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): April 18, 2000
THE FINOVA GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-11011 86-0695381
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
4800 NORTH SCOTTSDALE ROAD, SCOTTSDALE, ARIZONA 85251-7623
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 480/636-4800
<PAGE>
ITEM 5. OTHER EVENTS.
A. On April 18, 2000, The FINOVA Group Inc. announced revenues, net
income and selected financial data and ratios for the first quarter
ended March 31, 2000 (unaudited).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits:
Exhibits Title
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99 Press Release, issued by The FINOVA Group Inc.
dated April 18, 2000.
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: April 18, 2000 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 99
Contact: Stuart Tashlik Embargo until April 18, 2000
Senior V.P. - Planning & Communications 8:00 a.m. E.S.T.
480/636-5355
The FINOVA Group Inc.
Announces Earnings for First Quarter of 2000
SCOTTSDALE, Ariz., April 18, 2000 - The FINOVA Group Inc. (NYSE: FNV) today
announced net income of $10.4 million ($0.17 per diluted share) for the quarter
ended March 31, 2000, compared to $50.1 million ($0.83 per diluted share) for
the quarter ended in 1999, down as a result of an $80 million special charge to
pre-tax earnings to bolster and replenish loss reserves and provide payment of
deferred compensation and executive severance, as announced on March 27, 2000.
The additional loss reserves were added following a first-quarter 2000 write-off
related to a $70 million loss on a major customer of FINOVA's Distribution &
Channel Finance (DCF) division. The remainder of the charge will be used to
provide payment of deferred compensation and executive severance for Samuel L.
Eichenfield, FINOVA's former chairman, president and chief executive officer,
who retired on March 24, 2000.
Excluding the special charge, net income for the first quarter of 2000
would have been $58.8 million ($0.92 per diluted share), a 17% increase in net
income and an 11% increase in EPS over the comparable 1999 period.
Matt Breyne, FINOVA's new president and chief executive officer, said, "The
first three months of 2000 included a series of events that resulted in our most
disappointing quarter since FINOVA went public in March 1992. We are confident
this write-off is not indicative of a systemic problem. The retirement of our
long-time and well-respected chairman and CEO, Sam Eichenfield, has raised much
speculation. I wish to reiterate my earlier comment on March 27 that Sam's
retirement was not related to any portfolio issues."
Interest margins earned were up 30% in the first quarter of 2000 compared
to the first quarter of 1999 ($161.6 million vs. $124.7 million). The increase
was due primarily to portfolio growth (managed assets), which increased by 18%,
21% when excluding $345 million of assets held for sale at Realty Capital at
March 31, 1999. Portfolio growth resulted primarily from $4.8 billion of new
business added during the last 12 months. First-quarter annualized portfolio
growth was 7.1%, excluding $168 million of commercial mortgage-backed securities
(CMBS) loans held for sale as of Dec. 31, 1999. The lower growth rate in the
first quarter of 2000, when compared to 22.3% in the same period for 1999, is
primarily attributable to lower new-business volume generated by the company's
Commercial Finance segment ($108 million in the first quarter of 2000 vs. $346
million in the comparable 1999 quarter), partially offset by an increase in new
business volume by the Specialty Finance segment ($834 million in the first
quarter of 2000 vs. $648 million during the same period in 1999). Total new
business for the first quarter of 2000 was $984 million, down slightly from
$1.061 billion in the first quarter of 1999. Interest margins earned as a
percent of average earning assets were 5.15% in the first quarter of 2000, up
slightly from 5.09% in the first quarter of 1999, primarily due to more
favorable borrowing costs resulting from lower spreads (approximately 0.17%) on
commercial-paper borrowings in the first quarter of 2000 when compared to the
first quarter of 1999.
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The backlog of new business at March 31, 2000 was $2.1 billion, up $400
million over the $1.7 billion backlog at March 31, 1999, after excluding $266
million of CMBS loans that were scheduled to be funded and sold by Realty
Capital during 1999.
To alleviate administrative burdens, FINOVA terminated a $300 million
securitization agreement that the company's Corporate Finance division entered
into in 1995 and 1996, which has very little economic impact, but does reduce
the interest margin percentage by approximately 0.10% going forward.
Fee-based volume for the first quarter of 2000 was $1.390 billion, down $83
million, or 5.6%, from the $1.473 billion generated in the first quarter of
1999. The decline in volume in 2000 was primarily due to lower CMBS volume,
partially offset by higher volume in FINOVA's remaining fee-based businesses.
Volume-based fees generated were $12.6 million in the first quarter of 2000
which approximated the $12.7 million earned in the 1999 period, as higher rates
earned on that business in 2000 (0.92% vs 0.86% in 1999) helped mitigate the
effects of the lower volume.
Loss provisions were higher in the 2000 quarter ($98.0 million vs $9.5
million) due to the special $70 million charge to bolster the reserve for credit
losses after the DCF loss and due to other write-offs totaling $23.9 million in
2000 compared to $8.4 million in 1999. Write-offs, excluding the one-time $70
million charge, as a percent of average managed assets were 0.71% annualized in
2000, up from 0.31% annualized in 1999. The write-off ratio objective for the
full-year 2000, excluding the special charge, continues to range from 0.50% to
0.60% of average managed assets.
Nonaccruing assets increased to 2.3% ($318.0 million) of managed assets in
the first quarter of 2000, up from the 2.0% ($228.4 million) of managed assets
at March 31, 1999, and up slightly from 2.2% ($295.1 million) at December 31,
1999. The increase from the first quarter of 1999 is a combination of higher
nonaccruing assets in proportion to portfolio growth; higher nonaccruals in
Mezzanine Capital, which historically had higher nonaccrual levels than FINOVA's
traditional businesses; and Healthcare Finance, which is experiencing higher
nonaccruals due to changes in government reimbursement programs. The loss
reserve at March 31 was approximately 2.0% of managed assets while loss reserves
as a percent of nonaccruing assets declined to 84.7% at March 31, 2000 from
104.3% at March 31, 1999 and 89.8% at Dec. 31, 1999.
Gains on disposal of assets were $21.0 million pre-tax in the first quarter
of 2000, up 70% from the $12.4 million reported in the first quarter of 1999.
Gains in 2000 consisted of $1.1 million from the sale of residuals coming off
lease and $19.9 million from the sale of investments and loans, $12.5 million of
which came from sales of Healtheon/Web MD stock during the quarter.
Operating expenses increased to $79.1 million in the first quarter of 2000
from $57.5 million in the comparable 1999 quarter, due to the previously
mentioned $10 million accrual for deferred compensation and executive severance,
as well as to an increase in personnel costs, principally related to employees
added via acquisitions in 1999. Operating efficiency, which is the ratio of
operating expenses to operating margins and gains, excluding the special charge
for deferred compensation and severance, was 35.4% in 2000, compared to 38.4% in
1999. The improvement is principally due to lower incentive compensation
accruals in 2000 related to lower earnings and the decrease in the company's
stock price.
"In early April, FINOVA repositioned its Realty Capital business by ending
the preferred partner program entered into with J.P. Morgan in December 1999 and
exiting from the origination and sale of commercial real estate loans to the
CMBS market," Breyne said. "The CMBS market has contracted and we do not see a
bright future in this business for smaller players like FINOVA. Our Realty
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Capital division will now focus solely on its more profitable on-balance sheet
real estate loan products, helping to make FINOVA's financial results more
predictable by eliminating the company's exposure to the volatile CMBS market."
This change is expected to decrease 2000 EPS by an estimated $0.15 to $0.20.
The ratings for FINOVA Capital, which continue at investment-grade levels,
were reduced by Standard & Poor's Ratings Group, Fitch Investors Services, Inc.
and Duff & Phelps Credit Rating Co. as follows:
Senior Debt Commercial Paper
From To From To
---- -- ---- --
S & P A- BBB+ A2 No Change
Fitch A BBB+ F-1 F-2
D & P A A- D-1 D-2
Moody's Investors Service, Inc. reaffirmed its Senior Debt and Commercial
Paper ratings of Baa1, and P2. All those rating agencies indicated that the
outlook for the company was stable. Dominion Bond Rating Service, which rates
FINOVA's debt in Canada, reaffirmed the Senior Debt and Commercial Paper ratings
of A (low) and R-1 (low) but changed its trend to negative. The downgrades are
expected to increase FINOVA's cost of funds by 0.15% to 0.25%, or impact 2000
EPS by $0.15 to $0.20.
In summary, the increase in cost of funds and the costs to exit the CMBS
market place are expected to reduce 2000 EPS by $0.30 to $0.40.
Leverage (funded debt-to-equity ratio) at March 31, 2000 was 6.7:1, up from
5.6:1 at March 31, 1999. "Over the remaining quarters of 2000, we plan to
maintain or gradually reduce leverage while maximizing return on capital by
selectively deploying it among our business units," Breyne said. "This will
allow us to grow aggressively in our more profitable niche-oriented businesses
while slowing FINOVA's overall growth objectives to 8% to 10% on an annual
basis."
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 Scottsdale, Ariz., with business
development offices throughout the U.S. and in London, U.K., and Toronto,
Canada. 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 March 31,
------------------------------
2000 1999
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Interest earned from financing transactions $ 339,193 $ 245,222
Operating lease income 27,332 27,853
Interest expense (189,082) (131,183)
Operating lease depreciation (15,876) (17,226)
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Interest margins earned 161,567 124,666
Volume-based fees 12,598 12,735
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Operating margin 174,165 137,401
Provision for credit losses (98,000) (9,500)
Gains on disposal of assets 21,030 12,370
Operating expenses (79,067) (57,499)
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Income before income taxes 18,128 82,772
Income taxes (6,770) (31,769)
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Income before preferred dividends 11,358 51,003
Preferred dividends, net of tax (946) (946)
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Net Income $ 10,412 $ 50,057
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Basic earnings per share $ 0.17 $ 0.89
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Basic average shares outstanding 60,903,000 56,294,000
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Diluted earnings per share $ 0.17 $ 0.83
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Average shares outstanding assuming dilution 61,635,000 61,318,000
============ ============
Dividends declared per common share $ 0.18 $ 0.16
============ ============
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The FINOVA Group Inc.
Selected Consolidated Financial Data and Ratios (Unaudited) (A)
(Dollars in Thousands)
<TABLE>
<CAPTION>
As of
As of March 31, December 31,
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FINANCIAL POSITION: 2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Ending funds employed $13,480,961 $11,086,016 $13,121,977
Securitizations and participations sold (B) 194,860 529,635 483,397
----------- ----------- -----------
Total managed assets 13,675,821 11,615,651 13,605,374
Reserve for credit losses 269,339 238,277 264,983
Nonaccruing assets 318,016 228,416 295,123
Accruing impaired assets 161,823 104,908 240,126
Nonaccruing assets as % of
managed assets (C) 2.3% 2.0% 2.2%
Reserve for credit losses as a % of:
Ending managed assets (C) (D) 2.0% 2.1% 2.0%
Nonaccruing assets 84.7% 104.3% 89.8%
Total assets $14,386,653 $11,730,347 $14,050,293
Total debt 11,742,426 9,327,137 11,407,767
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,652,579 1,557,612 1,663,381
Backlog 2,146,113 2,009,652 2,025,867
Common shares repurchased -- -- 1,833,241
Leverage (debt to common and preferred equity) 6.7x 5.6x 6.4x
For the Year
For the Quarter Ended Ended
March 31, December 31,
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PERFORMANCE HIGHLIGHTS: 2000 1999 1999
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Average managed assets (C) $13,538,383 $10,762,462 $11,751,923
Average earning assets (E) 12,544,574 9,801,293 10,718,941
New business 984,449 1,061,488 4,865,746
Fee-based volume 1,389,872 1,472,697 6,315,296
Net write-offs 93,870 8,403 56,854
Net write-offs (annualized) as a % of
average managed assets (C) (F) 0.71% 0.31% 0.48%
Volume-based fees as a % of fee-based volume 0.92% 0.86% 0.80%
Interest margins earned (annualized) as
a % of average earning assets 5.2% 5.1% 5.3%
Operating expenses as a % of operating
margin plus gains 40.5% 38.4% 37.0%
Return (annualized) on average common equity 2.5% 16.4% 14.4%
</TABLE>
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A) Averages for the periods presented are based on month-end balances except
for the weighting of acquisitions, which are based on days outstanding.
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.
F) Excludes $70 million special charge in 2000 first quarter.
