EX-99 2 0002.txt PRESS RELEASE DATED JULY 26, 2000 CONTACT: Stuart Tashlik July 28, 2000 Senior V.P. 8:00 a.m. (E.D.T.) 480-636-5355 THESE ARE THE EARNINGS FOR FINOVA CAPITAL CORPORATION, THE PRINCIPAL SUBSIDIARY OF THE FINOVA GROUP INC., WHOSE EARNINGS WERE RELEASED JULY 26, 2000 FINOVA CAPITAL CORPORATION ANNOUNCES EARNINGS FOR SECOND QUARTER OF 2000 SCOTTSDALE, ARIZ., JULY 28, 2000 -- FINOVA Capital Corporation today announced net income of $43.9 million for the quarter ended June 30, 2000, compared to $54.6 million for the second quarter in 1999. The reduction in earnings was due primarily to higher loss provisions related to increased write-offs and to a lower interest margin percentage earned on its portfolio. FINOVA experienced increased cost of funds following a reduction in credit ratings subsequent to special charges taken in the first quarter, higher costs associated with borrowing under its domestic commercial paper back-up bank facilities and an increase in non-earning accounts during the second quarter of 2000. In addition, earnings were reduced by the costs associated with FINOVA's exit from the Commercial Mortgage Backed Securities (CMBS) market. Net income for the six months ended June 30, 2000 was $55.2 million compared to $105.6 million for the first six months of 1999. Matt Breyne, president and chief executive officer of FINOVA, said, "We continue to fund new business and meet our current obligations through cash flow, available credit lines and asset sales. The demand for FINOVA's products remains strong and our people continue to service our customers and have been supportive while the company explores its strategic alternatives." Earlier this year, FINOVA announced that it had retained Credit Suisse First Boston to assist the company with a comprehensive evaluation of its strategic alternatives. "The evaluation is continuing, with various forms of transactions under review, including a sale of the company," Breyne added. Interest margins earned in dollars increased slightly in the second quarter of 2000 when compared to the second quarter of 1999 ($144.1 million vs. $140.0 million). The increase in interest margins was only 3%, notwithstanding portfolio growth of 17.1%, due primarily to the higher cost of funds. As a result, interest margins earned annualized as a percent of average earning assets, declined to 4.6% for the second quarter of 2000 from 5.3% in the second quarter of 1999 and 5.2% for the first quarter of 2000. The events of the second quarter increased FINOVA's cost of funds applicable to approximately $4.5 billion of loans by 0.30% during the second quarter of 2000. Had the borrowings from those back-up facilities been outstanding for the entire second quarter, the cost of funds effect would have been 0.70%. The growth in managed assets year over year was $2.0 billion (17.1%) and was primarily driven by new business of $4.7 billion added during the last 12 months. New business for the second quarter of 2000 was $941.6 million, down from $1.078 billion in the second quarter of 1999 and $984.4 million in the first quarter of 2000. The annualized growth rate for the second quarter of 2000 was 1%. The backlog of new business at June 30, 2000 was $2.1 billion, down from $2.2 billion at June 30, 1999, but approximately the same as the backlog at March 31, 2000. On May 31, 2000, FINOVA announced the completion of a loan and lease securitization with assets originated by its Commercial Equipment Finance division, resulting in initial proceeds of $302 million. Deutsche Bank Alex Brown acted as structuring agent for this transaction, which includes a 364-day commitment to purchase up to $375 million of equipment loans and leases on a revolving basis. During July, FINOVA completed two additional securitizations with total commitments of $800 million. One securitization, with Chase Securities acting as structuring agent, has been funded, resulting in initial proceeds of $375 million. The structure includes a commitment to purchase up to $500 million of loans on a revolving basis, subject to certain conditions, and has been funded through a commercial paper conduit. The assets were originated by FINOVA's Corporate Finance division. An additional $300 million securitization, structured by Morgan Stanley Dean Witter, is available for future funding. Assets for this securitization will originate through FINOVA's Franchise Finance division. Volume-based fees were slightly higher in the second quarter of 2000 at $11.7 million vs. $11.3 million in the 1999 quarter, due to higher rates earned on that volume in 2000 (0.93% vs. 0.73%). Fee-based volume for the second quarter of 2000 was $1.262 billion, $281.7 million lower than the $1.544 billion recorded in the second quarter of 1999. Loss provisions in the second quarter of 2000 were $39.8 million compared to $17.0 million in the second quarter of 1999. The increased loss provisions were primarily due to higher write-offs of $38.5 million in the second quarter of 2000 compared to $16.2 million in the 1999 second quarter. The bulk of the write-offs were in two businesses, Mezzanine Finance ($15.3 million) and Corporate Finance ($14.2 million). Nonaccruing assets increased during the second quarter to $421.5 million from $318.0 million at March 31, 2000. The largest increases in nonaccruing assets during the second quarter of 2000 occurred in Corporate Finance ($50.6 million with $48.1 million representing loans to two separate, but related companies) and Transportation Finance ($38.6 million representing one account). Earning impaired assets also increased during the quarter to $251.4 million from $161.8 million at March 31, 2000, primarily due to the addition of a $95.4 million loan to a Resort Finance customer. That customer is a large timeshare developer that has filed for bankruptcy protection under Chapter 11. FINOVA believes that the value of collateral in which it has a security interest will enable it to recover its investment in the transaction. The reserve for credit losses at June 30 was approximately 2% of managed assets, but as a percent of nonaccruing assets declined to 64.2% from 84.7% at March 31, 2000 due to the increase in nonaccruing assets. Breyne said, "On a regular basis, the Company monitors developments affecting loans and leases in our portfolio, taking into account each borrower's financial developments and prospects, the value of collateral, legal developments and other available information. Based upon those developments, the Company adjusts its loan loss reserve and when considered appropriate, writes down the value of loans. Depending on developments, there is the possibility that loan loss reserves and/or writedowns will increase in the future." Gains on disposal of assets were $12.7 million pre-tax during the second quarter of 2000, down from $18.8 million pre-tax in the second quarter of 1999. Gains during the second quarter of 2000 consisted of $4.1 million from lease residual sales and $8.6 million from the sale of investments and loans. Included in the latter amount was a gain from the sale of FINOVA's Harris Williams division to its management. Operating expenses were lower during the second quarter of 2000 when compared to the 1999 quarter ($60.7 million vs. $63.3 million), in spite of adding personnel in connection with the Fremont Financial acquisition completed in December 1999. The higher personnel costs were more than offset by the reversal of management and sales incentive accruals in the second quarter of 2000. The efficiency ratio (operating expenses as a percent of operating margins and gains), was 36.0%, compared to 37.3% in the second quarter of 1999. As announced in the Company's first quarter earnings release, a decision was made in April 2000 to exit the origination and sale of commercial real estate loans to the CMBS market. The cost to exit this product, which consisted of termination and severance charges, as well as the closing of numerous offices, was $11.8 million pre-tax. 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 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. ---------- THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS SUCH AS PREDICTIONS OR FORECASTS. FINOVA ASSUMES NO OBLIGATION TO UPDATE THOSE STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS OR OTHER FACTORS. THE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PREDICTED. THOSE FACTORS INCLUDE FINOVA'S ABILITY TO ADDRESS ITS FINANCING REQUIREMENTS IN LIGHT OF ITS EXISTING DEBT OBLIGATIONS AND MARKET CONDITIONS; PENDING AND POTENTIAL LITIGATION RELATED TO THE SPECIAL CHARGE TO EARNINGS ANNOUNCED ON MARCH 27, 2000; THE RESULTS OF EFFORTS TO IMPLEMENT FINOVA'S BUSINESS STRATEGY, INCLUDING THE EVALUATION OF STRATEGIC ALTERNATIVES; THE ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL AND CUSTOMERS; CONDITIONS THAT ADVERSELY IMPACT FINOVA'S BORROWERS AND THEIR ABILITY TO MEET THEIR OBLIGATIONS TO FINOVA; THE ADEQUACY OF FINOVA'S LOAN LOSS RESERVES AND OTHER RISKS DETAILED IN FINOVA'S SEC REPORTS, INCLUDING PAGE 15 OF FINOVA'S 10-K FOR 1999. ### FINOVA Capital Corporation and Consolidated Subsidiaries Summary of Consolidated Income (Unaudited) (Dollars in Thousands)
Quarter Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2000 1999 2000 1999 --------- --------- --------- --------- Interest earned from financing transactions $ 338,706 $ 266,978 $ 677,899 $ 512,201 Operating lease income 27,200 28,868 54,532 56,721 Interest expense (204,479) (139,153) (393,561) (270,336) Operating lease depreciation (17,285) (16,720) (33,161) (33,947) --------- --------- --------- --------- Interest margins earned 144,142 139,973 305,709 264,639 Volume-based fees 11,678 11,264 24,276 23,999 --------- --------- --------- --------- Operating margin 155,820 151,237 329,985 288,638 Provision for credit losses (39,800) (17,000) (137,800) (26,500) Gains on disposal of assets 12,651 18,760 33,681 31,130 Operating expenses (60,720) (63,339) (139,787) (120,839) --------- --------- --------- --------- Income before income taxes 67,951 89,658 86,079 172,429 Income taxes (24,073) (35,050) (30,843) (66,819) --------- --------- --------- --------- Net Income $ 43,878 $ 54,608 $ 55,236 $ 105,610 ========= ========= ========= =========
FINOVA Capital Corporation Selected Consolidated Financial Data and Ratios (Unaudited) (A) (Dollars in Thousands)
As of June 30 As of December 31 --------------------------- ----------- FINANCIAL POSITION: 2000 1999 1999 ----------- ----------- ----------- Ending funds employed $13,216,266 $11,195,666 $13,121,977 Securitizations and participations sold (B) 492,283 512,382 483,397 ----------- ----------- ----------- Total managed assets 13,708,549 11,708,048 13,605,374 Reserve for credit losses 270,572 237,602 264,983 Nonaccruing assets 421,492 249,607 295,123 Nonaccruing assets as % of managed assets (C) 3.1% 2.1% 2.2% Reserve for credit losses as a % of: Ending managed assets (C) 2.0% 2.1% 2.0% Nonaccruing assets 64.2% 95.2% 89.8% Total assets $14,481,241 $11,842,522 $14,039,513 Total debt 11,873,157 9,523,630 11,407,767 Common shareowner's equity 1,759,123 1,658,786 1,748,201 Backlog 2,104,499 2,223,421 2,025,867 Total debt to equity 6.7x 5.7x 6.5x For the Quarter Ended For the Six Months Ended June 30, June 30, --------------------------- --------------------------- PERFORMANCE HIGHLIGHTS: 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Average managed assets (C) $13,640,695 $11,506,634 $13,588,095 $11,121,718 Average earning assets (D) 12,556,381 10,497,813 12,523,042 10,135,121 New business 941,623 1,078,047 1,926,072 2,139,535 Fee-based volume 1,262,387 1,544,062 2,652,259 3,016,759 Net write-offs 38,482 16,249 132,352 24,652 Net write-offs (annualized) as a % of average managed assets (C) 1.13% 0.56% 1.95% 0.44% Operating margin (annualized) as a % of average earning assets 5.0% 5.8% 5.3% 5.7% Interest margins earned (annualized) as a % of average earning assets 4.6% 5.3% 4.9% 5.2% Operating expenses as a % of operating margin 39.0% 41.9% 42.4% 41.9% Operating expenses as a % of operating margin plus gains 36.0% 37.3% 38.4% 37.8%
---------- (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) Average earning assets equal average funds employed less average deferred taxes on leveraged leases and average nonaccruing assets.