-----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, PCsJzLhFboq501oZiHE5ZI3IjCrMVfsTBszYD4MtfHP5E/hVYIBmh5upaLtXqhGQ VEuTdDKNQfdcNE5nlHr42A== 0000950147-99-000429.txt : 19990510 0000950147-99-000429.hdr.sgml : 19990510 ACCESSION NUMBER: 0000950147-99-000429 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990506 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FINOVA GROUP INC CENTRAL INDEX KEY: 0000883701 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 860695381 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-11011 FILM NUMBER: 99613101 BUSINESS ADDRESS: STREET 1: 1850 N CENTRAL AVE STREET 2: P O BOX 2209 CITY: PHOENIX STATE: AZ ZIP: 85002-2209 BUSINESS PHONE: 6022076900 MAIL ADDRESS: STREET 1: 1850 N CENTRAL AVE STREET 2: P O BOX 2209 CITY: PHOENIZ STATE: AZ ZIP: 85044-2209 FORMER COMPANY: FORMER CONFORMED NAME: GFC FINANCIAL CORP DATE OF NAME CHANGE: 19930328 8-K 1 CURRENT REPORT OF THE FINOVA GROUP INC. 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. ----------------------------------------------- (Exact Name of Registrant Specified in Charter) Delaware 1-11011 86-0695381 - --------------- ---------------- ---------------- (State or Other (Commission File (I.R.S. Employer Jurisdiction of Number) Identification No.) Incorporation) P.O. Box 2209, Phoenix, Arizona 85002-2209 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (602) 207-1019 ------------------------------ (Registrant's telephone number) ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 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 -------------- ----------- 99.1 Press Release, dated May 6, 1999 issued by The FINOVA Group Inc. 1 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 ------------------------------------ Bruno A. Marszowski Senior Vice-President - Controller and Chief Financial Officer Principal Accounting Officer Dated: May 6, 1999 2 EXHIBIT INDEX Exhibit Number Description -------------- ----------- 99.1 Press Release, dated May 6, 1999 issued by The FINOVA Group Inc. EX-99.1 2 PRESS RELEASE DATED MARCH 22, 1999 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. 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. ### 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 ------------ ------------ 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) ------------ ------------ Interest margins earned 124,666 105,383 Volume-based fees 12,735 22,156 ------------ ------------ 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) ------------ ------------ Income before income taxes 82,772 66,686 Income taxes (31,769) (25,999) ------------ ------------ Income before preferred dividends 51,003 40,687 Preferred dividends, net of tax (946) (946) ------------ ------------ Net Income $ 50,057 $ 39,741 ============ ============ Basic earnings per share $ 0.89 $ 0.71 ============ ============ Basic average shares outstanding 56,294,000 56,138,000 ============ ============ Diluted earnings per share $ 0.83 $ 0.67 ============ ============ Average shares outstanding assuming dilution 61,318,000 61,079,000 ============ ============ Dividends declared per common share $ 0.16 $ 0.14 ============ ============ The FINOVA Group Inc. Selected Consolidated Financial Data and Ratios (Unaudited) (1) (Dollars in Thousands)
As of As of March 31, December 31, ---------------------------------------------------- FINANCIAL POSITION: 1999 1998 Restated 1998 Restated ---------------------------------------------------- Ending funds employed $ 11,086,016 $ 8,689,238 $ 10,020,221 Securitizations and participations sold (2) 529,635 464,550 537,596 -------------- ------------- -------------- 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, ---------------------------------------------------- PERFORMANCE HIGHLIGHTS: 1999 1998 Restated 1998 Restated ---------------------------------------------------- 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%
- -------------------------------------------------------------- (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. 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.
- -------------------------------------------------------------------------------------- Mini-CMBS Structure - 1998 1999 - -------------------------------------------------------------------------------------- As Previously As Sale of 70% Reported Restated in April - -------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------------- Net gain/(loss) $ 16,054 $ (9,964) $ 12,295 ======================================================================================
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. A summary of the significant effects of the restatements for 1998 is as follows:
- --------------------------------------------------------------------------------------------------------- 1998 Adjustments - --------------------------------------------------------------------------------------------------------- As Previously Origination As Reported CMBS Gain Costs Other Restated - --------------------------------------------------------------------------------------------------------- Dollars In Thousands 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 - ---------------------------------------------------------------------------------------------------------
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. -----END PRIVACY-ENHANCED MESSAGE-----