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): January 14, 1999
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THE FINOVA GROUP INC.
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(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 fourth quarter ended December 31,
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
January 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.
THE FINOVA GROUP INC.
(Registrant)
Dated: January 19, 1999 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 6:00 a.m. (E.S.T.)
602/ 207-2664
THE FINOVA GROUP INC.
Announces 22% Increase in Net Income for 1998
PHOENIX, ARIZ., JAN. 14, 1999 - The FINOVA Group Inc. (NYSE: FNV) today
announced record net income of $169.7 million ($2.86 per diluted share) for the
year ended Dec. 31, 1998, compared to $139.1 million ($2.42 per diluted share)
for 1997, a 22% increase in net income and an 18% increase in diluted earnings
per share. The computation of earnings per share for 1998 includes 1.7 million
additional shares issued in the fourth quarter of 1997 to purchase the business
of FINOVA Realty Capital (FRC).
For the fourth quarter of 1998, net income was $46.5 million ($0.79 per diluted
share) compared to $38.8 million ($0.66 per diluted share) in the fourth quarter
of 1997, an increase of 20% for both net income and diluted earnings per share.
FINOVA Chairman and CEO Sam Eichenfield commented, "I'm extremely pleased with
the performance of the company in 1998, which included improved performances by
substantially all of the FINOVA businesses. The year's results further reinforce
the value of having a number of diversified businesses as well as the
acquisitions made in the latter part of 1997. An example of this acquired value
was demonstrated by FINOVA Realty Capital which overcame difficult market
conditions to originate and sell approximately $500 million of commercial
mortgage backed securities (CBMS) in the fourth quarter of 1998, resulting in
net CMBS gains of $23.1 million for the quarter."
New business for the fourth quarter of 1998 was $3.1 billion, consisting of $1.2
billion of new leases and loans and $1.9 billion of fee-based volume, compared
to total new business of $2.9 billion for the fourth quarter of 1997. For the
year, new business totaled $11.2 billion compared to $7.8 billion in 1997, with
the backlog of new business at $1.9 billion, a level 21% higher than Dec. 31,
1997.
Operating margins grew by 15% to $148.8 million in the fourth quarter of 1998
compared to the same period in 1997, and by 21% to $550.3 million for all of
1998. Operating margins as a percentage of average earning assets remained
consistent at 6.4% for both the fourth quarter and full year 1998 which compares
to 6.6% and 6.2% for the respective 1997 periods.
"Our portfolio grew by more than 19% for the year to $10.5 billion, culminating
with an outstanding fourth quarter that grew by an annualized rate of 26%,"
Eichenfield said. "This substantial growth was achieved without compromising our
underwriting standards thus preserving the high quality of the portfolio."
Nonaccruing assets were at 2.0% of managed assets, while net write-offs for the
quarter and twelve-month periods of 1998 were $19.8 million and $56.8 million,
respectively, compared to $14.0 million and $43.2 million for the equivalent
periods in 1997. The reserve for credit losses remained at 2.0% of managed
assets and increased to 101.2% of nonaccruing assets at Dec. 31, 1998 from 94.5%
at Dec. 31, 1997. Loss provisions to cover write-offs and the portfolio growth
were $37.7 million in the fourth quarter of 1998 compared to $20.9 million for
the comparable 1997 period.
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Net gains on sale of assets for the fourth quarter of 1998 totaled $30.8 million
versus $7.9 million for the same period in 1997. The amount included traditional
gains from the sale of residuals and other assets plus substantial gains
recorded from the sale of loans via the CMBS market. As noted earlier, net gains
realized from the CMBS market totaled $23.1 million during the quarter, which
were net of recognized hedge losses of $7.9 million.
Operating expenses for the fourth quarter and full year 1998 were $65.2 million
and $241.1 million, respectively, compared to $53.3 million and $190.5 million
for the same periods in 1997. 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 43.9% and 43.8% for the fourth quarter and full year
1998, respectively, compared to 41.2% and 41.8% for the comparable 1997 periods.
Excluding the FRC expenses, FINOVA's operating expense ratio would have been
41.4% and 41.1% for the fourth quarter and year ended Dec. 31, 1998,
respectively.
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. 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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The FINOVA Group Inc.
and Consolidated Subsidiaries
Summary of Consolidated Income
(Unaudited)
(Dollars in Thousands, except per share data)
Quarter Ended Twelve Months Ended
December 31, December 31,
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1998 1997 1998 1997
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Interest earned from
financing transactions $ 251,005 $ 208,274 $ 905,775 $ 781,076
Operating lease income 28,095 31,756 116,202 116,920
Interest expense (131,566) (111,446) (479,360) (416,093)
Operating lease depreciation (18,541) (21,203) (70,081) (72,989)
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Interest margins earned 128,993 107,381 472,536 408,914
Volume-based fee income 19,777 21,774 77,723 46,728
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Operating margin 148,770 129,155 550,259 455,642
Provision for credit losses (37,700) (20,900) (82,200) (69,200)
Gains on disposal of assets 30,781 7,854 55,024 30,261
Selling, administrative and
other operating Expenses (65,241) (53,262) (241,074) (190,525)
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Income before income taxes 76,610 62,847 282,009 226,178
Income taxes (29,173) (23,134) (108,490) (83,088)
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Income before preferred
dividends 47,437 39,713 173,519 143,090
Preferred dividends, net
of tax (945) (945) (3,782) (3,992)
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Net Income $ 46,492 $ 38,768 $ 169,737 $ 139,098
=========== =========== =========== ===========
Basic earnings per share $ 0.84 $ 0.70 $ 3.03 $ 2.56
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Basic average shares
outstanding 55,358,000 55,673,000 55,946,000 54,405,000
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Diluted earnings per share $ 0.79 $ 0.66 $ 2.86 $ 2.42
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Average shares outstanding
assuming dilution 59,848,000 60,552,000 60,705,000 59,161,000
=========== =========== =========== ===========
Dividends declared per
common share $ 0.16 $ 0.14 $ 0.60 $ 0.52
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The FINOVA Group Inc.
Selected Consolidated Financial Data and Ratios (Unaudited) (1)
(Dollars in Thousands)
As of December 31,
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FINANCIAL POSITION: 1998 1997 1996
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Ending funds employed $10,011,536 $8,399,456 $7,298,759
Securitizations and participations
sold(2) 537,596 457,967 364,546
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Total managed assets 10,549,132 8,857,423 7,663,305
Reserve for credit losses 207,618 177,088 148,693
Nonaccruing assets 205,233 187,356 155,505
Nonaccruing assets as % of managed
assets (3) 2.0% 2.1% 2.0%
Reserve for credit losses as a % of:
Ending managed assets (3)(4) 2.0% 2.0% 2.0%
Nonaccruing assets 101.2% 94.5% 95.6%
Total debt $ 8,394,578 $6,764,581 $5,850,223
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,177,345 1,090,454 929,591
Backlog 1,935,106 1,601,218 1,477,239
Common shares repurchased 1,299,207 1,035,800 --
Leverage (debt to common and
preferred equity) 6.5x 5.6x 5.6x
For the Quarter Ended For the Year Ended
December 31, December 31,
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PERFORMANCE HIGHLIGHTS: 1998 1997 1998 1997
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Average managed assets $10,305,265 $8,636,826 $9,500,539 $8,153,076
Average earning assets (5) 9,277,961 7,806,934 8,544,431 7,356,845
New business 1,238,803 1,000,383 3,979,265 3,311,105
Fee-based volume 1,856,692 1,860,586 7,257,003 4,532,494
Net write-offs 19,828 14,035 56,758 43,200
Net write-offs (annualized) as
a % of Average managed assets(3) 0.78% 0.66% 0.60% 0.54%
Operating margin (annualized) as
a % of average earning assets 6.4% 6.6% 6.4% 6.2%
Interest margins earned
(annualized) as a % of average
earning assets 5.6% 5.5% 5.5% 5.6%
Selling, administrative and other
Operating expenses as a % of
operating margin 43.9% 41.2% 43.8% 41.8%
Selling, administrative and other
Operating expenses as a % of
operating margins plus gains 36.3% 38.9% 39.8% 39.2%
Return (annualized) on average
Common equity 16.1% 14.7% 14.9% 14.3%
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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) Excludes participations sold in which the Company has transferred credit
risk.
(4) Excludes financing contracts held for sale.
(5) Average earning assets equal average funds employed less average deferred
taxes on leveraged leases and average nonaccruing assets.
