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

                                  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 January 31, 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 March 1,
2007 was 27,501,548.

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

<PAGE>

                 FINANCIAL FEDERAL CORPORATION AND SUBSIDIARIES

                          Quarterly Report on Form 10-Q
                     for the quarter ended January 31, 2007


                                TABLE OF CONTENTS


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

Item 1.  Financial Statements:

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

         Consolidated Income Statements for the three and six months
            ended January 31, 2007 and 2006 (unaudited)                    4

         Consolidated Statements of Changes in Stockholders' Equity for
            the six months ended January 31, 2007 and 2006 (unaudited)     5

         Consolidated Statements of Cash Flows for the six months ended
            January 31, 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                                      14-23

Item 3.  Quantitative and Qualitative Disclosures about Market Risk        24

Item 4.  Controls and Procedures                                           24


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

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds       24

Item 4.  Submission of Matters to a Vote of Security Holders               24

Item 5.  Other Information                                                 25

Item 6.  Exhibits                                                          25

Signatures                                                                 26

                                       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>
=============================================================================================
                                                           January 31, 2007*    July 31, 2006
=============================================================================================
<S>                                                               <C>              <C>
ASSETS
Finance receivables                                               $2,050,948       $1,991,688
Allowance for credit losses                                          (24,148)         (24,100)
---------------------------------------------------------------------------------------------
   Finance receivables - net                                       2,026,800        1,967,588
Cash                                                                   5,293            8,143
Other assets                                                          10,228           12,613
---------------------------------------------------------------------------------------------
          TOTAL ASSETS                                            $2,042,321       $1,988,344
=============================================================================================
LIABILITIES
Debt:
   Long-term ($4,400 at January 31, 2007 and $5,700
      at July 31, 2006 owed to related parties)                   $1,253,100       $1,252,350
   Short-term                                                        297,268          275,311
Accrued interest, taxes and other liabilities                         76,547           70,304
---------------------------------------------------------------------------------------------
   Total liabilities                                               1,626,915        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): 27,376 at January 31, 2007 and 27,216 at
   July 31, 2006                                                      13,688           13,608
Additional paid-in capital                                           129,698          123,091
Retained earnings                                                    270,911          253,128
Accumulated other comprehensive income                                 1,109              552
---------------------------------------------------------------------------------------------
   Total stockholders' equity                                        415,406          390,379
---------------------------------------------------------------------------------------------
        TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                $2,042,321       $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       Six Months Ended
                                                          January 31,            January 31,
                                                  ------------------------------------------
                                                       2007      2006        2007       2006
============================================================================================
<S>                                                 <C>       <C>         <C>        <C>
Finance income                                      $47,383   $39,438     $94,313    $75,991
Interest expense                                     21,073    16,045      41,965     30,291
--------------------------------------------------------------------------------------------

   Net finance income before provision for credit
      losses on finance receivables                  26,310    23,393      52,348     45,700

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

   Net finance income                                26,310    23,393      52,348     45,700

Salaries and other expenses                           6,142     5,761      12,251     11,259
--------------------------------------------------------------------------------------------

   Income before provision for income taxes          20,168    17,632      40,097     34,441

Provision for income taxes                            7,773     6,904      15,472     13,468
--------------------------------------------------------------------------------------------

        NET INCOME                                  $12,395   $10,728     $24,625    $20,973
============================================================================================

EARNINGS PER COMMON SHARE:
        Diluted                                     $  0.46   $  0.41     $  0.92    $  0.80
============================================================================================
        Basic                                       $  0.47   $  0.42     $  0.94    $  0.81
============================================================================================
</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                         --         --           --      20,973              --      20,973
  Unrealized gain on cash flow
    hedge, net of tax                --         --           --          --             364         364
                                                                                               --------
  Comprehensive income                                                                           21,337
                                                                                               --------
  Stock plan activity:
    Shares issued                   315        157        3,793         (52)             --       3,898
    Compensation recognized          --         --        2,647          --              --       2,647
    Excess tax benefits              --         --          981          --              --         981
  Common stock cash dividends        --         --           --      (4,403)             --      (4,403)
  Cash paid for fractional
    shares                           (4)        (2)          --        (107)             --        (109)
-------------------------------------------------------------------------------------------------------
BALANCE - JANUARY 31, 2006       26,542    $13,271     $116,647    $236,183        $    364    $366,465
=======================================================================================================

<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                         --         --           --      24,625              --      24,625
  Unrealized gain on cash flow
    hedge, net of tax                --         --           --          --             616         616
  Reclassification adjustment
    for realized gain included
    in net income, net of tax        --         --           --          --             (59)        (59)
                                                                                               --------
  Comprehensive income                                                                           25,182
                                                                                               --------
  Common stock repurchased
    (retired)                        (5)        (3)        (125)         (6)             --        (134)
  Stock plan activity:
    Shares issued                   174         87        2,935          --              --       3,022
    Shares canceled                  (9)        (4)           4          --              --          --
    Compensation recognized          --         --        3,282          --              --       3,282
    Excess tax benefits              --         --          511          --              --         511
  Common stock cash dividends        --         --           --      (6,836)             --      (6,836)
-------------------------------------------------------------------------------------------------------
BALANCE - JANUARY 31, 2007       27,376    $13,688     $129,698    $270,911        $  1,109    $415,406
=======================================================================================================
</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>
==========================================================================================
Six Months Ended January 31,                                            2007          2006
==========================================================================================
<S>                                                                <C>           <C>
Cash flows from operating activities:
   Net income                                                      $  24,625     $  20,973
   Adjustments to reconcile net income to net cash provided by
    operating activities:
      Amortization of deferred origination costs and fees              8,079         7,402
      Stock-based compensation                                         1,838         2,647
      Depreciation and amortization                                      304           436
      Decrease in other assets                                         2,022         1,619
      Increase in accrued interest, taxes and other liabilities        7,964         8,288
      Excess tax benefits from stock-based awards                       (511)         (981)
------------------------------------------------------------------------------------------
            Net cash provided by operating activities                 44,321        40,384
------------------------------------------------------------------------------------------
Cash flows from investing activities:
   Finance receivables originated                                   (603,777)     (647,885)
   Finance receivables collected                                     537,930       496,047
------------------------------------------------------------------------------------------
            Net cash used in investing activities                    (65,847)     (151,838)
------------------------------------------------------------------------------------------
Cash flows from financing activities:
   Commercial paper, net increase                                    178,349        22,000
   Bank borrowings, net decrease                                    (132,242)      (29,000)
   Asset securitization borrowings                                        --       100,000
   Proceeds from term notes                                               --        50,000
   Repayment of term notes                                           (25,000)      (32,500)
   Proceeds from settlement of interest rate locks                     1,006            --
   Proceeds from stock option exercises                                2,977         3,898
   Excess tax benefits from stock-based awards                           511           981
   Common stock issued                                                    45            --
   Common stock cash dividends                                        (6,836)       (4,403)
   Repurchases of common stock                                          (134)           --
   Cash paid for fractional shares of common stock                        --          (109)
------------------------------------------------------------------------------------------
            Net cash provided by financing activities                 18,676       110,867
------------------------------------------------------------------------------------------
NET DECREASE IN CASH                                                  (2,850)         (587)
Cash - beginning of period                                             8,143         8,456
------------------------------------------------------------------------------------------
CASH - END OF PERIOD                                               $   5,293     $   7,869
==========================================================================================
</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 six months ended January
31, 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 shares of treasury stock.

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 that has 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:

      =========================================================================
                                              January 31, 2007    July 31, 2006
      =========================================================================
      Loans:
        Fixed rate                                  $1,694,433       $1,662,805
        Floating rate                                  153,141          131,235
      -------------------------------------------------------------------------
          Total loans                                1,847,574        1,794,040
      Direct financing leases *                        203,374          197,648
      -------------------------------------------------------------------------
              Finance receivables                   $2,050,948       $1,991,688
      =========================================================================
      *  includes residual values of $41,300 at January 31, 2007 and $41,200
         at July 31, 2006

      We also provide commitments to extend credit. These commitments contain
off-balance sheet risk and are subject to the same credit policies and
procedures as finance receivables. The unused portion of these commitments was
$36,600 at January 31, 2007 and $23,800 at July 31, 2006.

      The allowance for credit losses activity is summarized below:

<TABLE>
<CAPTION>
      ==================================================================================
                                             Three Months Ended         Six Months Ended
                                                    January 31,              January 31,
                                            --------------------------------------------
                                               2007        2006         2007        2006
      ==================================================================================
<S>                                         <C>         <C>          <C>         <C>
      Allowance - beginning of period       $24,047     $24,188      $24,100     $24,225
        Provision                                --          --           --          --
        Write-downs                            (503)     (1,003)      (1,150)     (1,855)
        Recoveries                              604         931        1,198       1,746
      ----------------------------------------------------------------------------------
      Allowance - end of period             $24,148     $24,116      $24,148     $24,116
      ==================================================================================
      Percentage of finance receivables        1.18%       1.33%        1.18%       1.33%
      ==================================================================================
      Net charge-offs (recoveries) *        $  (101)    $    72      $   (48)    $   109
      ==================================================================================
      Loss ratio **                           (0.02)%      0.02%       (0.01)%      0.01%
      ==================================================================================
</TABLE>
      *   write-downs less recoveries
      **  net charge-offs (recoveries) 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:

      =========================================================================
                                              January 31, 2007    July 31, 2006
      =========================================================================
      Finance receivables classified as
         non-accrual                                   $13,478          $13,750
      Assets received to satisfy finance
         receivables                                     2,022              809
      -------------------------------------------------------------------------
                Non-performing assets                  $15,500          $14,559
      =========================================================================

      The allowance for credit losses included $200 at January 31, 2007 and $300
at July 31, 2006 specifically allocated to $2,800 and $6,700 of impaired finance
receivables, respectively. We did not recognize any income in the six months
ended January 31, 2007 or 2006 on impaired loans before collecting our net
investment.


                                       8
<PAGE>

NOTE 3 - DEBT

      Debt is summarized below:

      =========================================================================
                                              January 31, 2007    July 31, 2006
      =========================================================================
      Fixed rate term notes:
        5.00% due 2010 - 2011                       $  250,000       $  250,000
        5.45% - 5.56% due 2011 - 2013                  200,000          200,000
        5.92% - 6.80% due 2007 - 2008                   36,250           61,250
      -------------------------------------------------------------------------
           Total fixed rate term notes                 486,250          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                          804,500          839,500
      Asset securitization financings                  425,000          425,000
      Commercial paper                                 297,188          118,839
      Bank borrowings                                   27,480          149,722
      -------------------------------------------------------------------------
                Total principal                      1,554,168        1,533,061
      Fair value adjustment of hedged debt              (3,800)          (5,400)
      -------------------------------------------------------------------------
                   Total debt                       $1,550,368       $1,527,661
      =========================================================================

Term Notes

      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
half of fiscal 2007.

Convertible Debentures

      We irrevocably elected (under the existing 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 6,134,000 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 of our common
stock and multiplied by the number of converted shares. No event allowing for
the debentures to be converted has occurred through January 31, 2007.

      The conversion rate increased in October and December 2006 because we
declared cash dividends on our common stock. At January 31, 2007, the conversion
rate was 35.05 (number of convertible shares for each $1 (one thousand) of
principal), the conversion price was $28.53 and we would have to deliver the
value of 6,134,000 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.

Asset Securitization Financings

      We have a $425,000 asset securitization facility providing committed
revolving financing for one year. If the facility is not renewed before its
current expiration in April 2007, 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 August 2009. Finance
receivables include $475,000 and $487,000 of securitized receivables at January
31, 2007 and July 31, 2006, respectively. We can securitize an additional
$341,000 of finance receivables at January 31, 2007. Borrowings are limited to
94% of securitized receivables and can be further limited based on the
eligibility of securitized receivables.

Bank Borrowings

      We have $495,000 of committed unsecured revolving credit facilities from
ten banks expiring as follows; $187,500 within one year and $307,500 between
September 2008 and October 2012.


                                       9
<PAGE>

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 January 31, 2007. None of the
agreements have a material adverse change clause. All of our debt is senior.

      Long-term debt comprised the following:

      =========================================================================
                                              January 31, 2007    July 31, 2006
      -------------------------------------------------------------------------
      Term notes                                    $  558,600       $  602,850
      Bank borrowings and commercial
        paper supported by bank credit
        facilities expiring after one year             307,500          247,500
      Asset securitization financings                  212,000          227,000
      Convertible debentures                           175,000          175,000
      -------------------------------------------------------------------------
                Total long-term debt                $1,253,100       $1,252,350
      =========================================================================


NOTE 4 - DERIVATIVES

      We entered into interest rate locks with a total notional amount of
$100,000 with three counterparty 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 five-year fixed rate term notes hedging the risk of
interest rate changes, on the interest payments of the notes, through the date
the interest rate is set on the note issuance. We terminated the rate locks in
January 2007 and realized a $1,006 gain. This cash flow hedge gain was recorded
in stockholders' equity as accumulated other comprehensive income net of
deferred income taxes of $390, and will be reclassified into net income by
reducing interest expense and deferred income tax expense over the five-year
term of the notes expected to be issued in our third quarter of fiscal 2007.

      We also have fixed to floating interest rate swaps with a total notional
amount of $143,250 at January 31, 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
every six months 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
was 6.93% at January 31, 2007 and 6.89% at July 31, 2006. The fair value of the
swaps was a liability of $3,800 at January 31, 2007 and $5,400 at July 31, 2006.


NOTE 5 - STOCKHOLDERS' EQUITY

      We paid quarterly cash dividends of $0.25 per share of common stock in the
first half of fiscal 2007. We also received and retired 5,000 shares of common
stock from our CEO at $27.21 per share as payment of income taxes we were
required to withhold on vested shares of restricted stock. At January 31, 2007,
$17,400 was available for future repurchases under our repurchase program. In
March 2007, we declared a quarterly cash dividend of $0.15 per share of common
stock payable in April 2007, and we increased the amount available for future
repurchases under our repurchase program by $2,600.


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


                                       10
<PAGE>

term of incentive stock options is limited to ten years. At January 31, 2007,
2,480,000 shares were available for future grants under the 2006 Plan. 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. At January 31,
2007, 750,000 shares were available for future grants under the Amended MIP.

      The 1998 Plan was amended in December 2005 to increase the number of
shares available for the January 2006 stock split according to its anti-dilution
provisions. 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 in fiscal 2006 were non-qualified options with a
five-year term vesting 25% after one, two, three and four years.

      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 after (i) the executive officer attains age 62 or (ii) after
August 2026 if earlier (twelve year weighted-average).

      We awarded 19,000 restricted stock units under the 2006 Plan 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 by increasing
the number of units. Vested units will be converted into shares of common stock
after the director's service terminates. We also issued 1,500 shares of common
stock under the 2006 Plan as payment of annual director retainer fees. The price
of our common stock on the date we issued these shares was $28.73.

      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 January 31, 2007, 119,000 shares of our CEO's restricted stock awarded under
the MIP were unvested and are scheduled to vest over approximately 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 January 31, 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.

      The restricted stock agreements (excluding the executive officers'
February 2006 agreements) and the SERP provide for all unvested shares or stock
units to vest immediately when certain events occur including the sale of the
Company, the officer's death or disability and qualifying employment
terminations. Unvested shares are also subject to forfeiture. The executive
officers' February 2006 restricted stock agreements provide for (i) all shares
to vest immediately upon the sale of the Company or the executive officer's
death or disability (ii) a portion (based on the percentage of the vesting
period elapsed) of the shares to vest immediately upon a qualifying employment
termination and (iii) forfeiture of all shares upon a non-qualifying 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.


                                       11
<PAGE>

      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 six months ended
January 31, 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                            --        --
        Exercised                        (172)    17.32
        Forfeited                         (47)
      ---------------------------------------
      Outstanding - January 31, 2007    1,308     21.11          2.4      $9,800
      ==========================================================================
      Exercisable - January 31, 2007      566    $19.00          1.7      $5,400
      ==========================================================================
      *  number of options multiplied by the difference between the $28.60
         closing price of our common stock on January 31, 2007 and the
         weighted-average exercise price

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

      ==========================================================================
      Six Months Ended January 31,                            2007          2006
      ==========================================================================
      Number of options exercised                              172           247
      Total intrinsic value *                               $1,850        $3,100
      Intrinsic value per option                             10.77         12.57
      Excess tax benefits realized                             499           980
      ==========================================================================
      *  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 1998 Plan and the MIP, and related
information for the six months ended January 31, 2007, are summarized below
(shares in thousands):

      ==========================================================================
                                                                Weighted-Average
                                                Shares     Grant-Date Fair Value
      ==========================================================================
      Unvested - August 1, 2006                  1,081                    $24.66
        Granted                                     --                        --
        Vested                                     (19)                    26.02
        Forfeited                                   (9)
      ------------------------------------------------
      Unvested - January 31, 2007                1,053                     24.61
      ==========================================================================

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

      ==========================================================================
      Six Months Ended January 31,                            2007          2006
      ==========================================================================
      Number of shares vested                                   19             3
      Total intrinsic value *                               $  517        $   77
      Intrinsic value per share                              27.21         25.63
      Excess tax benefits realized                              12             1
      ==========================================================================
      *  shares vested multiplied by the closing prices of our common stock on
         the dates vested


                                       12
<PAGE>

      Future compensation expense (before deferral under SFAS No. 91) for
stock-based awards unvested at January 31, 2007 and expected to vest, and the
weighted-average periods the expense will be recognized over are as follows:

      ==========================================================================
                                             Expense      Weighted-Average Years
      ==========================================================================
      Restricted stock                       $17,800                         6.3
      Stock options                            1,400                         2.2
      Stock units                              1,700                         2.5
      ----------------------------------------------
                Total                        $20,900                         5.8
      ==========================================================================

      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      Six Months Ended
                                                        January 31,           January 31,
                                                 ----------------------------------------
                                                     2007      2006        2007      2006
      ===================================================================================
<S>                                                <C>       <C>         <C>       <C>
      Compensation for stock options:
      -------------------------------
      Total recorded                               $  285    $  485      $  574    $  980
      Capitalized under SFAS No. 91                   174       286         351       576
      -----------------------------------------------------------------------------------
        Included in salaries and other expenses    $  111    $  199      $  223    $  404
      ===================================================================================
      Tax benefits recorded                        $   16    $   27      $   32    $   57
      ===================================================================================
      Compensation for shares of restricted
      stock and stock units:
      -------------------------------------
      Total recorded                               $1,334    $  794      $2,708    $1,667
      Capitalized under SFAS No. 91                   535       344       1,093       724
      -----------------------------------------------------------------------------------
        Included in salaries and other expenses    $  799    $  450      $1,615    $  943
      ===================================================================================
      Tax benefits recorded                        $  304    $  170      $  616    $  360
      ===================================================================================
      Total stock-based compensation:
      -------------------------------
      Total recorded                               $1,619    $1,279      $3,282    $2,647
      Capitalized under SFAS No. 91                   709       630       1,444     1,300
      -----------------------------------------------------------------------------------
        Included in salaries and other expenses    $  910    $  649      $1,838    $1,347
      ===================================================================================
      Tax benefits recorded                        $  320    $  197      $  648    $  417
      ===================================================================================
</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     Six Months Ended
                                                January 31,          January 31,
                                         ---------------------------------------
                                             2007      2006       2007      2006
      ==========================================================================
      Net income                          $12,395   $10,728    $24,625   $20,973
      ==========================================================================
      Weighted average common shares
        outstanding (used for basic EPS)   26,289    25,799     26,242    25,760
      Effect of dilutive securities:
        Stock options                         292       391        289       347
        Shares of restricted stock and
          stock units                         321       254        297       225
      --------------------------------------------------------------------------
      Adjusted weighted average common
        shares outstanding (used for
        diluted EPS)                       26,902    26,444     26,828    26,332
      ==========================================================================
      Earnings per common share:
         Diluted                          $  0.46   $  0.41    $  0.92   $  0.80
         Basic                               0.47      0.42       0.94      0.81
      ==========================================================================
      Antidilutive stock options,
        shares of restricted stock and
        stock units *                         144        --        147       338
      ==========================================================================
      *  excluded from the calculation because they would have increased
         diluted EPS


                                       13
<PAGE>

      The convertible debentures will lower diluted EPS when the quarterly
average price of our common stock exceeds the adjusted conversion price. In
fiscal periods when the average price of our common stock exceeds the adjusted
conversion price, 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 6,134,000 (referred to as the treasury
stock method). The average price of our common stock was $28.21 and $27.71 for
the three and six months ended January 31, 2007, respectively, and the adjusted
conversion price was $28.53 at January 31, 2007.


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 $1.0
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
January 31, 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. At January 31, 2007, interest rates on our finance
receivables were 93% fixed and 7% floating, and interest rates on our debt
were 43% fixed and 57% floating. 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.


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.


                                       14
<PAGE>

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 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
(1.18% of finance receivables) at January 31, 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
significant estimates are used, 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 by analyzing
recent sales of similar equipment and used equipment publications, using our
market knowledge and making inquiries of equipment vendors. Unexpected adverse
changes in or incorrect conclusions on 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 $15.5 million (0.8% of finance receivables) at January 31, 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 $41.3 million (2.0% of finance receivables) at January 31, 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.


                                       15
<PAGE>

RESULTS OF OPERATIONS

      Comparison of three months ended January 31, 2007 to three months ended
January 31, 2006

      =========================================================================
                                       Three Months Ended
                                              January 31,
      ($ in millions, except per       ------------------
      share amounts)                      2007       2006   $ Change   % Change
      =========================================================================
      Finance income                     $47.4      $39.4      $ 8.0         20%
      Interest expense                    21.1       16.0        5.1         31
      Net finance income before
         provision for credit losses      26.3       23.4        2.9         12
      Provision for credit losses           --         --         --         --
      Salaries and other expenses          6.1        5.8        0.3          7
      Provision for income taxes           7.8        6.9        0.9         13
      Net income                          12.4       10.7        1.7         16

      Diluted earnings per share          0.46       0.41       0.05         12
      Basic earnings per share            0.47       0.42       0.05         12
      =========================================================================

      Net income increased by 16% to $12.4 million in the second quarter of
fiscal 2007 from $10.7 million in the second 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 and higher salary expense.

      Finance income increased by 20% to $47.4 million in the second quarter of
fiscal 2007 from $39.4 million in the second quarter of fiscal 2006. The
increase resulted from the 15% increase in average finance receivables ($268.0
million) to $2.05 billion in the second quarter of fiscal 2007 from $1.78
billion in the second 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 9.17% in the second quarter of fiscal 2007 from
8.78% in the second quarter of fiscal 2006.

      Interest expense (incurred on debt used to fund finance receivables)
increased by 31% to $21.1 million in the second quarter of fiscal 2007 from
$16.0 million in the second quarter 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 second quarter of fiscal 2007
from 4.72% in the second quarter of fiscal 2006.

      Net finance income before provision for credit losses on finance
receivables increased by 12% to $26.3 million in the second quarter of fiscal
2007 from $23.4 million in the second 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 5.09% in the
second quarter of fiscal 2007 from 5.21% in the second quarter of fiscal 2006
because the yield curve was inverted. This is discussed in the Market Interest
Rate Risk and Sensitivity section.

      We did not record provisions for credit losses on finance receivables in
the second 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. In the second quarter of fiscal 2007, there was a $101,000
net recovery (recoveries exceeded write-downs of finance receivables) compared
to $72,000 of net charge-offs (write-downs of finance receivables less
recoveries) in the second quarter of fiscal 2006, and the loss ratio (net
charge-offs (recoveries) expressed as an annualized percentage of average
finance receivables) was (0.02)% in the second quarter of fiscal 2007 and 0.02%
in the second quarter of 2006.

      Salaries and other expenses increased by 7% to $6.1 million in the second
quarter of fiscal 2007 from $5.8 million in the second quarter of fiscal 2006.
The increase resulted from salary increases and an increase in the number of
employees. The expense ratio (salaries and other expenses expressed as an
annualized percentage of average finance receivables) improved to 1.19% in the
second quarter of fiscal 2007 from 1.28% in the second 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 23.3% in the second quarter of fiscal 2007 from
24.6% in the


                                       16
<PAGE>

second quarter 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 $7.8 million in the second
quarter of fiscal 2007 from $6.9 million in the second 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 38.5% in the second quarter
of fiscal 2007 from 39.2% in the second 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 12% to $0.46 per share in the
second quarter of fiscal 2007 from $0.41 per share in the second quarter of
fiscal 2006, and basic earnings per share increased by 12% to $0.47 per share in
the second quarter of fiscal 2007 from $0.42 per share in the second quarter 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.

Comparison of six months ended January 31, 2007 to six months ended January 31,
2006

      =========================================================================
                                         Six Months Ended
                                              January 31,
      ($ in millions, except per         ----------------
      share amounts)                      2007       2006   $ Change   % Change
      =========================================================================
      Finance income                     $94.3      $76.0      $18.3         24%
      Interest expense                    42.0       30.3       11.7         39
      Net finance income before
         provision for credit losses      52.3       45.7        6.6         15
      Provision for credit losses           --         --         --         --
      Salaries and other expenses         12.2       11.3        0.9          9
      Provision for income taxes          15.5       13.4        2.1         15
      Net income                          24.6       21.0        3.6         17

      Diluted earnings per share          0.92       0.80       0.12         15
      Basic earnings per share            0.94       0.81       0.13         16
      =========================================================================

      Net income increased by 17% to $24.6 million in the first half of fiscal
2007 from $21.0 million in the first half 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 salary expense.

      Finance income increased by 24% to $94.3 million in the first half of
fiscal 2007 from $76.0 million in the first half of fiscal 2006. The increase
resulted from the 17% increase in average finance receivables ($292.0 million)
to $2.04 billion in the first half of fiscal 2007 from $1.74 billion in the
first half 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 9.19% in the first half of fiscal 2007 from 8.65% in the
first half of fiscal 2006.

      Interest expense increased by 39% to $42.0 million in the first half of
fiscal 2007 from $30.3 million in the first half of fiscal 2006. The increase
resulted from higher average short-term market interest rates and the 18%
($232.0 million) increase in average debt. Increases in short-term market
interest rates raised our weighted-average cost of debt to 5.37% in the first
half of fiscal 2007 from 4.56% in the first half of fiscal 2006.

      Net finance income before provision for credit losses on finance
receivables increased by 15% to $52.3 million in the first half of fiscal 2007
from $45.7 million in the first half of fiscal 2006. Net interest margin
decreased to 5.10% in the first half of fiscal 2007 from 5.20% in the first half
of fiscal 2006 because the yield curve was inverted.

      We did not record provisions for credit losses on finance receivables in
the first half 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 half of fiscal 2007, there was a $48,000 net
recovery compared to $109,000 of net charge-offs in the first half of fiscal
2006, and the loss ratio was (0.01)% in the first half of fiscal 2007 and 0.01%
in the first half of 2006.


                                       17
<PAGE>

      Salaries and other expenses increased by 9% to $12.2 million in the first
half of fiscal 2007 from $11.3 million in the first half of fiscal 2006. The
increase resulted from salary increases and an increase in the number of
employees. The expense ratio improved to 1.19% in the first half of fiscal 2007
from 1.28% in the first half of fiscal 2006 because the percentage increase in
receivables exceeded the percentage increase in expenses. The efficiency ratio
improved to 23.4% in the first half of fiscal 2007 from 24.6% in the first half
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 $15.5 million in the first
half of fiscal 2007 from $13.4 million in the first half 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 half of
fiscal 2007 from 39.1% in the first half 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 $0.92 per share in the
first half of fiscal 2007 from $0.80 per share in the first half of fiscal 2006,
and basic earnings per share increased by 16% to $0.94 per share in the first
half of fiscal 2007 from $0.81 per share in the first half 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>
      ===============================================================================
                                      January 31,    July 31,
      ($ in millions)                       2007*       2006*    $ Change    % Change
      ===============================================================================
<S>                                      <C>         <C>           <C>            <C>
      Finance receivables                $2,050.9    $1,991.7      $ 59.2           3%
      Allowance for credit losses            24.1        24.1          --          --
      Non-performing assets                  15.5        14.6         0.9           6
      Delinquent finance receivables          8.3         8.6        (0.3)         (4)
      Net charge-offs (recoveries)
        (below $50,000)                        --          --          --          --

      As a percentage of receivables:
      -------------------------------
      Allowance for credit losses            1.18%       1.21%
      Non-performing assets                  0.76        0.73
      Delinquent finance receivables         0.40        0.43
      Net charge-offs (recoveries)             --          --
      ===============================================================================
</TABLE>
      *  as of and for the six months ended

      Finance receivables grew 3% ($59 million) during the first half of fiscal
2007 to $2.05 billion at January 31, 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%
($1.85 billion) of finance receivables and leases were 10% ($203 million) at
January 31, 2007.

      Finance receivables originated in the second quarter of fiscal 2007 and
2006 were $284 million and $325 million, respectively, and finance receivables
originated in the first half of fiscal 2007 and 2006 were $604 million and $648
million, respectively. Originations decreased because the strong demand for
equipment financing eased due to general economic conditions and reduced demand
for transportation equipment financing. A government mandated engine change
effective in 2007 may have prompted truck buyers to accelerate purchases in
prior fiscal quarters. Finance receivables collected in the second quarter of
fiscal 2007 and 2006 were $275 million and $253 million, respectively, and
finance receivables collected in the first half of fiscal 2007 and 2006 were
$538 million and $496 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


                                       18
<PAGE>

equipment with an economic life longer than the term financed, historically low
levels of technological obsolescence, use in more than one type of business,
ease of access and transporting, and broad, established resale markets. Securing
our receivables with equipment possessing these characteristics can mitigate
potential net charge-offs. We may also obtain additional equipment or other
collateral, third-party guarantees, advance payments or hold back a portion of
the amount financed. We do not finance or lease aircraft or railcars, computer
related equipment, telecommunications equipment or equipment located outside the
United States, and we do not lend to consumers.

      Our underwriting policies limit our credit exposure with any single
customer. This limit was $38.0 million at January 31, 2007. Our ten largest
customers accounted for 6.0% ($124.0 million) of total finance receivables at
January 31, 2007.

      Our allowance for credit losses was $24.1 million at January 31, 2007 and
July 31, 2006. The allowance level declined to 1.18% of finance receivables at
January 31, 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 six months of fiscal 2007, there was a $48,000 net recovery
(recoveries exceeded write-downs of finance receivables) compared to $16,000 of
net charge-offs (write-downs less recoveries) in the last six months of fiscal
2006 (the prior six month period). There was a $101,000 net recovery in the
second quarter of fiscal 2007 compared to $53,000 of net charge-offs in the
first quarter of fiscal 2007 with loss ratios of (0.01)% and 0.01%,
respectively. 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):

      =========================================================================
                                         January 31,    July 31,    January 31,
                                                2007        2006           2006
      =========================================================================
      Non-accrual finance receivables *        $13.5       $13.8          $11.6
      Repossessed equipment                      2.0         0.8            0.7
      -------------------------------------------------------------------------
         Total non-performing assets           $15.5       $14.6          $12.3
      =========================================================================
      Delinquent finance receivables           $ 8.3       $ 8.6          $ 9.1
      =========================================================================
      Percentage of non-accrual
         receivables not delinquent               62%         54%            60%
      =========================================================================
      *  before specifically allocated allowance of $0.2 million at January 31,
         2007, $0.3 million at July 31, 2006 and $0.4 million at January 31,
         2006

      Our asset quality statistics stayed at favorable levels during the
quarter. Net charge-offs, non-accrual receivables, repossessed equipment and
delinquencies were far below expected levels. Therefore, we do not expect
further improvement in these measures and moderate increases would not
necessarily indicate the start of a negative trend. The increase in repossessed
equipment is an example of such a moderate increase. Also, because our asset
quality statistics are far 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
having 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 five 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


                                       19
<PAGE>

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 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 $170.3 million available to borrow under our bank credit facilities
(after subtracting commercial paper outstanding) at January 31, 2007. Our asset
securitization facility could be increased by $341.0 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 January 31, 2007. None of the
agreements have a material adverse change clause.

      Debt increased by 1% ($22.7 million) to $1.55 billion at January 31, 2007
from $1.53 billion at July 31, 2006 and stockholders' equity increased by 6%
($25.0 million) to $415.4 million at January 31, 2007 from $390.4 million at
July 31, 2006. Leverage remained low at 3.7 allowing for substantial asset
growth. 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>
      ===================================================================================
                                                 January 31, 2007           July 31, 2006
                                               ------------------      ------------------
                                                 Amount   Percent        Amount   Percent
      ===================================================================================
<S>                                            <C>            <C>      <C>            <C>
      Term notes                               $  629.5        41%     $  664.5        43%
      Asset securitization financings             425.0        27         425.0        28
      Commercial paper                            297.2        19         118.9         8
      Convertible debentures                      175.0        11         175.0        11
      Borrowings under bank credit facilities      27.5         2         149.7        10
      -----------------------------------------------------------------------------------
              Total principal                   1,554.2       100%      1,533.1       100%
      Fair value adjustment of hedged debt         (3.8)                   (5.4)
      -----------------------------------------------------------------------------------
                Total debt                     $1,550.4                $1,527.7
      ===================================================================================
</TABLE>

Term Notes

      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 half 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 fifth time in April 2006 and
expires in April 2007 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 August 2009 based on the contractual payments of the $475.0 million of
securitized receivables at January 31, 2007.

      The unsecured debt agreements of our major operating subsidiary allow 40%
of its finance receivables to be securitized ($816.0 million at January 31,
2007). Therefore, we could securitize an additional $341.0 million of finance
receivables at January 31, 2007. Borrowings are limited to 94% of securitized
receivables and can be further limited based on the eligibility of securitized
receivables.


                                       20
<PAGE>

Convertible Debentures

      The convertible debentures were convertible into 6.1 million shares (as
adjusted) of common stock at the adjusted conversion price of $28.53 per share
resulting in an adjusted conversion rate of 35.05 shares for each $1,000 of
principal until 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. As a result, the 6.1 million convertible
shares are no longer issuable upon conversion, but we would need to issue shares
of common stock to pay any value over principal. The value of the convertible
debentures equals the number of convertible shares multiplied by the market
value of our common stock. No event allowing for the debentures to be converted
has occurred through January 31, 2007.

Bank Credit Facilities

      We have $495.0 million of committed unsecured revolving credit facilities
from ten banks (a $25.0 million increase from July 31, 2006). This includes
$307.5 million of facilities with original terms ranging from two to five years
and $187.5 million of facilities with an original term of one year. 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 ($324.7 million January 31, 2007)
was limited to $495.0 million because commercial paper outstanding is limited to
the unused amount of our bank credit facilities. Commercial paper outstanding
increased during the first half of fiscal 2007 because we added a commercial
paper dealer.

Stockholders' Equity

      We paid $6.8 million of cash dividends, we received $3.5 million from
stock option exercises and tax benefits from stock-based awards and we
repurchased 5,000 shares of common stock for $134,000 in the first half of
fiscal 2007. At January 31, 2007, $17.4 million was available for future
repurchases under our repurchase program.


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:

<TABLE>
<CAPTION>
      ===========================================================================
                                         Three Months Ended      Six Months Ended
                                                January 31,           January 31,
                                         ----------------------------------------
                                           2007        2006      2007        2006
      ===========================================================================
<S>                                        <C>         <C>       <C>         <C>
      Net yield of finance receivables     9.17%       8.78%     9.19%       8.65%
      Weighted-average cost of debt        5.36        4.72      5.37        4.56
      ---------------------------------------------------------------------------
            Net interest spread            3.81%       4.06%     3.82%       4.09%
      ===========================================================================
</TABLE>

      Our net interest spread was 0.25% (25 basis points) lower in the second
quarter of fiscal 2007 compared to the second quarter of fiscal 2006, and was
0.27% (27 basis points) lower in the first half of fiscal 2007 compared to the
first half of fiscal 2006 because the effects of higher average short-term
market interest rates exceeded the increase in the net yield of finance
receivables. This is an expected result of an inverted yield curve as discussed
below.

      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 57% of our debt is
floating rate compared to floating rate finance receivables of only 7%. 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


                                       21
<PAGE>

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 half of
fiscal 2007 after rising substantially and consistently over the prior two
years. As a result, our weighted-average cost of debt decreased by 0.01% (1
basis point) in the second quarter of fiscal 2007 compared to quarterly
increases of 0.25% (25 basis points) during the prior two fiscal years. Our
weighted-average cost of debt only increased by 0.10% (10 basis points) during
the first half of fiscal 2007.

      Our income is subject to the risk of rising short-term market interest
rates and an inverted yield curve at January 31, 2007 because floating rate debt
exceeded floating rate receivables by $739.8 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 January 31, 2007, $683.0
million (36%) of fixed rate finance receivables are scheduled to be collected in
one year and the weighted-average remaining life of fixed rate finance
receivables excluding prepayments is approximately twenty months. We do not
match the maturities of our debt to our finance receivables. The fixed and
floating rate amounts and percentages of our finance receivables and capital at
January 31, 2007 follow ($ in millions):

<TABLE>
<CAPTION>
      =================================================================================
                                          Fixed Rate         Floating Rate
                                  ------------------      ----------------
                                    Amount   Percent      Amount   Percent        Total
      =================================================================================
<S>                               <C>            <C>      <C>          <C>     <C>
      Finance receivables         $1,897.8        93%     $153.1         7%    $2,050.9
      =================================================================================

      Debt (principal)            $  661.3        43%     $892.9        57%    $1,554.2
      Stockholders' equity           415.4       100          --        --        415.4
      ---------------------------------------------------------------------------------
        Total debt and equity     $1,076.7        55%     $892.9        45%    $1,969.6
      =================================================================================
</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 January 31, 2007 as follows: $671.2 million (75%) within one month,
$187.4 million (21%) in two to three months and $34.3 million (4%) in four to
six months. Most of the floating rate swaps of fixed rate notes last repriced
in October 2006. The repricing frequency of floating rate debt follows (in
millions):

      =========================================================================
                                       Balance   Repricing Frequency
      =========================================================================
      Asset securitization financings   $425.0   generally daily
      Commercial paper                   297.2   1 to 90 days (20 day average)
      Floating rate swaps of fixed
        rate notes                       143.3   semiannually (120 day average)
      Bank borrowings                     27.5   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 $0.5 million at January 31, 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.

      We monitor and manage our exposure to potential adverse changes in market
interest rates by using certain 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 counterparty banks in September 2006 to lock-in the interest
rate on our anticipated issuance of $100.0 million of five-year fixed rate term
notes. The rate locks had a March 2007 expiration. We designated the rate locks
as cash flow hedges of an anticipated issuance of five-year fixed rate term
notes hedging the risk of interest rate changes, on the interest payments of the
notes, through the date the interest rate is set on the note issuance. We
terminated the rate locks in January 2007 and realized a $1.0 million


                                       22
<PAGE>

gain. This cash flow hedge gain was recorded in stockholders' equity as
accumulated other comprehensive income net of deferred income tax of $0.4
million, and will be reclassified into net income by reducing interest expense
and deferred income taxes over the five-year term of the notes expected to be
issued in our third quarter of fiscal 2007.

      We also have fixed to floating interest rate swaps with a total notional
amount of $143.3 million at January 31, 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 every six months to a
fixed amount over six-month LIBOR (5.40% at January 31, 2007). The swaps
increased interest expense by $0.8 million in the second quarter of fiscal 2007
and by $1.5 million in the first half of fiscal 2007. The weighted-average pay
rate of 6.93% at January 31, 2007 exceeded the 4.88% weighted-average receive
rate 205 basis points (2.05%). The weighted-average remaining term of the swaps
at January 31, 2007 is 1.5 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 that has 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 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.


                                       23
<PAGE>

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 second 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

                      ISSUER PURCHASES OF EQUITY SECURITIES
                     For the Quarter Ended January 31, 2007

<TABLE>
<CAPTION>
      =========================================================================================
      Month          (a) Total   (b) Average   (c) Total Number of           (d) Maximum Number
                        Number    Price Paid      Shares Purchased       (or Approximate Dollar
                     of Shares     per Share   as Part of Publicly    Value) of Shares that May
                     Purchased                  Announced Plans or       Yet Be Purchased Under
                                                          Programs        the Plans or Programs
      =========================================================================================
<S>                      <C>          <C>                    <C>                    <C>
      November 2006      2,364        $27.03                 2,364                  $17,403,000
      =========================================================================================
</TABLE>

      We did not sell any unregistered shares of common stock during the second
quarter of fiscal 2007. We received 2,364 shares of common stock from our CEO in
November 2006 as payment of income taxes we were required to withhold on vested
shares of restricted stock. We established our common stock repurchase program
in August 1996 and expanded it in August 1998 to include repurchases of
convertible debt. A total of $40.7 million was authorized for repurchases of
common stock and convertible debt and we repurchased $16.1 million of common
stock and $7.2 million of convertible debt through January 31, 2007.


Item 4. Submission of Matters To a Vote of Security Holders

      Our stockholders voted on the following at our December 6, 2006 Annual
Meeting of Stockholders:

      The following nominees were elected to the Board of Directors:

      ==========================================================================
                                                                 Number of Votes
                                                     ---------------------------
      Nominee                                               For         Withheld
      ==========================================================================
      Lawrence B. Fisher                             24,268,095        1,816,038
      Michael C. Palitz                              16,621,410        9,462,723
      Paul R. Sinsheimer                             25,393,312          690,821
      Leopold Swergold                               25,691,728          392,405
      H. E. Timanus, Jr.                             25,673,326          410,807
      Michael J. Zimmerman                           25,673,326          410,807
      ==========================================================================


                                       24
<PAGE>

      The appointment of KPMG LLP as our independent registered public
accounting firm for our fiscal year ending July 31, 2007 was ratified by a vote
of 26,037,569 shares for, 37,598 shares against and 8,966 shares abstained. The
Amended and Restated 2001 Management Incentive Plan was approved by a vote of
23,909,771 shares for, 782,046 shares against and 36,682 shares abstained. The
2006 Stock Incentive Plan was approved by a vote of 15,155,389 shares for,
9,534,414 shares against and 38,696 shares abstained.


Item 5. Other Information

      We issued a press release on March 5, 2007 reporting our results for the
quarter ended January 31, 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 March 5, 2007 announcing our Board of
Directors declared a quarterly dividend of $0.15 per share on our common stock
and increased the amount available under our common stock and convertible debt
repurchase program to $20.0 million from $17.4 million. The press release is
attached as Exhibit 99.2. The dividend is payable on April 10, 2007 to
stockholders of record at the close of business on March 22, 2007. The dividend
rate is the same as the previous quarter.

     We amended and restated our bylaws on March 5, 2007 to provide us with the
authority to issue book entry or uncertificated shares in lieu of share
certificates for all classes or series of stock and to provide for the transfer
of these shares.  Our Amended and Restated By-laws is attached as Exhibit 3.3.


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           Amended and Restated By-laws dated March 5, 2007
10.19  (c)     Amended and Restated 2001 Management Incentive Plan
10.20  (c)     2006 Stock Incentive Plan
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 March 5, 2007
99.2           Press release dated March 5, 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 8-K dated December 6, 2006


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<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)


March 8, 2007
-------------
(Date)

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