-----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, FvKI8m3ugRbp7pAwMm88KEfTlrFUXaLIVcFG+93fJyLob52REI55GPyAJ64iYTVU t9qvTk5ewZRV7Kt9PzAi3g== 0000854711-06-000036.txt : 20061025 0000854711-06-000036.hdr.sgml : 20061025 20060321154839 ACCESSION NUMBER: 0000854711-06-000036 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20060321 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: CORRESP BUSINESS ADDRESS: STREET 1: 733 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2125998000 MAIL ADDRESS: STREET 1: 733 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 CORRESP 1 filename1.txt [LOGO] FINANCIAL FEDERAL CORPORATION ----------------------------------------------------------------- 733 Third Ave., New York, NY 10017 (212) 599-8000 Fax (212) 286-5885 www.financialfederal.com March 13, 2006 UNITED STATES SECURITIES AND EXCHANGE COMMISSION 100 F. Street, N.E. Washington, D.C. 20549 Attn: Joyce Sweeney, Accounting Branch Chief Via mail and facsimile (202) 772-9208 Re: Financial Federal Corporation Form 10-K for the fiscal year ended July 31, 2005 File No. 1-14237 ------------------------------------------------- Dear Ms. Sweeney: We are responding to your comment letter dated and received by fax March 7, 2006. Financial Federal Corporation (the "Registrant") and its management acknowledge (i) the Registrant is responsible for the adequacy and accuracy of the disclosures in the Annual Report on Form 10-K for its fiscal year ended July 31, 2005 (ii) Securities and Exchange Commission staff comments or changes to disclosures in response to Securities and Exchange Commission staff comments do not foreclose the Securities and Exchange Commission from taking any action with respect to the Form 10-K and (iii) the Registrant may not assert Securities and Exchange Commission staff comments as a defense in any proceeding initiated by the Securities and Exchange Commission or any person under the federal securities laws of the United States. Our responses are keyed to the four bullet points under your comment 1. "We note your disclosure on page 14 that in December 2004 you irrevocably elected to pay the value of converted debentures, not exceeding the principal amount, in cash. Please tell us the following:" Comment # 1, first bullet - - --------------------------- "the specific terms of the convertible debentures prior to and subsequent to this election;" The Indenture, dated April 12, 2004, between Financial Federal Corporation and Deutsche Bank Trust Company Americas for Registrant's $175 million 2.0% Convertible Senior Debentures due 2034 was attached as Exhibit 4.15 to the Form 8-K filed with the Securities and Exchange Commission on April 22, 2004 (SEC Accession No. 0000854711-04-000031). Section 10.03 (c) of the Indenture (reproduced below) states (as bolded below) the Registrant may irrevocably elect, in its sole discretion without the consent of the 1 Holders, ... to satisfy the Conversion Obligation in cash by paying 100% of the principal amount. Attached as Exhibit A, is the Notice of Election of Cash Settlement the Registrant sent to Deutsche Bank (the transfer agent) for distribution to the holders. INDENTURE SECTION 10.03 ----------------------- (c) Notwithstanding anything to the contrary in this Indenture, [START BOLD at any time prior to Stated Maturity, the Company may irrevocably elect, in its sole discretion without the consent of the Holders, by notice to the Trustee and the Holders, to satisfy the Conversion Obligation in cash by paying 100% of the principal amount of the Securities converted after the date of such election. END BOLD] After making such election, the Company shall satisfy the remainder of the Conversion Obligation to the extent it exceeds the principal amount in Common Stock. Settlement amounts shall be computed and settlement dates shall be determined in the same manner as set forth above under clause (a); provided that notice of the election to deliver cash for the principal amount will be deemed to have been provided on the last date of the Cash Settlement Notice Period and the Notice of Conversion will not be retractable. The Registrant's irrevocable election did not change the terms of nor amend the Indenture. Registrant's initial disclosure of this transaction (reproduced below) in a Securities and Exchange Commission filing was made in Part II, Item 5, Other Information in its quarterly report filed on Form 10-Q for the quarter ended October 31, 2004 filed with the Securities and Exchange Commission on December 9, 2004 (SEC Accession No. 0000854711-04-000108). OCTOBER 31, 2004 FORM 10-Q, PART II Item 5. Other Information ----------------------------------- On December 8, 2004, we irrevocably elected (in accordance with the terms of our $175.0 million convertible senior debentures due in 2034) to fix the payment of the value of converted debentures, not exceeding the principal amount, in cash. Any value in excess of principal will be paid in shares of common stock. This eliminated the 4.0 million shares of common stock originally issuable upon conversion. Comment # 1, second bullet - - ---------------------------- "whether this transaction was an election of previously available provisions of the debenture or a modification of terms;" This transaction was a unilateral election of the Registrant (not requiring consent of the Holders) of a previously available provision of the debentures and did not require modification of its terms. The sole effect of the election was to eliminate the flexibility the Registrant originally had under the Indenture to deliver the value of converted debentures in any combination of cash or stock. Therefore, the election only affects the form of payment. The election had no effect on the interest rate, timing of cash flows, convertibility, principal amount or maturity of the debentures. The election was effected without any fees paid or received and did not involve any intermediaries. Comment # 1, third bullet - - --------------------------- "how you will determine the amount of shares issuable in exchange for any value over principal; and" The number of shares issuable in exchange for any value over principal will be determined as follows: For each $1,000 principal amount of debentures, the number of shares issuable for any value over principal as of July 31, 2005 would equal the adjusted conversion rate of 22.86 shares multiplied by the 2 closing stock price on the conversion date less $1,000 and then divided by the closing stock price. For example, if the closing stock price were $50, two shares would be issuable and cash would be paid in lieu of 0.86 fractional shares. Comment # 1, fourth bullet - - ---------------------------- "your analysis of the impact of applying SFAS 128 and EITF 04-8 prior to and subsequent to the election" Our analysis of the impact on diluted earnings per share of applying SFAS 128 and EITF 04-8 before the election for the first quarter of fiscal 2005 (quarter ended October 31, 2004) and the fourth quarter of fiscal 2004 (quarter ended July 31, 2004), the only two full quarters impacted before the election, follows (in thousands, except per share amounts): =============================================================================== Three Months Ended Three Months Ended October 31, 2004 July 31, 2004 ----------------------------------------- Election Election Election Election not made made* not made made* =============================================================================== Net income $8,560 $8,560 $8,211 $8,211 After-tax interest expense on convertible debentures 714 - 711 - - ------------------------------------------------------------------------------- Adjusted net income $9,274 $8,560 $8,922 $8,211 =============================================================================== Weighted average common shares outstanding 16,893 16,893 16,853 16,853 Effect of dilutive securities: Convertible debentures 3,969 - 3,969 - Stock options 263 263 227 227 Restricted stock/stock units 114 114 79 79 - ------------------------------------------------------------------------------- Adjusted weighted average common shares outstanding 21,239 17,270 21,128 17,159 =============================================================================== Diluted earnings per common share: $0.44 $0.50 $0.42 $0.48 =============================================================================== Reduction in diluted EPS $0.06 $0.06 Percentage of reduction 12.0% 12.5% =============================================================================== * same as reported The reduction in diluted earnings per share for fiscal 2004 would have been $0.07 (the debentures were issued April 12, 2004). Registrant disclosed in its earnings press release dated December 8, 2004 for its first fiscal quarter ended October 31, 2004 (filed as Exhibit 99.1 to the October 31, 2004 Form 10-Q) the above $0.06 reduction in diluted earnings per share (reproduced below). Steven F. Groth, CFO, announced: "In response to a recent accounting rule change in the calculation of diluted earnings per share, we have irrevocably elected (in accordance with the terms of our $175 million 2.0% convertible senior debentures due 2034) to fix the payment of the principal amount of converted debentures in cash. As a result, the rule change will not affect diluted earnings per share. Had we not made this election, the new rule would have required the 4.0 million shares of common stock originally issuable upon conversion of the debentures to be included as shares outstanding in the diluted earnings per share calculation reducing quarterly diluted earnings per share by approximately $0.06." 3 Our analysis of the impact on diluted earnings per share of applying SFAS 128 and EITF 04-8 after the election follows: ANALYSIS OF THE APPLICATION OF THE TREASURY STOCK METHOD TO THE ELECTION TO IRREVOCABLY PAY THE PRINCIPAL AMOUNT OF THE CONVERTIBLE DEBENTURES IN CASH AS OF OCTOBER 31, 2004
Quarterly average stock price * $44.10 $45.10 $46.10 $47.10 $48.10 $48.30 ------------ ----------- ----------- ----------- ----------- ----------- Quarterly diluted earnings per share $0.50 $0.50 $0.50 $0.50 $0.50 $0.50 Diluted shares outstanding 17,270,000 17,270,000 17,270,000 17,270,000 17,270,000 17,270,000 Conversion price $44.10 $44.10 $44.10 $44.10 $44.10 $44.10 Convertible shares 3,969,000 3,969,000 3,969,000 3,969,000 3,969,000 3,969,000 Principal 175,000,000 175,000,000 175,000,000 175,000,000 175,000,000 175,000,000 Additional diluted shares 0 88,004 172,191 252,803 330,062 345,130 Additional shares per dollar increase in average stock price 88,004 86,095 84,268 82,516 82,174 Percentage of additional shares 0.51% 1.00% 1.46% 1.91% 2.00% Reduction of diluted earnings per share $0.0025 $0.0050 $0.0073 $0.0096 $0.0100
Each dollar the average quarterly stock price exceeds the conversion price would lower earnings per share by approximately $0.0025. The average stock price must be $48.30, or $4.20 above the conversion price, to reduce quarterly diluted earnings per share by a full $0.01. * The average stock price for the quarter ended October 31, 2004 was $34.85 and therefore, the convertible debentures did not affect diluted earnings per share. 4 As a result your letter, we added the following underlined disclosures to Notes 3 and 7 in our Form 10-Q filed March 10, 2006 for the fiscal quarter ended January 31, 2006 (please note the share and per share amounts in the following were adjusted for the Registrant's January 31, 2006 3-for-2 stock split and the share and per share amounts above were not adjusted): Note 3 Debt Convertible Debentures The convertible debentures were originally convertible into 5,954,000 shares of common stock at the conversion price of $29.40 per share resulting in an initial conversion rate of 34.0167 shares per $1 (one thousand) of principal. In December 2004, we irrevocably elected (under the existing terms of the debentures and ----------------------------------------------- without modifying the debentures) to pay the value of converted - --------------------------------- debentures, not exceeding the principal amount, in cash. This eliminated the 5,954,000 shares of common stock originally issuable upon conversion. We will pay any value over principal with shares of common stock. The number of shares needed to deliver the value ------------------------------------------------ of the debentures over their principal amount would equal the amount - -------------------------------------------------------------------- the price of our common stock on the conversion date exceeds the - ---------------------------------------------------------------- conversion price divided by the price of our common stock on the - ---------------------------------------------------------------- conversion date and multiplied by the number of convertible shares. - ------------------------------------------------------------------- Through January 31, 2006, no event allowing for the debentures to be converted has occurred. Note 7 Earnings per share The convertible debentures will not lower diluted EPS until the quarterly average price of our common stock exceeds the adjusted conversion price of $28.99. In fiscal periods when the average price of our common stock exceeds $28.99, the number of shares of common stock needed to deliver the value of the debentures above their principal amount based on the average stock price would be included as shares outstanding in calculating diluted EPS. The number of shares to be included would equal the amount of the - ----------------------------------------------------------------- average stock price above the $28.99 conversion price divided by the - -------------------------------------------------------------------- average stock price and multiplied by the 6,038,000 convertible - --------------------------------------------------------------- shares (referred to as the treasury stock method). The average - -------------------------------------------------- price of our common stock was $28.30 and $27.00 for the three and six months ended January 31, 2006, respectively. You may contact Steven F. Groth, Chief Financial Officer, or me at (212) 599-8000 if you have any questions. Sincerely, Financial Federal Corporation _________________________________ Paul R. Sinsheimer Chief Executive Officer and President 5 Exhibit A NOTICE OF ELECTION OF CASH SETTLEMENT ------------------------------------- December 8, 2004 To the Beneficial Owners of the 2.0% Convertible Senior Debentures Due 2034 (the "Debentures") issued by Financial Federal Corporation: Financial Federal Corporation (the "Company") by this written notice ("Notice") hereby notifies you, pursuant to Section 10.03(c) of the Indenture, dated April 12, 2004, between the Company and Deutsche Bank Trust Company Americas (the "Indenture") that it is hereby irrevocably electing to satisfy in cash up to one hundred percent (100%) of the principal amount of the Debentures converted after the date of this Notice, with any remaining amount to be satisfied in shares of the Company's common stock. Settlement amounts shall be computed and settlement dates shall be determined in the same manner as set forth in Section 10.03(a) of the Indenture. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Indenture. FINANCIAL FEDERAL CORPORATION 6 -----END PRIVACY-ENHANCED MESSAGE-----