================================================================================

                                  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, 2007

                                       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 1-12006

                          FINANCIAL FEDERAL CORPORATION
             (Exact name of Registrant as specified in its charter)

             Nevada                                   88-0244792
    (State of incorporation)             (I.R.S. Employer Identification No.)

                   733 Third Avenue, New York, New York 10017
                    (Address of principal executive offices)

        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 the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one)

Large accelerated filer |X|    Accelerated filer |_|   Non-accelerated filer |_|

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,
2007 was 25,780,060.

================================================================================

<PAGE>

                 FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES

                          Quarterly Report on Form 10-Q
                      for the quarter ended April 30, 2007

                                TABLE OF CONTENTS

Part I - Financial Information                                          Page No.
----------------------------------------------------------------------- --------

Item 1.  Financial Statements:

         Consolidated Balance Sheets at April 30, 2007 (unaudited)
            and July 31, 2006 (audited)                                     3

         Consolidated Income Statements for the three and nine months
            ended April 30, 2007 and 2006 (unaudited)                       4

         Consolidated Statements of Changes in Stockholders' Equity for
            the nine months ended April 30, 2007 and 2006 (unaudited)       5

         Consolidated Statements of Cash Flows for the nine months ended
            April 30, 2007 and 2006 (unaudited)                             6

         Notes to Consolidated Financial Statements (unaudited)             7-14

Item 2.  Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                      15-25

Item 3.  Quantitative and Qualitative Disclosures about Market Risk        25

Item 4.  Controls and Procedures                                           25


Part II - Other Information
-----------------------------------------------------------------------

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds       25-26

Item 5.  Other Information                                                 26

Item 6.  Exhibits                                                          26

Signatures                                                                 27


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

                 FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except par value)


<TABLE>
<CAPTION>
============================================================================================
                                                           April 30, 2007*     July 31, 2006
============================================================================================
<S>                                                             <C>               <C>
ASSETS
Finance receivables                                             $2,097,937        $1,991,688
Allowance for credit losses                                        (24,115)          (24,100)
--------------------------------------------------------------------------------------------
   Finance receivables - net                                     2,073,822         1,967,588
Cash                                                                12,724             8,143
Other assets                                                         9,617            12,613
--------------------------------------------------------------------------------------------
      TOTAL ASSETS                                              $2,096,163        $1,988,344
============================================================================================
LIABILITIES
Debt:
  Long-term ($4,400 at April 30, 2007 and $5,700
   at July 31, 2006 owed to related parties)                    $1,356,200        $1,252,350
  Short-term                                                       276,500           275,311
Accrued interest, taxes and other liabilities                       80,526            70,304
--------------------------------------------------------------------------------------------
  Total liabilities                                              1,713,226         1,597,965
--------------------------------------------------------------------------------------------
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):  25,932 at April 30, 2007 and 27,216 at
  July 31, 2006                                                     12,966            13,608
Additional paid-in capital                                         125,685           123,091
Retained earnings                                                  243,164           253,128
Accumulated other comprehensive income                               1,122               552
--------------------------------------------------------------------------------------------
  Total stockholders' equity                                       382,937           390,379
--------------------------------------------------------------------------------------------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $2,096,163        $1,988,344
============================================================================================
</TABLE>

      *  Unaudited

      See accompanying notes to consolidated financial statements


                                       3
<PAGE>

                 FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED INCOME STATEMENTS *
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
============================================================================================
                                                   Three Months Ended      Nine Months Ended
                                                            April 30,              April 30,
                                                   -----------------------------------------
                                                       2007      2006        2007       2006
============================================================================================
<S>                                                 <C>       <C>        <C>        <C>
Finance income                                      $47,490   $41,429    $141,803   $117,420
Interest expense                                     20,541    17,172      62,506     47,463
--------------------------------------------------------------------------------------------

   Net finance income before provision for credit
    losses on finance receivables                    26,949    24,257      79,297     69,957

Provision for credit losses on finance receivables       --        --          --         --
--------------------------------------------------------------------------------------------

   Net finance income                                26,949    24,257      79,297     69,957

Salaries and other expenses                           6,243     5,957      18,494     17,216
--------------------------------------------------------------------------------------------

   Income before provision for income taxes          20,706    18,300      60,803     52,741

Provision for income taxes                            7,996     7,148      23,468     20,616
--------------------------------------------------------------------------------------------

     NET INCOME                                     $12,710   $11,152    $ 37,335   $ 32,125
============================================================================================

EARNINGS PER COMMON SHARE:
     Diluted                                        $  0.48   $  0.42    $   1.40   $   1.22
============================================================================================
     Basic                                          $  0.49   $  0.43    $   1.43   $   1.24
============================================================================================
</TABLE>

      *  Unaudited

      See accompanying notes to consolidated financial statements


                                       4
<PAGE>

                 FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY *
                                 (In thousands)

<TABLE>
<CAPTION>
=======================================================================================================
                                                                                Accumulated
                                      Common Stock   Additional                       Other
                                 -----------------      Paid-In    Retained   Comprehensive
                                 Shares     Amount      Capital    Earnings          Income       Total
=======================================================================================================
<S>                              <C>       <C>         <C>         <C>               <C>       <C>
BALANCE - JULY 31, 2005          26,231    $13,116     $109,226    $219,772          $   --    $342,114
  Net income                         --         --           --      32,125              --      32,125
  Unrealized gain on cash flow
   hedge, net of tax                 --         --           --          --             583         583
  Reclassification adjustment
   for realized gain included
   in net income, net of tax         --         --           --          --             (10)        (10)
                                                                                               --------
  Comprehensive income                                                                           32,698
                                                                                               --------
  Common stock repurchased
   (retired)                        (25)       (13)        (475)       (246)             --        (734)
  Stock plan activity:
   Shares issued                    929        465        4,907         (52)             --       5,320
   Compensation recognized           --         --        4,285          --              --       4,285
   Excess tax benefits               --         --        1,582          --              --       1,582
  Common stock cash dividends        --         --           --      (7,129)             --      (7,129)
  Cash paid for fractional
   shares                            (4)        (2)          --        (107)             --        (109)
-------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2006         27,131    $13,566     $119,525    $244,363          $  573    $378,027
=======================================================================================================
</TABLE>

<TABLE>
<CAPTION>
=======================================================================================================
                                                                                Accumulated
                                      Common Stock   Additional                       Other
                                 -----------------      Paid-In    Retained   Comprehensive
                                 Shares     Amount      Capital    Earnings          Income       Total
=======================================================================================================
<S>                              <C>       <C>         <C>         <C>               <C>       <C>
BALANCE - JULY 31, 2006          27,216    $13,608     $123,091    $253,128          $  552    $390,379
 Net income                          --         --           --      37,335              --      37,335
 Unrealized gain on cash flow
  hedge, net of tax                  --         --           --          --             720         720
 Reclassification adjustment
  for realized gain included
  in net income, net of tax          --         --           --          --            (150)       (150)
                                                                                              ---------
 Comprehensive income                                                                            37,905
                                                                                              ---------
 Common stock repurchased
  (retired)                      (1,710)      (855)      (8,625)    (36,372)             --     (45,852)
 Stock plan activity:
  Shares issued                     435        217        5,082          --              --       5,299
  Shares canceled                    (9)        (4)           4          --              --          --
  Compensation recognized            --         --        5,031          --              --       5,031
  Excess tax benefits                --         --        1,102          --              --       1,102
 Common stock cash dividends         --         --           --     (10,927)             --     (10,927)
-------------------------------------------------------------------------------------------------------
BALANCE - APRIL 30, 2007         25,932    $12,966     $125,685    $243,164          $1,122    $382,937
=======================================================================================================
</TABLE>

     *  Unaudited

     See accompanying notes to consolidated financial statements


                                       5
<PAGE>

                 FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS *
                                 (In thousands)

<TABLE>
<CAPTION>
============================================================================================
Nine Months Ended April 30,                                              2007           2006
============================================================================================
<S>                                                                 <C>          <C>
Cash flows from operating activities:
  Net income                                                        $  37,335    $    32,125
  Adjustments to reconcile net income to net cash provided by
   operating activities:
     Amortization of deferred origination costs and fees               11,961         10,965
     Stock-based compensation                                           2,892          2,235
     Depreciation and amortization                                        393            629
     Decrease in other assets                                           2,453          1,500
     Increase in accrued interest, taxes and other liabilities         13,369          6,358
     Excess tax benefits from stock-based awards                       (1,102)        (1,582)
--------------------------------------------------------------------------------------------
            Net cash provided by operating activities                  67,301         52,230
--------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Finance receivables originated                                     (911,373)    (1,008,230)
  Finance receivables collected                                       795,317        743,518
--------------------------------------------------------------------------------------------
            Net cash used in investing activities                    (116,056)      (264,712)
--------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Commercial paper, net increase                                      171,072         45,099
  Bank borrowings, net decrease                                      (126,033)       (47,065)
  Asset securitization (repayments) borrowings                        (42,500)       100,000
  Proceeds from term notes                                            125,000        150,000
  Repayments of term notes                                            (25,000)       (32,500)
  Proceeds from settlement of interest rate locks                       1,175            970
  Proceeds from stock option exercises                                  5,254          5,320
  Excess tax benefits from stock-based awards                           1,102          1,582
  Common stock issued                                                      45             --
  Common stock repurchased                                            (45,852)          (734)
  Common stock cash dividends                                         (10,927)        (7,129)
  Cash paid for fractional shares of common stock                          --           (109)
--------------------------------------------------------------------------------------------
           Net cash provided by financing activities                   53,336        215,434
--------------------------------------------------------------------------------------------
NET INCREASE IN CASH                                                    4,581          2,952
Cash - beginning of period                                              8,143          8,456
--------------------------------------------------------------------------------------------
CASH - END OF PERIOD                                                $  12,724    $    11,408
============================================================================================
</TABLE>

      *  Unaudited

      See accompanying notes to consolidated financial statements


                                       6
<PAGE>

                 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 and subsidiaries (the "Company") 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 waste disposal 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, 2006 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, 2006.

      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, 2007 may not be indicative of full year results.

      We split our common stock 3-for-2 in the form of a stock dividend in
January 2006. All share and per share amounts (including stock options,
restricted stock and stock units), excluding treasury stock, in the Consolidated
Financial Statements and accompanying notes were restated to reflect the split.
We did not split treasury shares.

Use of Estimates

      GAAP requires us to make significant estimates and assumptions affecting
the amounts reported in the Consolidated Financial Statements and accompanying
notes for the allowance for credit losses, non-performing assets, residual
values and stock-based compensation. Actual results could differ from these
estimates significantly.

New Accounting Standards

      The Financial Accounting Standards Board ("FASB") issued Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
109", ("FIN No. 48") in July 2006. FIN No. 48 requires companies to determine if
any tax positions taken on their income tax returns lowering the amount of tax
currently due would more likely than not be allowed by a taxing jurisdiction. If
tax positions pass the more-likely-than-not test, companies then record benefits
from them only equal to the highest amount having a greater than 50% chance of
being realized assuming the tax positions would be challenged by a taxing
jurisdiction. No benefits would be recorded for tax positions failing the
more-likely-than-not test. Tax benefits include income tax savings and the
related interest expense savings. Whether tax positions pass the test or not,
adopting FIN No. 48 could result in additional income tax provisions or expenses
for any interest and penalties on potential underpayments of income tax, or
both. FIN No. 48 is effective in the first quarter of fiscal years beginning
after December 15, 2006. It will become effective for us on August 1, 2007, the
beginning of our fiscal year ending July 31, 2008. We are evaluating how it may
affect our consolidated financial statements.

      The FASB issued Statement of Financial Accounting Standards ("SFAS") No.
157, "Fair Value Measurements", ("SFAS No. 157") in September 2006. 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. 157 is effective in the first quarter of fiscal years beginning after
November 15, 2007. It will become effective for us on August 1, 2008. We are
evaluating how it may affect our consolidated financial statements.


                                       7
<PAGE>

      The FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets
and Financial Liabilities - Including an amendment of FASB Statement No. 115" in
February 2007. 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. SFAS No. 159 is effective in the
first quarter of fiscal years beginning after November 15, 2007. It will become
effective for us on August 1, 2008. We are evaluating how it may affect our
consolidated financial statements.


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 (indexed to the prime rate) interest rates, and direct
financing leases as follows:

      ==========================================================================
                                                April 30, 2007     July 31, 2006
      ==========================================================================
      Loans:
        Fixed rate                                  $1,726,556        $1,662,805
        Floating rate                                  167,595           131,235
      --------------------------------------------------------------------------
          Total loans                                1,894,151         1,794,040
      Direct financing leases *                        203,786           197,648
      --------------------------------------------------------------------------
               Finance receivables                  $2,097,937        $1,991,688
      ==========================================================================
      *  includes residual values of $42,400 at April 30, 2007 and $41,200 at
         July 31, 2006

      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 portion of these commitments was $33,800 at April 30, 2007 and $23,800 at
July 31, 2006.

      The allowance for credit losses activity is summarized below:

<TABLE>
<CAPTION>
      ===================================================================================
                                              Three Months Ended        Nine Months Ended
                                                       April 30,                April 30,
                                            ---------------------------------------------
                                               2007         2006         2007        2006
      ===================================================================================
<S>                                         <C>          <C>          <C>         <C>
      Allowance - beginning of period       $24,148      $24,116      $24,100     $24,225
        Provision                                --           --           --          --
        Write-downs                            (775)      (1,046)      (1,925)     (2,901)
        Recoveries                              742          957        1,940       2,703
      -----------------------------------------------------------------------------------
      Allowance - end of period             $24,115      $24,027      $24,115     $24,027
      ===================================================================================
      Percentage of finance receivables        1.15%        1.25%        1.15%       1.25%
      ===================================================================================
      Net charge-offs (recoveries) *        $    33      $    89      $   (15)    $   198
      ===================================================================================
      Loss ratio **                            0.01%        0.02%          --%       0.01%
      ===================================================================================
</TABLE>
      *   write-downs less recoveries
      **  net charge-offs over average finance receivables, annualized

      Non-performing assets comprise finance receivables classified as
non-accrual (income recognition has been suspended and the receivables are
considered impaired) and assets received to satisfy finance receivables
(repossessed equipment, included in other assets) as follows:

      =========================================================================
                                                April 30, 2007    July 31, 2006
      =========================================================================
      Finance receivables classified as
         non-accrual                                   $15,934          $13,750
      Assets received to satisfy finance
         receivables                                     2,090              809
      -------------------------------------------------------------------------
                Non-performing assets                  $18,024          $14,559
      =========================================================================


                                       8
<PAGE>

      The allowance for credit losses included $200 at April 30, 2007 and $300
at July 31, 2006 specifically allocated to $4,300 and $4,200 of impaired finance
receivables, respectively. We did not recognize any income in the nine months
ended April 30, 2007 or 2006 on impaired loans before collecting our net
investment.


NOTE 3 - DEBT

      Debt is summarized below:

      ========================================================================
                                               April 30, 2007    July 31, 2006
      ========================================================================
      Fixed rate term notes:
        5.00% due 2010 - 2011                      $  250,000       $  250,000
        5.45% - 5.57% due 2011 - 2014                 325,000          200,000
        5.92% - 6.80% due 2007 - 2008                  36,250           61,250
      ------------------------------------------------------------------------
          Total fixed rate term notes                 611,250          511,250
      Fixed rate term notes swapped to
        floating rates due 2008 - 2010                143,250          143,250
      Floating rate term note                              --           10,000
      2.0% convertible debentures due 2034            175,000          175,000
      ------------------------------------------------------------------------
            Total term debt                           929,500          839,500
      Asset securitization financings                 382,500          425,000
      Commercial paper                                289,911          118,839
      Bank borrowings                                  33,689          149,722
      ------------------------------------------------------------------------
              Total principal                       1,635,600        1,533,061
      Fair value adjustment of hedged debt             (2,900)          (5,400)
      ------------------------------------------------------------------------
                 Total debt                        $1,632,700       $1,527,661
      ========================================================================

Term Notes

      We issued $125,000 of fixed rate term notes in April 2007. The notes
comprise $75,000 of five-year, 5.48% notes and $50,000 of seven-year, 5.57%
notes due at maturity in April 2012 and 2014. We will pay interest semiannually.

      We repaid $25,000 of 5.92% fixed rate term notes at maturity and we
converted a $10,000 floating rate term note from a bank due in fiscal 2008 to a
$15,000 three-year committed unsecured revolving credit facility in the first
nine months of fiscal 2007.

Convertible Debentures

      We irrevocably elected (under the original terms of the debentures and
without modifying the debentures) in fiscal 2005 to pay the value of converted
debentures, not exceeding the principal amount, in cash instead of issuing
shares of our common stock. As a result, the 6,169,000 convertible shares are no
longer issuable upon conversion but we would need to pay any value over
principal by issuing shares of common stock and the value of the debentures is
still determined by the number of convertible shares. The value of converted
debentures would exceed the principal amount when the price of our common stock
exceeds the conversion price. Shares needed to pay the value over principal
would equal the difference between the conversion date price of our common stock
and the conversion price, divided by the conversion date price and multiplied by
the number of convertible shares. No event allowing for the debentures to be
converted has occurred through April 30, 2007.

      The conversion rate increased in the first nine months of fiscal 2007
because we declared cash dividends on our common stock. At April 30, 2007, the
conversion rate was 35.25 (number of convertible shares for each $1 (one
thousand) of principal), the conversion price was $28.37 and we would have to
deliver the value of 6,169,000 shares of our common stock upon conversion of all
the debentures. The conversion rate, conversion price and number of convertible
shares at July 31, 2006 were 34.75, $28.78 and 6,081,000, respectively. Future
cash dividends will cause additional conversion rate and convertible shares
increases and conversion price decreases.


                                       9
<PAGE>

Asset Securitization Financings

      We have a $425,000 asset securitization facility providing committed
revolving financing through April 2008. The facility was renewed in April 2007.
If the facility is not renewed again, we could convert borrowings outstanding
into term debt. The term debt would be repaid monthly based on the amount of
securitized receivables and would be fully repaid by December 2009. Finance
receivables include $478,000 and $487,000 of securitized receivables at April
30, 2007 and July 31, 2006, respectively. We can securitize an additional
$357,000 of finance receivables at April 30, 2007. Borrowings are limited to 94%
of securitized receivables and can be further limited based on the eligibility
of securitized receivables. We repaid $42,500 of borrowings under this facility
in April 2007 with proceeds from our term note issuance.

Bank Borrowings

      We have $530,000 of committed unsecured revolving credit facilities from
ten banks expiring as follows; $80,000 within one year and $450,000 between
September 2008 and October 2012.

Other

      Our major operating subsidiary's debt agreements have restrictive
covenants including limits on its indebtedness, encumbrances, investments,
dividends and other distributions to us, sales of assets, mergers and other
business combinations, capital expenditures, interest coverage and net worth. We
were in compliance with all debt covenants at April 30, 2007. None of the
agreements have a material adverse change clause. All of our debt is senior.

      Long-term debt comprised the following:

      =========================================================================
                                                April 30, 2007    July 31, 2006
      =========================================================================
      Term notes                                    $  635,600       $  602,850
      Bank borrowings and commercial
        paper supported by bank credit
        facilities expiring after one year             323,600          247,500
      Asset securitization financings                  222,000          227,000
      Convertible debentures                           175,000          175,000
      -------------------------------------------------------------------------
              Total long-term debt                  $1,356,200       $1,252,350
      =========================================================================


NOTE 4 - DERIVATIVES

      We entered into interest rate locks with a total notional amount of
$100,000 with three banks in September 2006. The rate locks had a March 2007
expiration. We designated the rate locks as cash flow hedges of our anticipated
issuance of fixed rate term notes hedging the risk of higher interest payments
on the notes for the first five years from increases in market interest rates
before the notes were issued. We terminated the rate locks in January 2007 and
realized a $1,006 gain.

      We entered into another interest rate lock with a notional amount of
$50,000 with a bank in March 2007 with an April 2007 expiration. We designated
it as a cash flow hedge of the same anticipated fixed rate term notes issuance
originally hedged in September 2006. We terminated this rate lock in April 2007
when the hedged notes were issued and we realized a $169 gain. The four rate
locks were determined to be highly effective.

      The amount of the gains on these four rate locks relating to hedge
ineffectiveness was $100. We recorded this amount as a reduction of interest
expense in the three and nine months ended April 30, 2007. We recorded the
$1,075 effective amount of the gains in stockholders' equity as accumulated
other comprehensive income net of deferred income tax of $417. We are
reclassifying this after-tax amount into net income over five years by reducing
interest expense and deferred income tax. These rate locks effectively lowered
the interest rate on the fixed rate notes issued in April 2007 by 0.20% (20
basis points).

      We also have fixed to floating interest rate swaps with a total notional
amount of $143,250 at April 30, 2007 and July 31, 2006. The swaps effectively
converted fixed rate term notes into floating rate term notes. We designated the
swaps as fair value hedges of fixed rate term notes. The swaps expire on the
notes' maturity dates. Semiannually, we receive fixed amounts from the swap
counterparty banks equal to the interest we pay on the hedged fixed rate notes,
and we pay amounts to the swap counterparty banks equal to the swaps' floating
rates multiplied by the swaps' notional amounts. We record the differences
between these amounts in interest expense. The swaps' floating rates change
semiannually to a fixed amount over six-month LIBOR. We receive a
weighted-average fixed rate of 4.88% and the weighted-average floating pay rate


                                       10
<PAGE>

was 6.89% at April 30, 2007 and July 31, 2006. The fair value of the swaps was
a liability of $2,900 at April 30, 2007 and $5,400 at July 31, 2006.


NOTE 5 - STOCKHOLDERS' EQUITY

      We increased the amount available under our common stock and convertible
debt repurchase program by $32,617 and we repurchased 1,693,000 shares of our
common stock for $45,385 paying a weighted-average price of $26.80 per share in
the third quarter of fiscal 2007. We also received 17,500 shares of common stock
from employees in the first nine months of fiscal 2007 at a weighted-average
price of $26.70 per share for payment of income tax we were required to withhold
on vested shares of restricted stock. We retired all shares repurchased and
received in fiscal 2007. We completed the program in May 2007 with the
repurchase of 159,000 shares for $4,300 paying a $27.00 weighted-average price
per share.

      We paid quarterly cash dividends totaling $0.40 per share of common stock
in the first nine months of fiscal 2007. We declared a quarterly cash dividend
of $0.15 per share of common stock in June 2007 payable in July 2007.


NOTE 6 - STOCK PLANS

      Our stockholders approved two stock plans in December 2006; 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 incentive or non-qualified stock options, shares of restricted stock,
stock appreciation rights, stock units and common stock to officers, other
employees and directors subject to annual participant limits, and expires in
December 2016. Awards may be subject to performance goals. The 2006 Plan
replaced the 1998 Stock Option/Restricted Stock Plan (the "1998 Plan"). The 1998
Plan terminated upon approval of the 2006 Plan. The exercise price of incentive
stock options granted under these plans can not be less than the fair market
value of our common stock when granted and the term of incentive stock options
is limited to ten years. There were 2,229,000 shares available for future grants
under the 2006 Plan at April 30, 2007. 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 cash or stock bonuses to be awarded to our CEO and other
selected officers subject to predetermined performance goals. The Amended MIP
expires in December 2011. There were 750,000 shares available for future grants
under the Amended MIP at April 30, 2007.

      The 1998 Plan was amended in December 2005 according to its anti-dilution
provisions to increase the number of shares available for the January 2006 stock
split. The 1998 Plan provided for the issuance of 3,750,000 incentive or
non-qualified stock options or shares of restricted stock to officers, other
employees and directors. None of the options or shares of restricted stock
awarded under the 1998 Plan are performance based.

      Options granted through the first half of fiscal 2005 were mostly
incentive stock options with a six-year term vesting 25% after two, three, four
and five years. Options granted in the second half of fiscal 2005 were
non-qualified options with a four-year term vesting 33 1/3% on July 31, 2005,
2006 and 2007. Options granted after fiscal 2005 were non-qualified options with
a five-year term vesting 25% after one, two, three and four years. We granted
131,000 non-qualified stock options to employees in February 2007.

      Shares of restricted stock awarded (excluding 435,000 shares awarded to
executive officers in February 2006) vest annually in equal amounts over
original periods of three to eight years (seven year weighted-average). Shares
of restricted stock awarded to executive officers in February 2006 vest when the
officer's service terminates, other than upon a non-qualifying termination,
after six months (i) after the executive officer attains age 62 or (ii) after
August 2026 if earlier (twelve year weighted-average). We awarded 120,000 shares
of restricted stock to employees in February 2007.

      We awarded 19,000 restricted stock units to non-employee directors in
January 2007. The units vest in one year or earlier upon the sale of the Company
or the director's death or disability, and are subject to forfeiture. Each unit
represents the right to receive one share of common stock and the units earn
dividend equivalents to be paid in additional shares of common stock. Vested
units will convert into shares of common stock when a director's service
terminates. We also issued 1,500 shares of common stock as payment of annual
director retainer fees. The price of our common stock on the date we issued
these shares was $28.73.


                                       11
<PAGE>

      The Management Incentive Plan ("MIP") for our Chief Executive Officer
("CEO") was approved by stockholders in fiscal 2002. We amended it in December
2005 according to its anti-dilution provisions to increase the number of shares
for the January 2006 stock split. We awarded 41,000 shares of restricted stock
to our CEO in November 2005 as part of the fiscal 2006 bonus subject to certain
performance conditions. Shares earned vest annually in equal amounts over four
years. Our CEO earned 36,000 of these shares in September 2006 and forfeited
5,000 shares based on our fiscal 2006 performance. Our CEO earned 27,000 shares
of restricted stock in September 2005 vesting annually in equal amounts over
four years as a bonus for fiscal 2005. Our CEO earned 15,000 shares of
restricted stock in fiscal 2005 vesting annually in equal amounts over five
years as part of the fiscal 2004 bonus. No shares were awarded for fiscal 2007.
At April 30, 2007, 103,000 shares of our CEO's restricted stock awarded under
the MIP were unvested and are scheduled to vest within four years.

      We established a Supplemental Retirement Benefit ("SERP") for our CEO in
fiscal 2002. We amended it in December 2005 according to its anti-dilution
provisions to increase the number of units for the January 2006 stock split, and
we amended it in March 2006 to provide for dividend equivalent payments. We
awarded 150,000 stock units 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. At April 30, 2007, 94,000
units were vested. Amending the SERP in fiscal 2006 to provide for dividend
equivalent payments increased the fair value of these units to $23.93 from
$22.43 and increased the total cost of the units by $225.

      All unvested shares of restricted stock and the SERP stock units would
vest immediately upon the sale of the Company or the employees' death or
disability. Unvested shares of restricted stock awarded before fiscal 2007 and
the SERP stock units would also vest immediately upon a qualifying employment
termination, but only a portion (based on the percentage of the vesting period
elapsed) of the shares awarded to executive officers in February 2006 would vest
immediately upon a qualifying employment termination. Unvested shares and units
would be forfeited upon any other employment termination. Dividends are paid on
all unvested shares of restricted stock. The restricted stock agreements and the
SERP (as amended in March 2006) also allow employees to pay income taxes
required to be withheld at vesting by surrendering a portion of the shares or
units vested.

      Stock options, shares of restricted stock and stock units 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'
objectives with those of our stockholders. We issue new shares when options are
exercised or when we award shares of restricted stock, and we do not have a
policy to repurchase shares in the open market when options are exercised or
when we award shares of restricted stock.

      Stock option activity and related information for the nine months ended
April 30, 2007 are summarized below (options and intrinsic value in thousands):

      ==========================================================================
                                                    Weighted-Average
                                               ---------------------
                                               Exercise    Remaining   Intrinsic
                                      Options     Price  Term (years)     Value*
      ==========================================================================
      Outstanding - August 1, 2006      1,527    $20.71
        Granted                           131     26.96
        Exercised                        (313)    16.77
        Forfeited                         (67)
      ---------------------------------------
      Outstanding - April 30, 2007      1,278     22.22          2.6      $5,600
      ==========================================================================
      Exercisable - April 30, 2007        594    $20.90          2.1      $3,300
      ==========================================================================
      *  number of options multiplied by the difference between the $26.28
         closing price of our common stock on April 30, 2007 and the
         weighted-average exercise price


                                       12
<PAGE>

      Information on stock option exercises follows (in thousands, except
intrinsic value per option):

      ==========================================================================
      Nine Months Ended April 30,                              2007         2006
      ==========================================================================
      Number of options exercised                               313          324
      Total intrinsic value *                                $3,400       $3,900
      Intrinsic value per option                              10.86        12.03
      Excess tax benefits realized                              752        1,217
      ==========================================================================
      *  options exercised multiplied by the difference between the closing
         prices of our common stock on the exercise dates and the exercise
         prices

      Restricted stock activity under the 2006 Plan, the 1998 Plan and the MIP,
and related information for the nine months ended April 30, 2007, are summarized
below (shares in thousands):


      ==========================================================================
                                                                Weighted-Average
                                                Shares     Grant-Date Fair Value
      ==========================================================================
      Unvested - August 1, 2006                  1,081                    $24.66
        Granted                                    120                     26.96
        Vested                                    (142)                    21.38
        Forfeited                                   (9)
      ------------------------------------------------
      Unvested - April 30, 2007                  1,050                     25.34
      ==========================================================================

      Information on shares of restricted stock that vested follows (in
thousands, except intrinsic value per share):

      ==========================================================================
      Nine Months Ended April 30,                              2007         2006
      ==========================================================================
      Number of shares vested                                   142           97
      Total intrinsic value *                                $3,800       $2,800
      Intrinsic value per share                               26.76        28.86
      Excess tax benefits realized                              350          365
      ==========================================================================
      *  shares vested multiplied by the closing prices of our common stock on
         the dates vested

      The weighted-average grant date fair value and exercise price of options
granted, and the significant assumptions we used to calculate the fair values
follow:

      =========================================================================
      Nine Months Ended April 30,                           2007           2006
      =========================================================================
      Weighted-average grant date fair value              $ 4.75         $ 6.47
      Weighted-average exercise price                      26.96          28.80
      Weighted-average assumptions:
        Expected life of options (in years)                  3.7            3.7
        Expected volatility                                   22%            25%
        Risk-free interest rate                              4.5%           4.6%
        Dividend yield                                       2.8%           1.5%
      =========================================================================

      Future compensation expense (before deferral under SFAS No. 91) for
stock-based awards unvested at April 30, 2007 and expected to vest, and the
weighted-average expense recognition periods follow:

      ==========================================================================
                                             Expense      Weighted-Average Years
      ==========================================================================
      Restricted stock                       $19,600                         6.0
      Stock options                            1,700                         2.6
      Stock units                              1,500                         2.3
      ----------------------------------------------
               Total                         $22,800                         5.5
      ==========================================================================


                                       13
<PAGE>

      Total compensation recorded, compensation capitalized (deferred
recognizing) under SFAS No. 91, compensation included in salaries and other
expenses and tax benefits recorded for stock-based awards follow:


<TABLE>
<CAPTION>
      ===================================================================================
                                                 Three Months Ended     Nine Months Ended
                                                          April 30,             April 30,
                                                 ----------------------------------------
                                                     2007      2006        2007      2006
      ===================================================================================
<S>                                                <C>       <C>         <C>       <C>
      Compensation for stock options:
      -------------------------------
      Total recorded                               $  264    $  442      $  838    $1,422
      Capitalized under SFAS No. 91                   155       266         506       842
      -----------------------------------------------------------------------------------
        Included in salaries and other expenses    $  109    $  176      $  332    $  580
      ===================================================================================
      Tax benefits recorded                        $   17    $   29      $   49    $   86
      ===================================================================================
      Compensation for shares of restricted
      -------------------------------------
      stock and stock units:
      ----------------------
      Total recorded                               $1,485    $1,198      $4,193    $2,863
      Capitalized under SFAS No. 91                   540       484       1,633     1,208
      -----------------------------------------------------------------------------------
        Included in salaries and other expenses    $  945    $  714      $2,560    $1,655
      ===================================================================================
      Tax benefits recorded                        $  357    $  276      $  973    $  636
      ===================================================================================
      Total stock-based compensation:
      -------------------------------
      Total recorded                               $1,749    $1,640      $5,031    $4,285
      Capitalized under SFAS No. 91                   695       750       2,139     2,050
      -----------------------------------------------------------------------------------
        Included in salaries and other expenses    $1,054    $  890      $2,892    $2,235
      ===================================================================================
      Tax benefits recorded                        $  374    $  305      $1,022    $  722
      ===================================================================================
</TABLE>


NOTE 7 - 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,
                                         ---------------------------------------
                                             2007      2006       2007      2006
      ==========================================================================
      Net income                          $12,710   $11,152    $37,335   $32,125
      ==========================================================================
      Weighted-average common shares
        outstanding (used for basic EPS)   26,042    26,017     26,177    25,844
      Effect of dilutive securities:
        Stock options                         228       369        269       354
        Shares of restricted stock and
          stock units                         259       204        284       219
      --------------------------------------------------------------------------
      Adjusted weighted-average common
        shares outstanding (used for
        diluted EPS)                       26,529    26,590     26,730    26,417
      ==========================================================================
      Earnings per common share:
         Diluted                          $  0.48   $  0.42    $  1.40   $  1.22
         Basic                               0.49      0.43       1.43      1.24
      ==========================================================================
      Antidilutive stock options,
        shares of restricted stock and
        stock units *                         310       300        200       325
      ==========================================================================
      *  excluded from the calculation because they would have increased
         diluted EPS

      The convertible debentures will lower diluted EPS when the quarterly
average price of our common stock exceeds the adjusted conversion price. When
this occurs, shares of common stock needed to deliver the value of the
debentures over their principal amount based on the average stock price would be
included as shares outstanding in calculating diluted EPS. Shares to be included
would equal the difference between the average stock price and the adjusted
conversion price, divided by the average stock price and multiplied by the
number of convertible shares, currently 6,169,000 (referred to as the treasury
stock method). The average price of our common stock was $27.10 and $27.52 for
the three and nine months ended April 30, 2007, respectively, and the adjusted
conversion price was $28.37 at April 30, 2007.


                                       14
<PAGE>

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 one fully
consolidated special purpose entity we established for our on-balance-sheet
asset securitization facility.

      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 generally ranging between two and five years and provide for
monthly payments. The average transaction size is approximately $200,000. 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 important. We borrow
from banks and insurance companies and we issue commercial paper to other
investors. Approximately 75% of our finance receivables were funded with debt at
April 30, 2007.

      We focus on (i) maximizing the difference between the rates we earn on our
receivables and the rates we incur on our debt ("net interest spread") (ii)
maintaining the asset quality of our receivables and (iii) managing our interest
rate risk. Interest rates on our finance receivables were 92% fixed and 8%
floating, and interest rates on our debt were 48% fixed and 52% floating at
April 30, 2007. Therefore, changes in market interest rates affect our
profitability significantly. The asset quality of our finance receivables can
also affect our profitability significantly. Asset quality can affect finance
income, provisions for credit losses and operating expenses through
reclassifying receivables to or from non-accrual status, incurring write-downs
and incurring costs associated with non-performing assets. We use various
strategies to manage our interest rate risk and credit risk.

      Our main areas of focus are asset quality, liquidity and interest rate
risk. We discuss each in detail in separate sections of this discussion. These
areas are integral to our long-term profitability. Our key operating statistics
are net charge-offs, loss ratio, non-performing assets, delinquencies,
receivables growth, leverage, available liquidity, net interest margin and net
interest spread, and expense and efficiency ratios.

Significant events

      In the third quarter of fiscal 2007, we increased the amount available
under our stock repurchase program by $32.6 million and we repurchased 1.7
million shares of our common stock for $45.4 million paying a $26.80
weighted-average price per share. We completed the program in May 2007 with the
repurchase of 159,000 shares for $4.3 million paying a $27.00 weighted-average
price per share. The shares repurchased were 6.7% of total shares outstanding
and increased our leverage to 4.3 from 3.9. This is discussed further in the
Liquidity and Capital Resources section.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

      Accounting principles generally accepted in the United States require
judgments, assumptions and estimates that affect the amounts reported in the
Consolidated Financial Statements and accompanying notes. Note 1 to the
Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended July 31, 2006 describes the significant accounting policies
and methods used to prepare the Consolidated Financial Statements. Accounting
policies involving significant judgment, assumptions and estimates are
considered critical accounting policies and are described 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,
non-accrual 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


                                       15
<PAGE>

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. The allowance was $24.1 million
(1.15% of finance receivables) at April 30, 2007 including $0.2 million
specifically allocated to impaired receivables.

      The allowance includes amounts specifically allocated to impaired
receivables and an amount to provide for losses inherent in the remainder of
finance receivables (the "general allowance"). We evaluate the fair value of an
impaired receivable and compare it to the carrying amount. The carrying amount
is the amount the receivable is recorded at when we evaluate the receivable and
may include a prior write-down or specific allowance. If our estimate of fair
value is lower than the carrying amount, we record a write-down or establish a
specific allowance based on (i) how we determined fair value (ii) how certain we
are of our estimate and (iii) the level and type of factors and items other than
the primary collateral, such as guarantees and secondary collateral, supporting
our fair value estimate.

      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
then adjust the calculated range of losses for expected recoveries and we may
also adjust the range for 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.
Although our method is designed to calculate probable losses, because we use
significant estimates, the adjusted calculated range of losses may differ from
actual losses significantly.

Non-performing assets

      We record impaired finance receivables at their current estimated fair
value (if less than their carrying amount). We record assets received to satisfy
receivables at their current estimated fair value less selling costs (if less
than their carrying amount). We estimate fair value of non-performing assets by
evaluating the expected cash flows of impaired receivables and the market value
and condition of the collateral or assets. 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 condition of
collateral or assets, or time needed to sell the equipment would require us to
record a write-down. This would lower net income. Impaired finance receivables
and assets received to satisfy receivables (repossessed equipment) totaled $18.0
million (0.9% of finance receivables) at April 30, 2007.

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 fully realize
recorded residual values because of unexpected adverse changes in or incorrect
projections of future equipment values. This would lower net income. Residual
values totaled $42.4 million (2.0% of finance receivables) at April 30, 2007.
Historically, we have realized the recorded residual value on disposition.

Stock-based compensation

      We record compensation expense for stock options under SFAS No. 123R using
the Black-Scholes option pricing model. This model requires us to estimate the
expected volatility of the price of our common stock, the expected life of
options and the expected dividend rate. SFAS No. 123R also requires us to
estimate forfeitures of stock awards. Estimating volatility, expected life,
dividend rate and forfeitures requires significant judgment and an analysis of
historical data. If actual results differ from our estimates significantly,
compensation expense for options and shares of restricted stock and our results
of operations could be impacted materially.


                                       16
<PAGE>

RESULTS OF OPERATIONS

Comparison of three months ended April 30, 2007 to three months ended April 30,
2006

      ========================================================================
                                      Three Months Ended
                                               April 30,
      ($ in millions, except per     -------------------
      share amounts)                     2007       2006   $ Change   % Change
      ========================================================================
      Finance income                    $47.5      $41.4      $ 6.1         15%
      Interest expense                   20.5       17.1        3.4         20
      Net finance income before
        provision for credit losses      27.0       24.3        2.7         11
      Provision for credit losses          --         --         --         --
      Salaries and other expenses         6.3        6.0        0.3          5
      Provision for income taxes          8.0        7.1        0.9         12
      Net income                         12.7       11.2        1.5         14

      Diluted earnings per share         0.48       0.42       0.06         14
      Basic earnings per share           0.49       0.43       0.06         14
      ========================================================================

      Net income increased by 14% to $12.7 million in the third quarter of
fiscal 2007 from $11.2 million in the third quarter of fiscal 2006. The increase
resulted from receivables growth and the higher net yield on finance
receivables, partially offset by the effects of higher short-term market
interest rates.

      Finance income increased by 15% to $47.5 million in the third quarter of
fiscal 2007 from $41.4 million in the third quarter of fiscal 2006. The increase
resulted from the 12% increase in average finance receivables ($215.0 million)
to $2.08 billion in the third quarter of fiscal 2007 from $1.86 billion in the
third quarter of fiscal 2006 and, to a lesser extent, the higher net yield on
finance receivables. Higher market interest rates raised the net yield on
finance receivables to 9.37% in the third quarter of fiscal 2007 from 9.12% in
the third quarter of fiscal 2006.

      Interest expense (incurred on debt used to fund finance receivables)
increased by 20% to $20.5 million in the third quarter of fiscal 2007 from $17.1
million in the third quarter of fiscal 2006. The increase resulted from the 11%
($160.0 million) increase in average debt and higher short-term market interest
rates. Increases in short-term market interest rates raised our weighted-average
cost of debt to 5.33% in the third quarter of fiscal 2007 from 4.96% in the
third quarter of fiscal 2006.

      Net finance income before provision for credit losses on finance
receivables increased by 11% to $27.0 million in the third quarter of fiscal
2007 from $24.3 million in the third quarter of fiscal 2006. Net interest margin
(net finance income before provision for credit losses expressed as an
annualized percentage of average finance receivables) decreased to 5.32% in the
third quarter of fiscal 2007 from 5.34% in the third quarter of fiscal 2006.

      We did not record provisions for credit losses on finance receivables in
the third quarter of fiscal 2007 and 2006. 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. We did not need to increase the
allowance because of continued low amounts of quarterly net charge-offs and
continued strong asset quality, and we did not need to reduce it because of
receivables growth. Net charge-offs (write-downs of finance receivables less
recoveries) were $33,000 in the third quarter of fiscal 2007 and $89,000 in the
third quarter of fiscal 2006, and the loss ratio (net charge-offs expressed as
an annualized percentage of average finance receivables) was less than 0.01% in
the third quarter of fiscal 2007 and was 0.02% in the third quarter of fiscal
2006.

      Salaries and other expenses increased by 5% to $6.3 million in the third
quarter of fiscal 2007 from $6.0 million in the third quarter of fiscal 2006.
The increase resulted from fewer recoveries of costs associated with
non-performing assets. The expense ratio (salaries and other expenses expressed
as an annualized percentage of average finance receivables) improved to 1.23% in
the third quarter of fiscal 2007 from 1.31% in the third quarter of fiscal 2006
because the percentage increase in receivables exceeded the percentage increase
in expenses. The efficiency ratio (expense ratio expressed as a percentage of
net interest margin) improved to 23.2% in the third quarter of fiscal 2007 from
24.6% in the third quarter of fiscal 2006 because the percentage increase in net
finance income before provision for credit losses exceeded the percentage
increase in expenses.


                                       17
<PAGE>

      The provision for income taxes increased to $8.0 million in the third
quarter of fiscal 2007 from $7.1 million in the third quarter of fiscal 2006.
The increase resulted from the increase in income before income taxes, partially
offset by the decrease in our effective tax rate to 38.6% in the third quarter
of fiscal 2007 from 39.1% in the third quarter of fiscal 2006. Our effective tax
rate decreased because of the new Texas income tax law enacted in our fourth
quarter of fiscal 2006 and effective for fiscal 2007, and the overall decrease
in our state effective income tax rate.

      Diluted earnings per share increased by 14% to $0.48 per share in the
third quarter of fiscal 2007 from $0.42 per share in the third quarter of fiscal
2006, and basic earnings per share increased by 14% to $0.49 per share in the
third quarter of fiscal 2007 from $0.43 per share in the third quarter of fiscal
2006. The percentage increases in diluted and basic earnings per share were the
same as the percentage increase in net income because the effects of our
repurchase of 1.7 million shares of common stock offset the effects of stock
option exercises.


Comparison of nine months ended April 30, 2007 to nine months ended April 30,
2006

      ========================================================================
                                       Nine Months Ended
                                               April 30,
      ($ in millions, except per     -------------------
      share amounts)                     2007       2006   $ Change   % Change
      ========================================================================
      Finance income                   $141.8     $117.4      $24.4         21%
      Interest expense                   62.5       47.5       15.0         32
      Net finance income before
        provision for credit losses      79.3       69.9        9.4         13
      Provision for credit losses          --         --         --         --
      Salaries and other expenses        18.5       17.2        1.3          7
      Provision for income taxes         23.5       20.6        2.9         14
      Net income                         37.3       32.1        5.2         16

      Diluted earnings per share         1.40       1.22       0.18         15
      Basic earnings per share           1.43       1.24       0.19         15
      ========================================================================

      Net income increased by 16% to $37.3 million in the first nine months of
fiscal 2007 from $32.1 million in the first nine months of fiscal 2006. The
increase resulted from receivables growth and the higher net yield on finance
receivables, partially offset by the effects of higher short-term market
interest rates and higher expenses.

      Finance income increased by 21% to $141.8 million in the first nine months
of fiscal 2007 from $117.4 million in the first nine months of fiscal 2006. The
increase resulted from the 15% increase in average finance receivables ($267.0
million) to $2.05 billion in the first nine months of fiscal 2007 from $1.78
billion in the first nine months of fiscal 2006 and, to a lesser extent, the
higher net yield on finance receivables. Higher market interest rates raised the
net yield on finance receivables to 9.25% in the first nine months of fiscal
2007 from 8.80% in the first nine months of fiscal 2006.

      Interest expense increased by 32% to $62.5 million in the first nine
months of fiscal 2007 from $47.5 million in the first nine months of fiscal
2006. The increase resulted from higher average short-term market interest rates
and the 15% ($209.0 million) increase in average debt. Increases in short-term
market interest rates raised our weighted-average cost of debt to 5.36% in the
first nine months of fiscal 2007 from 4.70% in the first nine months of fiscal
2006.

      Net finance income before provision for credit losses on finance
receivables increased by 13% to $79.3 million in the first nine months of fiscal
2007 from $69.9 million in the first nine months of fiscal 2006. Net interest
margin decreased to 5.17% in the first nine months of fiscal 2007 from 5.25% in
the first nine months of fiscal 2006 because the yield curve was inverted. This
is discussed further in the Market Interest Rate Risk and Sensitivity section.

      We did not record provisions for credit losses on finance receivables in
the first nine months of fiscal 2007 and 2006. We did not need to increase the
allowance because of continued low amounts of quarterly net charge-offs and
continued strong asset quality, and we did not need to reduce it because of
receivables growth. In the first nine months of fiscal 2007, there was a $15,000
net recovery (recoveries exceeded write-downs of finance receivables) compared
to $198,000 of net charge-offs in the first nine months of fiscal 2006, and the
loss ratio was near zero percent in the first nine months of fiscal 2007 and was
0.01% in the first nine months of 2006.


                                       18
<PAGE>

      Salaries and other expenses increased by 7% to $18.5 million in the first
nine months of fiscal 2007 from $17.2 million in the first nine months of fiscal
2006. The increase resulted from salary increases and fewer recoveries of costs
associated with non-performing assets. The expense ratio improved to 1.21% in
the first nine months of fiscal 2007 from 1.29% in the first nine months of
fiscal 2006 because the percentage increase in receivables exceeded the
percentage increase in expenses. The efficiency ratio improved to 23.3% in the
first nine months of fiscal 2007 from 24.6% in the first nine months of fiscal
2006 because the percentage increase in net finance income before provision for
credit losses exceeded the percentage increase in expenses.

      The provision for income taxes increased to $23.5 million in the first
nine months of fiscal 2007 from $20.6 million in the first nine months of fiscal
2006. The increase resulted from the increase in income before income taxes,
partially offset by the decrease in our effective tax rate to 38.6% in the first
nine months of fiscal 2007 from 39.1% in the first nine months of fiscal 2006.
Our effective tax rate decreased because of the new Texas income tax law enacted
in our fourth quarter of fiscal 2006 and effective for fiscal 2007, and the
overall decrease in our state effective income tax rate.

      Diluted earnings per share increased by 15% to $1.40 per share in the
first nine months of fiscal 2007 from $1.22 per share in the first nine months
of fiscal 2006, and basic earnings per share increased by 15% to $1.43 per share
in the first nine months of fiscal 2007 from $1.24 per share in the first nine
months of fiscal 2006. The percentage increases in diluted and basic earnings
per share were lower than the percentage increase in net income because of stock
option exercises.


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 and levels of future net
charge-offs and non-performing assets.

<TABLE>
<CAPTION>
      ===============================================================================
                                        April 30,     July 31,
      ($ in millions)                      2007 *       2006 *    $ Change   % Change
      ===============================================================================
<S>                                      <C>          <C>           <C>          <C>
      Finance receivables                $2,097.9     $1,991.7      $106.2          5%
      Allowance for credit losses            24.1         24.1          --         --
      Non-performing assets                  18.0         14.6         3.4         24
      Delinquent finance receivables         15.2          8.6         6.6         76
      Net charge-offs                          --          0.1        (0.1)      (100)

      As a percentage of receivables:
      -------------------------------
      Allowance for credit losses            1.15%        1.21%
      Non-performing assets                  0.86         0.73
      Delinquent finance receivables         0.72         0.43
      Net charge-offs                          --         0.01
      ===============================================================================
</TABLE>
      *  as of and for the nine months ended

      Finance receivables grew 5% ($106 million) during the first nine months of
fiscal 2007 to $2.10 billion at April 30, 2007 from $1.99 billion at July 31,
2006. Finance receivables comprise installment sale agreements and secured loans
(collectively referred to as loans) and direct financing leases. Loans were 90%
($1.89 billion) of finance receivables and leases were 10% ($204 million) at
April 30, 2007.

      Finance receivables originated in the third quarter of fiscal 2007 and
2006 were $307 million and $360 million, respectively, and finance receivables
originated in the first nine months of fiscal 2007 and 2006 were $911 million
and $1.01 billion, respectively. Originations decreased because the strong
demand for equipment financing eased due to general economic conditions. Finance
receivables collected in the third quarter of fiscal 2007 and 2006 were $257
million and $248 million, respectively, and finance receivables collected in the
first nine months of fiscal 2007 and 2006 were $795 million and $744 million,
respectively. Collections increased because of higher average receivables.

      Our primary focus is the credit quality of our receivables. We manage our
credit risk by using disciplined and sound underwriting policies and procedures,
by monitoring our receivables closely and by handling non-performing accounts
effectively. 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,


                                       19
<PAGE>

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 limit our credit exposure with any customer.
This limit was $40.0 million at April 30, 2007. Our ten largest customers
accounted for 5.8% ($122.0 million) of total finance receivables at April 30,
2007.

      Our allowance for credit losses was $24.1 million at April 30, 2007 and
July 31, 2006. The allowance level declined to 1.15% of finance receivables at
April 30, 2007 from 1.21% at July 31, 2006 because of continued low net
charge-offs, favorable asset quality and receivables growth. We determine the
allowance quarterly based on our analysis of historical losses and the past due
status of receivables at the end of each quarter adjusted for expected
recoveries and any differences between current and historical loss trends and
other factors.

      In the first nine months of fiscal 2007, there was a $15,000 net recovery
(recoveries exceeded write-downs of finance receivables) compared to $88,000 of
net charge-offs (write-downs less recoveries) in the last nine months of fiscal
2006 (the prior nine month period). Net charge-offs were $33,000 in the third
quarter of fiscal 2007 compared to a $101,000 net recovery in the second quarter
of fiscal 2007. Net charge-offs remained low because of low non-performing
assets.

      The net investments in non-accrual (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,
                                                  2007        2006         2006
      =========================================================================
      Non-accrual finance receivables *         $ 15.9      $ 13.8       $ 12.1
      Repossessed equipment                        2.1         0.8          0.4
      -------------------------------------------------------------------------
         Total non-performing assets            $ 18.0      $ 14.6       $ 12.5
      =========================================================================
      Delinquent finance receivables            $ 15.2      $  8.6       $  4.9
      =========================================================================
      Percentage of non-accrual receivables
        not delinquent                              46%         54%          75%
      =========================================================================
      *  before specifically allocated allowance of $0.2 million at April 30,
         2007, $0.3 million at July 31, 2006 and $0.5 million at April 30, 2006

      Delinquent receivables, non-accrual receivables and repossessed equipment
increased during the third quarter and first nine months of fiscal 2007 but are
still at favorable levels and the increases do not necessarily indicate the
start of a negative trend. Also, because our asset quality statistics remained
below expected levels, they could worsen significantly if receivables from our
larger customers become delinquent, impaired or repossessed even though the
overall trend may remain positive.


LIQUIDITY AND CAPITAL RESOURCES

      We describe our need for raising capital (debt and equity), our need for a
substantial amount of liquidity (money currently available for us to borrow),
our approach to managing 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 been successful in issuing debt, we have
ample liquidity available and our debt is diversified with maturities staggered
over seven years.

      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 and we diversify our funding sources. Funding sources
available to us include operating cash flow, private and public issuances of
term debt, conduit and term securitizations of finance receivables, committed
unsecured revolving bank credit facilities, dealer placed


                                       20
<PAGE>

and direct issued commercial paper and sales of common and preferred equity. We
believe our liquidity sources are diversified, and we are not dependent on any
funding source or provider.

      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. As a condition of our 'F2' credit rating, commercial
paper outstanding is limited to the unused amount of our bank credit facilities.
Fitch affirmed its investment grade ratings on our debt in January 2007
maintaining its stable outlook. Our access to capital markets and our credit
spreads are partly dependent on these investment grade credit ratings.

      We had $248.9 million available to borrow at April 30, 2007; $206.4
million under our bank credit facilities (after subtracting commercial paper
outstanding) and $42.5 million under our asset securitization facility. Our
asset securitization facility could also be increased by $335.0 million and we
believe we can issue more term notes. We believe, but cannot assure, sufficient
capital is available to us to sustain our future operations and growth.

      Our major operating subsidiary's debt agreements have restrictive
covenants including limits on its indebtedness, encumbrances, investments,
dividends and other distributions to us, sales of assets, mergers and other
business combinations, capital expenditures, interest coverage and net worth. We
were in compliance with all debt covenants at April 30, 2007. None of the
agreements have a material adverse change clause.

      Debt increased by 7% ($105.0 million) to $1.63 billion at April 30, 2007
from $1.53 billion at July 31, 2006 and stockholders' equity decreased by 2%
($7.5 million) to $382.9 million at April 30, 2007 from $390.4 million at July
31, 2006 because we repurchased $45.9 million of common stock. Therefore,
leverage increased to 4.3 at April 30, 2007 from 3.9 at July 31, 2006. Our
leverage is still considered low allowing for substantial asset growth and
additional equity repurchases. Historically, our leverage has not exceeded 5.5
which is also considered low for a finance company.

      Debt comprised the following ($ in millions):

<TABLE>
<CAPTION>
      ===================================================================================
                                                   April 30, 2007           July 31, 2006
                                               ------------------      ------------------
                                                 Amount   Percent        Amount   Percent
      ===================================================================================
<S>                                            <C>             <C>     <C>            <C>
      Term notes                               $  754.5        46%     $  664.5        43%
      Asset securitization financings             382.5        23         425.0        28
      Commercial paper                            289.9        18         118.9         8
      Convertible debentures                      175.0        11         175.0        11
      Borrowings under bank credit facilities      33.7         2         149.7        10
      -----------------------------------------------------------------------------------
          Total principal                       1,635.6       100%      1,533.1       100%
      Fair value adjustment of hedged debt         (2.9)                   (5.4)
      -----------------------------------------------------------------------------------
              Total debt                       $1,632.7                $1,527.7
      ===================================================================================
</TABLE>

Term Notes

      We issued $125.0 million of fixed rate term notes in April 2007. The notes
comprise $75.0 million of five-year, 5.48% notes and $50.0 million of
seven-year, 5.57% notes due at maturity in April 2012 and 2014. We will pay
interest semiannually. We repaid bank and securitization borrowings with the
proceeds.

      We repaid $25.0 million of 5.92% fixed rate term notes at maturity and we
converted a $10.0 million floating rate term note from a bank due in fiscal 2008
to a $15.0 million three-year committed unsecured revolving credit facility in
the first nine months of fiscal 2007.

Asset Securitization Financings

      We have a $425.0 million asset securitization facility. We established the
facility in July 2001. The facility was renewed a sixth time in April 2007 and
expires in April 2008 subject to further renewal. The facility limits borrowings
to a minimum level of securitized receivables. If borrowings exceed the minimum
level, we must repay the excess or securitize more receivables. We can
securitize more receivables during the term of the facility. On expiration and
nonrenewal of the facility, we must repay borrowings outstanding or convert them
into term debt. The term debt would be repaid monthly and would be fully repaid
by December 2009 based on the contractual payments of the $478.0 million of
securitized receivables at April 30, 2007.


                                       21
<PAGE>

      The unsecured debt agreements of our major operating subsidiary allow 40%
of its finance receivables to be securitized ($835.0 million at April 30, 2007).
Therefore, we could securitize an additional $357.0 million of finance
receivables at April 30, 2007. Borrowings are limited to 94% of securitized
receivables and can be further limited based on the eligibility of securitized
receivables.

Convertible Debentures

      We irrevocably elected in fiscal 2005 to pay the value of converted
debentures, not exceeding the principal amount, in cash instead of issuing
shares of our common stock. We still would need to pay any value over principal
with common stock. The value of the convertible debentures equals the number of
convertible shares multiplied by the market value of our common stock. There
are 6.2 million convertible shares (as adjusted), the adjusted conversion price
is $28.37 per share and the adjusted conversion rate is 35.25 shares for each
$1,000 of principal. No event allowing for the debentures to be converted has
occurred through April 30, 2007.

Bank Credit Facilities

      We have $530.0 million of committed unsecured revolving credit facilities
from ten banks (a $60.0 million increase from July 31, 2006). This includes
$450.0 million of facilities with original terms ranging from two to five years
and $80.0 million of facilities with an original term of one year. In the first
nine months of fiscal 2007, $142.5 million of one year facilities were converted
into multi-year facilities. Borrowings under these facilities can mature between
1 and 270 days. We can borrow the full amount under each facility. These
facilities may be renewed or extended before they expire.

Commercial Paper

      We issue commercial paper direct and through a $500.0 million program with
maturities between 1 and 270 days. We increased the size of our commercial paper
program in the second quarter of fiscal 2007 from $350.0 million. The combined
amount of commercial paper and bank borrowings ($323.6 million April 30, 2007)
was limited to $530.0 million because commercial paper outstanding is limited to
the unused amount of our bank credit facilities. Commercial paper outstanding
increased during the first nine months of fiscal 2007 because we added a
commercial paper dealer.

Stockholders' Equity

      We increased the amount available under our common stock and convertible
debt repurchase program by $32.6 million and we repurchased 1.7 million shares
of our common stock for $45.4 million paying a weighted-average price of $26.80
per share in the third quarter of fiscal 2007. We financed the repurchases with
the proceeds from the seven-year fixed rate term notes issued in April 2007 and
with borrowings under our bank credit facilities. We also received 17,500 shares
of common stock from employees in the first nine months of fiscal 2007 at a
weighted-average price of $26.70 per share for payment of income tax we were
required to withhold on vested shares of restricted stock. We retired all shares
repurchased and received in fiscal 2007.

      We paid $10.9 million of cash dividends and we received $6.4 million from
stock option exercises and tax benefits from stock-based awards in the first
nine months of fiscal 2007.


MARKET INTEREST RATE RISK AND SENSITIVITY

      We discuss how changes in market interest rates affect our net interest
spread and how we manage interest rate risk in this section. Net interest spread
(the net yield of finance receivables less the weighted-average 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,
                                         --------------------------------------
                                            2007       2006     2007       2006
      =========================================================================
      Net yield of finance receivables      9.37%      9.12%    9.25%      8.80%
      Weighted-average cost of debt         5.33       4.96     5.36       4.70
      -------------------------------------------------------------------------
              Net interest spread           4.04%      4.16%    3.89%      4.10%
      =========================================================================

      Our net interest spread was 0.12% (12 basis points) lower in the third
quarter of fiscal 2007 compared to the third quarter of fiscal 2006, and was
0.21% (21 basis points) lower in the first nine months of fiscal 2007 compared
to the first nine months of fiscal 2006 because the effects of higher average
short-term market interest rates on our cost of debt exceeded the increase in
the net yield of finance receivables. This is an expected result of an inverted
yield curve as discussed below.


                                       22
<PAGE>

      Our net interest spread is sensitive to changes in short-term 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 (this occurred during our prior
two fiscal years) and decreases in short-term rates increase our net interest
spread 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 52% of our debt is
floating rate compared to floating rate finance receivables of only 8%. 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 partially
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 an inverted yield curve by issuing long-term fixed rate debt.

      Short-term market interest rates changed little during the first nine
months of fiscal 2007 after rising substantially and consistently over the prior
two years. As a result, our weighted-average cost of debt decreased by 0.03% (3
basis points) in the third quarter of fiscal 2007 compared to quarterly
increases of 0.25% (25 basis points) during the prior two fiscal years. The
increase in our weighted-average cost of debt during the first nine months of
fiscal 2007 was only 0.07% (7 basis points).

      Our income is subject to the risk of rising short-term market interest
rates and an inverted yield curve at April 30, 2007 because floating rate debt
exceeded floating rate receivables by $681.7 million (see the table below). The
terms and prepayment experience of our fixed rate receivables mitigate this
risk. Finance receivables are collected monthly over short terms of two to five
years and have been accelerated by prepayments. At April 30, 2007, $695.0
million (36%) of fixed rate finance receivables are scheduled to be collected in
one year and the weighted-average remaining life of fixed rate finance
receivables excluding prepayments is approximately twenty months. We do not
match the maturities of our debt to our finance receivables. The fixed and
floating rate amounts and percentages of our finance receivables and capital at
April 30, 2007 follow ($ in millions):

<TABLE>
<CAPTION>
      ================================================================================
                                         Fixed Rate         Floating Rate
                                  -----------------       ---------------
                                    Amount  Percent       Amount  Percent        Total
      ================================================================================
<S>                               <C>           <C>       <C>          <C>    <C>
      Finance receivables         $1,930.3       92%      $167.6        8%    $2,097.9
      ================================================================================

      Debt (principal)            $  786.3       48%      $849.3       52%    $1,635.6
      Stockholders' equity           382.9      100           --       --        382.9
      --------------------------------------------------------------------------------
        Total debt and equity     $1,169.2       58%      $849.3       42%    $2,018.5
      ================================================================================
</TABLE>

      Floating rate debt comprises asset securitization financings, commercial
paper, floating rate swaps of fixed rate notes and bank borrowings, and reprices
(interest rate changes based on current short-term market interest rates) at
April 30, 2007 as follows: $646.2 million (76%) within one month, $86.9 million
(10%) in two to three months and $116.2 million (14%) in four to six months.
Most of the floating rate swaps of fixed rate notes last repriced in April 2007.
The repricing frequency of floating rate debt follows (in millions):

      =========================================================================
                                       Balance   Repricing Frequency
      =========================================================================
      Asset securitization financings   $382.5   generally daily
      Commercial paper                   289.9   1 to 90 days (20 day average)
      Floating rate swaps of fixed
        rate notes                       143.3   semiannually (150 day average)
      Bank borrowings                     33.7   generally daily
      =========================================================================

      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 $0.6 million at April 30, 2007 based on scheduled repricings 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 $1.0 million
excluding the expected increase in the yield of new receivables. We believe
these amounts are acceptable considering the cost of floating rate debt has been
historically lower than fixed rate debt. Actual future changes in market
interest rates and the effect on net income may differ materially from these
amounts. Other factors that may accompany an actual immediate 100 basis point
rise in market interest rates were not considered in the calculation.


                                       23
<PAGE>

      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 entered into interest rate locks with a total notional amount of $100.0
million with three banks in September 2006. The rate locks had a March 2007
expiration. We designated the rate locks as cash flow hedges of our anticipated
issuance of fixed rate term notes hedging the risk of higher interest payments
on the notes for the first five years from increases in market interest rates
before the notes were issued. We terminated the rate locks in January 2007 at a
$1.0 million gain. We would have realized a small loss if we let the rate locks
expire.

      We entered into another interest rate lock with a notional amount of $50.0
million with a bank in March 2007 with an April 2007 expiration. We designated
it as a cash flow hedge of the same anticipated fixed rate term notes issuance
originally hedged in September 2006. We hedged these notes again because
applicable market interest rates declined more than 0.40% (40 basis points)
after we terminated the first three rate locks. We terminated this rate lock in
April 2007 when the hedged notes were issued and we realized a $169,000 gain.
The four rate locks were determined to be highly effective.

      The amount of the gains on these four rate locks relating to hedge
ineffectiveness was $100,000. We recorded this amount as a reduction of interest
expense in the three and nine months ended April 30, 2007. We recorded the $1.1
million effective amount of these gains in stockholders' equity as accumulated
other comprehensive income net of deferred income tax of $0.4 million. We are
reclassifying this after-tax amount into net income over five years by reducing
interest expense and deferred income tax. These rate locks effectively lowered
the interest rate on the fixed rate notes issued in April 2007 by 0.20% (20
basis points).

      We also have fixed to floating interest rate swaps with a total notional
amount of $143.3 million at April 30, 2007 and July 31, 2006. The swaps
effectively converted fixed rate term notes into floating rate term notes.
Semiannually, we receive fixed amounts from the swap counterparty banks equal to
the interest we pay on the hedged fixed rate notes, and we pay amounts to the
swap counterparty banks equal to the swaps' floating rates multiplied by the
swaps' notional amounts. The swaps' floating rates change semiannually to a
fixed amount over six-month LIBOR (5.36% at April 30, 2007). The swaps increased
interest expense by $0.8 million in the third quarter of fiscal 2007 and by $2.3
million in the first nine months of fiscal 2007. The weighted-average pay rate
of 6.89% at April 30, 2007 exceeded the 4.88% weighted-average receive rate by
201 basis points (2.01%). The weighted-average remaining term of the swaps at
April 30, 2007 is 1.3 years.


NEW ACCOUNTING STANDARDS

      The Financial Accounting Standards Board ("FASB") issued Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
109", ("FIN No. 48") in July 2006. FIN No. 48 requires companies to determine if
any tax positions taken on their income tax returns lowering the amount of tax
currently due would more likely than not be allowed by a taxing jurisdiction. If
tax positions pass the more-likely-than-not test, companies then record benefits
from them only equal to the highest amount having a greater than 50% chance of
being realized assuming the tax positions would be challenged by a taxing
jurisdiction. No benefits would be recorded for tax positions failing the
more-likely-than-not test. Tax benefits include income tax savings and the
related interest expense savings. Whether tax positions pass the test or not,
adopting FIN No. 48 could result in additional income tax provisions or expenses
for any interest and penalties on potential underpayments of income tax, or
both. FIN No. 48 is effective in the first quarter of fiscal years beginning
after December 15, 2006. It will become effective for us on August 1, 2007, the
beginning of our fiscal year ending July 31, 2008. We are evaluating how it may
affect our consolidated financial statements.

      The FASB issued Statement of Financial Accounting Standards ("SFAS") No.
157, "Fair Value Measurements", ("SFAS No. 157") in September 2006. 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. 157 is effective in the first quarter of fiscal years beginning after
November 15, 2007. It will become effective for us on August 1, 2008. We are
evaluating how it may affect our consolidated financial statements.

      The FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets
and Financial Liabilities - Including an amendment of FASB Statement No. 115" in
February 2007. 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. SFAS No. 159 is effective in the
first quarter of fiscal


                                       24
<PAGE>

years beginning after November 15, 2007. It will become effective for us on
August 1, 2008. We are evaluating how it may affect our consolidated financial
statements.


FORWARD-LOOKING STATEMENTS

      Statements in this report including the words or phrases "can be,"
"expect," "anticipate," "may," "believe," "estimate," "intend," "could,"
"should," "would," "if" and similar words and phrases are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
are subject to various known and unknown risks and uncertainties and any
forward-looking information provided by us or on our behalf is not a guarantee
of future performance. Our actual results could differ from those anticipated by
forward-looking statements materially because of the uncertainties and risks
described in "Part I, Item 1A Risk Factors" in our Annual Report on Form 10-K
for the year ended July 31, 2006 and other sections of this report. These 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
apply only as of the date made and we are not required to update forward-looking
statements for future or unanticipated events or circumstances.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

      See the Market Interest Rate Risk and Sensitivity Section in Part I Item
2.


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 2007 that materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.


PART II - OTHER INFORMATION


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

<TABLE>
<CAPTION>
                             ISSUER PURCHASES OF EQUITY SECURITIES
                              For the Quarter Ended April 30, 2007

      ======================================================================================
                                             (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
      ======================================================================================
<S>                <C>             <C>                 <C>                      <C>
      March 2007     643,059       $ 26.43               643,059                $ 33,025,000
      April 2007   1,062,635       $ 27.03             1,062,635                $  4,300,000
      ======================================================================================
</TABLE>

      We did not sell any unregistered shares of common stock during the third
quarter of fiscal 2007. We increased the amount available under our common stock
and convertible debt repurchase program by $32.6 million in the third quarter of
fiscal 2007. Shares repurchased during the quarter include 1.7 million shares
purchased on the open market and 12,500


                                       25
<PAGE>

shares received from employees for payment of income tax we were required to
withhold on vested shares of restricted stock. We retired all shares repurchased
and received in the third quarter of fiscal 2007. A total of $73.3 million was
authorized for repurchases of common stock and convertible debt since the
program's inception and we repurchased 2.8 million shares of common stock for
$61.8 million and $8.8 million of convertible debt for $7.2 million through
April 30, 2007. We completed the program in May 2007 with the repurchase of
159,000 shares for $4.3 million paying a $27.00 weighted-average price per
share.


Item 5. Other Information

      We issued a press release on June 4, 2007 reporting our results for the
quarter ended April 30, 2007. 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 4, 2007 announcing our Board of
Directors declared a quarterly dividend of $0.15 per share on our common stock
and authorized a new $50 million common stock and convertible debt repurchase
program. The press release is attached as Exhibit 99.2. The dividend is payable
on July 10, 2007 to stockholders of record at the close of business on June 22,
2007. 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
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 4, 2007
99.2          Press release dated June 4, 2007

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


                                       26
<PAGE>

                                   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 5, 2007
------------
(Date)


                                       27