SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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):
May 6, 1999
THE FINOVA GROUP INC.
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(Exact Name of Registrant Specified in Charter)
Delaware 1-11011 86-0695381
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification No.)
Incorporation)
P.O. Box 2209, Phoenix, Arizona 85002-2209
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(Address of Principal Executive Offices) (Zip Code)
(602) 207-1019
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(Registrant's telephone number)
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS
On May 6, 1999, The FINOVA Group Inc. announced revenues, net income
and selected financial data and ratios for the first quarter ended March 31,
1999 (unaudited).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit Number Description
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99.1 Press Release, dated May 6, 1999 issued by
The FINOVA Group Inc.
1
<PAGE>
SIGNATURE
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 hereunto duly authorized.
THE FINOVA GROUP INC.
By: /s/ Bruno A. Marszowski
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Bruno A. Marszowski
Senior Vice-President - Controller and
Chief Financial Officer
Principal Accounting Officer
Dated: May 6, 1999
2
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
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99.1 Press Release, dated May 6, 1999 issued by
The FINOVA Group Inc.
Exhibit 99.1
Meilee Smythe
Senior Vice President - Treasurer For Immediate Release
602/ 207-2664
THE FINOVA GROUP INC.
ANNOUNCES
RECORD NET INCOME
FOR FIRST QUARTER OF 1999
PHOENIX, ARIZ., MAY 6, 1999 - The FINOVA Group Inc. (NYSE: FNV) today announced
net income of $50.1 million ($0.83 per diluted share) for the quarter ended
March 31, 1999, compared to a restated $39.7 million ($0.67 per diluted share)
earned in the first quarter of 1998, a 26% increase in net income and a 24%
increase in earnings per share. The 1999 earnings per share computation includes
a higher average share count due to the 6.1 million additional shares issued on
March 22, 1999 for the acquisition of Sirrom Capital Corporation and 0.2 million
shares for the acquisition of Preferred Business Credit, Inc. ("PBC") on
February 17, 1999. The 1998 net income has been restated to reflect the deferral
of costs incurred in connection with new loan and lease originations in
accordance with SFAS No. 91, among other adjustments (see "Summary of
Restatement and CMBS Sales" in the attached addendum). The effect of deferring
expenses in accordance with SFAS 91 increased net income by $1.2 million ($0.02
per diluted share) in the first quarter of 1999.
"FINOVA's performance in the first quarter of 1999 reflects solid performance
from its core operations as well as significant gains on sale from non-CMBS
(commercial mortgage-backed securities) assets, primarily from our Specialty
Finance segment. These gains occurred earlier in 1999 than in the past, and
therefore should not be expected to be replicated in like amounts during the
succeeding quarters of 1999. New lease and loan originations exceeded $1 billion
for the third successive quarter and managed assets continued to grow at rates
in excess of 20%," commented Sam Eichenfield, chairman and chief executive
officer of FINOVA. New lease and loan business for the first quarter of 1999 was
$1.1 billion compared to $692 million in the first quarter of 1998, while the
backlog of new business at March 31, 1999 increased to $2.0 billion from $1.8
billion at March 31, 1998. Fee-based volume declined to $1.5 billion for the
first quarter of 1999 from $1.8 billion for the first quarter of 1998, due
primarily to a reduction in Realty Capital's fee-based business.
<PAGE>
Managed assets at March 31, 1999, including $486 million from acquisitions, grew
by 27% from March 31, 1998 to $11.6 billion; excluding the assets from the two
acquisitions, managed assets grew 22% both for the twelve months ended March 31,
1999, and the first quarter of 1999 annualized. Portfolio quality improved, with
nonaccruing assets as a percentage of managed assets declining to 2.0% at March
31 1999, down from 2.2% at March 31, 1998. Net write-offs for the 1999 period
totaled $8.4 million (0.31% of average managed assets), down from $13.1 million
(0.60% of average managed assets) for the first quarter of 1998.
Interest margins earned increased by 18%, in line with portfolio growth, and
rose to $124.7 million in the first quarter of 1999 from $105.4 million in the
first quarter of 1998. Interest margins as a percentage of average earning
assets declined to 5.1% in the first quarter of 1999 compared to 5.3% in first
quarter of 1998 due primarily to increased leverage throughout most of the 1999
quarter and some signs of competitive pressures.
Operating margin, which includes volume based fees, grew 8% to $137.4 million in
the first quarter of 1999 from $127.5 million in the comparable 1998 period, but
reflected lower volume-based fees in the 1999 period ($12.7 million vs $22.2
million) due primarily to the lower amount of fees realized by Realty Capital
during the 1999 quarter. The lower fees combined with higher leverage caused the
operating margin as a percentage of average earning assets to decline to 5.6% in
the first quarter of 1999 from 6.4% in the first quarter of 1998.
Gains on disposal of assets were $12.4 million in 1999 compared to $1.5 million
in the first quarter of 1998. The gains in 1999 were realized by our Specialty
Finance segment and were primarily from the sale of assets coming off lease and
other assets.
Operating expenses were $57.5 million in the first quarter of 1999, up from
$52.9 million in the first quarter of 1998, and improved as a percent of
operating margin plus gains to 38.4% in 1999 from 41.0% in the first quarter of
1998.
"The first quarter of 1999 provided us with momentum to continue delivering
strong operating earnings from our broad range of financing products. The
addition of Sirrom Capital at the end of the first quarter further broadens
these products, allowing us to offer mezzanine capital and merger and
acquisition advisory services to small and midsize businesses," concluded
Eichenfield.
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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<PAGE>
The FINOVA Group Inc.
and Consolidated Subsidiaries
Summary of Consolidated Income
(Unaudited)
(Dollars in Thousands, except per share data)
Quarter Ended March 31,
1998
1999 Restated
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Interest earned from financing transactions $ 245,222 $ 200,170
Operating lease income 27,853 32,663
Interest expense (131,183) (110,280)
Operating lease depreciation (17,226) (17,170)
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Interest margins earned 124,666 105,383
Volume-based fees 12,735 22,156
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Operating margin 137,401 127,539
Provision for credit losses (9,500) (9,500)
Gains on disposal of assets 12,370 1,525
Operating expenses (57,499) (52,878)
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Income before income taxes 82,772 66,686
Income taxes (31,769) (25,999)
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Income before preferred dividends 51,003 40,687
Preferred dividends, net of tax (946) (946)
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Net Income $ 50,057 $ 39,741
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Basic earnings per share $ 0.89 $ 0.71
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Basic average shares outstanding 56,294,000 56,138,000
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Diluted earnings per share $ 0.83 $ 0.67
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Average shares outstanding assuming dilution 61,318,000 61,079,000
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Dividends declared per common share $ 0.16 $ 0.14
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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 March 31, December 31,
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FINANCIAL POSITION: 1999 1998 Restated 1998 Restated
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<S> <C> <C> <C>
Ending funds employed $ 11,086,016 $ 8,689,238 $ 10,020,221
Securitizations and participations sold (2) 529,635 464,550 537,596
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Total managed assets 11,615,651 9,153,788 10,557,817
Reserve for credit losses 238,277 175,967 207,618
Nonaccruing assets 228,416 195,267 205,233
Nonaccruing assets as % of managed assets (3) 2.0% 2.2% 2.0%
Reserve for credit losses as a % of:
Ending managed assets (3) (4) 2.1% 2.0% 2.0%
Nonaccruing assets 104.3% 90.1% 101.2%
Total assets $ 11,730,347 $ 9,037,349 $ 10,441,236
Total debt 9,327,137 7,115,327 8,394,578
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,557,612 1,128,594 1,167,231
Backlog 2,009,652 1,842,545 1,935,106
Common shares repurchased -- -- 1,299,207
Leverage (debt to common and preferred equity) 5.6x 5.7x 6.6x
For the Year
For the Quarter Ended Ended
March 31, December 31,
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PERFORMANCE HIGHLIGHTS: 1999 1998 Restated 1998 Restated
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Average managed assets $ 10,862,092 $ 8,917,354 $ 9,502,823
Average earning assets (5) 9,801,293 8,020,058 8,546,715
New business 1,061,486 692,080 3,979,265
Fee-based volume 1,472,697 1,804,432 7,257,003
Net write-offs 8,403 13,106 56,758
Net write-offs (annualized) as a % of
average managed assets (3) 0.31% 0.60% 0.60%
Operating margin (annualized) as
a % of average earning assets 5.6% 6.4% 6.3%
Interest margins earned (annualized)
as a % of average earning assets 5.1% 5.3% 5.4%
Operating expenses as a % of operating margin 41.9% 41.5% 40.3%
Operating expenses as a % of operating margin
plus gains 38.4% 41.0% 38.3%
Return (annualized) on average common
equity 16.4% 14.3% 14.1%
</TABLE>
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(1) Averages for the periods presented are based on month-end balances except
for the weighting of the Sirrom acquisition.
(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.
<PAGE>
SUMMARY OF RESTATEMENT AND CMBS SALES
ADDENDUM TO EARNINGS RELEASE
The financial statements of The FINOVA Group Inc. and its subsidiaries for the
years 1994 to 1998 were restated primarily for two accounting issues, as well as
several other adjustments.
The first issue relates to the amount of the gain on sale of certain commercial
mortgage-backed securities (CMBS) reported in 1998. In the latter part of 1998,
the Company used for the first time a private CMBS structure ("mini-CMBS") to
sell loans originated by FINOVA Realty Capital ("FRC"). FINOVA recorded
estimated gains on the transaction as required by applicable accounting
principles. After reporting those results, it then became apparent that FINOVA
should have initially used a different method to calculate that gain.
A summary of the revaluation of the sale of assets into the mini-CMBS structure
and the subsequent results of a sale of 70% of the mini-CMBS loans into a
permanent CMBS structure in April 1999 is as follows. The results of the April
1999 transaction will be reported in the second quarter.
<TABLE>
<CAPTION>
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Mini-CMBS Structure - 1998 1999
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As
Previously As Sale of 70%
Reported Restated in April
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<S> <C> <C> <C>
Dollars in Thousands
Loans sold into CMBS Structure $ 724,257 $ 724,257 $
Proceeds - Permanent CMBS Structure 526,270
Principal A (Senior security interest) 678,686 678,686 474,650
Principal B (Subordinated retained interest) 91,708 65,033 45,206
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Basis 770,394 743,719 519,856
Gross gain 46,137 19,462 6,414
Commissions & expenses (3,862) (3,156) (4,433)
Recourse obligations (278) (5,827) 4,091
Hedge (losses) gains (20,443) (20,443) 6,223
Valuation adjustment (5,500)
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Net gain/(loss) $ 16,054 $ (9,964) $ 12,295
======================================================================================
</TABLE>
The second subject of the restatement relates to accounting for expenses
incurred in connection with the origination of new business under SFAS 91.
Previously, the Company deferred loan origination fees received and amortized
them over the lives of the loans in accordance with SFAS 91, but elected to
expense loan origination costs as incurred rather than deferring and amortizing
them. The Company has restated its financial statements to now defer and
amortize loan and lease costs over the estimated transaction lives, in
accordance with SFAS 91. The financial statements were also restated to make
several other adjustments.
<PAGE>
A summary of the significant effects of the restatements for 1998 is as follows:
<TABLE>
<CAPTION>
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1998
Adjustments
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As Previously Origination As
Reported CMBS Gain Costs Other Restated
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Dollars In Thousands
<S> <C> <C> <C> <C> <C>
AT DECEMBER 31,
Investment in financing
transactions $10,011,536 $ (21,847) $ 37,426 $ (6,894) $10,020,221
Goodwill and other assets 596,878 (1,140) (16,623) 579,115
Total liabilities 9,161,419 (4,910) 15,045 (9,099) 9,162,455
Shareowners' equity 1,177,345 (18,077) 22,381 (14,418) 1,167,231
FOR THE YEAR ENDED
DECEMBER 31,
Interest margins earned 472,536 (15,605) 2,584 459,515
Gains on disposal of assets 55,024 (26,018) (1,094) 27,912
Operating expenses 241,074 (23,731) (690) 216,653
Net income 169,737 (15,559) 4,859 1,304 160,341
Basic earnings per share $ 3.03 $ (0.27) $ 0.09 $ 0.02 $ 2.87
Diluted earnings per share $ 2.86 $ (0.26) $ 0.08 $ 0.02 $ 2.70
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</TABLE>
The restatement to reduce the mini-CMBS gain did not affect years prior to 1998.
The effects of deferring origination costs and other adjustments on prior years
can be found in the Company's annual report filed on May 7, 1999 with the
Securities & Exchange Commission under its amended 10-K/A.
