit Inc. ("Credit," a wholly-owned subsidiary) had $436.0 million, or 99.6%, of total finance receivables and First Federal Commercial Inc. ("Commercial," a wholly-owned subsidiary) had the balance of finance receivables. The Company's finance receivables reflect certain industry and geographic concentrations of credit risks. These concentrations arise from counterparties having similar economic characteristics that would cause their ability to meet their contractual obligations to the Company to be similarly affected by changes in economic or other conditions. The major industry concentrations are: trucking-20%, construction-17%, waste disposal-13% and cranes-11%. The major geographic concentrations are the: southwest-27%, southeast-25%, northeast-21% and central-17%. Finance receivables on which the Company has suspended the recognition of income, $5.9 million at July 31, 1996, expressed as a percentage of total finance receivables outstanding, increased to 1.3% at July 31, 1996 from 1.0% at July 31, 1995. The allowance for possible losses on finance receivables, $8.0 million at July 31, 1996, expressed as a percentage of total finance receivables outstanding, was approximately the same at July 31, 1996, 1.83%, as it was at July 31, 1995, 1.85%. 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 individual counterparties and other factors. Future increases in the level of the allowance may be necessary based on future changes in these factors. 7 FINANCIAL FEDERAL CORPORATION Management believes that net credit losses on the Company's finance receivables have been historically low primarily due to favorable economic and industry conditions. Net credit losses, defined as write-downs of receivables less subsequent recoveries, expressed as a percentage of average finance receivables outstanding, was 0.34% in 1992, 0.31% in 1993, 0.13% in 1994, 0.08% in 1995 and 0.03% in 1996. Management does not currently expect that this trend will continue. Increases in the Company's net credit losses would have a negative impact on the Company's earnings through increased loss provisions. LIQUIDITY AND CAPITAL RESOURCES The Company's operations are dependent upon the continued availability of funds which are used primarily for the origination or acquisition of finance receivables and for the purchase of portfolios of finance receivables. The Company may obtain required funds from a variety of sources, including internal generation of funds, direct issuance of and dealer placed commercial paper, borrowings under revolving credit facilities, sales of common and preferred equity and placement of term debt. The Company's total debt outstanding increased $46.6 million to $317.8 million at July 31, 1996 from $271.2 million at July 31, 1995. The Company also increased its stockholders' equity by $36.1 million to $94.2 million at July 31, 1996 from $58.1 million at July 31, 1995 and its net deferred income tax liability by $2.6 million to $8.9 million at July 31, 1996 from $6.3 million at July 31, 1995. These increases, together with increases in the Company's accrued expenses and other liabilities, were used to fund the increase in finance receivables. During 1996, the Company improved its liquidity and capital structure. Credit obtained investment grade commercial paper ratings of "D-2" from Duff & Phelps Credit Rating Co. and "F-2" from Fitch Investors Services, Inc., which should reduce the Company's cost of funds (without giving effect to changes in market interest rates) and improve its access to capital. The Company completed a 1.7 million share public offering of its common stock in May 1996, receiving net proceeds of $26.3 million which was used to repay debt. In April 1996, Credit issued $55.0 million of senior institutional term notes maturing in September 2001. During the year, the Company increased its total committed unsecured revolving credit facilities by $47.5 million to $377.5 million at July 31, 1996 and increased the amount of these facilities that have original terms of two or more years by $175.0 million to $270.0 million at July 31, 1996. In the fourth quarter of 1996, Credit established a $200.0 million commercial paper program with recognized dealers in addition to the Company's existing direct commercial paper programs. At July 31, 1996, $190.0 million of commercial paper was outstanding. In December 1995, the Company declared a three-for-two stock split effected in the form of a stock dividend which was paid in January 1996. In August 1996, the Company announced a $2.5 million common stock repurchase program and subsequently acquired 74,300 shares of its common stock for $941,000. Repurchases under this program are not expected to have a significant impact on the Company's earnings per share. The Company has obtained most of its borrowings through Credit and has obtained the balance of its borrowings through Financial Federal Corporation ("Financial", the parent company). The Company may also borrow through Commercial. The sources of the Company's borrowings are described below. Financial and Credit are each direct issuers of commercial paper. Credit also issues commercial paper through a $200.0 million program with recognized dealers. All of the Company's commercial paper is unsecured and matures within 270 days. Commercial paper outstanding at July 31, 1996 bore interest at fixed annual rates generally ranging from 5.4% to 6.0%. The Company has not obtained commitments from any purchaser of its commercial paper regarding additional or future purchases. It is the Company's policy to maintain aggregate unused bank committed revolving credit facilities in an amount at least equal to commercial paper outstanding. At July 31, 1996, Credit had committed unsecured revolving credit facilities with an original term of one year or less aggregating $107.5 million with ten banks under which $31.0 million was outstanding. At July 31, 1996, Credit also had committed unsecured revolving credit facilities with original terms ranging from two to five years aggregating $265.0 million with seventeen banks under which $34.9 million was outstanding, and Financial had a $5.0 million committed 8 FINANCIAL FEDERAL CORPORATION unsecured revolving credit facility with an original term of five years with a bank under which no borrowings were outstanding. At July 31, 1996, $15.0 million of long-term revolving credit facilities expire within one year. Amounts outstanding under all of these facilities bear interest at variable rates indexed to either domestic money market rates or LIBOR. Fees are paid to these banks in connection with these facilities. None of the banks is contractually obligated to renew its facility. The following table presents information on the amounts outstanding and interest rates of the Company's commercial paper and bank borrowings under revolving credit facilities: (dollars in millions) 1996 1995 1994 - ------------------------------------------------------------ Commercial Paper: Maximum amount outstanding during the year ................ $ 192.5 $ 25.1 $ 25.6 Average amount outstanding during the year 38.0 18.7 19.9 Weighted average interest rate: During the year ........ 5.8% 5.8% 4.4% End of the year ........ 5.7 6.2 4.8 Bank borrowings: Maximum amount outstanding during the year $ 256.1 $ 157.6 $ 92.9 Average amount outstanding during the year 178.1 94.6 74.0 Weighted average interest rate: During the year ........ 6.3% 6.5% 4.6% End of the year ........ 6.1 6.7 5.3 At July 31, 1996, the Company reported $255.0 million of commercial paper and bank borrowings as long-term senior debt in its financial statements based on its long-term revolving credit facilities that expire after one year. In April 1996, Credit issued $55.0 million of institutional term notes to insurance companies. The notes are due September 1, 2001 and bear interest, payable semi-annually, at the annual rate of 6.76%. Prepayments of the notes are subject to a premium based on a yield maintenance formula. In July 1996, Financial called its $7.0 million of variable rate subordinated debentures at face value, offering holders the option to receive amended debentures. As a result, $4.7 million of these debentures were repaid and $2.3 million of amended debentures were issued subsequent to year-end. The amended debentures, due on March 1, 2003, bear interest, payable semi-annually, at an annual rate of 8.0%, and contain a penalty for prepayments made prior to September 1, 1999. The original debentures bore interest at the prime rate, as defined, with minimum and maximum rates of 8.0% and 13.0%. The institutional term notes and the bank revolving credit facilities contain certain restrictive covenants including limitations on indebtedness, encumbrances, investments, dividends and other distributions from Credit to Financial, sales of assets, mergers and other business combinations, capital expenditures and the minimum adjusted net worth of Credit. At July 31, 1996, $43.6 million of the Company's retained earnings and paid-in-capital was free of restrictions on dividends or other distributions to its stockholders. INTEREST RATES AND SENSITIVITY The table below provides information regarding the net yield of the Company's finance receivables, its cost of borrowed funds and the resulting net interest spread. Year ended July 31, 1996 1995 1994 - -------------------------------------------------------- Average yield of finance receivables .......... 11.2% 11.2% 10.8% Weighted average cost of borrowed funds ....... 6.6% 6.9% 5.4% ------------------------- Net interest spread .... 4.6% 4.3% 5.4% ========================= The Company's finance receivables consist of fixed rate and variable rate transactions. At July 31, 1996, $319.2 million, or 73%, of finance receivables provide for interest at fixed rates and $118.5 million, or 27%, of finance receivables provide for interest at variable rates which reprice with changes in the prime rate, as defined. Finance receivables generally have original maturities ranging from two to five years and provide for monthly installments. The Company experiences some prepayments of its finance receivables. 9 FINANCIAL FEDERAL CORPORATION At July 31, 1996, fixed rate long-term debt of $55.0 million, stockholders' equity of $94.2 million and net deferred income tax liability of $8.9 million totaled $158.1 million and variable rate debt totaled $262.8 million. Most of the Company's variable rate debt reprices at regular intervals. At July 31, 1996, total commercial paper and bank borrowings outstanding of $255.8 million was scheduled to reprice or mature as follows: $219.0 million, or 86%, within one month, $26.8 million, or 10%, within the following two months and the remainder, $10.0 million, or 4%, within the following six months. Since the amount of the Company's fixed rate finance receivables exceeds the total of its fixed rate long-term debt, stockholders' equity and net deferred income tax liability, its net interest spread could be affected by fluctuations in market interest rates. During 1996, the Company reduced its reliance on variable rate debt by issuing $55.0 million of fixed rate 5 1/2 year term debt and by increasing its stockholders' equity by $26.3 million from the sale of 1.7 million shares of common stock. The Company does not seek to match maturities of its debt to its receivables. NEW ACCOUNTING STANDARDS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." This statement requires either the recognition or disclosure of compensation expense based on the fair value of equity instruments granted to employees. As permitted by SFAS 123, the Company has elected to adopt the disclosure provisions of this standard in 1997. The Company adopted the provisions of SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures," as of August 1, 1995. These statements require impaired loans to be measured based on the present value of the expected cash flows discounted at the loan's effective interest rate or the fair value of the collateral, if the loan is collateral dependent. Under SFAS 114, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. These standards do not apply to leases. The adoption of these standards did not have a material effect on the Company's operating results. STOCK PRICE HISTORY AND DIVIDEND POLICY The Company's common stock is traded on the American Stock Exchange under the symbol "FIF." The table below sets forth, for the periods indicated, the high and low closing sales prices per share of the common stock as reported by the American Stock Exchange, adjusted for the January 1996 three-for-two stock split. Price Range Fiscal year 1996 High Low - --------------------------------------------------------------------------- First Quarter ended October 31, 1995 ..................... $ 14.59 $ 11.75 Second Quarter ended January 31, 1996 ..................... $ 16.50 $ 13.92 Third Quarter ended April 30, 1996 ....................... $ 16.88 $ 15.13 Fourth Quarter ended July 31, 1996 ........................ $ 17.13 $ 12.63 The Company presently has no intention of paying cash dividends in the foreseeable future. 10 FINANCIAL FEDERAL CORPORATION Financial Federal Corporation and Subsidiaries CONSOLIDATED BALANCE SHEET
July 31, 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Cash ................................................................................. $ 2,426,000 $ 3,090,000 Finance receivables .................................................................. 437,706,000 345,694,000 Less allowance for possible losses ................................................. (8,008,000) (6,395,000) ------------------------------------ Finance receivables--net ............................................................. 429,698,000 339,299,000 ------------------------------------ Other assets ......................................................................... 963,000 547,000 ------------------------------------ TOTAL ............................................................................ $ 433,087,000 $ 342,936,000 ==================================== LIABILITIES Senior debt: Short-term ($6,816,000 due to related parties in 1995) ............................. $ 830,000 $ 99,270,000 Long-term ($9,376,000 due to related parties in 1996) .............................. 310,000,000 150,000,000 Accrued interest, taxes and other liabilities ........................................ 12,160,000 7,347,000 Senior subordinated note ............................................................. 15,000,000 Subordinated debentures ($3,178,000 due to related parties in 1996 and 1995) ......... 6,957,000 6,957,000 Deferred income taxes ................................................................ 8,949,000 6,287,000 ------------------------------------ Total liabilities ................................................................ 338,896,000 284,861,000 ------------------------------------ STOCKHOLDERS' EQUITY Preferred stock--$1 par value, authorized 500,000 shares, none issued Common stock--$.50 par value, authorized shares: 25,000,000 in 1996 and 10,000,000 in 1995, issued shares: 9,960,000 in 1996 and 5,580,000 in 1995 ......... 4,980,000 2,790,000 Additional paid-in capital ........................................................... 58,289,000 33,201,000 Warrants--issued and outstanding 1,071,000 in 1996 and 1995 .......................... 29,000 29,000 Retained earnings .................................................................... 30,893,000 23,495,000 Treasury stock, at cost--96,000 shares ............................................... (1,440,000) ------------------------------------ Total stockholders' equity ....................................................... 94,191,000 58,075,000 ------------------------------------ TOTAL ............................................................................ $ 433,087,000 $ 342,936,000 ====================================
The notes to consolidated financial statements are made a part hereof. 11 FINANCIAL FEDERAL CORPORATION Financial Federal Corporation and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock--$.50 Par Value --------------------------------------- Additional Number of Paid-in Retained Treasury Shares Par Value Capital Warrants Earnings Stock - ------------------------------------------------------------------------------------------------------------------------------------ Balance at August 1, 1993 ................. 4,854,000 $ 2,427,000 $ 28,873,000 $ 85,000 $ 10,342,000 Exercise of stock options ................. 234,000 117,000 1,357,000 Tax benefit relating to stock options ..... 376,000 Exercise of stock warrants in exchange for: Cash .................................... 170,000 85,000 871,000 (21,000) Subordinated debentures ................. 274,000 137,000 1,405,000 (35,000) Purchase of common stock for treasury ..... $(1,440,000) Net earnings .............................. 5,944,000 ------------------------------------------------------------------------------------- Balance at July 31, 1994 .................. 5,532,000 2,766,000 32,882,000 29,000 16,286,000 (1,440,000) Exercise of stock options ................. 48,000 24,000 282,000 Tax benefit relating to stock options ..... 37,000 Net earnings .............................. 7,209,000 ------------------------------------------------------------------------------------- Balance at July 31, 1995 .................. 5,580,000 2,790,000 33,201,000 29,000 23,495,000 (1,440,000) Retirement of treasury stock .............. (96,000) (48,000) (552,000) (840,000) 1,440,000 Exercise of stock options ................. 31,000 16,000 150,000 Three-for-two stock split ................. 2,745,000 1,372,000 (1,372,000) Sale of common stock ...................... 1,700,000 850,000 25,490,000 Net earnings .............................. 9,610,000 ------------------------------------------------------------------------------------- BALANCE AT JULY 31, 1996 .................. 9,960,000 $ 4,980,000 $ 58,289,000 $ 29,000 $ 30,893,000 $ -- =====================================================================================
The notes to consolidated financial statements are made a part hereof. 12 FINANCIAL FEDERAL CORPORATION Financial Federal Corporation and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended July 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Finance income: Loan obligations ................................... $29,533,000 $24,654,000 $17,264,000 Lease obligations .................................. 13,990,000 10,297,000 8,602,000 --------------------------------------------- Total finance income ............................. 43,523,000 34,951,000 25,866,000 Interest expense ................................... 19,271,000 16,253,000 9,886,000 --------------------------------------------- Finance income before provision for possible losses on finance receivables ................................ 24,252,000 18,698,000 15,980,000 Provision for possible losses on finance receivables . 1,710,000 1,450,000 1,475,000 --------------------------------------------- Net finance income ............................... 22,542,000 17,248,000 14,505,000 Miscellaneous income ................................. 130,000 Salaries and other expenses .......................... (7,113,000) (5,806,000) (5,021,000) --------------------------------------------- Earnings before income taxes ......................... 15,429,000 11,572,000 9,484,000 Provision for income taxes ........................... 5,819,000 4,363,000 3,540,000 --------------------------------------------- Net Earnings ......................................... $ 9,610,000 $ 7,209,000 $ 5,944,000 ============================================= Earnings per common share: Primary ............................................ $ 1.01 $ 0.80 $ 0.69 ============================================= Fully diluted ...................................... $ 1.01 $ 0.80 $ 0.69 ============================================= Average number of shares used: Primary ............................................ 9,483,328 8,956,122 8,648,984 ============================================= Fully diluted ...................................... 9,508,538 8,970,057 8,649,339 =============================================
The notes to consolidated financial statements are made a part hereof. 13 FINANCIAL FEDERAL CORPORATION Financial Federal Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended July 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net earnings ................................................. $ 9,610,000 $ 7,209,000 $ 5,944,000 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ............................ 206,000 156,000 103,000 Provision for possible losses on finance receivables ..... 1,710,000 1,450,000 1,475,000 Amortization of deferred origination costs ............... 3,443,000 2,896,000 2,329,000 Deferred income taxes .................................... 2,662,000 1,238,000 1,839,000 Gain on repurchase of subordinated debenture ............. (130,000) Decrease (increase) in other assets ...................... (368,000) 79,000 121,000 Increase (decrease) in accrued interest, taxes and other liabilities ............................ 4,813,000 (1,538,000) 3,030,000 ---------------------------------------------- Net cash provided by operating activities ............ 22,076,000 11,360,000 14,841,000 ---------------------------------------------- Cash flows from investing activities: Finance receivables: Originated ................................................. (358,512,000) (261,135,000) (226,456,000) Collected .................................................. 262,960,000 186,132,000 160,155,000 Payments for office furniture and equipment .................. (254,000) (242,000) (127,000) ---------------------------------------------- Net cash (used in) investing activities .............. (95,806,000) (75,245,000) (66,428,000) ---------------------------------------------- Cash flows from financing activities: Commercial paper: Maturities 90 days or less (net) ........................... 167,750,000 (10,591,000) 13,068,000 Maturities greater than 90 days: Proceeds ................................................. 24,866,000 21,565,000 25,929,000 Repayments ............................................... (14,341,000) (20,997,000) (31,742,000) Notes payable--banks (net) ................................... (91,715,000) 74,445,000 17,965,000 Proceeds from institutional term notes ....................... 55,000,000 Term loans--banks: Proceeds ................................................... 35,000,000 25,000,000 Repayments ................................................. (80,000,000) (35,000,000) Repayment of senior subordinated note ........................ (15,000,000) Repurchase of subordinated debenture ......................... (595,000) Proceeds from sale of common stock, net ...................... 26,340,000 Proceeds from exercise of: Stock options .............................................. 166,000 306,000 1,474,000 Stock warrants ............................................. 935,000 Acquisition of treasury stock ................................ (1,440,000) Tax benefit relating to stock options ........................ 37,000 376,000 ---------------------------------------------- Net cash provided by financing activities ............ 73,066,000 64,170,000 51,565,000 ---------------------------------------------- Net Increase (Decrease) in Cash ................................ (664,000) 285,000 (22,000) Cash--August 1 ................................................. 3,090,000 2,805,000 2,827,000 ---------------------------------------------- Cash--July 31 .................................................. $ 2,426,000 $ 3,090,000 $ 2,805,000 ============================================== Supplemental disclosures of cash flow information: Interest paid ................................................ $ 18,163,000 $16,037,000 $ 9,787,000 ============================================== Income taxes paid ............................................ $ 3,003,000 $ 3,807,000 $ 367,000 ==============================================
The notes to consolidated financial statements are made a part hereof. 14 FINANCIAL FEDERAL CORPORATION Financial Federal Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Note A)--Summary of Significant Accounting Policies: (1) Principles of Consolidation--The consolidated financial statements include the accounts of Financial Federal Corporation (Financial) and its subsidiaries, Financial Federal Credit Inc. (Credit), First Federal Commercial Inc. and Financial Federal Commercial Inc. (collectively, the Company). Intercompany investments and advances have been eliminated. (2) Business--The Company provides collateralized lending, financing and leasing services primarily to middle-market commercial enterprises located throughout the United States, representing diverse industries such as general construction, road and infrastructure construction and repair, manufacturing, trucking and waste disposal. The Company lends against, finances and leases a wide range of income-producing and labor-saving equipment such as cranes, earth movers, machine tools, personnel lifts, trailers and trucks. (3) Income Recognition--The Company's finance receivables consist of loans and other financings and noncancelable leases. All leases are recorded as direct financing leases, where total lease payments, plus residual values recorded at the lowest of (i) any stated purchase option, (ii) the present value at the end of the initial lease term of rentals under any renewal options or (iii) the estimated fair value of the equipment at the end of the lease, less the cost of the leased equipment is recorded as unearned finance income. Finance income is recognized over the term of receivables using the interest method. Costs incurred to originate or acquire receivables are deferred and amortized over the term of receivables using the interest method. The Company suspends income recognition on finance receivables considered impaired (full collection of principal and interest being doubtful) by management. This typically occurs when (i) a payment is more than 120 days past due according to contractual terms, (ii) the counterparty becomes the subject of a bankruptcy proceeding or (iii) the underlying collateral is being liquidated. Impaired receivables are written down to the underlying collateral's currently estimated net liquidation value (if less than the recorded amount). Income recognition may be resumed when management believes full collection is probable. Any cash collected on impaired receivables is applied to the recorded investment. The Company charges a general provision for possible losses on finance receivables against income in an amount to increase the allowance for possible losses to a level that management considers appropriate. Write-downs of impaired receivables are charged to the allowance for possible losses and subsequent recoveries of amounts written down are credited to the allowance. The allowance is reviewed periodically giving consideration to present and anticipated national and regional economic conditions, industry conditions, the status of the finance receivables, and other factors. The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures," as of August 1, 1995. These statements require impaired loans to be measured based on the present value of the expected cash flows discounted at the loan's effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Under SFAS 114, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. These standards do not apply to leases. The adoption of these standards did not have a material effect on the Company's operating results. (4) Income Taxes--The Company recognizes deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the financial statement and tax return bases of assets and liabilities and carryforwards using enacted tax rates. Deferred tax expense represents the net change in deferred tax assets and liabilities during the year. (5) Earnings Per 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. (6) Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (Note B)--Finance Receivables: (1) Finance receivables consist of installment sales and secured loans (including line of credit arrangements), collectively referred to as loans, which provide for interest at fixed rates or variable rates, generally 15 FINANCIAL FEDERAL CORPORATION indexed to the prime rate (as defined), and investments in direct financing leases, as follows: July 31, 1996 1995 - -------------------------------------------------------- Loans: Fixed rate ............ $190,851,000 $130,706,000 Variable rate ......... 100,053,000 103,129,000 --------------------------- Total ............... 290,904,000 233,835,000 Direct financing leases . 146,802,000 111,859,000 --------------------------- Finance receivables . $437,706,000 $345,694,000 =========================== (2) The investment in direct financing leases consists of the following: July 31, 1996 1995 - -------------------------------------------------------- Minimum lease payments receivable .. $154,003,000 $116,128,000 Estimated unguaranteed residual values ...... 22,526,000 21,071,000 Unearned finance income (31,427,000) (26,763,000) Initial direct costs ... 1,700,000 1,423,000 --------------------------- Investment in direct financing leases . $146,802,000 $111,859,000 =========================== (3) Finance receivables generally provide for monthly installments of equal or varying amounts over periods not exceeding five years. Contractual maturities of finance receivables at July 31, 1996 are as follows: Direct Fixed Variable Financing Rate Loans Rate Loans Leases - ------------------------------------------------------------------------------ Year ending July 31: 1997 ............... $ 66,041,000 $ 38,989,000 $ 54,597,000 1998 ............... 56,130,000 27,986,000 44,151,000 1999 ............... 40,288,000 19,288,000 31,756,000 2000 ............... 20,335,000 9,608,000 17,400,000 2001 ............... 7,047,000 3,541,000 5,645,000 Thereafter ......... 1,010,000 641,000 454,000 -------------------------------------------------- Total ........... $190,851,000 $100,053,000 $154,003,000 ================================================== (4) The Company has suspended income recognition on finance receivables with a recorded investment of $5,894,000 (includes $4,489,000 of impaired loans) and $3,453,000 at July 31, 1996 and 1995, respectively. The average recorded investment in impaired loans was $3,185,000 in 1996. (5) The allowance for possible losses is summarized as follows: Year Ended July 31, 1996 1995 1994 - ----------------------------------------------------------------------- Balance--August 1 .... $ 6,395,000 $ 5,191,000 $ 4,024,000 Provision ............ 1,710,000 1,450,000 1,475,000 Write-downs .......... (1,004,000) (914,000) (792,000) Recoveries ........... 907,000 668,000 484,000 ------------------------------------------- Balance--July 31 ..... $ 8,008,000 $ 6,395,000 $ 5,191,000 =========================================== (6) The Company is a party to financial instruments with off-balance sheet risk in the normal course of business. These financial instruments are commitments to extend credit to customers. The Company uses the same credit policies in making these commitments as it does for finance receivables as their credit risks are substantially the same. At July 31, 1996 and 1995, the unused portion of these commitments was $7,075,000 and $2,400,000, respectively. (Note C)--Income Taxes: (1) The provision for income taxes comprises the following: Year Ended July 31, 1996 1995 1994 - ---------------------------------------------------------------------- Currently payable: Federal ............ $ 2,773,000 $ 2,742,000 $ 1,325,000 State and local .... 384,000 346,000 -------------------------------------------- Total ............ 3,157,000 3,088,000 1,325,000 Deferred ............. 2,662,000 1,238,000 1,839,000 Tax benefit relating to stock options (Note J) ............. 37,000 376,000 -------------------------------------------- Provision for income taxes ..... $ 5,819,00 $ 4,363,000 $ 3,540,000 ============================================ (2) Income taxes computed at the statutory federal income tax rates are reconciled to the provision for income taxes as follows: Year Ended July 31, 1996 1995 1994 - ---------------------------------------------------------------------- Federal income tax at statutory rates . $ 5,313,000 $ 3,934,000 $ 3,225,000 State and local taxes (net of federal income tax benefit) ....... 506,000 429,000 315,000 ------------------------------------------- Provision for income taxes ..... $ 5,819,000 $ 4,363,000 $ 3,540,000 =========================================== 16 FINANCIAL FEDERAL CORPORATION (3) Deferred income taxes is comprised of the tax effect of the following temporary differences and carryforwards: July 31, 1996 1995 - ----------------------------------------------------------------- Deferred tax liabilities: Leasing transactions .......... $ 11,069,000 $ 8,243,000 Deferred origination costs .... 1,902,000 1,555,000 --------------------------- Total ...................... 12,971,000 9,798,000 --------------------------- Deferred tax assets: Allowance for possible losses ............ (3,070,000) (2,463,000) Other liabilities ............. (952,000) (751,000) Alternative minimum tax credit carryforward ........ (297,000) --------------------------- Total ...................... (4,022,000) (3,511,000) --------------------------- Deferred income taxes ...... $ 8,949,000 $ 6,287,000 =========================== (Note D)--Debt: Debt is summarized as follows: July 31, 1996 1995 - ----------------------------------------------------------------- Senior debt: Commercial paper .............. $189,960,000 $ 11,685,000 Variable rate notes ........... 65,870,000 157,585,000 Institutional term notes ...... 55,000,000 Variable rate term loans ...... 80,000,000 --------------------------- Total senior debt ........... 310,830,000 249,270,000 --------------------------- Subordinated debt: Senior subordinated note .......................... 15,000,000 Variable rate debentures .................... 6,957,000 6,957,000 --------------------------- Total subordinated debt ..................... 6,957,000 21,957,000 --------------------------- Total debt .................. $317,787,000 $271,227,000 =========================== (1) The Company issues commercial paper at fixed rates of interest for periods not exceeding 270 days. At July 31, 1996 and 1995, these rates generally ranged from 5.4% to 6.0% and 5.7% to 7.0%, respectively. (2) At July 31, 1996, the Company had $377,500,000 of committed unsecured revolving credit facilities with various banks which expire as follows: $122,500,000 within one year and $255,000,000 on various dates from January 1998 through July 2001. These facilities contain certain restrictive covenants including limitations on indebtedness, encumbrances, dividends to Financial from Credit, capital expenditures and minimum net worth. The Company generally incurs a fee on the unused portion of these facilities. Outstanding borrowings which were $65,870,000 at July 31, 1996 mature within 90 days and bear interest at variable rates which are indexed to domestic money market rates or LIBOR, at the Company's option. (3) The institutional term notes, which are Credit's obligation, are due September 1, 2001 and bear interest, payable semi-annually, at the annual rate of 6.76%. Prepayments of the notes are subject to a premium based on a yield maintenance formula. The notes contain certain restrictive covenants including limitations on indebtedness, encumbrances, dividends to Financial and minimum net worth. At July 31, 1996, $43,600,000 of the Company's equity was free of dividend restrictions under these notes. (4) In July 1996, Financial called its variable rate 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 subsequent to year-end. 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 Financial 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%. Officers and other related parties holding $3,178,000 of these debentures at July 31, 1996, elected to have $997,000 of their debentures repaid and $2,181,000 amended. In 1994, $352,000 of debentures were exchanged by related parties in connection with the exercise of stock warrants. In 1995, Financial repurchased a debenture with a face amount of $725,000 from a non-related party for $595,000. (5) At July 31, 1996, long-term senior debt (including commercial paper and bank borrowings supported by credit facilities expiring after one year) and amended subordinated debt are due as follows: $60,000,000 in 1998, $185,000,000 in 1999, $5,000,000 in 2000, $5,000,000 in 2001 and $57,290,000 thereafter. (Note E)--Stockholders' Equity: (1) In December 1995, the Board of Directors authorized a three-for-two stock split effected in the form of a stock dividend, payable in January 1996. Prior period average shares outstanding, share equivalents and per share amounts have been restated to reflect the stock split. Shares sold or acquired prior to the split have not been restated. 17 FINANCIAL FEDERAL CORPORATION (2) In December 1995, the Company's stockholders approved an increase in the number of authorized shares of common stock from 10,000,000 to 25,000,000 and an amendment to the Company's stock option plan increasing the number of shares of common stock available in the plan from 750,000 to 1,500,000. (3) In May 1996, the Company sold 1,700,000 shares of its common stock in a public offering. Net proceeds of $26,340,000 were used to repay bank borrowings. Had this sale occurred August 1, 1995, earnings per common share, as adjusted for the increase in net earnings from the elimination of interest expense on the repaid debt, net of income taxes, and the increase in the average number of shares used, would have been $0.97 in 1996. (4) Warrants: (a) In 1989, the Company issued warrants to purchase 750,000 shares of common stock at $4.25 per share to its original stockholders. The warrants were purchased for $.0033 each and expire February 1, 2001. (b) In 1991, the Company issued warrants to purchase 321,000 shares of common stock at $4.08 per share to its officers. The warrants were purchased for $.0833 each and expire August 31, 2001. (c) In 1994, holders of subordinated debentures exercised warrants to purchase 444,000 shares of common stock for $2,442,000 of cash and subordinated debentures. Related parties purchased 76,500 of these shares. (5) 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 August 30, 1996, 74,300 shares were repurchased for $941,000. Shares repurchased will be held in treasury for corporate purposes. (Note F)--Lease Commitments: The Company occupies office space under leases expiring through 2004. At July 31, 1996, minimum future annual rentals due under these leases are as follows: $575,000 in 1997, $566,000 in 1998, $393,000 in 1999, $334,000 in 2000, $190,000 in 2001 and $427,000 thereafter. Certain of these leases provide for additional rentals for increases in real estate taxes and other operating expenses and may be terminated at the Company's option subject to a penalty. Office rent expense was $550,000 in 1996, $473,000 in 1995 and $428,000 in 1994. (Note G)--Related Party Transactions: Commercial paper transactions with officers and other related parties are summarized as follows: 1996 1995 1994 - --------------------------------------------------------------------------- Year ended July 31: Issued .....................$ 34,778,000 $ 55,270,000 $ 67,342,000 Matured .................... 32,218,000 65,596,000 60,339,000 Interest expense ........... 497,000 730,000 683,000 At July 31: Outstanding ................ 9,376,000 6,816,000 Accrued interest ........... 99,000 130,000 (Note H)--Concentration of Credit Risk: The Company seeks to control its exposure to the credit risks associated with its finance receivables through established credit policies and procedures which include obtaining a first lien on equipment collateral on all transactions. The Company evaluates the equipment collateral on an ongoing basis and focuses on lending against, financing and leasing equipment collateral that has an economic life longer than the term of the receivable, is not subject to rapid technological obsolescence, has applications in various industries, is easily accessible and movable and has a broad resale market. The Company may also obtain third party guarantees and/or hold back a portion of the financing. Concentrations of credit risks arise when counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have a significant concentration of such credit risks with any one counterparty. The major concentrations of such credit risks grouped by the industries and geographic regions of counterparties, expressed as a percentage of finance receivables, were as follows: July 31, 1996 1995 - ----------------------------------------------------------- Industry: Trucking 20% 18% Construction 17 17 Waste disposal 13 14 Cranes 11 16 Geographic region: Southwest 27% 34% Southeast 25 23 Northeast 21 17 Central 17 18 18 FINANCIAL FEDERAL CORPORATION (Note I)--Fair Values of Financial Instruments: The Company's financial instruments consist of cash, finance receivables (excluding leases), commitments to extend credit and debt. The following summarizes the methods used to estimate the fair value of these financial instruments. The carrying values of cash, commercial paper and borrowings under revolving credit facilities approximate their fair values due to their short-term maturities. The carrying value of the subordinated debentures is estimated to approximate fair value since the debentures were either repaid or replaced by debentures with similar terms at face value in August 1996. The fair value of the $55,000,000 of institutional term notes at July 31, 1996 is estimated at $53,300,000 based on their future cash flows discounted at a current rate for debt with similar terms and maturity. It is not practicable for the Company to estimate the fair value of its finance receivables and commitments to extend credit. These financial instruments consist of a substantial number of transactions with commercial obligors in numerous industries and are secured by liens on various types of equipment. Each transaction would be valued by a potential buyer based on its credit quality, collateral value, payment history, interest rate, maturity, documentation and other legal matters, and many other considerations which involve the subjective judgment of the buyer. A fair market transaction would also be based on the nature of the purchase, the documentation governing such purchase, the seller's and buyer's view of general economic conditions, industry dynamics, the seller's and buyer's tax considerations, and numerous other factors. The approximate weighted average interest rate was 11.1% and 11.6% on fixed rate loans at July 31, 1996 and 1995, respectively, and 2.8% over the prime rate on variable rate loans at July 31, 1996 and 1995. (Note J)--Stock Options: The Company adopted a stock option plan in September 1989 (as amended) providing for grants of non-qualified and incentive options to officers, directors and employees to purchase a maximum of 1,500,000 shares of common stock. The plan expires in September 1999 subject to earlier termination by the Board of Directors. The activity of the plan, adjusted to reflect the three-for-two stock split, is summarized as follows: Number of Exercise Price Options Per Option - ------------------------------------------------------------------------ Outstanding at August 1, 1993 ................ 559,950 $ 4.17-$11.00 Granted (includes replacement options) ....... 183,675 9.33 Exercised ................... (352,200) 4.17- 4.96 Canceled (includes replaced options) .......... (75,750) 10.67- 11.00 --------- Outstanding at July 31, 1994 (105,600 exercisable) ......... 315,675 4.17- 11.00 Granted ..................... 1,800 10.17 Exercised ................... (72,300) 4.17- 4.96 Canceled .................... (8,850) 9.33- 11.00 --------- Outstanding at July 31, 1995 (44,625 exercisable) .......... 236,325 4.96- 11.00 Granted ..................... 172,150 10.17- 15.00 Exercised ................... (33,675) 4.96- 11.00 Canceled .................... (31,725) 9.33- 11.00 --------- Outstanding at July 31, 1996 (64,988 exercisable) .......... 343,075 9.33- 15.00 ========= All options were granted at exercise prices not less than the fair market value of the common stock on the date of the grant. Options granted have a six year term and vest (become exercisable) in four equal cumulative annual installments commencing on the second anniversary of the grant date except for 75,000 options granted to certain executive officers in 1996 which have an eight year term and vest in eight varying annual cumulative installments. At July 31, 1996, 838,250 shares of common stock were available for future grants of options. In June 1994, 71,475 options granted in 1993 were replaced by options with an exercise price of $9.33 and a longer vesting period. Certain dispositions of stock acquired through the exercise of incentive stock options resulted in federal and state income tax benefits to the Company of $37,000 in 1995 and $376,000 in 1994. In November 1993, the Company acquired 96,000 optioned shares of common stock from an officer/ director for $1,440,000. The cost was $10 per share as restated to reflect the January 1996 stock split. These shares were retired during 1996. In October 1995, the Financial Accounting Standards Board 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. As permitted by SFAS 123, the Company has elected to adopt the disclosure provisions of this standard in 1997. 19 FINANCIAL FEDERAL CORPORATION INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Financial Federal Corporation We have audited the accompanying consolidated balance sheets of Financial Federal Corporation and Subsidiaries as at July 31, 1996 and 1995, and the related consolidated statements of stockholders' equity, operations and cash flows for each of the three years in the period ended July 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Financial Federal Corporation and Subsidiaries at July 31, 1996 and 1995, and their consolidated operating results and their cash flows for each of the three years in the period ended July 31, 1996, in conformity with generally accepted accounting principles. /s/ Eisner & Lubin LLP --------------------------- CERTIFIED PUBLIC ACCOUNTANTS New York, New York August 30, 1996 Financial Federal Corporation and Subsidiaries SELECTED QUARTERLY DATA Operations for the quarters included in the years ended July 31, 1996 and 1995 are summarized as follows: Earnings per Share - -------------------------------------------------------------------------------- Net Fully Revenues Earnings Primary Diluted - -------------------------------------------------------------------------------- Fiscal 1996, three months ended: October 31, 1995 ........... $10,175,000 $ 2,124,000 $ 0.24 $ 0.23 January 31, 1996 ........... 10,741,000 2,317,000 0.25 0.25 April 30, 1996 ........... 10,905,000 2,439,000 0.27 0.27 July 31, 1996 ........... 11,702,000 2,730,000 0.26 0.26 Fiscal 1995, three months ended: October 31, 1994 ........... $ 7,611,000 $ 1,706,000 $ 0.19 $ 0.19 January 31, 1995 ........... 8,464,000 1,751,000 0.19 0.19 April 30, 1995 ........... 9,055,000 1,835,000 0.21 0.21 July 31, 1995 ........... 9,821,000 1,917,000 0.21 0.21 20 FINANCIAL FEDERAL CORPORATION CORPORATE DIRECTORY Officers Clarence Y. Palitz, Jr. Chairman of the Board and President Michael C. Palitz Executive Vice President and Treasurer Paul Sinsheimer Executive Vice President William M. Gallagher Senior Vice President Troy H. Geisser Senior Vice President and Secretary Richard W. Radom Senior Vice President Julian C. Green, Jr. Vice President Jeanne McDonald Vice President Fred J. Palumbo Vice President Ted Wooldridge Administrative Vice President David H. Hamm Controller and Assistant Treasurer Directors Lawrence B. Fisher Partner Orrick, Herrington & Sutcliffe Attorneys William C. MacMillen, Jr. President William C. MacMillen & Co., Inc. Investment Bankers Bernard G. Palitz President Gregory Capital Corporation Investments Clarence Y. Palitz, Jr. Chairman of the Board and President Financial Federal Corporation Michael C. Palitz Executive Vice President and Treasurer Financial Federal Corporation Paul Sinsheimer Executive Vice President Financial Federal Corporation Officers of Subsidiaries Only John V. Golio Vice President Daniel J. McDonough Vice President Donald G. Pokorny Vice President Luther C. Whitlock Vice President William J. Flaherty Administrative Vice President Johnie E. Christ Regional Vice President Thomas Fahl Regional Vice President James M. Keesee Regional Vice President Michael A. Nelson Regional Vice President James R. Scappi Regional Vice President Kevin McGinn Assistant Vice President Gary L. Pace Assistant Vice President Rodney S. Sepulvado Assistant Vice President Kimberly P. Walter Assistant Vice President Gerry H. Wilson Assistant Vice President Donna L. Frate Assistant Secretary Robert Grawl, Jr. Assistant Secretary John M. Impens Assistant Secretary Bart Chinnici Assistant Controller Barbara Constantino Assistant Controller E. Scott Megason Assistant Controller Headquarters 400 Park Avenue New York, NY 10022 (212) 888-3344 Full Service Branches: 1300 Post Oak Blvd. Houston, TX 77056 (713) 439-1177 601 Oakmont Lane Westmont, IL 60559 (630) 986-3900 300 Frank W. Burr Blvd. Teaneck, NJ 07666 (201) 801-0300 One University Place 8801 J. M. Keynes Drive Charlotte, NC 28262 (704) 549-1009 1855 W. Baseline Road Mesa, AZ 85202 Auditors Eisner & Lubin LLP, Certified Public Accountants, 250 Park Avenue, New York, NY 10177 General Counsel Orrick Herrington & Sutcliffe, 666 Fifth Avenue, New York, NY 10103 Transfer Agent and Registrar The Bank of New York, New York, NY The annual meeting of shareholders will be held at 270 Park Avenue, New York, NY on December 10, 1996 at 10 a.m. Eastern Time. Corporate Information For a copy of Form 10-K or other information about the Corporation contact: Investor Relations Financial Federal Corporation 400 Park Avenue New York, NY 10022 (212) 888-3344 Designed by Curran & Connors, Inc. [BACK COVER] [LOGO] FINANCIAL FEDERAL CORPORATION 400 Park Avenue New York, NY 10022 EX-27 3
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES AS AT JULY 31, 1996 AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR JUL-31-1996 JUL-31-1996 2426 0 437706 8008 0 0 0 0 433087 0 317787 0 0 4980 89211 433087 0 43523 0 0 0 1710 19271 15429 5819 9610 0 0 0 9610 1.01 1.01 THE FINANCIAL STATEMENTS INCLUDE AN UNCLASSIFIED BALANCE SHEET.
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