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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from__________ to __________
Commission file number 001-14237
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)
Registrant's telephone number, including area code (212) 599-8000
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 whether each registrant has submitted electronically and
posted on its corporate Web site every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock on June 1,
2009 was 25,876,654.
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FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
Quarterly Report on Form 10-Q
for the quarter ended April 30, 2009
TABLE OF CONTENTS
Part I - Financial Information Page No.
--------------------------------------------------------------------- --------
Item 1. Financial Statements:
Consolidated Balance Sheets at April 30, 2009 (unaudited)
and July 31, 2008 (audited) 1
Consolidated Income Statements for the three and nine
months ended April 30, 2009 and 2008 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended April 30, 2009 and 2008
(unaudited) 3
Consolidated Statements of Cash Flows for the nine months
ended April 30, 2009 and 2008 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-22
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 22
Part II - Other Information
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 5. Other Information 23
Item 6. Exhibits 23
Signatures 24
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
===========================================================================================
April 30, 2009* July 31, 2008
===========================================================================================
ASSETS
Finance receivables $1,679,811 $1,940,792
Allowance for credit losses (24,899) (24,769)
-------------------------------------------------------------------------------------------
Finance receivables - net 1,654,912 1,916,023
Cash 7,451 8,232
Other assets 20,476 18,613
-------------------------------------------------------------------------------------------
TOTAL ASSETS $1,682,839 $1,942,868
===========================================================================================
LIABILITIES
Debt:
Long-term ($5,400 at April 30, 2009 and $1,400 at
July 31, 2008 owed to related parties) $1,089,000 $1,189,000
Short-term 109,000 278,000
Accrued interest, taxes and other liabilities 40,895 60,996
-------------------------------------------------------------------------------------------
Total liabilities 1,238,895 1,527,996
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STOCKHOLDERS' EQUITY
Preferred stock - $1 par value, authorized 5,000 shares -- --
Common stock - $.50 par value, authorized 100,000 shares,
shares issued and outstanding (net of 1,696 treasury
shares): 25,867 at April 30, 2009 and 25,673 at
July 31, 2008 12,933 12,836
Additional paid-in capital 145,500 139,490
Retained earnings 287,635 265,026
Accumulated other comprehensive loss (2,124) (2,480)
-------------------------------------------------------------------------------------------
Total stockholders' equity 443,944 414,872
-------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,682,839 $1,942,868
===========================================================================================
* Unaudited
See accompanying notes to consolidated financial statements
1
FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS *
(In thousands, except per share amounts)
============================================================================================
Three Months Ended Nine Months Ended
April 30, April 30,
-----------------------------------------
2009 2008 2009 2008
============================================================================================
Finance income $ 37,587 $ 46,361 $121,193 $144,665
Interest expense 11,424 17,239 39,742 59,847
--------------------------------------------------------------------------------------------
Net finance income before provision for credit
losses on finance receivables 26,163 29,122 81,451 84,818
Provision for credit losses on finance receivables 2,000 1,500 5,500 2,700
--------------------------------------------------------------------------------------------
Net finance income 24,163 27,622 75,951 82,118
Gain on debt retirement -- -- 1,588 --
Salaries and other expenses (7,338) (6,922) (21,744) (20,283)
--------------------------------------------------------------------------------------------
Income before provision for income taxes 16,825 20,700 55,795 61,835
Provision for income taxes 6,520 8,008 21,513 23,893
--------------------------------------------------------------------------------------------
NET INCOME $ 10,305 $ 12,692 $ 34,282 $ 37,942
============================================================================================
EARNINGS PER COMMON SHARE:
Diluted $ 0.41 $ 0.51 $ 1.37 $ 1.52
============================================================================================
Basic $ 0.42 $ 0.52 $ 1.39 $ 1.55
============================================================================================
* Unaudited
See accompanying notes to consolidated financial statements
2
FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY *
(In thousands)
=======================================================================================================
Accumulated
Common Stock Additional Other
----------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Loss Total
=======================================================================================================
BALANCE - JULY 31, 2007 25,760 $12,880 $129,167 $244,646 $ 1,060 $387,753
Net income -- -- -- 37,942 -- 37,942
Unrealized loss on cash flow
hedge, after $(2,291) of tax -- -- -- -- (3,624) (3,624)
Reclassification of realized
gain in net income, after
$(24) of tax -- -- -- -- (36) (36)
--------
Comprehensive income 34,282
--------
Stock repurchased (retired) (713) (357) (3,782) (14,317) -- (18,456)
Stock plan activity:
Shares issued 453 227 2,724 -- -- 2,951
Compensation recognized -- -- 5,907 -- -- 5,907
Excess tax benefits -- -- 257 -- -- 257
Common stock cash dividends -- -- -- (11,542) -- (11,542)
-------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2008 25,500 $12,750 $134,273 $256,729 $(2,600) $401,152
=======================================================================================================
=======================================================================================================
Accumulated
Common Stock Additional Other
----------------- Paid-In Retained Comprehensive
Shares Amount Capital Earnings Loss Total
=======================================================================================================
BALANCE - JULY 31, 2008 25,673 $12,836 $139,490 $265,026 $(2,480) $414,872
Net income -- -- -- 34,282 -- 34,282
Reclassification of realized
net loss in net income,
after $224 of tax -- -- -- -- 356 356
--------
Comprehensive income 34,638
--------
Stock repurchased (retired) (37) (18) (722) (36) -- (776)
Stock plan activity:
Shares issued 231 115 435 -- -- 550
Compensation recognized -- -- 6,278 -- -- 6,278
Excess tax benefits -- -- 19 -- -- 19
Common stock cash dividends -- -- -- (11,637) -- (11,637)
-------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2009 25,867 $12,933 $145,500 $287,635 $(2,124) $443,944
=======================================================================================================
* Unaudited
See accompanying notes to consolidated financial statements
3
FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS *
(In thousands)
============================================================================================
Nine Months Ended April 30, 2009 2008
============================================================================================
Cash flows from operating activities:
Net income $ 34,282 $ 37,942
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred origination costs and fees 12,406 13,411
Stock-based compensation 3,739 3,593
Provision for credit losses on finance receivables 5,500 2,700
Depreciation and amortization 1,121 527
Gain on debt retirement (1,588) --
Increase in other assets (148) (5,612)
Decrease in accrued interest, taxes and other
liabilities (20,306) (11,461)
Excess tax benefits from stock-based awards (19) (257)
--------------------------------------------------------------------------------------------
Net cash provided by operating activities 34,987 40,843
--------------------------------------------------------------------------------------------
Cash flows from investing activities:
Finance receivables originated (427,825) (715,474)
Finance receivables collected and repossessed assets
sales proceeds 671,244 819,462
--------------------------------------------------------------------------------------------
Net cash provided by investing activities 243,419 103,988
--------------------------------------------------------------------------------------------
Cash flows from financing activities:
Bank borrowings, net (decrease) increase (26,000) 126,550
Commercial paper, net decrease (16,000) (222,800)
Repayments of term asset securitization borrowings (52,000) --
Repayments of convertible debentures (173,343) --
Proceeds from term notes -- 75,000
Repayments of term notes -- (85,750)
Payments for settlement of interest rate locks -- (5,915)
Proceeds from stock option exercises 505 2,906
Common stock issued 45 45
Common stock cash dividends (11,637) (11,542)
Common stock repurchased (776) (18,456)
Excess tax benefits from stock-based awards 19 257
--------------------------------------------------------------------------------------------
Net cash used in financing activities (279,187) (139,705)
--------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH (781) 5,126
Cash - beginning of period 8,232 5,861
--------------------------------------------------------------------------------------------
CASH - END OF PERIOD $ 7,451 $ 10,987
============================================================================================
* Unaudited
See accompanying notes to consolidated financial statements
4
FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Financial Federal Corporation ("FFC") is a holding company operating
primarily through one subsidiary to provide collateralized lending, financing
and leasing services nationwide to small and medium sized businesses in the
general construction, road and infrastructure construction and repair, road
transportation and refuse industries. We lend against, finance and lease a wide
range of new and used revenue-producing, essential-use equipment including
cranes, earthmovers, personnel lifts, trailers and trucks.
Basis of Presentation and Principles of Consolidation
We prepared the accompanying unaudited Consolidated Financial Statements
according to the Securities and Exchange Commission's rules and regulations.
These rules and regulations permit condensing or omitting certain information
and note disclosures normally included in financial statements prepared
according to accounting principles generally accepted in the United States of
America (GAAP). The July 31, 2008 Consolidated Balance Sheet was derived from
audited financial statements but does not include all disclosures required by
GAAP. However, we believe the disclosures are sufficient to make the information
presented not misleading. These Consolidated Financial Statements and
accompanying notes should be read with the Consolidated Financial Statements and
accompanying notes included in our Annual Report on Form 10-K for the fiscal
year ended July 31, 2008.
In our opinion, the Consolidated Financial Statements include all
adjustments (consisting of only normal recurring items) necessary to present
fairly our financial position and results of operations for the periods
presented. The results of operations for the three and nine months ended April
30, 2009 may not be indicative of full year results.
Use of Estimates
GAAP requires us to make significant estimates and assumptions to record
the amounts reported in the Consolidated Financial Statements and accompanying
notes for the allowance for credit losses, non-performing assets, residual
values, income taxes and stock-based compensation. Actual results could differ
from these estimates significantly.
New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value
Measurements" ("SFAS No. 157") and SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115" became effective for us on August 1, 2008. SFAS No. 157
defines fair value (replacing all prior definitions) and creates a framework to
measure fair value, but does not create any new fair value measurements. SFAS
No. 159 permits companies to choose to measure many financial instruments and
certain other items at fair value at specified election dates and to report
unrealized gains and losses on these items in earnings at each subsequent
reporting date. We did not choose to measure any financial instruments or other
items at fair value. The only items we measure at fair value are impaired
finance receivables and assets received to satisfy finance receivables
(repossessed equipment, included in other assets). We were required to measure
these items at fair value before these statements took effect and these
statements did not change how we determine their fair value materially.
Therefore, these statements did not have a material impact on our consolidated
financial statements.
The FASB issued Staff Position ("FSP") EITF 03-6-1, "Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities", in June 2008. Securities participating in dividends with common
stock according to a formula are participating securities. This FSP determined
unvested shares of restricted stock and stock units with nonforfeitable dividend
rights meet the definition of participating securities. Participating securities
require the "two-class" method to calculate basic earnings per share. This
method lowers basic earnings per common share. This FSP takes effect in the
first quarter of fiscal years beginning after December 15, 2008 and will be
applied retrospectively for all periods presented. It will take effect for us on
August 1, 2009. We have 1,273,000 unvested shares of restricted stock and stock
units with nonforfeitable rights to dividends. Based on this amount, our current
dividend rate and number of shares of common stock outstanding, we estimate
5
applying this FSP would reduce annual basic earnings per common share by $0.08.
This FSP will not affect diluted earnings per share or net income.
The FASB issued FSP APB 14-1, "Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlements)", in May 2008. This FSP requires a portion of this type of
convertible debt to be recorded as equity and interest expense to be recorded on
the debt portion at a rate that would have been charged on non-convertible debt
with the same terms. This FSP takes effect in the first quarter of fiscal years
beginning after December 15, 2008 and will be applied retrospectively for all
periods presented. It will take effect for us on August 1, 2009. This FSP will
apply to our 2.0% convertible debentures retrospectively for fiscal 2009 and
2008 but will not affect our consolidated financial statements for periods after
April 30, 2009 because the convertible debentures were repaid in April 2009.
We determined we would have been charged 4.2% on five-year non-convertible
term debt when we issued the convertible debentures in April 2004. As a result,
$6,200 of the convertible debentures net of $2,200 of deferred income taxes will
be reclassified as equity as of August 1, 2007 (the beginning of the earliest
fiscal period to be presented after the FSP takes effect). We will record the
$6,200 reclassified amount as additional interest expense during the period from
August 1, 2007 to April 14, 2009 (the last day interest was due on the
debentures) using the interest method. Therefore, net income for fiscal 2009 and
2008 presented in future consolidated financial statements will be lower than
the amounts reported previously.
NOTE 2 - FINANCE RECEIVABLES
Finance receivables comprise installment sale agreements and secured loans
(including line of credit arrangements), collectively referred to as loans, with
fixed or floating interest rates, and direct financing leases as follows:
=======================================================================
April 30, 2009 July 31, 2008
=======================================================================
Loans:
Fixed rate $1,387,557 $1,592,839
Floating rate (indexed to the
prime rate) 142,533 168,793
-----------------------------------------------------------------------
Total loans 1,530,090 1,761,632
Direct financing leases * 149,721 179,160
-----------------------------------------------------------------------
Finance receivables $1,679,811 $1,940,792
=======================================================================
* includes residual values of $35,600 at April 30, 2009 and $42,300 at
July 31, 2008
Line of credit arrangements contain off-balance sheet risk and are subject
to the same credit policies and procedures as other finance receivables. The
unused amount of these commitments was $19,300 at April 30, 2009 and $21,600 at
July 31, 2008.
Allowance for credit losses activity is summarized below:
=========================================================================
Three Months Ended Nine Months Ended
April 30, April 30,
--------------------------------------
2009 2008 2009 2008
=========================================================================
Allowance - beginning of period $24,846 $24,133 $24,769 $23,992
Provision 2,000 1,500 5,500 2,700
Write-downs (2,654) (1,737) (7,256) (4,061)
Recoveries 707 781 1,886 2,046
-------------------------------------------------------------------------
Allowance - end of period $24,899 $24,677 $24,899 $24,677
=========================================================================
Percentage of finance receivables 1.48% 1.23% 1.48% 1.23%
=========================================================================
Net charge-offs * $ 1,947 $ 956 $ 5,370 $ 2,015
=========================================================================
Loss ratio ** 0.45% 0.19% 0.39% 0.13%
=========================================================================
* write-downs less recoveries
** net charge-offs over average finance receivables, annualized
6
Non-performing assets comprise impaired finance receivables and assets
received to satisfy finance receivables as follows:
=======================================================================
April 30, 2009 July 31, 2008
=======================================================================
Impaired finance receivables $46,415 $33,542
Assets received to satisfy finance
receivables 15,507 13,182
-----------------------------------------------------------------------
Non-performing assets $61,922 $46,724
=======================================================================
The allowance for credit losses included $1,100 at April 30, 2009 and $900
at July 31, 2008 specifically allocated to $12,200 and $9,400 of impaired
finance receivables, respectively. We did not recognize any income in the nine
months ended April 30, 2009 or 2008 on impaired receivables before collecting
our net investment. We repossessed assets to satisfy $36,900 and $26,700 of
finance receivables in the nine months ended April 30, 2009 and 2008,
respectively.
We recorded $16,000 of impaired finance receivables based on the fair
value of the collateral and $4,000 of assets received to satisfy finance
receivables at fair value at April 30, 2009. We measured fair value using
significant other observable inputs (Level 2); primarily quoted prices in active
markets for identical or similar assets adjusted for their condition.
NOTE 3 - DEBT
Debt is summarized below:
=======================================================================
April 30, 2009 July 31, 2008
=======================================================================
Fixed rate term notes:
4.31% - 4.60% due 2013 $ 75,000 $ 75,000
4.96% - 5.00% due 2010 - 2011 275,000 275,000
5.45% - 5.57% due 2011 - 2014 325,000 325,000
-----------------------------------------------------------------------
Total fixed rate term notes 675,000 675,000
Asset securitization borrowings - term 117,000 169,000
2.0% convertible debentures due 2034 -- 175,000
-----------------------------------------------------------------------
Total term debt 792,000 1,019,000
Bank borrowings 343,000 369,000
Commercial paper 63,000 79,000
-----------------------------------------------------------------------
Total debt $1,198,000 $1,467,000
=======================================================================
Convertible Debentures
All holders of the $132,700 of 2.0% convertible debentures outstanding
exercised their first five-year put option requiring us to repay the debentures
at their principal amount in April 2009. We previously purchased $42,300 of the
debentures in the open market under our common stock and convertible debt
repurchase program in November 2008 and January 2009 for $40,643 resulting in a
$1,588 debt retirement gain (net of $69 of unamortized deferred debt issuance
costs).
Asset Securitization Borrowings
We obtained a new $100,000 asset securitization facility and we obtained a
two-month extension on our $325,000 asset securitization facility in April 2009.
The $325,000 facility now expires in June 2009 and the $100,000 facility expires
in April 2010. The facilities provide for committed revolving financing during
their term and we can convert borrowings outstanding into amortizing term debt
if they are not renewed. The amortizing term debt would be repaid monthly from
collections of securitized receivables and would be repaid substantially within
two years. The full amount of the facilities was unused and available for us to
borrow at April 30, 2009.
We converted $200,000 of revolving asset securitization borrowings into
amortizing term debt in fiscal 2008. This lowered the amount of the facility to
the current amount of $325,000. We are repaying the remaining $117,000 of these
term borrowings monthly from collections of securitized receivables. The monthly
repayment amounts vary based on the amount of securitized receivables collected
and the amount borrowed under the $325,000 facility, and would increase if we
borrow under this facility or convert this facility into amortizing term debt
upon nonrenewal. The term debt will be repaid substantially in two years based
on the amount of securitized receivables at April 30, 2009 and not borrowing
under this facility.
7
Finance receivables included $210,000 of securitized receivables at April
30, 2009 and $410,000 at July 31, 2008. The amount of receivables we can
securitize is limited to 40% of our major operating subsidiary's receivables
because of restrictions in its other debt agreements. This limit was $660,000 at
April 30, 2009.
Borrowings under these facilities and the amortizing term debt are limited
to 92% of eligible securitized receivables and are without recourse. Securitized
receivables classified as impaired or with terms outside of defined limits are
ineligible to be borrowed against. These facilities also restrict the amount of
net charge-offs of securitized receivables and the amount of delinquent
receivables. These facilities would terminate if these restrictions are
exceeded, and borrowings outstanding would then be repaid monthly from
collections of securitized receivables.
Bank Borrowings
We have $455,000 of committed unsecured revolving credit facilities from
ten banks with $95,000 expiring within one year and $360,000 expiring between
September 2010 and February 2013, and $112,000 of these facilities was unused
and available for us to borrow at April 30, 2009. Borrowings under these
facilities can mature between 1 and 270 days and their interest rates are based
on domestic money market rates or LIBOR. Borrowings outstanding at April 30,
2009 matured in May 2009, were reborrowed and remain outstanding. We incur a fee
on the unused portion of the facilities. We renewed a $30,000 two-year facility
for another two years in September 2008 and a $25,000 one-year facility expired
in March 2009.
Other
All of our debt and credit facilities were obtained through our major
operating subsidiary except for the 2.0% convertible debentures (issued by FFC).
The subsidiary's debt agreements and facilities have restrictive covenants
limiting the subsidiary's indebtedness, encumbrances, investments, sales of
assets, mergers and other business combinations, capital expenditures, interest
coverage, net worth and dividends and other distributions to FFC. The subsidiary
complied with all debt covenants and restrictions at April 30, 2009. None of the
agreements or facilities has a material adverse change clause and all of our
debt is senior.
Long-term debt comprised the following:
=======================================================================
April 30, 2009 July 31, 2008
=======================================================================
Term notes $ 662,500 $ 675,000
Bank borrowings and commercial
paper supported by bank credit
facilities expiring after one year 360,000 410,000
Asset securitization borrowings - term 66,500 104,000
-----------------------------------------------------------------------
Total long-term debt $1,089,000 $1,189,000
=======================================================================
NOTE 4 - STOCKHOLDERS' EQUITY
We received 37,000 shares of common stock from employees at an average
price of $21.00 per share for the payment of $776 of income tax due on vested
shares of restricted stock in the nine months ended April 30, 2009.
We increased the amount authorized for repurchases under our common stock
and convertible debt repurchase program by $35,282 in January 2009 and by
$23,251 in September 2008, and $43,862 remained authorized for future
repurchases at April 30, 2009. We established the program in fiscal 2007 and it
does not have an expiration date.
We paid quarterly cash dividends of $0.45 per share in the nine months
ended April 30, 2009. In June 2009, we declared a $0.15 per share quarterly cash
dividend payable in July 2009.
8
NOTE 5 - STOCK PLANS
We have two stockholder approved stock plans; the 2006 Stock Incentive
Plan (the "2006 Plan") and the Amended and Restated 2001 Management Incentive
Plan (the "Amended MIP"). The 2006 Plan provides for the issuance of 2,500,000
shares of restricted stock, non-qualified or incentive stock options, stock
appreciation rights, stock units and common stock to officers, other employees
and directors with annual participant limits, and expires in December 2016.
Awards may be performance-based. The exercise price of stock options cannot be
less than the fair market value of our common stock when granted and their term
is limited to ten years. There were 1,678,000 shares available for future grants
under the 2006 Plan at April 30, 2009. The Amended MIP provides for the issuance
of 1,000,000 shares of restricted stock, with an annual participant limit of
200,000 shares, and awards of performance-based cash or stock bonuses to our CEO
and other selected officers. The Amended MIP expires in December 2011. There
were 625,000 shares available for future grants under the Amended MIP at April
30, 2009.
We also have a Supplemental Retirement Benefit ("SERP") for our CEO. We
awarded 150,000 stock units in fiscal 2002 vesting annually in equal amounts
over eight years. Subject to forfeiture, our CEO will receive shares of common
stock equal to the number of stock units vested when our CEO retires after
attaining age 62 and 131,000 units were vested at April 30, 2009.
We awarded 55,000 restricted stock units to executive officers under the
2006 Plan in March 2009 vesting six months after the officer's service
terminates after (i) the officer attains age 62 or (ii) August 2026 if earlier
(twelve-year average). Unvested units are subject to forfeiture and a portion
(based on the percentage of the vesting period elapsed) of the units would vest
earlier upon certain qualifying employment terminations. Each unit represents
the right to receive one share of common stock and the executives receive
dividend equivalent payments when we pay dividends on our common stock. We also
awarded 55,000 shares of restricted stock to other officers vesting annually in
equal amounts over five years and we granted 15,000 non-qualified stock options
to employees with a five-year term vesting 25% after one, two, three and four
years.
In October 2008, we awarded 100,000 shares of performance-based restricted
stock to executive officers under the 2006 Plan vesting 25% after two, three,
four and five years, and 50,000 shares of performance-based restricted stock to
our CEO under the Amended MIP vesting in October 2013. These shares would be
forfeited if the performance condition, based on diluted earnings per share for
fiscal 2009, is not met.
We awarded 10,000 restricted stock units under the 2006 Plan to
non-employee directors in December 2008. The units vest in one year or earlier
upon the sale of the Company or the director's death or disability. Unvested
units are subject to forfeiture. Each unit represents the right to receive one
share of common stock. Vested units will convert into shares of common stock
when the director's service terminates. The directors also held 30,000 vested
restricted stock units at April 30, 2009. The directors receive dividend
equivalent payments on all units. We issued 2,000 shares of common stock under
the 2006 Plan in December 2008 as payment of annual director retainer fees at a
director's election. The price of our common stock on the date we issued these
shares was $22.38.
Shares of restricted stock, stock units and stock options are the only
incentive compensation we provide (other than a cash bonus for the CEO) and we
believe these stock-based awards further align employees' and directors'
interests with those of our stockholders. We do not have a policy to repurchase
shares in the open market, and we issue new shares, when we award shares of
restricted stock or when options are exercised.
Restricted stock activity for the nine months ended April 30, 2009 is
summarized below (shares in thousands):
=======================================================================
Weighted-Average
Shares Grant-Date Fair Value
=======================================================================
Unvested - August 1, 2008 1,176 $26.20
Granted 205 19.14
Vested (180) 22.15
Forfeited (12) 26.62
-------------------------------------------
Unvested - April 30, 2009 1,189 25.59
=======================================================================
9
Information on shares of restricted stock that vested follows (in
thousands, except intrinsic value per share):
=======================================================================
Nine Months Ended April 30, 2009 2008
=======================================================================
Number of shares vested 180 167
Total intrinsic value * $3,700 $3,400
Intrinsic value per share 20.56 20.36
Excess tax benefits (tax shortfall) realized 19 (43)
=======================================================================
* shares vested multiplied by the closing prices of our common stock on
the dates vested
Stock unit activity and related information for the nine months ended
April 30, 2009 are summarized below (stock units in thousands):
=======================================================================
Weighted-Average
Units Grant-Date Fair Value
=======================================================================
Outstanding - August 1, 2008 207 $23.71
Granted 65 18.47
Converted into common stock -- --
-------------------------------------------
Outstanding - April 30, 2009 272 22.46
=======================================================================
Vested - April 30, 2009 188 $23.68
=======================================================================
Stock option activity and related information for the nine months ended
April 30, 2009 are summarized below (options and intrinsic value in thousands):
=======================================================================
Weighted-Average
----------------------
Exercise Remaining Intrinsic
Options Price Term (years) Value*
=======================================================================
Outstanding - August 1, 2008 892 $24.31
Granted 20 19.15
Exercised (24) 21.24
Expired unexercised (94) 25.01
Forfeited (25) 22.65
------------------------------------
Outstanding - April 30, 2009 769 24.25 1.8 $1,100
======================================================================
Exercisable - April 30, 2009 578 $24.06 1.3 $ 900
======================================================================
* number of in-the-money options multiplied by the difference between
their average exercise price and the $24.61 closing price of our
common stock on April 30, 2009
Information on stock option exercises follows (in thousands, except
intrinsic value per option):
=======================================================================
Nine Months Ended April 30, 2009 2008
=======================================================================
Number of options exercised 24 158
Total intrinsic value * $ 77 $1,300
Intrinsic value per option 3.20 8.23
Excess tax benefits realized -- 300
=======================================================================
* options exercised multiplied by the difference between their
exercise prices and the closing prices of our common stock on the
exercise dates
Future compensation expense (before deferral) for stock-based awards
unvested at April 30, 2009 and expected to vest, and the average expense
recognition periods follow:
=======================================================================
Expense Weighted-Average Years
=======================================================================
Restricted stock $17,600 5.2
Stock units 1,000 7.0
Stock options 700 2.0
--------------------------------------
Total $19,300 5.2
=======================================================================
10
Compensation recorded, deferred, included in salaries and other expenses,
and tax benefits recorded for stock-based awards follow:
=========================================================================
Three Months Ended Nine Months Ended
April 30, April 30,
--------------------------------------
2009 2008 2009 2008
=========================================================================
Total stock-based compensation $2,111 $1,946 $6,278 $5,907
Deferred stock-based compensation 841 793 2,539 2,314
-------------------------------------------------------------------------
Net stock-based compensation in
salaries and other expenses $1,270 $1,153 $3,739 $3,593
=========================================================================
Tax benefits $ 464 $ 429 $1,362 $1,326
=========================================================================
NOTE 6 - EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") was calculated as follows (in thousands,
except per share amounts):
=========================================================================
Three Months Ended Nine Months Ended
April 30, April 30,
--------------------------------------
2009 2008 2009 2008
=========================================================================
Net income $10,305 $12,692 $34,282 $37,942
=========================================================================
Weighted-average common shares
outstanding (used for basic EPS) 24,724 24,359 24,623 24,459
Effect of dilutive securities:
Shares of restricted stock and
stock units 433 284 434 335
Stock options 10 46 9 94
Shares issuable from convertible
debt -- -- -- 59
-------------------------------------------------------------------------
Adjusted weighted-average common
shares outstanding (used for
diluted EPS) 25,167 24,689 25,066 24,947
=========================================================================
Net income per common share:
Diluted $ 0.41 $ 0.51 $ 1.37 $ 1.52
=========================================================================
Basic $ 0.42 $ 0.52 $ 1.39 $ 1.55
=========================================================================
Antidilutive shares of restricted
stock, stock units and stock
options * 961 1,257 809 964
=========================================================================
* excluded from the calculation because they would have increased
diluted EPS
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Financial Federal Corporation is an independent financial services company
operating in the United States through three wholly owned subsidiaries. We do
not have any unconsolidated subsidiaries, partnerships or joint ventures. We
also do not have any off-balance sheet assets or liabilities (other than
commitments to extend credit), goodwill, other intangible assets or pension
obligations, and we are not involved in income tax shelters. We have two fully
consolidated special purpose entities for our on-balance-sheet asset
securitization facilities.
We have one line of business. We lend money under installment sale
agreements, secured loans and leases (collectively referred to as "finance
receivables") to small and medium sized businesses for their equipment financing
needs. Finance receivable transactions generally range between $50,000 and $1.5
million, have terms between two and five years and require monthly payments. The
average transaction size is approximately $250,000. We earn revenue solely from
interest and other fees and amounts earned on our finance receivables. We need
to borrow most of the money we lend. Therefore, liquidity (money currently
available for us to borrow) is very important. We borrow from banks and
insurance companies and we issue commercial paper to other investors.
Approximately 70% of our finance receivables were funded with debt at April 30,
2009.
Our main areas of focus are (i) asset quality (ii) liquidity (iii) net
interest spread (the difference between the rates we earn on our receivables and
the rates we incur on our debt) and (iv) interest rate risk. Changes in the
asset quality of our finance receivables can affect our profitability
significantly. Classifying receivables as impaired, incurring write-downs and
incurring costs associated with non-performing assets can have an adverse affect
on our finance income, provisions for credit losses and operating expenses.
Changes in market interest rates can also affect our profitability significantly
because interest rates on our finance receivables were 92% fixed and 8%
floating, and interest rates on our debt were 56% fixed and 44% floating at
April 30, 2009. We use various strategies to manage our credit risk and interest
rate risk. Each of these four areas is integral to our long-term profitability
and we discuss them in detail in separate sections of this discussion.
Our key operating statistics are net charge-offs, loss ratio,
non-performing assets, delinquencies, leverage, available liquidity, receivables
growth, return on equity, net interest margin and net interest spread, and
expense and efficiency ratios.
Significant events
We obtained a new $100.0 million asset securitization facility in April
2009. The facility provides for committed revolving financing through April
2010. We discuss this facility further in the Liquidity and Capital Resources
section. We also obtained a two-month extension on our existing $325.0 million
securitization facility. This facility now expires in June 2009 and we believe
we will be able to renew it for another year before the extension expires.
We repaid the $132.7 million of 2.0% convertible debentures in April 2009
at their principal amount because all holders chose to exercise their first
five-year put option as we expected. We previously purchased $42.3 million of
the debentures in the open market in the second quarter of fiscal 2009 for $40.6
million resulting in a $1.6 million debt retirement gain (net of $0.1 million of
unamortized deferred debt issuance costs).
It is still difficult and expensive for finance companies to obtain or
renew financing because of credit market conditions. Most banks and other
lenders, including all of our funding sources, remain reluctant or unable to
provide or are charging prohibitively high credit spreads on new financing.
Credit spread is the percentage amount lenders charge above a base market
interest rate. Our cost of debt will increase considerably as we obtain or renew
financing if credit spreads persist at these levels. The credit spread on our
new asset securitization facility and the proposed credit spread on the asset
securitization facility we expect to renew are higher than the credit spread we
are currently being charged.
The U.S. government has taken unprecedented, drastic steps to support
credit markets and improve the flow of capital. The Federal Reserve has lowered
its target Federal Funds Rate ten times since September 2007 to between 0.00%
and 0.25%; the lowest level in history. This includes three decreases totaling
175 basis points during the first nine months of fiscal 2009. The government has
also injected over $1.0 trillion into the financial system through several
programs to prevent it from failing and to encourage lending.
Our available liquidity has increased by $234.0 million to $474.0 million
at April 30, 2009 from $240.0 million at July 31, 2007 (the approximate start
of the credit markets crisis). The increase resulted from significantly lower
receivable originations, our ability to obtain and renew financing and strong
operating cash flows. Based on the amount of our available liquidity, the
maturity and expiration dates of our debt and credit facilities, and receivable
12
originations and collections continuing at recent levels, we do not anticipate a
need for any new financing until the third quarter of fiscal 2011. We discuss
our liquidity and debt in the Liquidity and Capital resources section.
In addition, our cost of debt has decreased during the crisis because (i)
short-term market interest rates decreased significantly (ii) the relatively
small amount of expiring credit facilities and maturing debt have limited the
impact of higher credit spreads and (iii) we have $455.0 million of low-cost
committed bank credit facilities without any restrictions on borrowing the full
amount. Our cost of debt was 3.75% in the third quarter of fiscal 2009 compared
to 5.35% in the fourth quarter of fiscal 2007 (the quarter before the crisis
started). We expect our cost of debt will increase because short-term market
interest rates are at historic lows and we will be charged higher credit spreads
as we renew or obtain financing. We discuss our cost of debt in the Market
Interest Rate Risk and Sensitivity section.
Maintaining conservative leverage and ample liquidity, having multi-year
committed bank credit facilities and term debt with staggered maturities, and
our approach to managing credit risk on our finance receivables (as discussed in
the Finance Receivables and Asset Quality section) have been integral to our
success during this difficult period.
Critical Accounting Policies and Estimates
Applying accounting principles generally accepted in the United States
requires judgment, assumptions and estimates to record the amounts in the
Consolidated Financial Statements and accompanying notes. We describe the
significant accounting policies and methods we use to prepare the Consolidated
Financial Statements in Note 1 to the Consolidated Financial Statements in our
Annual Report on Form 10-K for the fiscal year ended July 31, 2008. Accounting
policies involving significant judgment, assumptions and estimates are
considered critical accounting policies and are discussed below.
Allowance for Credit Losses
The allowance for credit losses on finance receivables is our estimate of
losses inherent in our finance receivables at the balance sheet date. The
allowance is difficult to determine and requires significant judgment. The
allowance is based on total finance receivables, net charge-off experience,
impaired and delinquent finance receivables and our current assessment of the
risks inherent in our finance receivables from national and regional economic
conditions, industry conditions, concentrations, the financial condition of
customers and guarantors, collateral values and other factors. We may need to
change the allowance level significantly if unexpected changes in these
conditions or factors occur. Increases in the allowance would reduce net income
through higher provisions for credit losses. We would need to record a $1.7
million provision for each 0.10% required increase in the allowance. The
allowance was $24.9 million (1.48% of finance receivables) at April 30, 2009
including $1.1 million specifically allocated to impaired receivables.
The allowance includes amounts specifically allocated to impaired
receivables and an amount to provide for losses inherent in finance receivables
not impaired (the "general allowance"). We evaluate the fair values of impaired
receivables and compare them to the carrying amounts. The carrying amount is the
amount receivables are recorded at when we evaluate them and may include prior
write-downs or a specific allowance. If our fair value estimate is lower than
the carrying amount, we record a write-down or establish a specific allowance
depending on (i) how we determined fair value (ii) how certain we are of our
fair value estimate and (iii) the level and type of factors and items other than
the primary collateral supporting our fair value estimate, such as guarantees
and secondary collateral. We do not have a fixed formula or a pre-determined
period of past due status to record write-downs or specific reserves and we do
not write-off our entire net investment because our receivables are secured by
collateral that retains value and we do not lend to consumers.
To estimate the general allowance, we analyze historical write-down
activity to develop percentage loss ranges by risk profile. Risk profiles are
assigned to receivables based on past due status and the customers' industry. We
do not use a loan grading system. We then adjust the calculated range of losses
for expected recoveries and differences between current and historical loss
trends and other factors to arrive at the estimated allowance. We record a
provision for credit losses if the recorded allowance differs from our current
estimate. The adjusted calculated range of losses may differ from actual losses
significantly because we use significant estimates.
Non-Performing Assets
We record impaired finance receivables and repossessed equipment (assets
received to satisfy receivables) at their current estimated fair value (if less
than their carrying amount). We estimate fair value of these non-performing
assets by evaluating the market value and condition of the collateral or assets
and the expected cash flows of impaired receivables. We evaluate market value
based on recent sales of similar equipment, used equipment publications, our
market knowledge and information from equipment vendors. Unexpected adverse
changes in or incorrect estimates of expected cash flows, market value or the
13
condition of collateral or assets, or time needed to sell equipment would
require us to record a write-down. This would lower net income. Non-performing
assets totaled $61.9 million (3.7% of finance receivables) at April 30, 2009.
Residual Values
We record residual values on direct financing leases at the lowest of (i)
any stated purchase option (ii) the present value at the end of the initial
lease term of rentals due under any renewal options or (iii) our projection of
the equipment's fair value at the end of the lease. We may not realize the full
amount of recorded residual values because of unexpected adverse changes in or
incorrect projections of future equipment values. This would lower net income.
Residual values totaled $35.6 million (2.1% of finance receivables) at April 30,
2009. Historically, we have realized recorded residual values on disposition.
Income Taxes
We record a liability for uncertain income tax positions by (i)
identifying the uncertain tax positions we take on our income tax returns (ii)
determining if these positions would more likely than not be allowed by a taxing
authority and (iii) estimating the amount of tax benefit to record if these tax
positions pass the more-likely-than-not test. Therefore, we record a liability
for tax benefits from positions failing the test and from positions where the
full amount of the tax benefits are not expected to be realized. Identifying
uncertain tax positions, determining if they pass the test and determining the
liability to record requires significant judgment because tax laws are
complicated and subject to interpretation, and because we have to assess the
likely outcome of hypothetical challenges to these positions by taxing
authorities. Actual outcomes of these uncertain tax positions differing from our
assessments significantly and taxing authorities examining positions we did not
consider uncertain could require us to record additional income tax expense
including interest and penalties. This would lower net income. The gross
liability recorded for uncertain tax positions was $1.2 million at July 31, 2008
and we do not expect this amount to change in fiscal 2009 significantly.
Stock-Based Compensation
We record compensation expense only for stock-based awards expected to
vest. Therefore, we must estimate expected forfeitures of stock awards. This
requires significant judgment and an analysis of historical data. We would need
to record more compensation expense for stock awards if expected forfeitures
exceed actual forfeitures. Our average expected annual rate of forfeitures on
all stock awards was 2.3% at April 30, 2009 resulting in 0.2 million stock
awards expected to be forfeited.
Results of Operations
Comparison of three months ended April 30, 2009 to three months ended April 30,
2008
========================================================================
Three Months Ended
April 30,
($ in millions, except per ------------------
share amounts) 2009 2008 $ Change % Change
========================================================================
Finance income $37.6 $46.3 $ (8.7) (19)%
Interest expense 11.4 17.2 (5.8) (34)
Net finance income before
provision for credit losses 26.2 29.1 (2.9) (10)
Provision for credit losses 2.0 1.5 0.5 33
Salaries and other expenses 7.4 6.9 0.5 6
Provision for income taxes 6.5 8.0 (1.5) (19)
Net income 10.3 12.7 (2.4) (19)
Diluted earnings per share 0.41 0.51 (0.10) (20)
Basic earnings per share 0.42 0.52 (0.10) (19)
Return-on-equity 9.6% 13.0%
========================================================================
Net income decreased by 19% to $10.3 million in the third quarter of
fiscal 2009 from $12.7 million in the third quarter of fiscal 2008 because the
effects of the 15% decrease in average receivables and higher non-performing
assets exceeded the effects of lower short-term market interest rates.
Finance income decreased by 19% to $37.6 million in the third quarter of
fiscal 2009 from $46.3 million in the third quarter of fiscal 2008 because (i)
average finance receivables decreased 15% ($300.0 million) to $1.75 billion from
$2.05 billion (ii) the yield on finance receivables decreased to 8.82% from
9.21% mostly due to the prime rate averaging 240 basis points (2.40%) lower and,
14
to a lesser extent, (iii) higher impaired (non-accrual) receivables. Changes in
the prime rate affect the yield on receivables because 8% of our receivables are
floating rate and indexed to prime.
Interest expense (incurred on debt used to fund finance receivables)
decreased by 34% to $11.4 million in the third quarter of fiscal 2009 from $17.2
million in the third quarter of fiscal 2008 because our average debt decreased
21% ($327.0 million) and our cost of debt decreased to 3.75% from 4.44%. Lower
short-term market interest rates caused the decrease in our cost of debt because
the interest rates on over 40% of our debt were indexed to short-term market
interest rates. We discuss this in the Market Interest Rate Risk and Sensitivity
section.
Net finance income before provision for credit losses on finance
receivables decreased to $26.2 million in the third quarter of fiscal 2009 from
$29.1 million in the third quarter of fiscal 2008. Net interest margin (net
finance income before provision for credit losses expressed as an annualized
percentage of average finance receivables) increased to 6.14% from 5.79% because
of lower short-term market interest rates.
The provision for credit losses on finance receivables was $2.0 million in
the third quarter of fiscal 2009 and $1.5 million in the third quarter of fiscal
2008. The provision for credit losses is the amount needed to change the
allowance for credit losses to our estimate of losses inherent in finance
receivables. Net charge-offs (write-downs of finance receivables less
recoveries) increased to $1.9 million in the third quarter of fiscal 2009 from
$1.0 million in the third quarter of fiscal 2008, and the loss ratio (net
charge-offs expressed as an annualized percentage of average finance
receivables) increased to 0.45% from 0.19%. Net charge-offs have been increasing
because of higher non-performing assets, worsening economic conditions and
declining collateral values. We discuss the allowance and net charge-offs
further in the Finance Receivables and Asset Quality section.
Salaries and other expenses increased by 6% to $7.4 million in the third
quarter of fiscal 2009 from $6.9 million in the third quarter of fiscal 2008
because we deferred a lower percentage of salary costs due to the decrease in
receivables originated. The expense ratio (salaries and other expenses expressed
as an annualized percentage of average finance receivables) worsened to 1.72%
from 1.38% because expenses increased and receivables decreased. The efficiency
ratio (expense ratio expressed as a percentage of net interest margin) worsened
to 28.0% from 23.7% because expenses increased and net finance income before
provision for credit losses decreased.
Diluted earnings per share decreased by 20% to $0.41 in the third quarter
of fiscal 2009 from $0.51 in the third quarter of fiscal 2008, and basic
earnings per share decreased by 19% to $0.42 from $0.52 because of the decrease
in net income.
Comparison of nine months ended April 30, 2009 to nine months ended April 30,
2008
========================================================================
Nine Months Ended
April 30,
($ in millions, except per -----------------
share amounts) 2009 2008 $ Change % Change
========================================================================
Finance income $121.2 $144.7 $(23.5) (16)%
Interest expense 39.7 59.9 (20.2) (34)
Net finance income before
provision for credit losses 81.5 84.8 (3.3) (4)
Provision for credit losses 5.5 2.7 2.8 104
Gain on debt retirement 1.6 -- 1.6 100
Salaries and other expenses 21.8 20.3 1.5 7
Provision for income taxes 21.5 23.9 (2.4) (10)
Net income 34.3 37.9 (3.6) (10)
Diluted earnings per share 1.37 1.52 (0.15) (10)
Basic earnings per share 1.39 1.55 (0.16) (10)
Return-on-equity 10.7% 12.8%
Excluding the debt retirement gain:
-----------------------------------
Net income $ 33.3 $ 37.9 $ (4.6) (12)%
Diluted earnings per share 1.33 1.52 (0.19) (13)
Basic earnings per share 1.35 1.55 (0.20) (13)
Return-on-equity 10.3% 12.8%
========================================================================
15
Net income decreased by 10% to $34.3 million in the first nine months of
fiscal 2009 from $37.9 million in the first nine months of fiscal 2008. Without
the $1.0 million after-tax debt retirement gain, net income decreased by 12%.
Net income without the after-tax debt gain decreased because the effects of the
12% decrease in average receivables and higher non-performing assets exceeded
the effects of lower short-term market interest rates.
Finance income decreased by 16% to $121.2 million in the first nine months
of fiscal 2009 from $144.7 million in the first nine months of fiscal 2008
because (i) average finance receivables decreased 12% ($253.0 million) to $1.84
billion from $2.09 billion (ii) the yield on finance receivables decreased to
8.82% from 9.24% mostly due to the prime rate averaging 300 basis points (3.00%)
lower and, to a lesser extent, (iii) higher impaired receivables.
Interest expense decreased by 34% to $39.7 million in the first nine
months of fiscal 2009 from $59.9 million in the first nine months of fiscal 2008
because our average debt decreased 17% ($272.0 million) and our cost of debt
decreased to 3.95% from 4.94%. Lower short-term market interest rates caused the
decrease in our cost of debt because the interest rates on over 40% of our debt
were indexed to short-term market interest rates.
Net finance income before provision for credit losses on finance
receivables decreased to $81.5 million in the first nine months of fiscal 2009
from $84.8 million in the first nine months of fiscal 2008. Net interest margin
increased to 5.92% from 5.42% because of lower short-term market interest rates.
The provision for credit losses on finance receivables was $5.5 million in
the first nine months of fiscal 2009 and $2.7 million in the first nine months
of fiscal 2008. Net charge-offs increased to $5.4 million in the first nine
months of fiscal 2009 from $2.0 million in the first nine months of fiscal 2008,
and the loss ratio increased to 0.39% from 0.13%. Net charge-offs have been
increasing because of higher non-performing assets, worsening economic
conditions and declining collateral values.
Salaries and other expenses increased by 7% to $21.8 million in the first
nine months of fiscal 2009 from $20.3 million in the first nine months of fiscal
2008 because of higher non-performing asset costs and, to a lesser extent,
because we deferred a lower percentage of salary costs. The expense ratio
worsened to 1.58% from 1.30% because expenses increased and receivables
decreased. The efficiency ratio worsened to 26.7% from 23.9% because expenses
increased and net finance income before provision for credit losses decreased.
Diluted earnings per share decreased by 10% to $1.37 in the first nine
months of fiscal 2009 from $1.52 in the first nine months of fiscal 2008, and
basic earnings per share decreased by 10% to $1.39 from $1.55 because of the
decrease in net income. The $1.0 million after-tax debt retirement gain
increased diluted and basic earnings per share by $0.04 in the first nine months
of fiscal 2009. Without this gain, diluted and basic earnings per share each
decreased by 13%.
The amounts of net income, diluted and basic earnings per share and
return-on-equity excluding the $1.0 million after-tax debt retirement gain are
non-GAAP financial measures. We believe presenting these financial measures is
useful to investors because they provide consistency and comparability with our
operating results for the prior period and a better understanding of the changes
and trends in our operating results.
16
Finance Receivables and Asset Quality
We discuss trends and characteristics of our finance receivables and our
approach to managing credit risk in this section. The key aspect is asset
quality. Asset quality statistics measure our underwriting standards, skills and
policies and procedures and can indicate the direction of future net charge-offs
and non-performing assets.
========================================================================
April 30, July 31,
($ in millions) 2009 * 2008 * $ Change % Change
========================================================================
Finance receivables $1,679.8 $1,940.8 $(261.0) (13)%
Allowance for credit losses 24.9 24.8 0.1 1
Non-performing assets 61.9 46.7 15.2 33
Delinquent finance receivables 44.7 22.9 21.8 95
Net charge-offs 5.4 2.9 2.5 88
As a percentage of receivables:
-------------------------------
Allowance for credit losses 1.48% 1.28%
Non-performing assets 3.69 2.41
Delinquent finance receivables 2.66 1.18
Net charge-offs (loss ratio) 0.39 0.19
========================================================================
* as of and for the nine months ended
Finance receivables comprise installment sale agreements and secured loans
(collectively referred to as loans) and direct financing leases. Loans were 91%
($1.53 billion) of finance receivables and leases were 9% ($150 million) at
April 30, 2009. Finance receivables decreased $261.0 million or 13% in the first
nine months of fiscal 2009 because of lower originations.
We originated $77.0 million of finance receivables in the third quarter of
fiscal 2009 compared to $232.0 million in the third quarter of fiscal 2008, and
we originated $428.0 million in the first nine months of fiscal 2009 compared to
$715.0 million in the first nine months of fiscal 2008. Originations have been
decreasing because the recession has reduced equipment financing demand
significantly and because we are approving transactions selectively to preserve
asset quality. We collected $193.0 million of finance receivables and
repossessions in the third quarter of fiscal 2009 compared to $288.0 million in
the third quarter of fiscal 2008, and we collected $671.0 million in the first
nine months of fiscal 2009 compared to $819.0 million in the first nine months
of fiscal 2008. Collections decreased because of fewer prepayments and lower
receivables.
Our primary focus is the credit quality of our receivables. We manage our
credit risk by adhering to disciplined and sound underwriting policies and
procedures, by monitoring our receivables closely, by handling non-performing
accounts effectively and by managing the size of our receivables portfolio. Our
underwriting policies and procedures require a first lien on equipment financed.
We focus on financing equipment with a remaining useful life longer than the
term financed, historically low levels of technological obsolescence, use in
more than one type of business, ease of access and transporting, and broad,
established resale markets. Securing our receivables with equipment possessing
these characteristics can mitigate potential net charge-offs. We may also obtain
additional equipment or other collateral, third-party guarantees, advance
payments or hold back a portion of the amount financed. We do not finance or
lease aircraft or railcars, computer related equipment, telecommunications
equipment or equipment located outside the United States, and we do not lend to
consumers.
Our underwriting policies also limit our credit exposure with any
customer. The limit was $39.0 million at April 30, 2009. Our ten largest
customers accounted for 7.5% ($126.0 million) of total finance receivables at
April 30, 2009 compared to 6.4% ($125.0 million) at July 31, 2008.
Our allowance for credit losses was $24.9 million at April 30, 2009
compared to $24.8 million at July 31, 2008, and the allowance level increased to
1.48% of finance receivables from 1.28%. The allowance is our estimate of losses
inherent in our finance receivables. We determine the allowance quarterly based
on our analysis of historical losses and the past due status of receivables
adjusted for expected recoveries and any differences between current and
historical loss trends and other factors. Our estimates of inherent losses
increased during the first nine months of fiscal 2009 because of higher net
charge-offs, delinquencies and non-performing assets.
Net charge-offs of finance receivables (write-downs less recoveries) were
$5.4 million in the first nine months of fiscal 2009 compared to $2.9 million in
the last nine months of fiscal 2008 (the prior nine month period) and the loss
ratios were 0.39% and 0.19%. Net charge-offs were $1.9 million in the third
quarter of fiscal 2009 compared to $2.0 million in the second
17
quarter of fiscal 2009 and the loss ratios were 0.45% and 0.44%. Net charge-offs
have been increasing because the recession is having an adverse impact on our
customers' cash flows and collateral values.
The net investments in impaired finance receivables, repossessed equipment
(assets received to satisfy receivables), total non-performing assets and
delinquent finance receivables (transactions with more than a nominal portion of
a contractual payment 60 or more days past due) follow ($ in millions):
=========================================================================
April 30, July 31, April 30,
2009 2008 2008
=========================================================================
Impaired receivables * $46.4 $33.5 $31.7
Repossessed equipment 15.5 13.2 8.8
-------------------------------------------------------------------------
Total non-performing assets $61.9 $46.7 $40.5
=========================================================================
Delinquent receivables $44.7 $22.9 $22.9
=========================================================================
Impaired receivables not delinquent 42% 52% 63%
=========================================================================
* before specifically allocated allowance of $1.1 million at April 30,
2009, $0.9 million at July 31, 2008 and $0.8 million at April 30, 2008
We expect the trend of increases in net charge-offs, impaired and
delinquent receivables and repossessed equipment to continue because of the
recession and credit market conditions. This could require us to record higher
provisions for credit losses.
Liquidity and Capital Resources
We describe our need for raising capital (debt and equity), our need to
maintain a substantial amount of liquidity (money currently available for us to
borrow), how we manage liquidity and our current funding sources in this
section. Key indicators are leverage (the number of times debt exceeds equity),
available liquidity, credit ratings and debt diversification. Our leverage is
low for a finance company, we have ample liquidity available, we have been
successful in issuing debt and our debt is diversified with maturities staggered
over five years. We are not dependent on any of our funding sources or
providers.
Liquidity and access to capital are vital to our operations and growth. We
need continued availability of funds to originate or acquire finance receivables
and to repay debt. To ensure we have enough liquidity, we project our financing
needs based on estimated receivables growth and maturing debt, we monitor
capital markets closely, we diversify our funding sources and we stagger our
debt maturities. Funding sources usually available to us include operating cash
flow, private and public issuances of term debt, committed unsecured revolving
bank credit facilities, conduit and term securitizations of finance receivables,
secured term financings, dealer placed and direct issued commercial paper and
sales of common and preferred equity. The external funding sources may not be
available to us currently or may only be available at unfavorable terms because
of credit markets conditions. However, we have $474.0 million available to
borrow under our committed revolving bank and asset securitization facilities
(after subtracting commercial paper outstanding) at April 30, 2009. Therefore,
we do not have a current need for additional financing. We are also considering
applying for a bank holding company charter. This could lead to adding FDIC
insured deposits as a liquidity source.
Our term notes are rated 'BBB+' by Fitch Ratings, Inc. ("Fitch", a
Nationally Recognized Statistical Ratings Organization) and our commercial paper
is rated 'F2' by Fitch. Fitch affirmed these investment grade ratings in March
2009 and maintained its stable outlook. As a condition of our 'F2' credit
rating, commercial paper outstanding is limited to the unused amount of our
committed credit facilities. Our ability to obtain or renew financing and our
credit spreads can be dependent on these investment grade credit ratings.
All of our debt and credit facilities were obtained through our major
operating subsidiary except for the 2.0% convertible debentures (issued by FFC).
The subsidiary's debt agreements and facilities have restrictive covenants
limiting the subsidiary's indebtedness, encumbrances, investments, sales of
assets, mergers and other business combinations, capital expenditures, interest
coverage, net worth and dividends and other distributions to FFC. The subsidiary
has always complied with all debt covenants and restrictions. None of the
agreements or facilities has a material adverse change clause and all of our
debt is senior.
18
Our leverage (debt-to-equity ratio) has decreased to 2.7 at April 30, 2009
from 3.5 at July 31, 2008 and from 4.3 at July 31, 2007 because we have remained
profitable while contracting during the credit markets crisis and recession.
Debt decreased by 18% ($269.0 million) to $1.20 billion from $1.47 billion
during the first nine months of fiscal 2009 and stockholders' equity increased
by 7% ($29.0 million) to $443.9 million from $414.9 million. This low level of
leverage allows for substantial asset growth and equity distributions and
repurchases.
Debt comprised the following ($ in millions):
=========================================================================
April 30, 2009 July 31, 2008
------------------ ------------------
Amount Percent Amount Percent
=========================================================================
Term notes $ 675.0 56% $ 675.0 46%
Bank borrowings 343.0 29 369.0 25
Asset securitization
borrowings - term 117.0 10 169.0 12
Commercial paper 63.0 5 79.0 5
Convertible debentures -- -- 175.0 12
-------------------------------------------------------------------------
Total debt $1,198.0 100% $1,467.0 100%
=========================================================================
Term Notes
We issued the term notes between fiscal 2003 and 2008. They are five and
seven year fixed rate notes with principal due at maturity between April 2010
and April 2014. Their average maturity was 2.2 years at April 30, 2009. Interest
is payable semiannually.
Bank Credit Facilities
We have $455.0 million of committed unsecured revolving credit facilities
from ten banks with original terms ranging from two to five years, and $112.0
million was unused and available for us to borrow at April 30, 2009. The
facilities expire between July 2009 and February 2013 with an average remaining
term of 2.3 years and range from $15.0 million to $110.0 million. Borrowings
under these facilities can mature between 1 and 270 days. Borrowings outstanding
at April 30, 2009 matured in May 2009, were reborrowed and remain outstanding.
We borrow amounts usually for one day, and also for one week or one month
depending on interest rates, and roll the borrowings over when they mature
depending on whether we issue or repay other debt.
These committed facilities are a low-cost source of funds and support our
commercial paper program. We can borrow the full amount under each facility
immediately. None of the facilities are for commercial paper back-up only and
the facilities do not have usage fees. These facilities might be renewed,
extended or increased before they expire. We renewed a $30.0 million two-year
facility for another two years in September 2008 and a $25.0 million one-year
facility expired in March 2009.
Asset Securitization Financings
We have $425.0 million of asset securitization facilities that provide for
committed revolving financing during their term and we can convert borrowings
into amortizing term debt if the facilities are not renewed. The amortizing term
debt would be repaid monthly from collections of securitized receivables and
would be repaid substantially within two years. The full amount of the
facilities was unused and available for us to borrow at April 30, 2009.
We converted $200.0 million of revolving asset securitization borrowings
into amortizing term debt in fiscal 2008 and are repaying the remaining $117.0
million monthly from collections of securitized receivables. The monthly
repayment amounts vary based on the amount of securitized receivables collected
and the amount borrowed under our $325.0 million facility, and would increase if
we borrow under this facility or convert this facility into amortizing term debt
upon nonrenewal. The term debt will be repaid substantially in two years based
on the amount of securitized receivables at April 30, 2009 and not borrowing
under this facility.
Finance receivables included $210.0 million of securitized receivables at
April 30, 2009 and $410.0 million at July 31, 2008. The amount of receivables we
can securitize is limited to 40% of our major operating subsidiary's receivables
because of restrictions in its other debt agreements. This limit was $660.0
million at April 30, 2009.
Borrowings under these facilities and the amortizing term debt are limited
to 92% of eligible securitized receivables and are without recourse. Securitized
receivables classified as impaired or with terms outside of defined limits are
19
ineligible to be borrowed against. These facilities also restrict the amount of
net charge-offs of securitized receivables and the amount of delinquent
receivables. These facilities would terminate if these restrictions are
exceeded, and borrowings outstanding would then be repaid monthly from
collections of securitized receivables.
Commercial Paper
We issue commercial paper direct and through a $500.0 million dealer
program with maturities between 1 and 270 days. The amount of commercial paper
we could issue is limited to the lower of $500.0 million and the unused amount
of our committed credit facilities ($537.0 million at April 30, 2009).
There is still reduced demand for and higher credit spreads on commercial
paper because of credit market conditions. As a result, our commercial paper has
decreased to $63.0 million from $79.0 million during the first nine months of
fiscal 2009 and from $289.7 million at July 31, 2007.
Stockholders' Equity
We increased the amount authorized under our common stock and convertible
debt repurchase program by $58.5 million in the first nine months of fiscal
2009. We also purchased $42.3 million of our convertible debentures under the
program for $40.6 million and 37,000 shares of our common stock for $0.8
million, leaving $43.9 million authorized for future repurchases at April 30,
2009. We established the program in fiscal 2007 and it does not have an
expiration date. Repurchases are discretionary and contingent upon many
conditions.
We paid $11.6 million of cash dividends and we received $0.5 million from
stock option exercises in the first nine months of fiscal 2009.
Market Interest Rate Risk and Sensitivity
We discuss how changes in market interest rates and credit spreads affect
our net interest spread and how we manage interest rate risk in this section.
Net interest spread (net yield of finance receivables less cost of debt) is an
integral part of a finance company's profitability and is calculated below:
========================================================================
Three Months Ended Nine Months Ended
April 30, April 30,
--------------------------------------
2009 2008 2009 2008
========================================================================
Net yield of finance receivables 8.82% 9.21% 8.82% 9.24%
Cost of debt 3.75 4.44 3.95 4.94
------------------------------------------------------------------------
Net interest spread 5.07% 4.77% 4.87% 4.30%
========================================================================
Our net interest spread was 30 basis points (0.30%) higher in the third
quarter of fiscal 2009 compared to the third quarter of fiscal 2008, and was 57
basis points (0.57%) higher in the first nine months of fiscal 2009 compared to
the first nine months of fiscal 2008 because decreases in market interest rates
lowered our cost of debt more than they lowered the net yield on our finance
receivables as explained below. Short-term market interest rates have decreased
significantly since July 2007 because the Federal Reserve lowered its target
Federal Funds Rate more than 500 basis points (5.00%) in response to credit
market and economic conditions. Short-term LIBOR rates decreased on average 450
basis points (4.50%) with overnight LIBOR decreasing more than 500 basis points
to 0.23% at April 30, 2009. Interest rates on most of our floating rate debt are
indexed to short-term LIBOR rates. This is the primary reason our cost of debt
decreased in the first nine months of fiscal 2009. Decreases in short-term
market interest rates also lowered the net yield because the rates on our
floating rate receivables are indexed to the prime rate. The prime rate also
decreased by 500 basis points since July 2007. Long-term market interest rates
also decreased significantly. Lower long-term market interest rates normally
would decrease the cost of new fixed-rate term debt and result in lower yields
on finance receivable originations, but these effects have been offset largely
by significantly higher credit spreads.
Our net interest spread is sensitive to changes in short and long-term
market interest rates (includes LIBOR, rates on U.S. Treasury securities,
money-market rates, swap rates and the prime rate). Increases in short-term
rates reduce our net interest spread and decreases in short-term rates increase
it because our floating rate debt (includes short-term debt) exceeds our
floating rate finance receivables by a significant amount. Interest rates on
our debt change faster than the yield on our receivables because 44% of our
debt is floating rate compared to floating rate receivables of only 8%.
20
Credit spreads also affect our net interest spread. Changes in credit
spreads affect the yield on our receivables when originated and the cost of our
debt when issued. Credit spreads have increased significantly since the crisis
in credit markets began. Our cost of debt will increase considerably as we
obtain or renew financing if credit spreads remain high.
Our net interest spread is also affected when the differences between
short-term and long-term rates change. Long-term rates normally exceed
short-term rates. When this excess narrows (resulting in a "flattening yield
curve") or when short-term rates exceed long-term rates (an "inverted yield
curve"), our net interest spread should decrease and when the yield curve widens
our net interest spread should increase because the rates we charge our
customers are largely determined by long-term market interest rates and rates on
our floating rate debt are largely determined by short-term market interest
rates. We can mitigate the effects of a flat or inverted yield curve by issuing
long-term fixed rate debt.
Our income is subject to the risk of rising short-term market interest
rates and a flat or inverted yield curve because floating rate debt exceeded
floating rate receivables by $380.5 million at April 30, 2009 (see the table
below). The terms and prepayment experience of fixed rate receivables mitigate
this risk. Receivables are collected monthly over short periods of two to five
years with $584.0 million (38%) of fixed rate receivables scheduled to be
collected in one year at April 30, 2009 and the average remaining life of fixed
rate receivables excluding prepayments is approximately twenty months.
Historically, annual collections have exceeded 50% of average receivables. We do
not match the maturities of our debt to our receivables.
We monitor and manage our exposure to potential adverse changes in market
interest rates with derivative financial instruments and by changing the
proportion of our fixed and floating rate debt. We may use derivatives to hedge
our exposure to interest rate risk on existing debt and debt expected to be
issued. We do not speculate with or trade derivatives. We had no derivatives
outstanding during the first nine months of fiscal 2009.
We quantify interest rate risk by calculating the effect on net income of
a hypothetical, immediate 100 basis point (1.0%) rise in market interest rates.
This hypothetical change in rates would reduce quarterly net income by
approximately $0.3 million at April 30, 2009 based on the scheduled repricing of
floating rate debt, fixed rate debt maturing within one year and the expected
effects on the yield of new receivables. This amount increases to $0.6 million
excluding the effects on the yield of new receivables. We believe these amounts
are acceptable considering the cost of floating rate debt is lower than fixed
rate debt. Actual future changes in market interest rates and their effect on
net income may differ from these amounts materially. Other factors that may
accompany an actual immediate 100 basis point rise in market interest rates were
not considered in the calculation. These hypothetical reductions of net income
at April 30, 2008 were $0.5 million and $0.9 million excluding the effects on
the yield of new receivables. The impact of this hypothetical increase in rates
was lower at April 30, 2009 because our floating rate debt decreased by 28% to
$523.0 million from $731.0 million at April 30, 2008.
The fixed and floating rate amounts and percentages of our receivables and
capital at April 30, 2009 follow ($ in millions):
==========================================================================
Fixed Rate Floating Rate
----------------- ---------------
Amount Percent Amount Percent Total
==========================================================================
Finance receivables $1,537.3 92% $142.5 8% $1,679.8
==========================================================================
Debt $ 675.0 56% $523.0 44% $1,198.0
Stockholders' equity 443.9 100 -- -- 443.9
--------------------------------------------------------------------------
Total debt and equity $1,118.9 68% $523.0 32% $1,641.9
==========================================================================
The fixed and floating rate amounts and percentages of our receivables and
capital at July 31, 2008 follow ($ in millions):
==========================================================================
Fixed Rate Floating Rate
----------------- ---------------
Amount Percent Amount Percent Total
==========================================================================
Finance receivables $1,772.0 91% $168.8 9% $1,940.8
==========================================================================
Debt $ 850.0 58% $617.0 42% $1,467.0
Stockholders' equity 414.9 100 -- -- 414.9
--------------------------------------------------------------------------
Total debt and equity $1,264.9 67% $617.0 33% $1,881.9
==========================================================================
21
Floating rate debt comprises bank borrowings, term asset securitization
borrowings and commercial paper, and reprices (interest rates change based on
current short-term market interest rates) after April 30, 2009 as follows:
$498.0 million (95%) in one month, $17.0 million (3%) in two to three months and
$8.0 million (2%) in four to six months. Floating rate receivables only reprice
when the prime rate changes. Repricing frequencies of floating rate debt follow
($ in millions):
=========================================================================
Balance Repricing Frequency
=========================================================================
Bank borrowings $343.0 1 to 30 days
Asset securitization
borrowings - term 117.0 1 to 30 days
Commercial paper 63.0 1 to 180 days (40 day average)
=========================================================================
New Accounting Standards
Refer to Note 1 (Summary of Significant Accounting Policies) to the
consolidated financial statements.
Forward-Looking Statements
Statements in this report containing the words or phrases "expect,"
"anticipate," "may," "might," "believe," "appears," "intend," "estimate,"
"could," "should," "would," "will," "if," "outlook," "likely," "unlikely" and
other words and phrases expressing our expectations are "forward-looking
statements." Actual results could differ from those contained in the
forward-looking statements materially because they involve various assumptions
and known and unknown risks and uncertainties. Information about risk factors
that could cause actual results to differ materially is discussed in "Part I,
Item 1A Risk Factors" in our Annual Report on Form 10-K for the year ended
July 31, 2008 and other sections of this report. Risk factors include (i) an
economic slowdown (ii) the inability to collect finance receivables and the
sufficiency of the allowance for credit losses (iii) the inability to obtain
capital or maintain liquidity (iv) rising short-term market interest rates and
adverse changes in the yield curve (v) increased competition (vi) the inability
to retain key employees and (vii) adverse conditions in the construction and
road transportation industries. Forward-looking statements do not guarantee our
future performance and apply only as of the date made. We are not required to
update or revise them for future or unanticipated events or circumstances.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2, Market Interest Rate Risk and Sensitivity.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Our management (with our Chief Executive Officer's and Chief Financial
Officer's participation) evaluated our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934)
at the end of the period covered by this report. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded our disclosure
controls and procedures are effective to ensure information required to be
disclosed in reports we file or submit under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported timely.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting
during the third quarter of fiscal 2009 that materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.
22
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our common stock repurchase activity for the third quarter of fiscal 2009
is summarized below:
ISSUER PURCHASES OF EQUITY SECURITIES
For the Quarter Ended April 30, 2009
==========================================================================================
(c) Total Number of (d) Maximum Number
(a) Total Shares Purchased (or Approximate Dollar
Number (b) Average as Part of Publicly Value) of Shares that May
of Shares Price Paid Announced Plans or Yet Be Purchased Under
Month Purchased per Share Programs the Plans or Programs
==========================================================================================
March 2009 26,257 $19.91 26,257 $43,958,000
April 2009 3,885 24.61 3,885 43,862,000
--------------------------------------------------------------
Total 30,142 $20.52 30,142
==========================================================================================
We established a $50.0 million common stock and convertible debt
repurchase program in June 2007. We increased the amount authorized by $23.2
million in September 2008 and by an additional $35.3 million in January 2009. We
purchased 0.9 million shares of common stock for $24.0 million and $42.3 million
of convertible debentures for $40.6 million since the inception of the program
through April 30, 2009. The program does not have an expiration date. We did not
sell any unregistered shares of our common stock during the third quarter of
fiscal 2009.
Item 5. Other Information
We issued a press release on June 2, 2009 reporting our results for the
quarter ended April 30, 2009. The press release is attached as Exhibit 99.1.
Exhibit 99.1 shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or subject to
the liabilities of that section, nor shall it be deemed incorporated by
reference in any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific reference.
We issued a press release on June 2, 2009 announcing our Board of
Directors declared a quarterly dividend of $0.15 per share on our common stock.
The press release is attached as Exhibit 99.2. The dividend is payable on July
10, 2009 to stockholders of record at the close of business on June 19, 2009.
The dividend rate is the same as the previous quarter.
Item 6. Exhibits
Exhibit No. Description of Exhibit
--------------------------------------------------------------------------------
3.1 (a) Articles of Incorporation
3.2 (b) Certificate of Amendment of Articles of Incorporation dated
December 9, 1998
3.3 (c) Amended and Restated By-laws dated March 5, 2007
*10.1 ** Amendment dated March 3, 2009 to Equity Awards between the
Registrant and its CEO
*10.2 ** Form of Stock Unit Agreement between the Registrant and certain
senior officers
31.1 ** Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 ** Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 ** Section 1350 Certification of Chief Executive Officer
32.2 ** Section 1350 Certification of Chief Financial Officer
99.1 ** Press release dated June 2, 2009
99.2 ** Press release dated June 2, 2009
Previously filed with the Securities and Exchange Commission as an exhibit to
our:
--------------------------------------------------------------------------------
(a) Registration Statement on Form S-1 (Registration No. 33-46662) filed
May 28, 1992
(b) Form 10-Q for the quarter ended January 31, 1999
(c) Form 10-Q for the quarter ended January 31, 2007
* management contract or compensatory plan
** filed with this report
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FINANCIAL FEDERAL CORPORATION
-----------------------------
(Registrant)
By: /s/ Steven F. Groth
------------------------------
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ David H. Hamm
------------------------------
Vice President and Controller
(Principal Accounting Officer)
June 4, 2009
------------
(Date)
24