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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, 1998
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.)
733 Third Avenue, New York, New York 10017
(Address of principal executive offices)
400 Park Avenue, New York, New York 10022
(Former address of principal executive offices)
Registrant's telephone number, including area code: (212) 599-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- ------------------------------- ------------------------------------
Common Stock, $.50 par value New York Stock Exchange, Inc.
4.5% Convertible Subordinated
Notes due 2005 New York Stock Exchange, Inc.
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 1, 1998 was $223,043,366.81. The
aggregate market value was computed by reference to the closing price of the
Common Stock on the New York Stock Exchange on the prior day (which was
$21.9375 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 10,167,219 shares. The number of shares of
Registrant's Common Stock outstanding as of October 1, 1998 was 14,857,053
shares.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's proxy statement for its Annual Meeting of Stockholders, to be
held December 8, 1998, 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 9 through
26 of Registrant's 1998 Annual Report to Stockholders is incorporated by
reference in answer to Items 6, 7, 7A and 8 of Part II.
Page 1
PART I
Item 1. BUSINESS
The Company, incorporated under the laws of Nevada in 1989, is a
nationwide independent financial services company with over $766 million of
assets. The Company finances industrial, commercial and professional equipment
through installment sales and leasing programs for manufacturers, dealers and
operators of such equipment. The Company also makes capital loans to its
customers, secured by the same types of equipment and other collateral. The
Company provides its services primarily to middle-market businesses, generally
with annual revenues of up to $20 million, that are located throughout the
nation and represent diverse industries, such as general construction, road and
infrastructure construction and repair, manufacturing, trucking, and waste
disposal. The Company focuses on financing a wide range of revenue-producing
equipment of major manufacturers that is movable, has an economic life longer
than the term of the financing, is not subject to rapid technological
obsolescence, has applications in various industries and has a relatively broad
resale market. Sample types of equipment financed by the Company 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. In substantially all cases, the Company's finance
receivables are secured by a first lien on such equipment collateral.
Currently, the Company generates profits to the extent that its income
from finance receivables exceeds its cost of borrowed funds, operating and
administrative expenses and provision for possible losses. In addition, the
Company may generate profits from investing in operating leases, portfolios of
loans and/or leases or from acquiring full or partial ownership interests of
private or public companies in the finance, leasing and/or lending businesses.
Marketing
The Company markets its services through marketing personnel based in 25
domestic locations, including 5 full service operations centers. At July 31,
1998, forty-eight (48) full-time new business marketing representatives
directly report to such operations centers. The Company 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 equipment operators for
the acquisition or use of equipment and for capital loans. 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 through the expansion of the Company's marketing efforts into new
geographic areas and further penetration in its existing areas by employing
additional marketing personnel and opening new full service operations centers.
The Company's marketing personnel are salaried rather than commission-based and
the majority participate in the Stock Option Plan. Thus, the Company believes
that its marketing personnel have a close community of interest with the
Company and its stockholders.
The Company's marketing activities are relationship and service oriented.
The Company focuses on providing prompt, responsive and customized service to
its customers and business prospects. The Company has a team of dedicated and
seasoned marketing and managerial personnel who solicit new business from the
vendors and operators of equipment. The Company's marketing and managerial
personnel have, on average, more than 15 years of specialized expertise in the
industries they serve, which generally enables them to understand customers'
businesses and be responsive to customers' needs. Management believes that the
experience, knowledge and relationships of its executives 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 which meet customers' needs and the Company's
underwriting criteria, providing direct contact between customers and Company
executives with decision-making authority and providing prompt and
knowledgeable responses to customers' 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 (operators 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 operators collateralized by equipment pursuant to personal
property security agreements. In addition, the Company purchases equipment
from vendors and, simultaneously, leases it to equipment operators, generally
under noncancelable 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.
In order to expand its customer base and broaden its marketing coverage
geographically, 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 finance receivables generally ranging in amount
from $50,000 to $1.0 million per transaction. Individual transactions
originated by the Company averaged $168,000 in fiscal 1998, $144,000 in fiscal
1997 and $140,000 in fiscal 1996.
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.
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 collateral. 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 an
operator 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. 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 applicable 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 policy 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
3
credit policy provides several 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, it is
current policy that 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 or President.
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, may obligate 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. The Company may also withhold an agreed upon
amount from the vendor/obligor or lessee as security or obtain cash collateral
from an obligated party as security.
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
Customer payments of finance receivables are remitted to, and processed
in a central location. Collection efforts in connection with delinquent
accounts, however, are handled by the collection personnel and managers in each
operations center 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 operators 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, management involvement in customer relationships and 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 a competitive
salary, an equity interest in the Company through participation in the Stock
Option Plan, and enhanced career opportunities. As of July 31, 1998,
approximately 70% of the Company's directors, officers and employees with at
least one year of service participate in the Stock Option Plan and/or own stock
in the Company.
Employees
At July 31, 1998, the Company had 162 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 the Stock Option Plan (which contains non-disclosure and
non-solicitation provisions) and deferred compensation agreements. Employees
who have participated in the Stock Option Plan have, among other things, agreed
not to solicit customers of the Company for a period of time following
termination of their employment. The Company considers its relations with its
employees to be satisfactory.
4
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., 67, has served as Chairman of the Board of the
Company since July 1996, as Chief Executive Officer of the Company since its
inception in 1989 and as President of the Company from its inception in 1989 to
September 1998. 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.
Paul R. Sinsheimer, 51, has served as President of the Company since
September 1998, as Executive Vice President of the Company from its inception
in 1989 to September 1998 and as 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.
Michael C. Palitz, 40, has served as a Director of the Company since July
1996, 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.
William M. Gallagher, 49, has served as a 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, 37, has served as a 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).
John V. Golio, 37, has served as a Senior Vice President of the Company
since 1997 and served as a Vice President of a subsidiary of the Company since
joining the Company in January 1996. Before joining the Company, Mr. Golio was
employed by CAC in various capacities, including branch operations manager.
Daniel J. McDonough, 36, has served as a Senior Vice President of the
Company since 1997. Mr. McDonough held several positions, including Vice
President of a subsidiary of the Company, Branch Manager and Operations Manager
since joining the Company in 1989. Before joining the Company, Mr. McDonough
was employed by CAC in various capacities, including regional credit manager.
Richard W. Radom, 50, 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 733 Third Avenue, New
York, New York and consist of approximately 5,000 square feet of space. As of
July 31, 1998, the Company had five full service operations centers (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
5
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 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, 1998.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under
the symbol "FIF". Trading commenced on the New York Stock Exchange on June 22,
1998; prior to that date, the Company's common stock was traded on the American
Stock Exchange. The quarterly high and low closing sales prices per share of
the common stock as reported by the New York Stock Exchange and the American
Stock Exchange, adjusted for the July 1997 three-for-two stock split, follow:
Price Range
---------------------
High Low
------ ------
Fiscal year 1998
- -------------------------------------
First Quarter ended October 31, 1997 $19.81 $14.00
Second Quarter ended January 31, 1998 $23.63 $18.00
Third Quarter ended April 30, 1998 $26.00 $20.38
Fourth Quarter ended July 31, 1998 $28.50 $23.00
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
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
1, 1998 was 73. 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, 1998, which information is incorporated herein by reference.
The Company has not paid any cash dividends on its Common Stock.
6
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,
1998, which information is incorporated herein by reference.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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,
1998, 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, 1998, 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 8,
1998, 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 8,
1998.
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 8,
1998.
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 8,
1998.
7
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 15 through 26
of the Registrant's Annual Report to Stockholders for the
fiscal year ended July 31, 1998, as provided in Item 8
hereof:
- Consolidated Balance Sheet as at July 31, 1998 and 1997.
- Consolidated Statement of Stockholders' Equity for the
fiscal years ended July 31, 1998, 1997 and 1996.
- Consolidated Statement of Operations for the fiscal years
ended July 31, 1998, 1997 and 1996.
- Consolidated Statement of Cash Flows for the fiscal years
ended July 31, 1998, 1997 and 1996.
- 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. 12
- Schedule I - Condensed Financial Information of
Registrant. 13
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 17
Exhibit No. Description of Exhibit
3.1 (a) Articles of Incorporation of the Registrant
3.2 (a) By-laws of the Registrant
3.3 (a) Form of Restated and Amended By-laws of the Registrant
4.1 (a) Form of Variable Rate Subordinated Debentures Due September 1,
2000 (a "Debenture") issued by Registrant
4.6 (f) Form of Note Agreement dated as of April 15, 1996 issued by
Financial Federal Credit Inc. ("Credit") to certain
institutional noteholders
4.7 (j) Form of Note Agreement dated as of July 1, 1997 issued by Credit
to certain institutional note holders
4.8 (k) Indenture dated January 14, 1998 for Credit's Rule 144A Medium
Term Note Program
4.9 (l) Indenture, dated as of April 15, 1998, between Registrant and
First National Bank of Chicago for Registrant's $100 million
4.5% Convertible Subordinated Notes due 2005
4.10 (l) Registration Rights Agreement, dated as of April 24, 1998,
between Registrant and BancAmerica Robertson Stephens,
Donaldson, Lufkin & Jenrette Securities Corporation, Piper
Jaffray Inc., CIBC Oppenheimer Corporation, Friedman,
Billings, Ramsey & Co., Inc., Schroder & Co. Inc., and Wheat,
First Securities, Inc. for Registrant's $100 million 4.5%
Convertible Subordinated Notes due 2005
4.11 (l) Specimen 4.5% Convertible Subordinated Note Due 2005
4.12 (l) Specimen Common Stock Certificate
10.2 (a) Form of Warrant to purchase Common Stock, as amended, issued by
the Registrant to stockholders in connection with its initial
capitalization
10.3 (a) Form of Warrant to purchase Common Stock issued by the
Registrant to certain of its officers
10.8 (a) Form of Commercial Paper Note issued by the Registrant
10.9 (a) Form of Commercial Paper Note issued by Credit
10.10 (a) Stock Option Plan of the Registrant and forms of related stock
option agreements
10.11 (b) Deferred Compensation Agreement dated June 1, 1992 between
Credit and Clarence Y. Palitz, Jr.
10.12 (b) Deferred Compensation Agreement dated June 1, 1992 between
Credit and Bernard G. Palitz
10.13 (c) Deferred Compensation Agreement dated January 1, 1993 between
Credit and Clarence Y. Palitz, Jr.
10.14 (c) Deferred Compensation Agreement dated January 1, 1993 between
Credit and Bernard G. Palitz.
10.15 (d) Deferred Compensation Agreement dated January 1, 1994 between
Credit and Clarence Y. Palitz, Jr.
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10.16 (d) Deferred Compensation Agreement dated January 1, 1994 between
Credit and Bernard G. Palitz.
10.17 (e) Deferred Compensation Agreement dated January 1, 1995 between
Credit and Bernard G. Palitz.
10.18 (e) Deferred Compensation Agreement dated January 1, 1995 between
Credit and Clarence Y. Palitz, Jr.
10.19 (e) Deferred Compensation Agreement dated February 1, 1995 between
Credit and Paul Sinsheimer
10.20 (g) Deferred Compensation Agreement dated January 1, 1996 between
Credit and Clarence Y. Palitz, Jr.
10.21 (h) Form of Commercial Paper Dealer Agreement of Credit
10.22 (h) Form of Deferred Compensation Agreement with certain officers as
filed under the Top Hat Plan with the Department of Labor
10.23 (i) Deferred Compensation Agreement dated December 30, 1996 between
the Registrant and Clarence Y. Palitz, Jr.
10.24 (k) Deferred Compensation Agreement dated January 2, 1998 between
the Registrant and Clarence Y. Palitz, Jr.
12.1 Computation Of Debt-To-Equity Ratio
13.1 1998 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)
- ---------------
(a) 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).
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) 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).
(g) 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.
(h) 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.
(i) 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.
(j) 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,
1997.
(k) 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, 1998.
(l) Previously filed with the Securities and Exchange Commission as an
exhibit to the Company's Registration Statement on Form S-3 (Registration
No. 333-56651).
(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, 1998.
9
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 Chief
Executive Officer
October 28, 1998
----------------
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, 1998
------------------------------------------------- ----------------
Chairman of the Board and Chief Executive Officer Date
/s/ Lawrence B. Fisher October 27, 1998
------------------------------------------------- ----------------
Director Date
/s/ William C. MacMillen, Jr. October 28, 1998
------------------------------------------------- ----------------
Director Date
/s/ Bernard G. Palitz October 27, 1998
------------------------------------------------- ----------------
Director Date
/s/ Paul R. Sinsheimer October 27, 1998
------------------------------------------------- ----------------
President, Chief Operating Officer and Director Date
/s/ Michael C. Palitz October 27, 1998
------------------------------------------------- ----------------
Executive Vice President, Treasurer, Chief Date
Financial Officer and Director
/s/ David H. Hamm October 27, 1998
------------------------------------------------- ----------------
Controller, Assistant Treasurer and Principal Date
Accounting Officer
10
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.
11
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 3, 1998
12
Schedule I
FINANCIAL FEDERAL CORPORATION
CONDENSED BALANCE SHEET
(In Thousands)
July 31,
-----------------------
1998 1997
-------- --------
ASSETS
Cash $ 160 $ 117
Due from subsidiaries:
Advances 122,882 18,650
Subordinated notes receivable 50,000 50,000
Investment in subsidiaries - at equity 60,945 46,039
Other assets 4,979 473
-------- --------
TOTAL $238,966 $115,279
======== ========
LIABILITIES
Senior debt $ 9,881 $ 4,901
Accrued interest, taxes and other liabilities 3,566 2,484
Subordinated debt 102,290 2,290
-------- --------
Total liabilities 115,737 9,675
-------- --------
STOCKHOLDERS' EQUITY
Common stock 7,421 7,382
Additional paid-in capital 57,869 57,315
Warrants 29 29
Retained earnings 57,970 40,878
-------- --------
Total stockholders' equity 123,229 105,604
-------- --------
TOTAL $238,966 $115,279
======== ========
The notes hereto, the consolidated financial statements and the notes thereto
are made a part hereof.
13
FINANCIAL FEDERAL CORPORATION
CONDENSED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(In Thousands)
Year Ended July 31,
-----------------------------------
1998 1997 1996
------- ------- -------
Equity in earnings of subsidiaries before
income taxes $24,907 $18,661 $14,205
Interest charges to subsidiaries 7,236 5,060 4,007
------- ------- -------
Total 32,143 23,721 18,212
------- ------- -------
Expenses:
Interest expense 2,033 590 972
Other expenses (net) 2,285 2,144 1,811
------- ------- -------
Total 4,318 2,734 2,783
------- ------- -------
Earnings before income taxes 27,825 20,987 15,429
Provision for income taxes 10,793 8,078 5,819
------- ------- -------
NET EARNINGS 17,032 12,909 9,610
Retirement of treasury stock (463) (840)
Three-for-two stock split (2,461) (1,372)
Retained earnings - August 1 40,878 30,893 23,495
------- ------- -------
RETAINED EARNINGS - JULY 31 $57,910 $40,878 $30,893
======= ======= =======
The notes hereto, the consolidated financial statements and the notes thereto
are made a part hereof.
14
FINANCIAL FEDERAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(In Thousands)
Year Ended July 31,
----------------------------------
1998 1997 1996
-------- -------- --------
Net cash provided by operating activities $ 1,157 $ 1,922 $ 1,330
-------- -------- --------
Cash flows from investing activities:
Collections from (advances to) subsidiaries-net (104,232) 8,976 (8,301)
Subordinated notes receivable-subsidiary (advances) (5,000) (20,000)
Dividends received from subsidiary 250 200 500
-------- -------- --------
Net cash provided by (used in) investing
activities (103,982) 4,176 (27,801)
-------- -------- --------
Cash flows from financing activities:
Commercial paper:
Proceeds 103,935 66,207 76,869
Repayments (98,955) (66,272) (76,509)
Proceeds from convertible subordinated notes 100,000
Repayment of note payable - bank (500)
Repurchases of subordinated debt (4,667)
Proceeds from sale of common stock, net 26,340
Proceeds from exercise of stock options 519 61 166
Acquisition of treasury stock (1,630)
Deferred debt issuance costs (2,687)
Tax benefit relating to stock options 56 64
-------- -------- --------
Net cash provided by (used in) financing
activities 102,868 (6,237) 26,366
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 43 (139) (105)
Cash - August 1 117 256 361
-------- -------- --------
CASH - JULY 31 $ 160 $ 117 $ 256
======== ======== ========
Non-cash financing activities:
In 1997, the Company retired 124 common shares held as treasury stock
resulting in decreases of common stock, additional paid-in capital and
retained earnings of $62, $1,105 and $463, 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 common shares held as treasury stock resulting
in decreases of common stock, additional paid-in capital and retained earnings
of $48, $552 and $840, respectively. Additionally, the Company authorized a
three-for-two stock split effected in the form of a stock dividend.
The notes hereto, the consolidated financial statements and the notes thereto
are made a part hereof.
15
Schedule I
FINANCIAL FEDERAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(In Thousands)
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 includes a $97,813 note with interest receivable
semi-annually at 6.75%. The note has a maturity date of May 1, 2005, but is
callable at any time. Other amounts advanced bore interest at weighted
average rates of 6.8% and 5.9% at July 31, 1998 and 1997, respectively.
Subordinated notes receivable are summarized as follows:
Maturity Interest rate Amount
-------------- ------------- -------
August 1, 2008 8.35% $25,000
August 1, 2008 7.85 5,000
August 1, 2008 7.70 5,000
August 1, 2008 6.90 5,000
August 1, 2008 7.50 10,000
-------
Total $50,000
=======
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 $2,186 and $422 of accrued interest receivable from
subsidiaries at July 31, 1998 and 1997, respectively.
16
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 *
4.8 Indenture dated January 14, 1998 for Credit's Rule 144A
Medium Term Note Program *
4.9 Indenture, dated as of April 15, 1998, between Registrant
and First National Bank of Chicago for Registrant's $100
million 4.5% Convertible Subordinated Notes due 2005 *
4.10 Registration Rights Agreement, dated as of April 24, 1998,
between Registrant and BancAmerica Robertson Stephens,
Donaldson, Lufkin & Jenrette Securities Corporation, Piper
Jaffray Inc., CIBC Oppenheimer Corporation, Friedman,
Billings, Ramsey & Co., Inc., Schroder & Co. Inc., and
Wheat, First Securities, Inc. for Registrant's $100
million 4.5% Convertible Subordinated Notes due 2005 *
4.11 Specimen 4.5% Convertible Subordinated Note Due 2005 *
4.12 Specimen Common Stock Certificate *
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. *
10.24 Deferred Compensation Agreement dated January 2, 1998
between the Registrant and Clarence Y. Palitz, Jr. *
12.1 Computation of Debt-To-Equity Ratio 18
13.1 1998 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 19
23.1 Consent of Independent Auditors 20
27 Financial Data Schedule (EDGAR version only)
____________
*Previously filed with the Securities and Exchange Commission as an exhibit.
17