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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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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, 1997
Commission file number 1-12006
FINANCIAL FEDERAL CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 88-0244792
(State of incorporation) (I.R.S. Employer Identification No.)
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 20, 1997 was $169,800,281.25. 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 $18.75
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 9,056,015 shares.
The number of shares of the Registrant's Common Stock outstanding as of
October 20, 1997 was 14,777,325 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's proxy statement for its Annual Meeting of Stockholders, to be
held December 9, 1997, 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
7 through 25 of Financial Federal Corporation's 1997 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, incorporated under the laws of Nevada 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 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
revenue-producing 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 cost of borrowed funds, operating and administrative
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, buses, 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 procedures that are designed to
achieve attractive yields while minimizing delinquencies and credit 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 assess the
creditworthiness of the obligors and collateral values and accordingly
structure transactions to 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 revenue-producing equipment that is movable,
has an economic life longer than the term of the financing, is not subject to
rapid technological obsolescence, has applications in a number of different
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industries and has a relatively broad resale market. A majority of the
collateral pledged to the Company by obligors 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 purpose of determining resale values.
Expansion. The Company's five full service offices are located in the
United States. Thirty-five (35) 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.
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
70% of the Company's directors, officers and employees who had been employed
by the Company for at least one year as of July 31, 1997, are presently
participants in the Stock Option Plan and/or own stock in the Company.
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 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. Any
such reduction in the Company's funding costs should enable the Company to
become more rate competitive, 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 market
conditions.
Marketing Strategy
The Company markets its services through marketing personnel based in 23
domestic locations, including 5 full service offices, 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 end-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 compete effectively 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.
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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. The Company's vendor relationships generally are
nonexclusive. The Company presently has relationships 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. The Company may also have recourse to the vendors.
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. Finance receivables originated by
the Company averaged $144,000 in fiscal 1997, $140,000 in fiscal 1996 and
$134,000 in fiscal 1995.
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 providing capital loans secured by
equipment. Customers seek capital loans for numerous reasons, including
consolidation of obligations, working capital needs, 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. The Company's capital loans
are generally four to five years in term, and generally provide for prepayment
premiums.
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 several designations of credit officer
authority levels. A credit officer's authority level is based, among other
4
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, any single
obligor concentration above $2.0 million requires the approval of the
Company's Chairman, President or Chief Operating Officer.
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 equipment 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 $100 billion and its share of this market is less than
1%.
Employees
At July 31, 1997, the Company had 130 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 non-disclosure and
non-solicitation provisions) 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 a period of time
5
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., 66, 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, 39, 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, 50, 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, 48, 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, 36, 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, 49, 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 square feet of space. As of July
31, 1997, the Company has five full service offices (where credit analysis and
approval, collection and marketing functions are performed) in Houston, Texas;
Westmont (Chicago), Illinois; Teaneck (New York metropolitan area), New
Jersey; Charlotte, North Carolina and Mesa (Phoenix), Arizona, which generally
consist of approximately 2,000 to 7,000 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.
6
Item 3. LEGAL PROCEEDINGS
There are no material 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, 1997.
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 July 1997 and January
1996 three-for-two stock splits.
Price Range
----------------
High Low
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Fiscal year 1997
- -------------------------------------
First Quarter ended October 31, 1996 $10.58 $ 8.50
Second Quarter ended January 31, 1997 $11.83 $ 9.25
Third Quarter ended April 30, 1997 $13.00 $10.42
Fourth Quarter ended July 31, 1997 $15.58 $11.42
Fiscal year 1996
- -------------------------------------
First Quarter ended October 31, 1995 $ 9.73 $ 7.83
Second Quarter ended January 31, 1996 $11.00 $ 9.28
Third Quarter ended April 30, 1996 $11.25 $10.09
Fourth Quarter ended July 31, 1996 $11.42 $ 8.42
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
20, 1997 was 74. 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, 1997, which information is incorporated herein by reference.
The Company has not paid any cash dividends on its Common Stock.
7
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,
1997, 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, 1997, 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 the Registrant's proxy statement to be filed pursuant to
Regulation 14A for its Annual Meeting of Stockholders to be held December 9,
1997, 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 the Registrant's proxy statement to be filed pursuant to
Regulation 14A for its Annual Meeting of Stockholders to be held December 9,
1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated by reference from the
information in the Registrant's proxy statement to be filed pursuant to
Regulation 14A for its Annual Meeting of Stockholders to be held December 9,
1997.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from the
information in the Registrant's proxy statement to be filed pursuant to
Regulation 14A for its Annual Meeting of Stockholders to be held December 9,
1997.
8
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 13 through 24 of
the Registrant's Annual Report to Stockholders for the fiscal
year ended July 31, 1997, as provided in Item 8 hereof:
- Consolidated Balance Sheet as at July 31, 1997 and 1996.
- Consolidated Statement of Stockholders' Equity for the fiscal
years ended July 31, 1997, 1996 and 1995.
- Consolidated Statement of Operations for the fiscal years ended
July 31, 1997, 1996 and 1995.
- Consolidated Statement of Cash Flows for the fiscal years ended
July 31, 1997, 1996 and 1995.
- 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 notes thereto.
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
4.7 Form of Note Agreement dated as of July 1, 1997 issued by
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
9
10.22******** Form of Deferred Compensation Agreement with certain officers
as filed under the Top Hat Plan with the Department of Labor
10.23********* Deferred Compensation Agreement dated December 30, 1996 between
the Registrant and Clarence Y. Palitz, Jr.
11.1 Computation of Earnings Per Share
13.1 1997 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.
********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,
1996.
*********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, 1997.
(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, 1997.
10
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 27, 1997
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 27, 1997
Chairman of the Board, President and Chief Executive Date
Officer
/s/Lawrence B. Fisher October 27, 1997
Director Date
/s/William C. MacMillen, Jr. October 27, 1997
Director Date
/s/Bernard G. Palitz October 27, 1997
Director Date
/s/Paul Sinsheimer October 27, 1997
Executive Vice President and Director Date
/s/Michael C. Palitz October 27, 1997
Executive Vice President, Treasurer, Chief Financial Date
Officer and Director
/s/David H. Hamm October 27, 1997
Controller, Assistant Treasurer and Principal Date
Accounting Officer
11
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.
12
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
September 4, 1997
13
Schedule I
FINANCIAL FEDERAL CORPORATION
CONDENSED BALANCE SHEET
July 31,
---------------------------
1997 1996
------------ ------------
ASSETS
Cash $ 117,000 $ 256,000
Due from subsidiaries:
Advances 18,650,000 27,626,000
Subordinated notes receivable 50,000,000 45,000,000
Investment in subsidiaries - at equity 46,039,000 34,749,000
Other assets 473,000 814,000
------------ ------------
TOTAL $115,279,000 $108,445,000
============ ============
LIABILITIES
Senior debt $ 4,901,000 $ 4,966,000
Accrued interest, taxes and other liabilities 2,484,000 2,331,000
Subordinated debt 2,290,000 6,957,000
------------ ------------
Total liabilities 9,675,000 14,254,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 7,382,000 4,980,000
Additional paid-in capital 57,315,000 58,289,000
Warrants 29,000 29,000
Retained earnings 40,878,000 30,893,000
------------ ------------
Total stockholders' equity 105,604,000 94,191,000
------------ ------------
TOTAL $115,279,000 $108,445,000
============ ============
The notes hereto, the consolidated financial statements and the notes
thereto are made a part hereof.
14
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 $18,661,000 $14,205,000 $10,891,000
Interest charges to subsidiaries 5,060,000 4,007,000 3,266,000
----------- ----------- -----------
Total 23,721,000 18,212,000 14,157,000
----------- ----------- -----------
Expenses:
Interest expense 590,000 972,000 1,004,000
Other expenses (net) 2,144,000 1,811,000 1,581,000
----------- ----------- -----------
Total 2,734,000 2,783,000 2,585,000
----------- ----------- -----------
Earnings before income taxes 20,987,000 15,429,000 11,572,000
Provision for income taxes 8,078,000 5,819,000 4,363,000
----------- ----------- -----------
NET EARNINGS 12,909,000 9,610,000 7,209,000
Retirement of treasury stock (463,000) (840,000)
Three-for-two stock split (2,461,000) (1,372,000)
Retained earnings - August 1 30,893,000 23,495,000 16,286,000
----------- ----------- -----------
RETAINED EARNINGS - JULY 31 $40,878,000 $30,893,000 $23,495,000
=========== =========== ===========
The consolidated financial statements and the notes
thereto are made a part hereof.
15
FINANCIAL FEDERAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
Year Ended July 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Net cash provided by operating activities $ 1,922,000 $ 1,330,000 $ 381,000
----------- ----------- -----------
Cash flows from investing activities:
Collections from (advances to) subsidiaries-net 8,976,000 (8,301,000) 2,853,000
Subordinated notes receivable-subsidiary:
Advanced (5,000,000) (20,000,000) (25,000,000)
Collected 20,000,000
Dividends received from subsidiary 200,000 500,000 2,000,000
----------- ---------- -----------
Net cash provided by (used in) investing
activities 4,176,000 (27,801,000) (147,000)
----------- ---------- -----------
Cash flows from financing activities:
Commercial paper:
Proceeds 66,207,000 76,869,000 71,393,000
Repayments (66,272,000) (76,509,000) (71,770,000)
Note payable - bank (500,000) 500,000
Repurchase of subordinated debt (4,667,000) (595,000)
Proceeds from sale of common stock, net 26,340,000
Proceeds from exercise of stock options
and warrants 61,000 166,000 306,000
Acquisition of treasury stock (1,630,000)
Tax benefit relating to stock options 64,000 37,000
----------- ----------- -----------
Net cash provided by (used in) financing
activities (6,237,000) 26,366,000 (129,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (139,000) (105,000) 105,000
Cash - August 1 256,000 361,000 256,000
----------- ----------- -----------
CASH - JULY 31 $ 117,000 $ 256,000 $ 361,000
=========== =========== ===========
Non-cash financing activities:
In 1997, the Company retired 124,300 common shares held as treasury stock
resulting in decreases of common stock, additional paid-in capital and
retained earnings of $62,000, $1,105,000 and $463,000, respectively.
Additionally, the Company authorized a three-for-two stock split effected in
the form of a stock dividend.
In 1996, the Company retired 96,000 common shares held as treasury stock
resulting in decreases 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.
The consolidated financial statements and the notes thereto are made a part
hereof.
16
FINANCIAL FEDERAL CORPORATION
NOTES TO CONDENSED BALANCE SHEET
1. Basis of Presentation:
In accordance with the requirements of Regulation S-X of the Securities and
Exchange Commission, the Condensed Financial Statements of the Registrant do
not include all of the information and notes included in the consolidated
financial statements and the notes thereto.
2. Due from Subsidiaries:
Advances to subsidiaries generally bore interest at 5.9% and 5.7% at July 31,
1997 and 1996, respectively.
Subordinated notes receivable are summarized as follows:
Maturity Interest rate Amount
----------------- ------------- -----------
July 31, 2002 8.35% $25,000,000
September 1, 2002 7.85 5,000,000
September 1, 2002 7.70 5,000,000
September 1, 2002 6.90 5,000,000
July 31, 2004 7.50 10,000,000
-----------
Total $50,000,000
===========
The notes and interest thereon are subordinated to the subsidiary's borrowings
from banks, institutional and other investors, commercial paper investors and
other debt designated by the subsidiary's Board of Directors. Interest is
receivable quarterly.
Other assets include $422,000 and $744,000 of accrued interest receivable from
subsidiaries at July 31, 1997 and 1996, respectively.
17
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 *
4.7 Form of Note Agreement dated as of July 1, 1997 issued
by Credit to certain institutional note holders 19
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. *
10.22 Form of Deferred Compensation Agreement with certain
officers as filed under the Top Hat Plan with the
Department of Labor *
10.23 Deferred Compensation Agreement dated December 30, 1996
between the Registrant and Clarence Y. Palitz, Jr. *
11.1 Computation of Earnings Per Share 44
13.1 1997 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 45
23.1 Consent of Independent Auditors 46
27 Financial Data Schedule (EDGAR version only)
*Previously filed with the Securities and Exchange Commission as an exhibit.
18