SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C, 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 14, 1998
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FINOVA CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-11011 94-1278569
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
1850 NORTH CENTRAL AVENUE, P. O. BOX 2209, PHOENIX, ARIZONA 85004-2209
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 602/207-6900
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Item 5. Other Events.
FINOVA Capital Corporation announced revenues, net income and selected
financial data and ratios for the third quarter ended September 30,
1998 (unaudited).
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
Exhibits Title
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28 Press Release of FINOVA Capital Corporation dated
October 14, 1998
1
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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: October 16, 1998 By /s/ Bruno A. Marszowski
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Bruno A. Marszowski, Senior Vice President,
Chief Financial Officer and Controller
Principal Financial Officer/Authorized Officer
2
EXHIBIT 28
Meilee Smythe Embargo until
Senior Vice President - Treasurer 8:00 a.m. (E.D.T.)
602/ 207-2664
THESE ARE THE EARNINGS FOR FINOVA CAPITAL CORPORATION
THE PRINCIPAL SUBSIDIARY OF THE FINOVA GROUP, INC.
WHOSE EARNINGS WERE RELEASED OCTOBER 13, 1998
FINOVA CAPITAL CORPORATION
Announces 23% Increase in Third Quarter Net Income
PHOENIX, ARIZ., OCT. 14, 1998 -- FINOVA CAPITAL CORPORATION, the principal
subsidiary of the FINOVA Group, Inc., today reported net income of $44.1 million
for the third quarter of 1998 compared to net income of $35.9 million in the
third quarter of 1997, a 23% increase in net income.
Net income for the first nine months of 1998 was $126.1 million compared to net
income of $103.4 million for the first nine months of 1997, a 22% increase in
net income.
"During this turbulent period for many financial services companies, I am
pleased with FINOVA's continued strong performance, which primarily was driven
by the growth in interest margins coupled with our disciplined cost control,"
said FINOVA Chairman & CEO Sam Eichenfield. Eichenfield went on to say, "we
generated record new business during the quarter that resulted in substantial
portfolio growth, while maintaining high portfolio quality and ample reserve
coverage."
New business for the third quarter of 1998 was $2.9 billion, consisting of $1.3
billion new leases and loans and $1.6 billion of fee based volume, compared to
total new business of $1.7 billion for the third quarter of 1997. For the first
nine months of 1998, new business totaled $8.1 billion compared to $5.0 billion
for the equivalent 1997 period. As a result, managed assets grew by 17% over the
last twelve months to $9.9 billion at Sept. 30, 1998. This new business was
added while maintaining the backlog at $2.2 billion, a level 37% higher than at
Sept. 30, 1997.
Annualized operating margins as a percentage of average earning assets were 6.4%
and 6.5%, respectively for the third quarter and first nine months of 1998
compared to 6.1% and 6.0% for the respective 1997 periods. Operating margins
grew by 20% in the third quarter of 1998 to $137.4 million and by 23% to $401.5
million for the nine months of 1998.
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"Portfolio quality, which is extremely important to us at FINOVA, continues to
be maintained with nonaccruing assets running at 2% of managed assets,"
Eichenfield added. Net write-offs for the quarter and year-to-date periods of
1998 were $9.9 million and $36.9 million, respectively, compared to $13.9
million and $29.2 million for the equivalent three- and nine-month periods of
1997. Reserves for credit losses remained at 2% of managed assets and were 93.9%
of nonaccruing assets at Sept. 30, 1998. Loss provisions to cover write-offs and
the portfolio growth were $19 million in the third quarter of 1998 compared to
$22 million for the comparable 1997 period.
Net gains on sale of assets for the third quarter of 1998 totaled $13.4 million
versus $8.7 million for the comparable 1997 period and included the traditional
gains from the sale of residuals and other assets plus gains from the sale of
loans via the Commercial Mortgage Backed Securities (CMBS) market. Total gains
recorded more than offset losses of $12 million realized from the shorting of
treasuries used to hedge the CMBS portfolio. "We have put into place committed
programs to successfully place Realty Capital transactions, which we can elect
to use, at our discretion, to help provide alternatives should turbulence
continue in the traditional CMBS market place," Eichenfield said.
Operating expenses for the quarter and first nine months of 1998 were $61.1
million and $175.8 million, respectively, compared to $44.8 million and $137.3
million for the equivalent 1997 periods. The 1998 periods included expenses
related to FRC, acquired in the fourth quarter of 1997, which typically run
higher than FINOVA's traditional commercial finance businesses. Operating
expenses, as a percentage of operating margins were 44.5% and 43.8% for the
third quarter and first nine months of 1998 compared to 39.3% and 42.0% for the
comparable 1997 periods. Excluding the expenses related to FRC, FINOVA's
operating expense ratio would have been 40.7% and 40.9% for the third quarter
and nine months ended Sept. 30, 1998, respectively. "A significant portion of
our new loan and lease business --45%-- was added in September, and therefore,
did not result in any profit contribution," Eichenfield noted.
Income taxes were higher in the 1998 periods, due to the increase in pre-tax
income as well as to the realization of certain tax credits in the 1997 periods.
FINOVA Capital Corporation is one of the nation's leading financial services
companies focused on providing a broad range of capital solutions primarily to
midsize business. FINOVA is headquartered in Phoenix with business development
offices throughout the U.S. and in London, U.K., and Toronto, Canada.
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FINOVA Capital Corporation
and Consolidated Subsidiaries
Summary of Consolidated Income
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Interest 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)
Operating lease depreciation (13,875) (17,727) (51,540) (51,786)
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Interest margins earned 120,744 104,491 343,543 300,574
Volume-based fee income 16,687 9,546 57,946 25,913
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Operating margin 137,431 114,037 401,489 326,487
Provision for credit losses (19,000) (22,000) (44,500) (48,300)
Gains on disposal of assets 13,438 8,706 24,243 22,407
Selling, administrative and other operating
expenses (61,097) (44,773) (175,834) (137,263)
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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
========= ========= ========= =========
</TABLE>
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FINOVA Capital Corporation
Selected Consolidated Financial Data and Ratios (Unaudited) (1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of
As of September 30 December 31
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FINANCIAL POSITION: 1998 1997 1997
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<S> <C> <C> <C>
Ending funds employed (EFE) $9,392,529 $8,075,600 $8,399,456
Securitizations and participations sold (2) 516,019 373,737 457,967
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Total managed assets 9,908,548 8,449,337 8,857,423
Reserve for credit losses 187,161 167,754 177,088
Nonaccruing assets 199,367 173,390 187,356
Nonaccruing assets as % of managed assets (4) 2.0% 2.1% 2.1%
Reserve for credit losses as a % of:
Ending managed assets (4)(5) 2.0% 2.0% 2.0%
Nonaccruing assets 93.9% 96.7% 94.5%
Total debt $7,891,283 $6,502,512 $6,764,581
Shareowner's equity 1,326,776 1,150,478 1,260,068
Backlog 2,189,168 1,601,334 1,601,218
Total debt to equity 5.95x 5.65x 5.37x
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
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PERFORMANCE HIGHLIGHTS: 1998 1997 1998 1997
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Average managed assets $9,595,407 $8,234,743 $9,219,449 $7,989,202
Average earning assets (3) 8,628,830 7,456,595 8,285,807 7,208,380
New business 1,294,649 747,852 2,740,462 2,310,722
Fee-based volume 1,635,697 994,235 5,400,311 2,671,908
Net write-offs 9,943 13,941 36,930 29,165
Net write-offs (annualized) as a % of
average managed assets (4) 0.42% 0.68% 0.54% 0.49%
Operating margin (annualized) as
a % of average earning assets 6.37% 6.12% 6.46% 6.04%
Interest margins earned
(annualized) as a % of average
earning assets 5.60% 5.61% 5.53% 5.56%
Selling, administrative and other
operating expenses as a % of
operating margin 44.46% 39.26% 43.80% 42.04%
</TABLE>
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(1) Averages for the periods presented are based on month-end balances.
(2) Securitizations are assets sold under securitization agreements and managed
by the Company.
(3) Average earning assets equal average funds employed less average deferred
taxes on leveraged leases and average nonaccruing assets.
(4) Excludes participations sold in which the Company has transferred credit
risk.
(5) Excludes financing contracts held for sale.
