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): July 15, 1999
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FINOVA CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 1-7543 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 85002-2209
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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 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
FINOVA Capital Corporation ("FINOVA Capital") and The FINOVA Group Inc.
("FINOVA") have dismissed their independent auditors, Deloitte & Touche LLP,
effective July 15, 1999. On that date they appointed Ernst & Young LLP as
independent auditors. These actions were approved by FINOVA's Board of Directors
upon recommendation of its Audit Committee. The change was also approved by the
Board of Directors of FINOVA Capital.
The selection of Ernst & Young was approved by FINOVA Capital and
FINOVA after an extended evaluation process initiated by FINOVA's Audit
Committee. Neither company sought the advice of Ernst & Young on specific audit
issues relating to their financial statements prior to engagement of that firm.
The change in independent auditors did not occur due to any existing or
previous accounting disagreements with Deloitte & Touche, and Deloitte & Touche
has expressed no disclaimer of opinion, adverse opinion, qualification or
limitation regarding the financial statements of FINOVA Capital or FINOVA or the
audit process, for the years ended December 31, 1998 or 1997, or the interim
periods ended March 31, 1999 or June 30, 1999. Neither have there been any
accounting disagreements or reportable events within the meaning of Item 304 of
SEC Regulation S-K for those periods. Deloitte & Touche has stated in its
attached letter addressed to the SEC its concurrence with the foregoing
statements in this paragraph.
ITEM 5. OTHER EVENTS.
On July 16, 1999, FINOVA Capital Corporation announced revenues, net
income and selected financial data and ratios for the second quarter and first
six months ended June 30, 1999 (unaudited).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
Exhibits Title
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16 Letter re Change in Certifying Accountant
99 Press Release issued by FINOVA Capital Corporation
dated July 16, 1999
2
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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: July 21, 1999 By /s/ Jill C. Richling
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Jill C. Richling
Vice President -- Controller
3
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
July 21, 1999
Securities and Exchange Commission
Mail Stop 9-5
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read Item 4 of Form 8-K of FINOVA Capital Corporation dated July 15,
1999 and we agree with the comments in the first sentence of the first paragraph
and with the third paragraph. We have no basis to agree or disagree with the
comments in the second, third and fourth sentences of the first paragraph or
with the second paragraph.
Very truly,
/s/ Deloitte & Touche LLP
Stuart Tashlik Embargo until
Senior Vice President 8:00 a.m. (E.D.T.)
602/ 207-5355
THESE ARE THE EARNINGS FOR FINOVA CAPITAL CORPORATION
THE PRINCIPAL SUBSIDIARY OF THE FINOVA GROUP INC.,
WHOSE EARNINGS WERE RELEASED JULY 15, 1999
FINOVA CAPITAL CORPORATION
ANNOUNCES RECORD NET INCOME SECOND QUARTER OF 1999 UP 32%
PHOENIX, Ariz., July 16, 1999 -- FINOVA Capital Corporation today announced net
income of $54.6 million for the quarter ended June 30, 1999, compared to a
restated $41.5 million earned in the second quarter of 1998, a 32% increase in
net income.
Net income for the six months ended June 30, 1999 was $105.6 million
compared to a restated $82.2 million of net income for the six months of 1998,
an increase in net income of 29%.
Sam Eichenfield, chairman and chief executive officer of FINOVA, said
"The second quarter was a solid quarter, which produced a significant increase
in earnings, a rebound in interest margins, the fourth consecutive quarter of $1
billion plus new lease and loan originations and the continued portfolio quality
the company has been accustomed to."
New lease and loan business for the second quarter of 1999 was $1.1
billion compared to $754 million for the second quarter of 1998 with the backlog
of new business at June 30, 1999 increasing from $2.0 billion in the first
quarter of 1999 to $2.2 billion. Fee based volume for the second quarter of 1999
declined to $1.5 billion from $2.0 billion in second quarter of 1998 due
primarily to a reduction in volume originated by FINOVA Realty Capital.
Portfolio growth year over year was 24% and an annualized 22% for the
first six months of 1999. The growth rate of 3% during the second quarter of
1999 was lower and somewhat unusual in view of the significant new business
generated due to an unusually high amount of prepayments and asset sales during
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the period ($600 million in the second quarter of 1999 vs $185 million in the
first quarter of 1999 and $297 million in the second quarter of 1998).
Portfolio quality, measured by nonaccruing assets as a percent of
managed assets, remained consistent at 2.1% at June 30, 1999 and 1998. Net
write-offs were $16.2 million in the second quarter of 1999 compared to $13.9
million for the second quarter of 1998, but at 0.56% of managed assets, remained
within the company's targeted range of 0.50% to 0.60%.
Interest margins earned increased by 26% and rose to $140.0 million in
the second quarter of 1999 from $110.9 million in the second quarter of 1998.
Interest margins earned as a percentage of average earning assets were 5.3% in
the second quarter of 1999, slightly down from the 5.4% reported for the second
quarter of 1998, but up from 5.1% in the first quarter of 1999. The rebound in
interest margins earned from the first quarter of 1999 was due to a reduction in
the company's leverage and lower cost of funds resulting from a contraction in
interest rate spreads on short-term borrowings, which were abnormally high in
the first quarter of 1999.
Operating margin, which includes volume-based fees, grew 16% to $151.2
million in the second quarter of 1999 from $130.0 million in the comparable 1998
period, but as a percent of average earning assets, declined to 5.8% for the
second quarter of 1999 from 6.3% in the second quarter of 1998. This decrease
was due to the lower amount of fee-based volume ($1.5 billion vs $2.0 billion)
and a reduced average rate earned on that volume (0.73% vs 0.97%).
Gains on disposal of assets were $18.8 million in the second quarter of
1999 compared to $7.4 million in the second quarter of 1998 and included $7.6
million from the sale of Commercial Mortgage Backed Securities ($6.6 million
from the mini-CMBS transaction) and $11.2 million from the sale of assets coming
off lease and other assets.
Operating efficiency which is measured by comparing operating expenses
to operating margins and gains was 37.3% in the second quarter of 1999, slightly
better than 38.7% for the second quarter of 1998. Operating expenses were $63.3
million in the second quarter of 1999, up from $53.2 million in the second
quarter of 1998. The $10.1 million increase in operating expenses was due to the
growth of the company which included the addition of 173 employees (primarily
through acquisitions) during the twelve months ended June 30, 1999.
"I am pleased with the second quarter and six-month results of FINOVA
which included solid contributions from FINOVA's recent acquisitions as well as
its core businesses and we believe the company is well positioned to have a
strong second half of 1999," Eichenfield concluded.
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. FINOVA was recently named one of FORTUNE'S "Best 100 Companies To Work
For In America." For more information, visit the company's website at
www.finova.com.
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FINOVA Capital Corporation
and Consolidated Subsidiaries
Summary of Consolidated Income
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
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1998 1998
1999 Restated 1999 Restated
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<S> <C> <C> <C> <C>
Interest earned from financing transactions $ 266,978 $ 214,643 $ 512,201 $ 414,813
Operating lease income 28,868 31,425 56,721 64,088
Interest expense (139,153) (114,696) (270,336) (224,975)
Operating lease depreciation (16,720) (20,495) (33,947) (37,665)
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Interest margins earned 139,973 110,877 264,639 216,261
Volume-based fees 11,264 19,104 23,999 41,259
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Operating margin 151,237 129,981 288,638 257,520
Provision for credit losses (17,000) (16,000) (26,500) (25,500)
Gains on disposal of assets 18,760 7,432 31,130 8,957
Operating expenses (63,339) (53,207) (120,839) (106,085)
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Income before income taxes 89,658 68,206 172,429 134,892
Income taxes (35,050) (26,729) (66,819) (52,729)
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Net Income $ 54,608 $ 41,477 $ 105,610 $ 82,163
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</TABLE>
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FINOVA Capital Corporation
Selected Consolidated Financial Data and Ratios (Unaudited) (A)
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of June 30 As of December 31
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FINANCIAL POSITION: 1999 1998 Restated 1998 Restated
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<S> <C> <C> <C>
Ending funds employed $11,195,666 $8,950,838 $10,020,221
Securitizations and participations
sold (B) 512,382 502,032 537,596
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Total managed assets 11,708,048 9,452,870 10,557,817
Reserve for credit losses 237,602 178,070 207,618
Nonaccruing assets 249,607 196,824 205,233
Nonaccruing assets as % of managed
assets (C) 2.1% 2.1% 2.0%
Reserve for credit losses as a % of:
Ending managed assets (C) (D) 2.1% 2.0% 2.0%
Nonaccruing assets 95.2% 90.5% 101.2%
Total assets $11,842,522 $9,343,612 $10,494,503
Total debt 9,523,630 7,345,194 8,394,578
Common shareowner's equity 1,658,786 1,328,561 1,331,642
Backlog 2,223,421 2,263,504 1,935,106
Total debt to equity 5.7x 5.5x 6.3x
For the Quarter Ended For the Six Months Ended
June 30, June 30,
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PERFORMANCE HIGHLIGHTS: 1999 1998 Restated 1999 1998 Restated
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Average managed assets $11,598,293 $9,214,128 $11,216,596 $9,056,164
Average earning assets (E) 10,497,813 8,277,580 10,135,121 8,138,041
New business 1,078,047 753,733 2,139,535 1,445,813
Fee-based volume 1,544,062 1,960,182 3,016,759 3,764,614
Net write-offs 16,249 13,881 24,652 26,987
Net write-offs (annualized) as a %
of average managed assets (C) 0.56% 0.61% 0.44% 0.60%
Operating margin (annualized) as
a % of average earning assets 5.8% 6.3% 5.7% 6.3%
Interest margins earned (annualized)
as a % of average earning assets 5.3% 5.4% 5.2% 5.3%
Operating expenses as a % of
operating margin 41.9% 40.9% 41.9% 41.2%
Operating expenses as a % of
operating margin plus gains 37.3% 38.7% 37.8% 39.8%
</TABLE>
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A) Averages for the periods presented are based on month-end balances except
for the weighting of the Sirrom acquisition, which was added in as of the
acquisition date.
B) Securitizations are assets sold under securitization agreements and managed
by the Company.
C) Excludes participations sold in which the Company has transferred credit
risk.
D) Excludes financing contracts held for sale.
E) Average earning assets equal average funds employed less average deferred
taxes on leveraged leases and average nonaccruing assets.
