-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E0fUFuga2dviCm4aG8TytY8SVOnDe9GIYOcCTDQRCV0fLCxD4VLewIQCeq2gwTlq 3VqOavEbi+5LIQPY8KVCNw== 0000950147-97-000755.txt : 19971106 0000950147-97-000755.hdr.sgml : 19971106 ACCESSION NUMBER: 0000950147-97-000755 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINOVA CAPITAL CORP CENTRAL INDEX KEY: 0000043960 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 941278569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07543 FILM NUMBER: 97708469 BUSINESS ADDRESS: STREET 1: 1850 N CENTRAL AVE STREET 2: PO BOX 2209 CITY: PHOENIX STATE: AZ ZIP: 85004-2209 BUSINESS PHONE: 6022074900 MAIL ADDRESS: STREET 1: 1850 N. CENTRAL AVENUE STREET 2: P.O. BOX 2209 CITY: PHOENIX STATE: AZ ZIP: 85002-2209 FORMER COMPANY: FORMER CONFORMED NAME: GREYHOUND FINANCIAL CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GREYHOUND LEASING & FINANCIAL CORP DATE OF NAME CHANGE: 19870330 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C., 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-7543 FINOVA CAPITAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-1278569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1850 North Central Ave., P. O. Box 2209, Phoenix, AZ 85002-2209 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 602/207-6900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| APPLICABLE ONLY TO CORPORATE ISSUERS: The Registrant meets the conditions set forth in General Instructions H (i) (a) and (b) of Form 10-Q and is therefore filing this form in the reduced form. As of November 4, 1997, 25,000 shares of Common Stock ($1.00 par value) were outstanding and held by an affiliate. FINOVA CAPITAL CORPORATION TABLE OF CONTENTS
Page No. -------- PART I FINANCIAL INFORMATION. Item 1. Financial Statements. Condensed Consolidated Financial Information: Condensed Consolidated Balance Sheet - September 30, 1997 and December 31, 1996 1 Condensed Consolidated Income Statement - Three and Nine Months Ended September 30, 1997 and 1996 2 Condensed Consolidated Statement of Cash Flows - Nine Months Ended September 30, 1997 and 1996 3 Notes to Interim Condensed Consolidated Financial Information 4 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 - 8 PART II OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K 8 SIGNATURES 9
PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS - ------------------------------- FINOVA CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in Thousands) (Unaudited)
September 30, December 31, 1997 1996 ----------- ----------- CASH AND CASH EQUIVALENTS $ 42,565 $ 31,285 INVESTMENT IN FINANCING TRANSACTIONS: Loans and other financing contracts, less unearned income 5,823,834 5,305,678 Operating leases 697,908 517,690 Factored receivables 659,612 564,430 Leveraged leases 572,344 514,573 Direct financing leases 321,902 396,388 ----------- ----------- 8,075,600 7,298,759 Less reserve for possible credit losses (167,754) (148,693) ----------- ----------- Investment in financing transactions - net 7,907,846 7,150,066 Other assets and deferred charges 407,711 370,575 ----------- ----------- $ 8,358,122 $ 7,551,926 =========== =========== LIABILITIES: Accounts payable and accrued expenses $ 103,478 $ 97,080 Due to clients 300,308 218,494 Interest payable 38,100 52,677 Senior debt 6,502,512 5,850,223 Deferred income taxes 263,246 264,409 ----------- ----------- 7,207,644 6,482,883 ----------- ----------- SHAREOWNER'S EQUITY: Common stock, $1.00 par value, 100,000 shares authorized, 25,000 shares issued 25 25 Additional capital 792,948 792,948 Retained income 357,726 275,062 Cumulative translation adjustments (221) 1,008 ----------- ----------- 1,150,478 1,069,043 ----------- ----------- $ 8,358,122 $ 7,551,926 =========== ===========
See notes to interim consolidated financial information. 1 FINOVA CAPITAL CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENT (Dollars in Thousands) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------ -------------------------------------- 1997 1996 1997 1996 --------------- --------------- --------------- -------------- Interest and income earned from financing transactions $ 207,103 $ 181,616 $ 597,756 $ 516,888 Operating lease income 30,253 23,356 85,164 71,371 Interest expense (105,592) (91,629) (304,647) (269,571) Depreciation (17,727) (15,247) (51,786) (47,150) --------------- --------------- --------------- -------------- Interest margins earned 114,037 98,096 326,487 271,538 Provision for possible credit losses (22,000) (11,664) (48,300) (31,164) --------------- --------------- --------------- -------------- Net interest margins earned 92,037 86,432 278,187 240,374 Gains on sale of assets 8,706 397 22,407 8,442 --------------- --------------- --------------- -------------- 100,743 86,829 300,594 248,816 Selling, administrative and other operating expenses (44,773) (38,569) (137,263) (110,644) --------------- --------------- --------------- -------------- Income from continuing operations before income taxes 55,970 48,260 163,331 138,172 Income taxes (20,103) (17,771) (59,954) (52,075) --------------- --------------- --------------- -------------- Income from continuing operations 35,867 30,489 103,377 86,097 Loss from discontinued operations, net of tax - (726) - (1,092) --------------- --------------- --------------- -------------- Net Income $ 35,867 $ 29,763 $ 103,377 $ 85,005 =============== =============== =============== ==============
See notes to interim consolidated financial information. 2 FINOVA CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Nine Months Ended September 30, -------------------------------------- OPERATING ACTIVITIES: 1997 1996 ----------------- ----------------- Net income $ 103,377 $ 85,005 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible credit losses 48,300 31,164 Depreciation and amortization 64,620 57,509 Gains on sale of assets (22,407) (8,442) Deferred income taxes (1,163) 27,048 Change in assets and liabilities, net of effects from companies purchased (45,065) (108,492) Other (1,058) 1,363 ----------------- ----------------- Net cash provided by operating activities 146,604 85,155 ----------------- ----------------- INVESTING ACTIVITIES: Proceeds from sale of assets 157,281 76,104 Proceeds from assets securitized 16,150 100,000 Principal collections on financing transactions 1,445,225 1,260,788 Expenditures for financing transactions (1,691,539) (1,479,265) Net change in short-term financing transactions (747,479) (499,802) Purchase of portfolios - (7,455) Other 2,229 1,918 ----------------- ----------------- Net cash used in investing activities (818,133) (547,712) ----------------- ----------------- FINANCING ACTIVITIES: Net borrowings under commercial paper 711,621 467,219 Long-term borrowings 688,625 564,988 Repayment of long-term borrowings (748,128) (586,237) Net advances to parent (30,410) (1,442) Dividends (20,713) (18,628) Net change in due to clients 81,814 5,190 ----------------- ----------------- Net cash provided by financing activities 682,809 431,090 ----------------- ----------------- Increase (decrease) in cash and cash equivalents 11,280 (31,467) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 31,285 90,329 ----------------- ----------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 42,565 $ 58,862 ================= =================
See notes to interim consolidated financial information. 3 FINOVA CAPITAL CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 NOTE A BASIS OF PREPARATION - ------ -------------------- The consolidated financial statements present the financial position, results of operations and cash flows of FINOVA Capital Corporation and its subsidiaries (collectively, "FINOVA" or the "Company"). FINOVA is a wholly owned subsidiary of The FINOVA Group Inc. The interim consolidated financial information is unaudited. In the opinion of management all adjustments, consisting of normal recurring items, necessary to present fairly the financial position as of September 30, 1997, the results of operations for the quarter and nine months ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996, have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year. Amounts for the nine months ended September 30, 1996 have been restated to reflect discontinued operations. NOTE B SIGNIFICANT ACCOUNTING POLICIES - ------ ------------------------------- In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 31, 1997. The statement changes the reporting of certain items currently reported in the shareowners' equity section of the balance sheet and establishes standards for reporting of comprehensive income and its components in a full set of general purpose financial statements. Management does not expect this standard will have a material effect on the Company's financial statements. In June 1997, the FASB also issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 31, 1997. This standard requires segments of a business enterprise to be reported based on the way management organizes and evaluates segments within the Company. The standard also requires disclosures regarding products and services, geographical areas and major customers. Adoption of this standard will require the Company to include additional detail in its disclosures, including certain disaggregated operating information. The Company plans to adopt both SFAS No. 130 and No. 131 in 1998. NOTE C PORTFOLIO QUALITY - ------ ----------------- The following table presents, by line of business, the Company's investment in financing transactions before the reserve for possible credit losses at the dates indicated. 4 INVESTMENT IN FINANCING TRANSACTIONS BY LINE OF BUSINESS SEPTEMBER 30, 1997 (Dollars in Thousands)
Revenue Accruing Nonaccruing ------------------------------------ -------------------------------------- Market Repos- Repos- Total Interest sessed sessed Leases Carrying Rate (1) Impaired Assets(2) Impaired Assets & Other Amount % ---------- ---------- ---------- ---------- ------------ ---------- ---------- ----- Transportation Finance (3) (4) $1,605,116 $ -- $ -- $ -- $ -- $ -- $1,605,116 19.9 Resort Finance (4) 1,161,194 -- 14,588 3,696 22,818 -- 1,202,296 14.9 Corporate Finance (4) 860,153 1,039 -- 28,398 -- -- 889,590 11.0 Commercial Real Estate Finance 618,136 24,037 41,403 7,733 13,414 196 704,919 8.7 Communications Finance (4) 580,278 8,570 -- 12,875 -- -- 601,723 7.5 Commercial Equipment Finance 564,845 -- -- 11,852 -- 4,607 581,304 7.2 Rediscount Finance (4) 547,040 -- -- 1,059 -- -- 548,099 6.8 Healthcare Finance 492,311 -- -- 2,009 -- 660 494,980 6.1 Inventory Finance (4) 393,509 -- -- 4,851 -- -- 398,360 4.9 Franchise Finance (4) 380,413 855 -- 2,131 -- 425 383,824 4.8 Factoring Services 242,636 -- -- 27,425 -- -- 270,061 3.3 Commercial Finance 186,990 -- -- 9,762 -- -- 196,752 2.4 Public Finance 147,237 -- -- -- -- -- 147,237 1.8 Other 31,860 -- -- -- -- 19,479 51,339 0.7 ---------- ---------- ---------- ---------- ------------ ---------- ---------- ----- TOTAL (4) $7,811,718 $ 34,501 $ 55,991 $ 111,791 $ 36,232 $ 25,367 $8,075,600 100.0 ========== ========== ========== ========== ============ ========== ========== =====
(1) Represents original or renegotiated market interest rate terms, excluding impaired transactions. (2) The Company earned interest income totaling $3.0 million on repossessed assets during the nine months ended September 30, 1997, including $2.3 million in Commercial Real Estate Finance and $0.7 million in Resort Finance. (3) Includes $275.8 million of new aircraft financing business entered into through the London office. (4) Excludes $373.7 million of assets securitized and participations sold which the Company services including $316.6 million in Corporate Finance, $21.4 million in Communications Finance, $15.8 million in Franchise Finance, $8.6 million in Transportation Finance, $4.8 million in Rediscount Finance, $4.8 million in Resort Finance, $1.7 million in Inventory Finance. 5 Reserve for Possible Credit Losses: The reserve for possible credit losses of $167.8 million and $144.3 million at September 30, 1997 and 1996, respectively, represents 2.0% of the Company's investment in financing transactions and securitized assets. Changes in the reserve for possible credit losses were as follows: Nine Months Ended September 30, -------------------------------- 1997 1996 ------------- -------------- (Dollars in Thousands) Balance, beginning of period $ 148,693 $ 129,077 Provision for possible credit losses 48,300 31,164 Write-offs (31,263) (24,018) Recoveries 2,098 1,918 Other (74) 6,152 ------------- -------------- Balance, end of period $ 167,754 $ 144,293 ============= ============== A specific impairment reserve of $8.3 million at September 30, 1997 applies to $36.5 million of impaired loans totaling approximately $146.3 million. The remaining $159.5 million of the reserve for possible credit losses is designated for general purposes and represents management's estimate of potential losses in the portfolio considering delinquencies, loss experience and collateral. Additions to the general and specific reserves are reflected in current operations. Management may reclassify reserves between the general and specific reserves as considered necessary. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS. ---------------------- COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 TO THE NINE MONTHS ENDED SEPTEMBER 30, 1996 The following discussion relates to FINOVA Capital Corporation and its subsidiaries (collectively, "FINOVA" or the "Company"). FINOVA is a wholly owned subsidiary of The FINOVA Group Inc. ("FINOVA Group"). Amounts for the nine months ended September 30, 1996 have been restated to reflect discontinued operations. Results of Operations Net income and income from continuing operations for the nine months ended September 30, 1997 were both $103.4 million compared to net income of $85.0 million and income from continuing operations of $86.1 million for the first nine months of 1996. Interest Margins Earned. Interest margins earned, which represent the difference between (a) interest and income earned from financing transactions and operating lease income and (b) interest expense and depreciation on operating leases, were $326.5 million for the first nine months of 1997 compared with $271.5 million during the same period in 1996, an increase of 20%. The increase was primarily due to a 16% increase in average managed assets (investments in financing transactions plus securitizations and participations sold) during the nine months ended September 30, 1997 compared to the first nine months of 1996. In addition, interest margins earned as a percentage of average earning assets for the first nine months of 1997 increased to 6.0% from 5.9% in 1996. The higher margin percentages are primarily the result of a lower cost of funds and lower debt leverage. 6 Provision for Possible Credit Losses. The provision for possible credit losses increased to $48.3 million for the nine months ended September 30, 1997 compared to $31.2 million for the first nine months of 1996. The increase is primarily attributable to the growth in managed assets during the first nine months of 1997, coupled with reserve requirements related to increased write-offs in the Company's Factoring portfolio. Write-offs for the remainder of the Company were lower on an aggregate basis through the first nine months of 1997 compared to the same period one year ago. Gains on Sale of Assets. For the nine months ended September 30, 1997, the Company recorded $22.4 million in gains on sale of assets compared to $8.4 million in the first nine months of 1996. This increase was primarily attributable to a gain resulting from the sale of the Company's interest in a real estate leveraged lease transaction. Gains on sale of assets are sporadic in nature and result primarily from assets coming off lease which are subsequently sold. Selling, Administrative and Other Operating Expenses. Selling, administrative and other operating expenses ("operating expenses") were higher during the nine months ended September 30, 1997, due primarily to the growth in managed assets, as well as incentives related to the Company's new business, profitability and stock performance. As a percentage of interest margins earned, operating expenses for the first nine months of 1997 were 42.0% compared to 40.7% for the nine months ended September 30, 1996. Operating expenses include costs related to projects underway to develop accurate date recognition and data processing with respect to the Year 2000; these costs have been immaterial to date and are not expected to have a material impact on the Company's earnings in the future. Income Taxes. Income taxes were higher for the first nine months of 1997 compared to the corresponding period in 1996 due to the increase in pre-tax income. The effective tax rate, which decreased to 36.7% during the first nine months of 1997 from 37.7% during the first nine months of 1996, was partially due to the Company's ability to utilize capital loss carryforwards. Financial Condition, Liquidity and Capital Resources At September 30, 1997, managed assets totaled $8.45 billion compared to $7.66 billion at December 31, 1996. The increase in managed assets was due to new business of $2.31 billion booked during the first nine months of 1997 (compared to $1.87 billion during the nine months ended September 30, 1996), partially offset by normal portfolio amortization and prepayments. In addition, the Company recorded $2.67 billion in fee-based volume for the nine months ended September 30, 1997, compared to $2.12 billion for the nine months ended September 30, 1996. The reserve for possible credit losses increased to $167.8 million at September 30, 1997, compared to $148.7 million at December 31, 1996. This increase is primarily the result of the increase in the Company's financing portfolio; the reserve as a percentage of managed assets (excluding participations) remains at 2.0% at September 30, 1997, the same level as year-end. The reserve for possible credit losses increased to 96.7% of non-accruing assets at September 30, 1997, compared to 95.6% at December 31, 1996; non-accruing assets at September 30, 1997, were $173.4 million compared to $155.5 million at the end of 1996. At September 30, 1997, the Company had $6.50 billion of senior debt outstanding, representing 5.65 times the Company's $1.15 billion equity base compared to $5.85 billion at December 31, 1996, representing 5.47 times the Company's equity base. Growth in funds employed is financed by the Company's internally generated funds and new borrowings. During the nine months ended September 30, 1997, the Company issued $688.6 million in new long-term borrowings and recognized a net increase in borrowings under commercial paper of $711.6 million. During the same period, the Company repaid $748.1 million in long-term borrowings. 7 Recent Developments and Business Outlook Subsequent to September 30, 1997, the Company consummated the acquisition of Belgravia Capital Corporation, a national commercial mortgage banking organization based in Irvine, California. The terms of the transaction included an initial payment to Belgravia's shareholders of approximately $87.5 million in FINOVA stock and cash and up to approximately $30 million in additional annual payments contingent upon the satisfaction of certain net income requirements over the next three years. The Company also announced a reorganization into three operating groups. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - ------- --------------------------------- (a) The following exhibits are filed herewith: Exhibit No. Document -------------- ---------------------------------------------- 12 Computation of Ratio of Income to Combined Fixed Charges and Preferred Stock Dividends (interim period). 27 Financial Data Schedule. (b) Reports on Form 8-K: A Report on Form 8-K, dated October 15, 1997, was filed by Registrant which reported under Items 5 and 7 the revenues, net income and selected financial data and ratios for the third quarter ended September 30, 1997 (unaudited). 8 FINOVA CAPITAL CORPORATION 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. FINOVA CAPITAL CORPORATION (Registrant) Dated: November 5, 1997 By: /s/ Bruno A. Marszowski -------------------------------------------- Bruno A. Marszowski, Senior Vice President, Chief Financial Officer and Controller Principal Financial and Accounting Officer 9 FINOVA CAPITAL CORPORATION COMMISSION FILE NUMBER 1-7543 EXHIBIT INDEX SEPTEMBER 30, 1997 FORM 10-Q Exhibit No. Document -------------- ---------------------------------------------- 12 Computation of Ratio of Income to Combined Fixed Charges and Preferred Stock Dividends (interim period). 27 Financial Data Schedule. 10 EX-12 2 COMPUTATION OF RATIO OF INCOME TO COMBINED EXHIBIT 12 FINOVA CAPITAL CORPORATION Computation of Ratio of Income to Combined Fixed Charges and Preferred Stock Dividends (Dollars in Thousands)
Nine Months Ended Year Ended September 30, December 31, ----------------------------- --------------------------------------------- 1997 1996 1996 1995 1994 -------------- -------------- ------------- --------------- --------------- Income from continuing operations before income taxes $ 163,331 $ 138,172 $ 185,822 $ 150,834 $ 122,847 Add fixed charges: Interest expense 304,647 269,571 366,543 337,814 210,730 One-third rentals 2,052 1,722 2,368 2,084 2,053 ------------ ------------- ------------ ------------- ------------- Total fixed charges 306,699 271,293 368,911 339,898 212,783 ------------ ------------- ------------ ------------- ------------- Income as adjusted $ 470,030 $ 409,465 $ 554,733 $ 490,732 $ 335,630 ------------ ------------- ------------ ------------- ------------- Ratio of income to fixed charges 1.53 1.51 1.50 1.44 1.58 ============ ============= ============ ============= =============
11 EX-27 3 FINANCIAL DATA SCHEDULE
9 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 42,565 0 0 0 0 0 0 8,075,600 167,754 8,358,122 0 0 705,132 6,502,512 0 0 25 1,150,453 8,358,122 682,920 0 0 0 0 304,647 326,487 48,300 0 137,263 163,331 0 0 0 103,377 0 0 .06 173,390 0 0 0 148,693 31,263 2,098 167,754 0 0 0
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