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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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 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.
The FINOVA Group Inc. ("FINOVA") and FINOVA Capital Corporation
("FINOVA Capital") 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 and FINOVA
Capital 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 or FINOVA Capital 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 15, 1999, The FINOVA Group Inc. 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 The FINOVA Group Inc.
dated July 15, 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.
THE FINOVA GROUP INC.
(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 Group Inc. 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
CONTACT: Stuart Tashlik Embargo until
Senior Vice President 8:00 a.m. (E.D.T.)
602/ 207-5355
THE FINOVA GROUP INC. ANNOUNCES
RECORD NET INCOME, UP 32%, FOR SECOND QUARTER OF 1999
PHOENIX, Ariz., July 15, 1999 -- The FINOVA Group Inc. (NYSE: FNV) today
announced net income of $53.7 million ($0.83 per diluted share) for the quarter
ended June 30, 1999, compared to a restated $40.5 million ($0.68 per diluted
share) earned in the second quarter of 1998, a 32% increase in net income and a
22% increase in earnings per share. The 1999 earnings per share computation
includes a higher average share count primarily due to the 6.3 million
additional shares issued in connection with acquisitions in the first quarter of
1999.
Net income for the six months ended June 30, 1999 was $103.7 million
($1.66 per diluted share) compared to a restated $80.3 million of net income
($1.34 per diluted share) for the first six months of 1998, a 29% increase in
net income and a 24% increase in earnings per share.
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, up 43%, 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 annualized growth rate of 3% during the second
quarter of 1999 was lower and somewhat unusual, in view of the significant new
business generated, and was due to an unusually high amount of prepayments and
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asset sales during 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
abnormally high interest rate spreads on short-term borrowings, 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 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, an
improvement on the 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
company growth including the addition of 177 employees (primarily through
acquisitions) during the 12 months ended June 30, 1999.
"I am pleased with FINOVA's second quarter and six-month results, which
included solid contributions from the company's recent acquisitions as well as
its core businesses and which positions FINOVA to have a strong second half of
1999," Eichenfield concluded.
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)
<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)
----------- ----------- ----------- -----------
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)
----------- ----------- ----------- -----------
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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Income before preferred dividends 54,608 41,477 105,610 82,163
Preferred dividends, net of tax (945) (945) (1,891) (1,891)
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Net Income $ 53,663 $ 40,532 $ 103,719 $ 80,272
=========== =========== =========== ===========
Basic earnings per share $ 0.87 $ 0.72 $ 1.76 $ 1.43
=========== =========== =========== ===========
Basic average shares outstanding 61,412,000 56,230,000 58,869,000 56,189,000
=========== =========== =========== ===========
Diluted earnings per share $ 0.83 $ 0.68 $ 1.66 $ 1.34
=========== =========== =========== ===========
Average shares outstanding assuming dilution 66,042,000 61,138,000 63,693,000 61,092,000
=========== =========== =========== ===========
Dividends declared per common share $ 0.16 $ 0.14 $ 0.32 $ 0.28
=========== =========== =========== ===========
</TABLE>
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The FINOVA Group Inc.
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 $11,856,532 $9,295,181 $10,441,236
Total debt 9,523,630 7,345,194 8,394,578
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,552,927 1,154,062 1,167,231
Backlog 2,223,421 2,263,504 1,935,106
Common shares repurchased 1,525,000 196,207 1,299,207
Leverage (debt to common and
preferred equity) 5.7x 5.8x 6.6x
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%
Return (annualized) on average common
equity 13.8% 14.2% 14.8% 14.3%
</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.
