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 13, 1998
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THE FINOVA GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11011 86-0695381
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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.
A. The FINOVA Group Inc. 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 The FINOVA Group Inc. dated
October 13, 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.
THE FINOVA GROUP INC.
(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
THE FINOVA GROUP INC.
Announces 24% Increase in Third Quarter Net Income
PHOENIX, ARIZ., OCT. 13, 1998 -- The FINOVA Group Inc (NYSE: FNV) today reported
net income of $43.1 million ($.73 per diluted common share) for the third
quarter of 1998 compared to net income of $34.9 million ($.61 per diluted share)
in the third quarter of 1997, a 24% increase in net income and 20% increase in
diluted earnings per share.
Net income for the first nine months of 1998 was $123.2 million ($2.07 per
diluted common share) compared to net income of $100.3 million ($1.76 per
diluted common share) for the first nine months of 1997, a 23% increase in net
income and 18% increase in earnings per share. The 1998 periods include 1.7
million additional shares issued in the fourth quarter of 1997 to purchase the
business of FINOVA Realty Capital ("FRC") (formerly Belgravia Capital Corp.).
"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.
<PAGE>
"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.
The FINOVA Group Inc., through its principal operating subsidiary, 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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The FINOVA Group Inc.
and Consolidated Subsidiaries
Summary of Consolidated Income
(Unaudited)
(Dollars in Thousands, except per share data)
<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)
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Income before preferred dividends 44,078 35,867 126,081 103,377
Preferred dividends, net of tax (946) (946) (2,837) (3,047)
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Net Income $ 43,132 $ 34,921 $ 123,244 $ 100,330
============ ============ ============ ============
Basic earnings per share $ 0.77 $ 0.65 $ 2.20 $ 1.86
============ ============ ============ ============
Basic average shares outstanding 56,032,000 53,992,000 56,146,000 53,979,000
============ ============ ============ ============
Diluted earnings per share $ 0.73 $ 0.61 $ 2.07 $ 1.76
============ ============ ============ ============
Average shares outstanding assuming
dilution 60,683,000 58,805,000 60,947,000 58,684,000
============ ============ ============ ============
Dividends declared per common share $ 0.16 $ 0.14 $ 0.44 $ 0.38
============ ============ ============ ============
</TABLE>
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The FINOVA Group Inc.
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
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,145,538 977,921 1,090,454
Backlog 2,189,168 1,601,334 1,601,218
Common shares repurchased 1,017,450 1,035,800 1,035,800
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%
Return (annualized) on average
common equity 14.99% 14.51% 14.53% 14.15%
</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.
