EX-99 5 ex99.txt EARNINGS RELEASE Exhibit 99 CONTACT: Stuart Tashlik Senior V.P. 480-636-5355 THE FINOVA GROUP INC. ANNOUNCES THIRD QUARTER RESULTS SCOTTSDALE, ARIZ., NOV. 14, 2000 - The FINOVA Group Inc. (NYSE:FNV) today announced a net loss of $274.1 million ($4.49 per diluted share) for the quarter ended Sept. 30, 2000, compared to net income of $54.9 million ($0.86 per diluted share) for the third quarter of 1999. Of the loss, $203.1 million ($3.33 per diluted share) was related to FINOVA's Commercial Services, Corporate Finance, Business Credit, Growth Finance and Distribution & Channel Finance business units, which are being accounted for as discontinued operations and $71 million ($1.16 per diluted share) relating to continuing operations. For the nine months ended Sept. 30, 2000, the company reported a net loss of $220.7 million ($3.62 per diluted share) compared to net income of $158.6 million ($2.52 per diluted share) for the first nine months of 1999. The year-to-date results reflects a $253.0 million ($4.15 per diluted share) loss from discontinued operations and income of $32.2 million ($0.53 per diluted share) from continuing operations.
Three Months Ended Nine Months Ended Sept. 30 Sept. 30 ------------------ ------------------ In Millions Net of Tax 2000 1999 2000 1999 ---------- ------- ------- ------- ------- Income (loss) from continuing operations $ (71.0) $ 54.9 $ 32.3 $ 159.5 Income (loss from discontinued operations 11.8 (38.1) (0.9) Net loss on disposal of operations (214.9) (214.9) ------- ------- ------- ------- Net income (loss) $(274.1) $ 54.9 $(220.7) $ 158.6 ======= ======= ======= =======
During the third quarter, FINOVA began to implement a new strategic direction, focusing on core specialty niche businesses. On Aug. 28, 2000, the company completed the sale of substantially all assets of its Commercial Services division to GMAC Commercial Credit LLC, a wholly owned subsidiary of General Motors Corporation, for approximately $235 million. In addition, FINOVA's Corporate Finance (includes Business Credit and Growth Finance) and Distribution & Channel Finance divisions have been offered for sale. The company is also trimming operating expenses to reflect the dispositions of these business units. FINOVA President and Chief Executive Officer Matt Breyne said, "Divesting these business units will strengthen our balance sheet, improve liquidity, and assist in addressing $2.1 billion of principal payments due in May 2001 under the company's credit facilities, of which $500 million can be extended over a two year term-out if no defaults exist at that time. We continue to evaluate FINOVA's entire product line to help assure that we move forward with the most profitable, highest franchise value businesses." CONTINUING OPERATIONS FINOVA reported a loss from continuing operations of $71.0 million for the third quarter of 2000 compared to income of $54.9 million in the third quarter of 1999. The reduction was primarily due to higher loss provisions, losses applicable to charge-offs of investments and assets held for sale, a significant increase in the cost of funds and an increase in nonaccruing accounts. Cost of funds increased due to credit rating reductions during 2000. The impact is reflected in the $9.9 million decline in interest margins earned for the quarter ($115.4 million in the third quarter of 2000 vs. $125.3 million in the third quarter of 1999) despite portfolio growth of $669.7 million. The reduction in credit ratings since Mar. 31, 2000 included: Senior Debt Commercial Paper ----------------- ------------------ From To From To ---- ---- ---- ---- Moody's Baa B1 P-2 NP S&P A- BB A-2 B Fitch A B F-1 B The impact of these downgrades and the company's decision to exercise term-out options under its $4.7 billion of back-up bank facilities was an increase in floating-rate borrowing costs. The all in spread over LIBOR was approximately 1.27% higher than the comparable spreads in the third quarter of 1999 (all in spread of 1.48% in 2000 vs. 0.21% in 1999). As a result, interest margins earned annualized as a percent of average earning assets declined to 4.8% in the third quarter of 2000 from 5.7% in the comparable 1999 period. Loss provisions increased to $111.2 million, up $97.7 million over the comparable quarter of 1999, to bolster the reserve for credit losses. The reserve was increased to 2.4% of ending managed assets (up from 1.7% at June 30, 2000), reflecting the increase in problem accounts. Nonaccruing assets increased to $421.0 million at Sept. 30, 2000, up from $229.3 million at June 30, 2000. The most significant increase during the quarter ($127.1 million) occurred in FINOVA's Resort Finance division due primarily to $117.4 million related to Sunterra Corporation, which was classified as accruing impaired at June 30, 2000, as well as $23.5 million to eight related project development entities managed by a developer that has experienced a decline in earnings and a significant reduction it its net worth. Other increases in nonaccruing assets included $32.5 million in Healthcare Finance and $31.7 million in Communications Finance. Nonaccruing assets as a percent of ending managed assets increased to 3.9% from 2.1% at June 30, 2000. Accruing impaired assets increased to $246.9 million at Sept. 30, largely due to an additional $148.2 million outstanding from the eight related Resort Finance project development entities. Other increases included $37.8 million in Franchise Finance and $10.4 million in Specialty Real Estate Finance. Net write-offs of financing contracts were $30.8 million ($17.8 million in Mezzanine Capital) in the third quarter of 2000 compared to $8.0 million in the 1999 period. While nonaccruing and accruing impaired assets have increased, FINOVA believes that significant collateral exists to secure the recent additions. Losses on investments and disposal of assets totaled $90.0 million for the quarter, consisting of a $109.0 million loss from the charge-off of investments, repossessed assets and equipment held for sale or lease, partially offset by gains of $19.0 million from sales of equity securities and residuals coming off lease. The largest charge-off was a $54.8 million equity investment in the major Resort Finance developer mentioned above. Transportation Finance also had charge-offs of $17.9 million, principally related to assets held for sale or lease. The gains during the third quarter of 2000 included $4.8 million from FINOVA's remaining investment in Healtheon/WebMD. Operating expenses were lower during the third quarter of 2000 when compared to the 1999 quarter, ($29.5 million vs. $40.2 million) principally due to the reversal of sales and management incentive accruals together with an overall lower level of expenses resulting from the reduced activities of the company. The efficiency ratio (operating expenses as a percent of operating margins) was 25.5% in the third quarter of 2000, compared to 31.1% in the third quarter of 1999. DISCONTINUED OPERATIONS Results from discontinued operations for the quarter and first nine months of 2000 included income from operations, net of tax of $11.8 million in the third quarter and a loss of $38.1 million for the nine months of 2000. The net loss for the nine-month period was due to write-offs taken during the first six months of 2000, the largest of which was $70 million taken on a Distribution & Channel Finance customer in the first quarter of 2000. The loss on disposing of the discontinued operations was $214.9 million and included the following:
Distribution Corporate & Channel Commercial Finance Finance Services Total ------- ------- ------- ------- In Millions NET LOSS ON DISPOSAL OF OPERATIONS, NET OF TAX Net realizable value markdowns $(130.4) $ (10.3) $ $(140.7) Goodwill written off (33.1) (15.1) (16.7) (64.9) Proceeds in excess of assets sold 17.6 17.6 Accrued expenses (17.5) (3.1) (6.3) (26.9) ------- ------- ------- ------- $(181.0) $ (28.5) $ (5.4) $(214.9) ======= ======= ======= =======
LETTER AGREEMENT WITH LEUCADIA NATIONAL CORPORATION On Nov. 10, 2000, FINOVA and Leucadia National Corporation signed a letter agreement under which Leucadia would invest up to $350 million in FINOVA. The agreement is subject to reaching a mutually satisfactory arrangement with FINOVA's bank group and certain other customary conditions, including regulatory approvals. FINOVA, Leucadia and Jay Alix & Associates are currently working together to present a comprehensive plan to the bank group. The letter agreement will be filed as an exhibit to FINOVA's Sept. 30, 2000 10-Q. 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 offices throughout the U.S. and 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 ESTIMATES OF GAINS OR LOSSES, AS WELL AS OTHER 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 PROJECTED. 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 CHARGES TO EARNINGS; THE RESULTS OF EFFORTS TO IMPLEMENT BUSINESS STRATEGY, INCLUDING THE ABILITY TO SUCCESSFULLY CONCLUDE ITS EVALUATION OF STRATEGIC ALTERNATIVES AND THE PENDING TRANSACTION WITH LEUCADIA; 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; ACTUAL RESULTS IN CONNECTION WITH CONTINUING OR DISCONTINUED OPERATIONS AND THE DISPOSITION OF ASSETS; 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. ## The FINOVA Group Inc. And Consolidated Subsidiaries Summary of Consolidated Operations (Unaudited) (Dollars in Thousands, except per share data)
Quarter Ended Nine Months Ended Sept. 30, Sept. 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Interest earned from financing transactions $ 266,850 $ 233,037 $ 794,663 $ 641,016 Operating lease income 26,091 29,433 80,433 85,964 Interest expense (161,565) (117,738) (454,421) (330,680) Operating lease depreciation (15,974) (19,396) (49,046) (53,267) ------------ ------------ ------------ ------------ Interest margins earned 115,402 125,336 371,629 343,033 Volume-based fees 3,723 1,336 8,751 ------------ ------------ ------------ ------------ Operating margin 115,402 129,059 372,965 351,784 Provision for credit losses (111,237) (13,531) (141,347) (12,183) (Losses) gains on investments and disposal of assets (90,042) 14,880 (55,549) 45,877 Operating expenses (29,466) (40,172) (122,228) (121,223) ------------ ------------ ------------ ------------ (Loss) income from continuing operations before income taxes and preferred dividends (115,343) 90,236 53,841 264,255 Income tax benefit (expense) 45,278 (34,398) (18,757) (101,853) ------------ ------------ ------------ ------------ (Loss) income from continuing operations before preferred dividends (70,065) 55,838 35,084 162,402 Preferred dividends, net of tax (946) (946) (2,837) (2,837) ------------ ------------ ------------ ------------ (Loss) income from continuing operations (71,011) 54,892 32,247 159,565 Discontinued operations, net of tax 11,803 14 (38,110) (940) Net loss on disposal of operations, net of tax (214,853) (214,853) ------------ ------------ ------------ ------------ Net (loss) income $ (274,061) $ 54,906 $ (220,716) $ 158,625 ============ ============ ============ ============ Basic (loss) earnings per share: (Loss) income from continuing operations $ (1.16) $ 0.90 $ 0.53 $ 2.68 Discontinued operations (3.33) (4.15) (0.02) ------------ ------------ ------------ ------------ Net (loss) income (4.49) 0.90 (3.62) 2.66 ------------ ------------ ------------ ------------ Adjusted weighted average shares outstanding 61,018,000 60,860,000 60,976,000 59,540,000 ============ ============ ============ ============ Diluted (loss) earnings per share: (Loss) income from continuing operations $ (1.16) $ 0.86 $ 0.53 $ 2.53 Discontinued operations (3.33) (4.15) (0.01) ------------ ------------ ------------ ------------ Net (loss) income (4.49) 0.86 (3.62) 2.52 ------------ ------------ ------------ ------------ Adjusted weighted average shares outstanding 61,018,000 65,024,000 60,976,000 64,103,000 ============ ============ ============ ============ Dividends declared per common share $ 0.18 $ 0.18 $ 0.54 $ 0.50 ============ ============ ============ ============
The FINOVA Group Inc. Selected Consolidated Continuing Operations Financial Data and Ratios (Unaudited) (A) (Dollars in Thousands)
As of Sept. 30 -------------------------- As of Dec. 31 2000 1999 1999 ----------- ----------- ----------- FINANCIAL POSITION: Ending funds employed $10,434,102 $ 9,764,377 $10,321,813 Securitizations (B) 393,831 123,681 121,322 ----------- ----------- ----------- Total managed assets 10,827,933 9,888,058 10,443,135 Reserve for credit losses 257,702 166,742 178,266 Nonaccruing assets 421,007 169,390 174,993 Accruing impaired assets 246,889 92,664 108,764 Nonaccruing assets as a % of managed assets (C) 3.9% 1.7% 1.7% Reserve for credit losses as a % of: Ending managed assets (C) 2.4% 1.7% 1.7% Nonaccruing assets 61.2% 98.4% 101.9% Problem assets 38.6% 63.6% 62.8% Total assets $13,356,734 $12,594,882 $13,889,889 Total debt 11,271,980 10,289,419 11,407,767 Preferred securities 111,550 111,550 111,550 Common shareowners' equity 1,430,631 1,591,699 1,663,381 Backlog 1,682,538 2,233,922 1,905,531 Common shares repurchased 1,815,000 1,833,241 Leverage (debt to common and preferred equity) 7.3x 6.0x 6.4x For the Quarter Ended For the Nine Months Ended Sept. 30, Sept. 30, --------------------------- --------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- PERFORMANCE HIGHLIGHTS: Average managed assets $10,819,855 $ 9,517,230 $10,644,576 $ 9,054,845 Average earning assets (C) 9,667,845 8,871,143 9,705,134 8,450,478 New business 619,047 1,104,375 2,364,403 2,838,025 Fee-based volume 746,663 193,579 1,693,797 Net write-offs 30,793 7,952 62,008 14,830 Net write-offs (annualized as a % of average managed assets) 1.14% 0.33% 0.78% 0.22% Operating margin (annualized as a % of average earning assets) 4.8% 5.8% 5.1% 5.6% Interest margins earned (annualized as a % of average earning assets) 4.8% 5.7% 5.1% 5.4% Operating expenses as a % of operating margin 25.5% 31.1% 32.8% 34.5% Return (annualized on average common) Equity (67.9)% 14.0% (17.8)% 14.6%
---------- (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) Average earning assets equal average funds employed less average deferred taxes on leveraged leases and average nonaccruing assets.