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 June 30, 1997
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 1-11011
THE FINOVA GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0695381
(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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of July 31, 1997, 27,139,000 shares of Common Stock ($0.01 par value) were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
THE FINOVA GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 49,587 $ 31,260
INVESTMENT IN FINANCING TRANSACTIONS:
Loans and other financing contracts, less unearned income 5,730,898 5,305,678
Operating leases 628,423 517,690
Factored receivables 597,515 564,430
Leveraged leases 517,671 514,573
Direct financing leases 351,689 396,388
----------- -----------
7,826,196 7,298,759
Less reserve for possible credit losses (159,747) (148,693)
----------- -----------
Investment in financing transactions - net 7,666,449 7,150,066
Other assets and deferred charges 344,367 345,408
----------- -----------
$ 8,060,403 $ 7,526,734
=========== ===========
LIABILITIES:
Accounts payable and accrued expenses $ 117,594 $ 119,991
Due to clients 241,953 218,494
Interest payable 46,693 52,677
Senior debt 6,338,122 5,850,223
Deferred income taxes 255,896 244,208
----------- -----------
7,000,258 6,485,593
----------- -----------
Company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding
convertible debentures of the Company, net of expenses
(TOPrS) 111,550 111,550
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 28,422,000 shares issued 284 284
Additional capital 686,564 684,545
Retained income 328,466 276,151
Cumulative translation adjustments (288) 1,008
Common stock in treasury, 1,297,000 and 893,000 shares
respectively (66,431) (32,397)
----------- -----------
948,595 929,591
----------- -----------
$ 8,060,403 $ 7,526,734
=========== ===========
</TABLE>
See notes to interim consolidated financial information.
1
<PAGE>
THE FINOVA GROUP INC.
CONDENSED CONSOLIDATED INCOME STATEMENT
(Dollars in Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Interest and income earned from
financing transactions $ 199,541 $ 167,593 $ 390,653 $ 335,272
Operating lease income 28,946 25,042 54,911 48,015
Interest expense (101,883) (89,718) (199,055) (177,942)
Depreciation (17,610) (14,625) (34,059) (31,903)
------------ ------------ ------------ ----------
Interest margins earned 108,994 88,292 212,450 173,442
Provision for possible credit losses (18,300) (7,876) (26,300) (19,500)
------------ ------------ ------------ ----------
Net interest margins earned 90,694 80,416 186,150 153,942
Gains on sale of assets 10,468 1,315 13,701 8,045
------------ ------------ ------------ ----------
101,162 81,731 199,851 161,987
Selling, administrative and other
operating expenses (46,612) (34,488) (92,490) (72,075)
------------ ------------ ------------ ----------
Income from continuing operations
before income taxes and preferred
dividends 54,550 47,243 107,361 89,912
Income taxes (19,853) (18,391) (39,851) (34,304)
------------ ------------ ------------ ----------
Income from continuing operations
before preferred dividends 34,697 28,852 67,510 55,608
Dividends on preferred securities of
subsidiary trust, net of tax (946) -- (2,101) --
------------ ------------ ------------ ----------
Income from continuing operations 33,751 28,852 65,409 55,608
Loss from discontinued operations,
net of tax -- (731) -- (366)
------------ ------------ ------------ ----------
Net Income $ 33,751 $ 28,121 $ 65,409 $ 55,242
============ ============ ============ ==========
EARNINGS FROM CONTINUING
OPERATIONS PER COMMON
AND EQUIVALENT SHARE $ 1.21 $ 1.03 $ 2.34 $ 1.99
============ ============ ============ ==========
EARNINGS PER COMMON AND
EQUIVALENT SHARE $ 1.21 $ 1.01 $ 2.34 $ 1.98
============ ============ ============ ==========
DIVIDENDS DECLARED PER
COMMON SHARE $ 0.24 $ 0.22 $ 0.48 $ 0.44
============ ============ ============ ==========
AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 27,888,000 27,961,000 27,906,000 27,942,000
============ ============ ============ ==========
</TABLE>
See notes to interim consolidated financial information.
2
<PAGE>
THE FINOVA GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
OPERATING ACTIVITIES: 1997 1996
----------- -----------
<S> <C> <C>
Net income $ 65,409 $ 55,242
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible credit losses 26,300 19,500
Depreciation and amortization 42,576 38,629
Gains on sale of assets (13,701) (8,045)
Deferred income taxes 11,688 16,160
Change in assets and liabilities, net of effects from subsidiaries
purchased (33,183) (98,110)
Other (514) 1,300
----------- -----------
Net cash provided by operating activities 98,575 24,676
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of assets 109,250 64,241
Proceeds from assets securitized 16,150 100,000
Principal collections on financing transactions 946,031 797,383
Expenditures for financing transactions (1,146,890) (992,705)
Net change in short-term financing transactions (472,021) (285,861)
Purchase of portfolios -- (795)
Other 1,765 1,482
----------- -----------
Net cash used in investing activities (545,715) (316,255)
----------- -----------
FINANCING ACTIVITIES:
Net borrowings under commercial paper 632,868 215,392
Long-term borrowings 565,625 565,000
Repayment of long-term borrowings (710,479) (523,788)
Proceeds from exercise of stock options 4,384 2,446
Common stock purchased for treasury (37,296) --
Dividends (13,094) (12,032)
Net change in due to clients 23,459 (22,467)
----------- -----------
Net cash provided by financing activities 465,467 224,551
----------- -----------
Increase (decrease) in cash and cash equivalents 18,327 (67,028)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,260 90,280
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 49,587 $ 23,252
=========== ===========
</TABLE>
See notes to interim consolidated financial information
3
<PAGE>
THE FINOVA GROUP INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NOTE A BASIS OF PREPARATION
- -----------------------------
The consolidated financial statements present the financial position,
results of operations and cash flows of The FINOVA Group Inc. and its
subsidiaries (collectively, "FINOVA" or the "Company"), including FINOVA Capital
Corporation and its subsidiaries (collectively, "FINOVA Capital").
The interim 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 June 30, 1997, the
results of operations for the quarter and six months ended June 30, 1997 and
1996 and cash flows for the six months ended June 30, 1997 and 1996, have been
included. Interim results of operations are not necessarily indicative of the
results of operations for the full year.
Amounts for the six months ended June 30, 1996 have been restated to
reflect discontinued operations.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Effective January 1, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." Among
other things, this statement changes the accounting treatment of transactions
occurring subsequent to December 31, 1996 that transfer financial assets but
retain the servicing rights, such as securitizations. The adoption of this
standard did not have a material impact on the Company's consolidated financial
statements.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share", effective for both interim and annual periods ending after December
15, 1997. This statement specifies the computation, presentation and disclosure
of earnings per share for entities with publicly held common stock or potential
common stock. The Company will provide the required disclosures in their
year-end report. The effect on the Company's earnings per share disclosure is
not material for the periods presented.
In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 31, 1997.
The statement changes the reporting of certain items currently reported in the
stockholders' 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. Management does not expect this standard to have a
material effect on the Company's financial statements.
In June 1997 the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 31, 1997. This standard requires segments
of a business enterprise to be reported based on the way management organizes
and evaluates segments within the company. The standard also requires
disclosures regarding products and services, geographical areas and major
customers. The Company is currently evaluating the impact of this standard on
its disclosures.
The company plans to adopt both SFAS No. 130 and No. 131 in 1998.
NOTE C PORTFOLIO QUALITY
- --------------------------
The following table presents, by line of business, the Company's
investment in financing transactions before the reserve for possible credit
losses at the dates indicated.
4
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
JUNE 30, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
---------------------------------- ------------------------------------
Market Repos- Repos- Total
Interest sessed sessed Leases Carrying
Rate (1) Impaired Assets(2) Impaired Assets & Other Amount %
----------- -------- --------- ---------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (3) (4) $1,532,966 $ -- $ -- $ -- $ -- $ -- $1,532,966 19.6
Resort Finance (4) 1,142,389 3,223 14,333 99 21,186 -- 1,181,230 15.1
Corporate Finance (4) 755,307 1,096 -- 19,981 335 -- 776,719 9.9
Commercial Real Estate Finance 630,839 23,859 41,824 7,859 13,681 196 718,258 9.2
Communications Finance (4) 614,361 8,384 -- 12,825 -- -- 635,570 8.1
Commercial Equipment Finance 596,364 -- -- 8,482 -- 4,460 609,306 7.8
Healthcare Finance 503,493 -- -- 2,742 -- 1,267 507,502 6.5
Rediscount Finance (4) 501,164 -- -- 198 -- -- 501,362 6.4
Franchise Finance (4) 353,593 952 -- 1,671 -- 456 356,672 4.6
Inventory Finance (4) 347,229 -- -- 4,391 -- -- 351,620 4.5
Factoring Services 222,174 -- -- 24,221 -- -- 246,395 3.1
Commercial Finance 178,046 -- -- 9,754 -- -- 187,800 2.4
Public Finance 150,540 -- -- -- -- -- 150,540 1.9
Other 38,175 -- -- -- -- 32,081 70,256 0.9
---------- -------- -------- ---------- ---------- ---------- ---------- -----
TOTAL (4) $7,566,640 $ 37,514 $ 56,157 $ 92,223 $ 35,202 $ 38,460 $7,826,196 100.0
========== ======== ======== ========== ========== ========== ========== =====
</TABLE>
(1) Represents original or renegotiated market interest rate terms, excluding
impaired transactions.
(2) The Company earned interest income totaling $2.1 million on repossessed
assets during the six months ended June 30, 1997, including $1.6 million in
Commercial Real Estate Finance and $0.5 million in Resort Finance.
(3) Includes $237.3 million of new aircraft financing business entered into
through the London office.
(4) Excludes $394.0 million of assets securitized and participations sold which
the Company manages, including $319.7 million in Corporate Finance, $38.9
million in Communications Finance, $15.9 million in Franchise Finance, $9.1
million in Transportation Finance, $4.7 million in Rediscount Finance, $3.7
million in Resort Finance and $2.0 million in Inventory Finance.
----------------------------
<PAGE>
Reserve for Possible Credit Losses:
The reserve for possible credit losses of $159.7 million at June 30,
1997 represents 2.0% of the Company's investment in financing transactions and
securitized assets. Changes in the reserve for possible credit losses were as
follows:
Six Months Ended
June 30,
-----------------------------
1997 1996
------------ -----------
(Dollars in Thousands)
Balance, beginning of period $ 148,693 $ 129,077
Provision for possible credit losses 26,300 19,500
Write-offs (16,858) (15,240)
Recoveries 1,634 1,482
Other (22) 2,098
------------ ------------
Balance, end of period $ 159,747 $ 136,917
============ ============
The specific impairment reserve of $7.5 million at June 30, 1997
applies to $29.7 million of the $129.7 million of impaired loans. The remaining
$152.2 million of the reserve for possible 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 SIX MONTHS ENDED JUNE 30, 1997
TO THE SIX MONTHS ENDED JUNE 30, 1996
The following discussion relates to The FINOVA Group Inc. and its
subsidiaries (collectively, "FINOVA" or the "Company"), including FINOVA Capital
Corporation and its subsidiaries (collectively, "FINOVA Capital"). Amounts for
the six months ended June 30, 1996 have been restated to reflect discontinued
operations.
Results of Operations
Net income and income from continuing operations for the six months
ended June 30, 1997 was $65.4 million ($2.34 per common share), compared to net
income of $55.2 ($1.98 per common share) and income from continuing operations
of $55.6 million ($1.99 per common share) for the first six months of 1996.
Interest Margins Earned. Interest margins earned, which represent the
difference between (a) interest and income earned from financing transactions
and operating lease income and (b) interest expense and depreciation, were
$212.5 million for the six months ended June 30, 1997 compared with $173.4
million during the same period in 1996, an increase of 22%. The increase was
primarily due to a 16% growth in average managed assets (investment in financing
transactions plus securitizations and participations sold) in 1997 as compared
to June 30, 1996. In addition, interest margins earned as a percentage of
average earning assets increased to 6.0% from
6
<PAGE>
5.7%. The higher interest margins earned are attributable to increases in the
rate earned on the company's investment in financing transactions combined with
a lower aggregate cost of funds.
Provision for Possible Credit Losses. The provision for possible credit
losses increased to $26.3 million for the first six months of 1997, compared to
$19.5 million during the same period in 1996. The increase is attributable to
the increase in financing transactions for the first six months of 1997 as
compared to the same period in 1996 and slightly higher write-offs during the
six months ended June 30, 1997 ($16.9 million compared to $15.2 million in the
first six months of 1996). At June 30, 1997, the reserve for possible credit
losses was 96.3% of nonaccruing assets compared to 87.9% a year earlier.
Gains on Sale of Assets. During the first six months of 1997, the
company recorded gains on sale of assets totaling $13.7 million compared to $8.0
million during the same period one year ago. Included in the 1997 amount was a
gain resulting from the sale of the company's interest in a real estate
leveraged lease transaction. Gains on sale of assets are sporadic in nature and
result primarily from assets coming off lease which are subsequently sold.
Selling, administrative and other operating expense. Selling,
administrative and other operating expenses ("operating expenses") were higher
during the six months ended June 30, 1997, due principally to the growth in
managed assets and incentives related to the company's new business,
profitability and stock performance. As a percentage of interest margins earned,
operating expenses were 43.5% for the first six months of 1997 compared to 41.6%
for the first six months of 1996.
Income taxes. Income taxes were higher for the first six months of 1997
compared to the corresponding period in 1996 due to the increase in pre-tax
income. The effective tax rate, which decreased to 37.1% in 1997 from 38.2% in
1996, was partially due to the company's ability to utilize capital loss
carryforwards.
Financial Condition, Liquidity and Capital Resources
Managed assets grew by $556.9 million during the first six months of
1997 and totaled $8.22 billion at June 30, 1997. The increase was due to new
business of $1.56 billion booked during the 1997 period (compared to $1.23
billion for the 1996 period), partially offset by normal portfolio amortization
and prepayments.
The reserve for possible credit losses increased to $159.7 million from
$148.7 million at December 31, 1996 while non-accruing assets increased to
$165.9 million at June 30, 1997 from $155.5 million at the end of 1996. However,
non-accruing assets remained at 2.0% of ending managed assets (exclusive of
participations sold) and reserve coverage (reserves/non-accruing assets)
increased to 96.3% at June 30, 1997 from 95.6% at December 31, 1996.
The company had total debt outstanding of $6.34 billion at June 30,
1997 or 5.98 times its equity base (including convertible preferred securities)
of $1.06 billion at June 30, 1997.
Growth in funds employed is financed by the company's internally
generated funds and new borrowings. During the six months ended June 30, 1997,
the company issued $566 million in new long-term borrowings and recognized a net
increase in commercial paper borrowings of approximately $633 million.
Repayments of long-term debt totaled $710 million during the first six months of
1997. The company repurchased 517,900 shares of its common stock during the
first
7
<PAGE>
six months of 1997. These shares are intended to fund awards under the Company's
stock incentive plan.
Recent Developments and Business Outlook
At the close of trading on July 7, 1997, Standard & Poor's Financial
Information Services began to include the company in its calculation of the "S&P
MidCap 400", a composite stock price index.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
The Annual Meeting of Stockholders of the Company was held on May 8,
1997. At that meeting, Stockholders owning 22,869,410 shares of the Company's
common stock ("Shares") were present in person or by proxy. The Stockholders
approved each matter submitted by the following votes:
<TABLE>
<CAPTION>
Item For Against Abstain*
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. (a) Election of Mr. Robert H. Clark Jr. as a Director 22,595,775 N/A N/A
(b) Election of Ms. Shoshana B. Tancer as a Director 22,587,103 N/A N/A
2. Amendment of the 1992 Stock Incentive Plan 17,183,581 5,278,165 407,664
3. Appointment of Deloitte & Touche LLP as Auditors for 22,603,223 226,678 39,509
1997
</TABLE>
* Abstain includes broker non-votes.
8
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
(a) The following exhibits are filed herewith:
Exhibit No. Document
----------- -----------------------------------------------------
10 Second Amendment to Employment Agreement of Samuel L.
Eichenfield dated July 16, 1997 (providing for the
deferral of bonus payments until his retirement at or
after age 65).
11 Computation of Earnings Per Share.
12 Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends (interim period).
27 Financial Data Schedule.
(b) Reports on Form 8-K:
A Report on Form 8-K, dated July 21, 1997, was filed by
Registrant which reported under Items 5 and 7 the revenues, net income
and selected financial data and ratios for the second quarter ended
June 30, 1997 (unaudited).
9
<PAGE>
THE FINOVA GROUP INC.
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.
THE FINOVA GROUP INC.
(Registrant)
Dated: August 6, 1997 By: /s/ Bruno A. Marszowski
----------------------------------------------
Bruno A. Marszowski, Senior Vice President, Chief
Financial Officer and Controller
Principal Financial and Accounting Officer
10
<PAGE>
THE FINOVA GROUP INC.
COMMISSION FILE NUMBER 1-11011
EXHIBIT INDEX
JUNE 30, 1997 FORM 10-Q
Exhibit No. Document
- -------------- -------------------------------------------------------------
10 Second Amendment to Employment Agreement of Samuel L.
Eichenfield dated July 16, 1997 (providing for the deferral
of bonus payments until his retirement at or after age 65).
11 Computation of Earnings Per Share.
12 Computation of Ratio of Income to Combined Fixed Charges and
Preferred Stock Dividends (interim period).
27 Financial Data Schedule.
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
----------------------------------------
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is entered
into as of July 16, 1997, between The FINOVA Group Inc., a Delaware corporation
("Company") and Samuel L. Eichenfield ("Executive").
WHEREAS, the Company and Executive entered into an (i) Employment
Agreement as of the 16th day of March, 1996 and (ii) Amendment to Employment
Agreement as of December 31, 1996 (collectively the "Employment Agreement"), and
WHEREAS, the Company has requested this Amendment to the Employment
Agreement to extend the retention effects of the Employment Agreement by
providing for deferral and risk of forfeiture of future payments, if any, under
the CEO Value Sharing Plan, and
WHEREAS, on July 16, 1997, the Company's Human Resources Committee
authorized this Amendment on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained in
the Employment Agreement and this Amendment, the Company and Executive hereby
agree to amend the Employment Agreement by adding a new paragraph 4.(g) as
follows:
(g) (i) Notwithstanding Section 4.(d) and (f) above,
by execution of this Amendment Executive hereby elects to defer any remaining
payment due Executive as a result of achieving the final stock price hurdle
under this Section 4. Receipt of such payment, if and when due, shall be
deferred until the day following Executive's death, disability or normal
retirement at age 65. If and when payable, such amount, including any income
with respect thereto, shall be distributed to Executive in a lump sum.
(ii) The payment deferred hereunder shall be adjusted
to reflect income or losses during the deferral period based on the actual
performance of the investment vehicles elected by Executive at the time of
execution of this Amendment from the list of investment vehicles set forth on
Schedule 4(g) attached hereto. Executive may change the investment vehicle
election from among those investment vehicles listed on Schedule 4(g), as well
as the allocation among those investment vehicles, prospectively no more
frequently than every 12 months. Any Treasury Note election may not be changed
prior to its maturity. The initial allocation among investment vehicles shall
occur on or before the date the final stock price hurdle under this Section 4 is
achieved. Company may reserve for and invest in investment vehicles selected by
Executive or any other investments as it deems appropriate in its sole
discretion to provide for its obligations to Executive under this deferral plan.
Executive shall have no interest,
<PAGE>
whatsoever, in any such reserves or investments. No fund or trust shall be
established to provide payments under this deferral plan it being the intent of
the parties that this deferral plan shall be unfunded for tax purposes and for
the purposes of Title I of ERISA. The rights of Executive and any person or
beneficiary claiming by or through Executive under this deferral plan with
respect to deferred payments are those of a general creditor only in that the
plan constitutes only an unsecured promise to pay Executive in the future. In
the event Executive dies prior to receiving all payments due, the Company,
within 30 days after Executive's death, shall pay his beneficiary, designated in
writing by Executive to receive the balance of such payments due, or his estate
in the event no such designation has been made. The rights of Executive and any
person or beneficiary claiming by or through Executive are not subject to sale,
transfer, anticipation, encumbrance, attachment, assignment, alienation, pledge
or garnishment by creditors of Executive or such other persons and
beneficiaries.
(iii) The adjustment to the payment deferred
hereunder for income or losses referred to in subsection (ii) above shall be
limited to guarantee Executive an annual return of not less than 10% on the
deferred principal and accrued interest balance as of December 31 each year. The
guaranteed minimum shall not be applicable to any fixed income investment
vehicle designated by Executive. If the deferred amount is initially accrued or
finally distributed during the year, such guaranteed return, if applicable,
shall be prorated from the initial accrual date or to the final distribution
date.
(iv) No amount deferred shall be paid to Executive
and Executive shall forfeit to the Company all his interest in such amount if
Executive voluntarily terminates his employment with the Company prior to normal
retirement at age 65 or if Executive is involuntarily terminated for Cause as
defined in the Employment Agreement.
(v) Any amount deferred hereunder shall be promptly
paid to Executive upon a Change of Control as defined in the Company's Change in
Control Chief Executive Officer Value Sharing Plan.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the day and year set forth above.
ATTEST: The FINOVA Group Inc.
By:/s/ W. J. Hallinan By: /s/ William C. Roche
------------------- -----------------------
Secretary Senior Vice President
/s/ Samuel L. Eichenfield
---------------------------------
Samuel L. Eichenfield
<PAGE>
SCHEDULE 4.(g)
Treasury Notes of any maturity specified on the date of election
Vanguard Index 500
Vanguard Index Total Stock Market
Vanguard Index International
Harbor Capital Appreciation
Dreyfus Appreciation
Lexington Corporate Leaders
Selected American
Strong Schafer Value
Oakmark
PBHG Growth
Kaufman
Longleaf Partners
Tweedy, Brown American Value
Acorn International
Janus Overseas
EXHIBIT 11
THE FINOVA GROUP INC.
Computation of Earnings Per Share
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------- ---------------------------------------
1997 1996 1997 1996
------------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Income from Continuing
Operations $ 33,751 $ 28,852 $ 65,409 $ 55,608
================= ================ ================ =================
Net Income $ 33,751 $ 28,121 $ 65,409 $ 55,242
================= ================ ================ =================
Average common shares
outstanding before
common equivalents 27,135,000 27,365,000 27,139,000 27,342,000
Common equivalent stock
options 753,000 596,000 767,000 600,000
----------------- ---------------- ---------------- -----------------
Average outstanding common
and equivalent shares 27,888,000 27,961,000 27,906,000 27,942,000
================= ================ ================ =================
Earnings from continuing
operations per common
and equivalent share $ 1.21 $ 1.03 $ 2.34 $ 1.99
================= ================ ================ =================
Earnings per common and
equivalent share $ 1.21 $ 1.01 $ 2.34 $ 1.98
================= ================ ================ =================
</TABLE>
EXHIBIT 12
THE FINOVA GROUP INC.
Computation of Ratio of Income to Combined Fixed Charges
and Preferred Stock Dividends
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------------------- --------------------------------------------
1997 1996 1996 1995 1994
------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before income
taxes and preferred
dividends $ 107,361 $ 89,912 $ 185,822 $ 150,834 $ 122,863
Add fixed charges:
Interest expense 199,055 177,942 366,543 337,814 210,001
One-third rentals 1,341 1,141 2,368 2,084 2,053
------------ ------------- ------------ ------------- -------------
Total fixed charges 200,396 179,083 368,911 339,898 212,054
------------ ------------- ------------ ------------- -------------
Income as adjusted $ 307,757 $ 268,995 $ 554,733 $ 490,732 $ 334,917
------------ ------------- ------------ ------------- -------------
Ratio of income to fixed
charges 1.54 1.50 1.50 1.44 1.58
============ ============= ============ ============= =============
Preferred stock dividends
on a pre-tax basis $ 3,514 $ 0 $ 0 $ 0 $ 0
Total combined fixed
charges and preferred
stock dividends $ 203,910 $ 179,083 $ 368,911 $ 339,898 $ 212,054
------------ ------------- ------------ ------------- -------------
Ratio of income to combined
fixed charges and preferred
stock dividends 1.51 1.50 1.50 1.44 1.58
============ ============= ============ ============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 49,587
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 7,826,196
<ALLOWANCE> 159,747
<TOTAL-ASSETS> 8,060,403
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 662,136
<LONG-TERM> 6,338,122
111,550
0
<COMMON> 284
<OTHER-SE> 948,311
<TOTAL-LIABILITIES-AND-EQUITY> 8,060,403
<INTEREST-LOAN> 445,564
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 199,055
<INTEREST-INCOME-NET> 212,450
<LOAN-LOSSES> 26,300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 92,490
<INCOME-PRETAX> 107,361
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,409
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 0
<YIELD-ACTUAL> .06
<LOANS-NON> 165,885
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 148,693
<CHARGE-OFFS> 16,858
<RECOVERIES> 1,634
<ALLOWANCE-CLOSE> 159,747
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
