UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
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 1-7543
FINOVA CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-1278569
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1850 North Central Ave., P. O. Box 2209, Phoenix, AZ 85002-2209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 602/207-6900
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 such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The Registrant meets the conditions set forth in General Instructions H (i)(a)
and (b) of Form 10-Q and is therefore filing this form in the reduced format.
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 29, 1998, 25,000 shares of Common Stock ($1.00 par value) were
outstanding.
<PAGE>
FINOVA CAPITAL CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements.
Condensed Consolidated Financial Information:
Condensed Consolidated Balance Sheet - September 30, 1998
and December 31, 1997 1
Condensed Consolidated Income Statement - Three and Nine
Months Ended September 30, 1998 and 1997 2
Condensed Consolidated Statement of Cash Flows - Nine
Months Ended September 30, 1998 and 1997 3
Notes to Interim Condensed Consolidated Financial 4 - 6
Information
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
PART II OTHER INFORMATION.
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FINOVA CAPITAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
September 30, December 31,
1998 1997
------------- ------------
ASSETS:
Cash and cash equivalents $ 78,029 $ 33,193
Investment in financing transactions:
Loans and other financing contracts 6,778,666 5,955,984
Leveraged leases 721,526 619,557
Operating leases 662,087 712,927
Factored receivables 624,199 750,399
Direct financing leases 365,123 360,589
Financing contracts held for sale 240,928 --
----------- -----------
9,392,529 8,399,456
Less reserve for credit losses (187,161) (177,088)
----------- -----------
Investment in financing transactions - net 9,205,368 8,222,368
Goodwill and other assets 610,565 502,362
----------- -----------
$ 9,893,962 $ 8,757,923
=========== ===========
LIABILITIES:
Accounts payable and accrued expenses $ 114,223 $ 124,491
Due to clients 200,824 278,571
Interest payable 32,761 52,643
Senior debt 7,891,283 6,764,581
Deferred income taxes 328,095 277,569
----------- -----------
8,567,186 7,497,855
----------- -----------
SHAREOWNER'S EQUITY:
Common stock, $1.00 par value, 100,000 shares
authorized, 25,000 shares issued 25 25
Additional capital 870,490 870,485
Retained income 456,812 389,568
Cumulative translation adjustments (551) (10)
----------- -----------
1,326,776 1,260,068
----------- -----------
$ 9,893,962 $ 8,757,923
=========== ===========
See notes to interim condensed consolidated financial information.
1
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FINOVA CAPITAL CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
Interest and income earned
from financing transactions $ 232,835 $ 197,557 $ 654,770 $ 571,843
Operating lease income 24,019 30,253 88,107 85,164
Interest expense (122,235) (105,592) (347,794) (304,647)
Depreciation (13,875) (17,727) (51,540) (51,786)
--------- --------- --------- ---------
Interest margins earned 120,744 104,491 343,543 300,574
Volume-based fee income 16,687 9,546 57,946 25,913
--------- --------- --------- ---------
Operating margin 137,431 114,037 401,489 326,487
Provision for credit losses (19,000) (22,000) (44,500) (48,300)
--------- --------- --------- ---------
Net interest margins earned 118,431 92,037 356,989 278,187
Gains on disposal of assets 13,438 8,706 24,243 22,407
--------- --------- --------- ---------
131,869 100,743 381,232 300,594
Selling, administrative and other
operating expenses (61,097) (44,773) (175,834) (137,263)
--------- --------- --------- ---------
Income before income taxes 70,772 55,970 205,398 163,331
Income taxes (26,694) (20,103) (79,317) (59,954)
========= ========= ========= =========
NET INCOME $ 44,078 $ 35,867 $ 126,081 $ 103,377
========= ========= ========= =========
See notes to interim condensed consolidated financial information.
2
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FINOVA CAPITAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------------
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income $ 126,081 $ 103,377
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 44,500 48,300
Depreciation and amortization 69,238 64,620
Gains on disposal of assets (24,243) (22,407)
Deferred income taxes 50,526 (1,163)
Change in assets and liabilities, net of effects
from subsidiaries purchased (106,763) (45,065)
Other (3) (1,058)
----------- -----------
Net cash provided by operating activities 159,336 146,604
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of assets 173,114 157,281
Proceeds from sale of assets securitized 77,478 16,150
Principal collections on financing transactions 1,468,094 1,445,225
Expenditures for financing transactions (2,215,432) (1,691,539)
Net change in short-term financing transactions
and financing contracts held for sale (559,793) (747,479)
Other 1,742 2,229
----------- -----------
Net cash used in investing activities (1,054,797) (818,133)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings under commercial paper and
short-term loans 874,741 711,621
Long-term borrowings 915,000 688,625
Repayment of long-term borrowings (663,572) (748,128)
Net advances to Parent (49,288) (30,410)
Dividends (58,837) (20,713)
Net change in due to clients (77,747) 81,814
----------- -----------
Net cash provided by financing activities 940,297 682,809
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 44,836 11,280
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,193 31,285
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 78,029 $ 42,565
=========== ===========
See notes to interim condensed consolidated financial information.
3
<PAGE>
FINOVA CAPITAL CORPORATION
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NOTE A BASIS OF PREPARATION
The consolidated financial statements present the financial position,
results of operations and cash flows of FINOVA Capital Corporation and its
subsidiaries (collectively, "FINOVA" or the "Company"). FINOVA is a wholly owned
subsidiary of The FINOVA Group Inc.
The interim condensed consolidated financial information is unaudited.
In the opinion of management all adjustments, consisting of normal recurring
items, necessary to present fairly the financial position as of September 30,
1998, the results of operations for the quarter and nine months ended September
30, 1998 and 1997 and cash flows for the nine months ended September 30, 1998
and 1997, have been included. Interim results of operations are not necessarily
indicative of the results of operations for the full year.
Previously, volume-based fees, which represent fees generated by
Inventory Finance, Commercial Services (formerly "Factoring Services") and
FINOVA Realty Capital lines of business, were classified as a component of
interest and income earned from financing transactions. Commencing in 1998, the
Company has reported these amounts as a separate item and reclassified prior
period amounts accordingly. This change in classification has no effect on
previously reported net income or earnings per share.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 15, 1997. The statement changes the reporting of certain items
currently reported in the shareowner's equity section of the balance sheet and
establishes standards for reporting of comprehensive income and its components
in a full set of general-purpose financial statements. The Company has adopted
this standard effective January 1, 1998. Total comprehensive income was $43.2
million and $35.9 million for the three months ended September 30, 1998 and
1997, respectively and $125.5 million and $102.1 million for the nine months
ended September 30, 1998 and 1997, respectively. The primary component of
comprehensive income other than net income was foreign currency translation.
NOTE C PORTFOLIO QUALITY
The following table presents a distribution (by line of business) of
the Company's investment in financing transactions before the reserve for credit
losses at the dates indicated.
4
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INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
SEPTEMBER 30, 1998
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
----------------------------- -------------------------
Repos-
sessed Repos- Leases Total
Original Assets sessed & Carrying
Rate (1) Impaired (2) Impaired Assets Other Amount %
----------------------------- -------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (3&4) $1,935,490 $ $ $ $ $ 3,709 $1,939,199 20.6
Resort Finance (4) 1,167,022 16,570 26,390 1,209,982 12.9
Corporate Finance (4) 784,136 13,176 31,738 829,050 8.8
Rediscount Finance (4) 711,588 3,796 715,384 7.6
Specialty Real Estate Finance 634,641 17,002 35,002 6,633 7,654 194 701,126 7.5
Communications Finance (4) 671,220 26,775 697,995 7.4
Commercial Equipment Finance 608,779 1,602 20,843 10,008 566 3,787 645,585 6.9
Healthcare Finance 555,905 7,022 482 563,409 6.0
Inventory Finance (4) 524,615 6,865 531,480 5.7
Franchise Finance (4) 519,018 1,665 6,115 280 527,078 5.6
Realty Capital (5) 292,448 292,448 3.1
Business Credit (4) 282,290 6,592 288,882 3.1
Public Finance 191,943 191,943 2.0
Commercial Services 173,252 1,061 22,234 1,061 197,608 2.1
Other (6) 33,894 27,466 61,360 0.7
---------- ------- ------- -------- ------- ------- ---------- -----
TOTAL (4) $9,086,241 $34,506 $72,415 $127,778 $35,671 $35,918 $9,392,529 100.0
========== ======= ======= ======== ======= ======= ========== =====
</TABLE>
- ----------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $2.7 million on repossessed assets year
to date during 1998, including $1.8 million in Specialty Real Estate
Finance,$0.7 million in Resort Finance and $0.2 million in Commercial
Equipment Finance.
(3) Transportation Finance includes $405.3 million of aircraft financing
business booked through the London office.
(4) Excludes $516.0 million of assets securitized and participations sold which
the Company manages, including securitizations of $300.0 million in
Corporate Finance and $113.4 million in Franchise Finance and
participations of $54.6 million in Corporate Finance, $28.9 million in
Communications Finance, $5.1 in Resort Finance,$7.0 million in Rediscount
Finance, $2.8 million in Business Credit, $2.7 million in Transportation
Finance and $1.5 million in Inventory Finance.
(5) Includes $240.9 million of financing contracts held for sale.
(6) Primarily includes London-based FINOVA Capital Limited and other.
5
<PAGE>
RESERVE FOR CREDIT LOSSES:
The reserve for credit losses at September 30, 1998 represents 2.0% of
the Company's investment in financing transactions (excluding financing
contracts held for sale) and securitized assets. Changes in the reserve for
credit losses were as follows:
Nine Months Ended
September 30,
---------------------
1998 1997
---- ----
(Dollars in Thousands)
Balance, beginning of period $ 177,088 $148,693
Provision for credit losses 44,500 48,300
Write-offs (38,672) (31,263)
Recoveries 1,742 2,098
Other 2,503 (74)
--------- --------
Balance, end of period $ 187,161 $167,754
========= ========
A specific impairment reserve of $34.3 million at September 30, 1998
applies to $82.6 million of the $162.3 million of impaired loans. The remaining
$152.9 million of the reserve for credit losses is designated for general
purposes and represents management's estimate of potential losses in the
portfolio considering delinquencies, loss experience and collateral. Additions
to the general and specific reserves are reflected in current operations.
Management may transfer reserves between the general and specific reserves as
considered necessary.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998
TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997
THE FOLLOWING DISCUSSION RELATES TO FINOVA CAPITAL CORPORATION AND ITS
SUBSIDIARIES (COLLECTIVELY, "FINOVA" OR THE "COMPANY"). FINOVA IS A WHOLLY OWNED
SUBSIDIARY OF THE FINOVA GROUP INC. ("FINOVA GROUP").
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1998 was $126.1
million compared to $103.4 million for the nine months ended September 30, 1997.
INTEREST MARGINS EARNED. Interest margins earned represent the
difference between (a) interest and income earned from financing transactions
and operating lease income and (b) interest expense and depreciation on
operating leases and other owned assets. Interest margins earned were $343.5
million for the nine months ended September 30, 1998 compared to $300.6 million
for the nine months ended September 30, 1997, a 14% increase. The increase was
primarily due to a 17% growth in managed assets to $9.91 billion at September
30, 1998 from $8.45 billion at September 30, 1997.
VOLUME-BASED FEE INCOME. Volume-based fee income is generated by
FINOVA's Inventory Finance, Commercial Services (formerly "Factoring Services")
and Realty Capital lines of business. These fees are predominately based on
volume originated business rather than the balance of outstanding financing
transactions during the period. For the nine months ended September 30, 1998,
volume-based fee income was $57.9 million compared to $25.9 million for the same
period in 1997.
6
<PAGE>
Fee-based volume for the first nine months of 1998 totaled $5.4 billion compared
to $2.7 billion in the same period one year ago. Included in the first nine
months of 1998 were fees associated with FINOVA Realty Capital ("FRC") and the
Inventory Finance portfolio purchased from AT&T Capital Corp., both of which
were acquired in the fourth quarter of 1997.
PROVISION FOR CREDIT LOSSES. The provision for credit losses was $44.5
million for the nine months ended September 30, 1998 compared to $48.3 million
for the same period one year ago. Net write-offs during the nine months ended
September 30, 1998 were $36.9 million compared to $29.2 million for the same
period in 1997. The 1998 net write-offs included $21.0 million of amounts
written off relative to the Commercial Services line of business, a portion of
which had previously been specifically reserved.
GAINS ON DISPOSAL OF ASSETS. Gains on disposal of assets were $24.2
million for the nine months ended September 30, 1998 compared to $22.4 million
for the first nine months of 1997. Gains on disposal of assets include the sale
of assets coming off lease, the sale of other assets and the sale of loans via
the commercial mortgage backed securities ("CMBS") market. Net losses from the
CMBS market totaled $4.2 million and included gains of $10.4 million offset by
hedge losses of $14.6 million. The other $28.4 million of gains included gains
from the sale of assets coming off lease, gains from the sale of Franchise
Finance loans and other assets, and the reversal of reserves due to the receipt
of a favorable resolution in a bankruptcy. While, in the aggregate, FINOVA
historically recognizes gains on such disposals, the timing and amount of these
gains are sporadic in nature. There can be no assurance FINOVA will recognize
such gains in the future, depending, in part, on market conditions at the time
of sale.
SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES. Selling,
administrative and other operating expenses ("operating expenses") were
generally higher in all major categories and increased to $175.8 million for the
first nine months of 1998 compared to $137.3 million for the first nine months
of 1997. This increase was partially attributable to the growth in managed
assets during the year. Also contributing to the increase was the addition of
FRC, which has a higher operating cost structure than FINOVA, including over 80
business development officers and associated support staff. Meanwhile, operating
expenses were 43.8% of operating margins for the nine months ended September 30,
1998 compared to 42.0% in the same period in 1997. Excluding the addition of
FRC, FINOVA's operating expense ratio would have been 40.9% for the nine months
ended September 30, 1998.
INCOME TAXES. Income taxes were higher for the first nine months of
1998 compared to the corresponding period in 1997 due to the increase in pre-tax
income and a higher effective tax rate in 1998 (38.6% vs 36.7%). The 1997 tax
rate was lower due to certain tax credits realized in 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Managed assets were $9.91 billion at September 30, 1998 compared to
$8.86 billion at December 31, 1997. Included in managed assets at September 30,
1998 were $9.39 billion in funds employed (including $240.9 million of financing
contracts held for sale generated by FRC), $413.4 million of securitized assets
managed by FINOVA and $102.7 million of participations sold to third parties.
The increase in managed assets was due to funded new business of $2.7 billion
for the nine months ended September 30, 1998, coupled with a net increase in
volume based receivables, partially offset by normal portfolio amortization and
prepayments.
The reserve for credit losses increased to $187.2 million at September
30, 1998 from $177.1 million at December 31, 1997, while nonaccruing assets
increased to $199.4 million at September 30, 1998 from $187.4 million at the end
of 1997. However, nonaccruing assets as a percent of ending
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managed assets (excluding participations sold) improved to 2.0% as compared to
2.1% at December 31, 1997.
At September 30, 1998, FINOVA had $7.89 billion of debt outstanding,
representing 5.95 times the Company's equity base of $1.33 billion. At year-end
1997, FINOVA's debt was 5.37 times the equity base of $1.26 billion.
Growth in funds employed is financed by FINOVA's internally generated
funds and new borrowings. During the nine months ended September 30, 1998,
FINOVA issued $915 million of new long-term borrowings and recognized a net
increase in commercial paper outstanding of $875 million. During the same
period, FINOVA repaid $664 million of long-term borrowings.
YEAR 2000 DATE CONVERSION
FINOVA continues to implement changes necessary to assure accurate date
recognition and data processing with respect to the year 2000. To be year 2000
compliant means (1) significant computer systems in use by FINOVA demonstrate
performance and functionality that is not materially affected by processing
dates on or after January 1, 2000, (2) customers and collateral included in
FINOVA's portfolio of business are year 2000 compliant, and (3) vendors of
services critical to FINOVA's business processes are year 2000 compliant.
Primary internal activities related to this issue are modifications to
existing computer programs and conversions to new programs. FINOVA has a
five-phase plan for addressing the year 2000 issues for its internal systems:
1) Identifying each area, function, and application that could be
materially affected by the change in century.
2) Determining the extent to which each area, function, or application
will be affected by the change in century and identifying the proper
course of action to eliminate material adverse effects.
3) Making the changes necessary to bring the system into year 2000
compliance.
4) Testing the integrated system.
5) Switching to year 2000 compliant applications.
Costs incurred to bring FINOVA's internal systems into year 2000
compliance and incremental costs of accelerating new equipment acquisitions are
being expensed as incurred and are not expected to have a material impact on
FINOVA's financial position. The necessary modifications to FINOVA's internal
systems are expected to be completed by the end of calendar 1998.
FINOVA is communicating with customers, software vendors, and others to
determine if their applications or services are year 2000 compliant and to
assess the potential impact on FINOVA related to this issue. FINOVA's aggregate
cost estimate does not include time and costs that may be incurred as a result
of the failure of any third parties to become year 2000 compliant.
While FINOVA believes all necessary work on internal systems will be
completed in a timely fashion, there can be no guarantee that all systems will
be compliant by the year 2000 within the estimated cost. Similarly, FINOVA
cannot assure that the systems of other companies and government agencies on
which FINOVA relies will be converted timely. Risks also include that third
parties may not have accurately assessed their state of readiness, and therefore
may have a material adverse effect on FINOVA's results of operations.
FINOVA has not currently established a formal year 2000 contingency plan
but will consider and, if necessary, address doing so as part of its year 2000
review process. FINOVA maintains and deploys contingency plans designed to
address various other potential business interruptions. In some respects,
8
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these plans address interruptions resulting from third parties' failure to be
year 2000 compliant, but the plans have not been updated to specifically address
the year 2000 issue.
RECENT DEVELOPMENT AND BUSINESS OUTLOOK
FINOVA continues to seek new business by emphasizing customer service,
providing competitive interest rates and focusing on selected market niches.
Additionally, FINOVA continues to evaluate potential acquisition opportunities
it believes are consistent with its business strategies.
During the third quarter of 1998, the global financial markets experienced
significant volatility as a result of the emerging market crisis in Russia,
continued concerns over Asia and volatility in other significant emerging
markets, e.g. Latin America. Due primarily to the financial crisis and overall
volatility in the general international financial markets, US Treasury rates
significantly declined as investors sought the safety of Treasury securities
over other instruments. As a result, credit spreads widened between US Treasury
securities and corporate bonds and other fixed income securities such as for the
CMBS market. FINOVA participates in the CMBS market through FRC and borrows in
the commercial debt markets. While referenced interest rates (such as U.S.
Treasuries or LIBOR) have declined, FINOVA along with other lenders, has had to
pay increased spreads over those referenced rates due to the uncertainty in the
financial markets.
FRC originates fixed-rate loans that it ultimately anticipates selling
through the CMBS market. Lenders such as FINOVA base loan spreads (premiums
charged to borrowers) on the prices they expect the loans to sell for in the
CMBS market. The greater the amount that loan spreads exceed CMBS spreads, the
greater the potential profit.
For FRC's fixed-rate loans, the risk is that interest rates will rise
before the loans are sold through the CMBS market. As rates rise, not only is
the value of the loans reduced, but the net yield also drops as the cost of
funding the loans held on book increases.
To hedge that risk, FINOVA has taken hedging positions to offset price
movements in the long position of the loan portfolio. As a result of this
strategy, declines in the value of the portfolio should produce equal increases
in the value of the hedged position or vice versa.
Problems occur when CMBS rates and Treasury rates do not move together.
When that happens, losses in the value of hedging instruments may exceed gains
in the market value of the underlying loans. The wider the spreads between
yields on CMBS and Treasury securities become, the more profits are squeezed.
As noted above, this anomaly occurred during 1998. In response to these
market conditions, FRC continues to evaluate various instruments in order to
achieve the most effective hedge. FRC has also re-priced business within its
backlog to reflect the greater spreads, although there can be no assurance that
future movements in the financial markets will not reduce spreads further. The
result of these two actions should help mitigate future volatility in
transactions within the CMBS market.
To provide liquidity, the Company has put into place committed programs to
successfully place FRC transactions which the Company can elect to use at its
discretion to help provide alternatives should turbulence continue in the
traditional CMBS market place. Along those lines, included in the third quarter
of 1998 was the sale of $146 million of loans for which the Company retained the
servicing rights and obligations and a subordinated interest.
On October 13, 1998, FINOVA consummated the acquisition of United Credit
Corporation, a New York-based provider of commercial financing to small and
midsize businesses, and its Patriot Funding Division. The addition formed a new
division named FINOVA Growth Finance, which provides collateral-based working
capital financing, primarily secured by accounts receivable. The new division
provides
9
<PAGE>
financing ranging from $100,000 to $1 million to small and midsize businesses
with annual sales under $10 million. FINOVA anticipates that this new division
will serve a market segment of smaller, growth-oriented customers earlier in
their maturation cycle.
On October 28, 1998, FINOVA acquired Electronic Payment Systems, Inc.
(EPS), a commercial receivables servicing business headquartered in Salt Lake
City, Utah, to support the activities of its Realty Capital business.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", effective for transactions entered into in
fiscal quarters of fiscal years that begin after June 15, 1999. This statement
establishes standards for the accounting and reporting for derivative
instruments and for hedging activities. The future effect on the Company's
financial position and the results of operations has not been determined.
10
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed herewith:
Exhibit No. Document
----------- ------------------------------------------
12 Computation of Ratio of Income to Combined
Fixed Charges (interim period).
27 Financial Data Schedule.
(b) Reports on Form 8-K:
A Report on Form 8-K, dated October 14, 1998, was filed by
Registrant which reported under Items 5 and 7 the revenues, net income
and selected financial data and ratios for the third quarter ended
September 30, 1998 (unaudited).
A Report on Form 8-K, dated August 7, 1998 was filed by
Registrant which reported under Items 5 and 7 a Distribution Agreement
between the Registrant and Credit Suisse First Boston Corporation,
Goldman, Sachs & Co., Lehman Brothers, Inc., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley &
Co. Incorporated and Salomon Brothers Inc (collectively, the
"Agents"), pursuant to which the Registrant agreed to issue and sell
up to $500,000,000 aggregate principal amount of its Medium-Term
Notes, Series D, to or through the Agents.
11
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FINOVA CAPITAL CORPORATION
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.
FINOVA CAPITAL CORPORATION
(Registrant)
Dated: November 2, 1998 By: /s/ Bruno A. Marszowski
-------------------------------------------
Bruno A. Marszowski, Senior Vice President,
Chief Financial Officer and Controller
Principal Financial and Accounting Officer
12
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FINOVA CAPITAL CORPORATION
COMMISSION FILE NUMBER 1-7543
EXHIBIT INDEX
SEPTEMBER 30, 1998 FORM 10-Q
Exhibit No. Document
----------- ------------------------------------------------
12 Computation of Ratio of Income to Combined Fixed
Charges (interim period).
27 Financial Data Schedule for the nine months ended
September 30, 1998.
13
EXHIBIT 12
FINOVA CAPITAL CORPORATION
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
(Dollars in Thousands)
Nine Months Ended
September 30,
-------------------------
1998 1997
---- ----
Income before income taxes $205,398 $163,331
Add fixed charges:
Interest expense 347,794 304,647
One-third rentals 2,786 2,052
-------- --------
Total combined fixed charges 350,580 306,699
-------- --------
Income as adjusted $555,978 $470,030
-------- --------
Ratio of income to fixed charges 1.59 1.53
======== ========
<TABLE> <S> <C>
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<S> <C>
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0
0
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</TABLE>
