-----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, LJyNDvBewo0hv1dyZqwToriJdbt6oJsqM2dX12kjIWrwTSta5uukT0woVpiTELbG xdMJeAzgzly42lg2Rxk81g== 0000950147-98-000599.txt : 19980812 0000950147-98-000599.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950147-98-000599 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 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/A SEC ACT: SEC FILE NUMBER: 001-07543 FILM NUMBER: 98680187 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/A 1 AMENDMENT NO. 1 TO FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C., 20549 FORM 10-Q/A-1 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1998 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 [_] 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 format. APPLICABLE ONLY TO CORPORATE ISSUERS: As of July 31, 1998, 25,000 shares of Common Stock ($1.00 par value) were outstanding. FINOVA CAPITAL CORPORATION TABLE OF CONTENTS Page No. -------- PART I FINANCIAL INFORMATION. Item 1. Financial Statements. Condensed Consolidated Financial Information: Condensed Consolidated Balance Sheet - June 30, 1998 and December 31, 1997 1 Condensed Consolidated Income Statement - Three and Six Months Ended June 30, 1998 and 1997 2 Condensed Consolidated Statement of Cash Flows - Six Months Ended June 30, 1998 and 1997 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 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II OTHER INFORMATION. Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 10 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1. FINANCIAL STATEMENTS ---------------------------- FINOVA CAPITAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (Dollars in Thousands) (Unaudited) June 30, December 31, 1998 1997 ----------- ------------ ASSETS: Cash and cash equivalents $ 33,394 $ 33,193 Investment in financing transactions: Loans and other financing contracts 6,367,375 5,955,984 Operating leases 646,675 712,927 Leveraged leases 643,114 619,557 Factored receivables 611,170 750,399 Direct financing leases 356,050 360,589 Financing contracts held for sale 304,260 -- ----------- ----------- 8,928,644 8,399,456 Less reserve for credit losses (178,070) (177,088) ----------- ----------- Investment in financing transactions - net 8,750,574 8,222,368 Goodwill and other assets 553,327 502,362 ----------- ----------- $ 9,337,295 $ 8,757,923 =========== =========== LIABILITIES: Accounts payable and accrued expenses $ 113,409 $ 124,491 Due to clients 195,245 278,571 Interest payable 55,139 52,643 Senior debt 7,345,194 6,764,581 Deferred income taxes 301,711 277,569 ----------- ----------- 8,010,698 7,497,855 ----------- ----------- SHAREOWNER'S EQUITY: Common stock, $1.00 par value, 100,000 shares authorized, 25,000 shares issued 25 25 Additional capital 870,485 870,485 Retained income 455,757 389,568 Cumulative translation adjustments 330 (10) ----------- ----------- 1,326,597 1,260,068 ----------- ----------- $ 9,337,295 $ 8,757,923 =========== =========== See notes to interim condensed consolidated financial information. 1 FINOVA CAPITAL CORPORATION CONDENSED CONSOLIDATED INCOME STATEMENT (Dollars in Thousands) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ---------------------- 1998 1997 1998 1997 --------- --------- --------- --------- Interest and income earned from financing transactions $ 218,199 $ 190,958 $ 421,935 $ 374,286 Operating lease income 31,425 28,946 64,088 54,911 Interest expense (114,987) (101,883) (225,559) (199,055) Depreciation (20,495) (17,610) (37,665) (34,059) --------- --------- --------- --------- Interest margins earned 114,142 100,411 222,799 196,083 Volume-based fee income 19,103 8,583 41,259 16,367 --------- --------- --------- --------- Operating margin 133,245 108,994 264,058 212,450 Provision for credit losses (16,000) (18,300) (25,500) (26,300) --------- --------- --------- --------- Net interest margins earned 117,245 90,694 238,558 186,150 Gains on disposal of assets 9,582 10,468 10,805 13,701 --------- --------- --------- --------- 126,827 101,162 249,363 199,851 Selling, administrative and other operating expenses (57,779) (46,612) (114,737) (92,490) --------- --------- --------- --------- Income before income taxes 69,048 54,550 134,626 107,361 Income taxes (27,068) (19,853) (52,623) (39,851) --------- --------- --------- --------- NET INCOME $ 41,980 $ 34,697 $ 82,003 $ 67,510 ========= ========= ========= =========
See notes to interim condensed consolidated financial information. 2 FINOVA CAPITAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months Ended June 30, -------------------------- 1998 1997 ----------- ----------- OPERATING ACTIVITIES: Net income $ 82,003 $ 67,510 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 25,500 26,300 Depreciation and amortization 49,177 42,576 Gains on disposal of assets (10,805) (13,701) Deferred income taxes 24,142 11,399 Change in assets and liabilities, net of effects from subsidiaries purchased (61,206) (31,151) Other 399 (1,412) ----------- ----------- Net cash provided by operating activities 109,210 101,521 ----------- ----------- INVESTING ACTIVITIES: Proceeds from sale of assets 167,065 109,250 Proceeds from sale of assets securitized 31,126 16,150 Principal collections on financing transactions 905,996 946,031 Expenditures for financing transactions (1,104,014) (1,146,890) Net change in short-term financing transactions & financing contracts held for sale (582,042) (472,021) Other 1,303 1,765 ----------- ----------- Net cash used by investing activities (580,566) (545,715) ----------- ----------- FINANCING ACTIVITIES: Net borrowings under commercial paper and short-term loans 623,870 632,868 Long-term borrowings 610,000 565,625 Repayment of long-term borrowings (653,316) (710,479) Net advances to Parent (9,857) (35,849) Dividends (15,814) (13,094) Net change in due to clients (83,326) 23,459 ----------- ----------- Net cash provided by financing activities 471,557 462,530 ----------- ----------- Increase in cash and cash equivalents 201 18,336 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 33,193 31,285 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,394 $ 49,621 =========== ===========
See notes to interim condensed consolidated financial information. 3 FINOVA CAPITAL CORPORATION NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 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 condensed 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 June 30, 1998, the results of operations for the quarter and six months ended June 30, 1998 and 1997 and cash flows for the six months ended June 30, 1998 and 1997, have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year. Previously, volume-based fees, which represent fees generated by Inventory Finance, Commercial Services (formerly "Factoring Services") and FINOVA Realty Capital lines of business, were classified as a component of interest and income earned from financing transactions. Commencing in 1998, the Company has reported these amounts as a separate item and reclassified prior period amounts accordingly. This change in classification has no effect on previously reported net income. NOTE B SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------- In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which is effective for fiscal years beginning after December 15, 1997. The statement changes the reporting of certain items currently reported in the shareowner's 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. The company has adopted this standard effective January 1, 1998. Total comprehensive income was $42.4 million and $35.0 million for the three months ended June 30, 1998 and 1997, respectively and $82.3 million and $66.2 million for the six months ended June 30, 1998 and 1997, respectively. The primary component of comprehensive income other than net income was foreign currency translation. NOTE C PORTFOLIO QUALITY - ----------------------------------- The following table presents a distribution (by line of business) of the Company's investment in financing transactions before the reserve for credit losses at the dates indicated. 4 INVESTMENT IN FINANCING TRANSACTIONS BY LINE OF BUSINESS JUNE 30, 1998 (Dollars in Thousands)
Revenue Accruing Nonaccruing ------------------------------------ ------------------------------------ Repos- sessed Repos- Leases Total Original Assets sessed & Carrying Rate (1) Impaired (2) Impaired Assets Other Amount % ------------------------------------ ------------------------------------ ------------------ Transportation Finance (3 & 4) $1,683,700 $ $ $ $ $ 4,009 $1,687,709 18.9 Resort Finance (4) 1,133,435 15,497 31,439 1,180,371 13.2 Corporate Finance (4) 795,487 858 26,828 823,173 9.2 Communications Finance (4) 738,594 9,028 26,857 774,479 8.7 Specialty Real Estate Finance 599,261 21,089 36,066 6,719 7,687 194 671,016 7.5 Rediscount Finance (4) 654,573 4,757 659,330 7.4 Commercial Equipment Finance 600,396 1,676 4,786 9,685 846 3,802 621,191 7.0 Inventory Finance (4) 537,020 7,998 545,018 6.1 Healthcare Finance 501,093 8,792 873 510,758 5.7 Franchise Finance (4) 492,647 755 5,118 293 498,813 5.6 Realty Capital (5) 307,530 307,530 3.4 Business Credit (4) 234,602 7,236 241,838 2.7 Commercial Services 169,468 18,516 1,060 189,044 2.1 Public Finance 160,113 160,113 1.8 Other (6) 34,146 24,115 58,261 0.7 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----- TOTAL (4) $8,642,065 $ 33,406 $ 56,349 $ 122,506 $ 41,032 $ 33,286 $8,928,644 100.0 ========== ========== ========== ========== ========== ========== ========== =====
- --------------------------------------- NOTES: (1) Represents original or renegotiated market rate terms, excluding impaired transactions. (2) The Company earned income totaling $1.7 million on repossessed assets year to date during 1998, including $1.2 million in Specialty Real Estate Finance, $0.4 million in Resort Finance and $0.1 million in Commercial Equipment Finance. (3) Transportation Finance includes $381.8 million of aircraft financing business originated through the London office. (4) Excludes $502.0 million of assets securitized and participations sold which the Company manages, including securitizations of $300.0 million in Corporate Finance and $67.9 million in Franchise Finance and participations sold of $45.3 million in Corporate Finance, $73.0 million in Communications Finance, $5.3 million in Resort Finance, $4.4 million in Rediscount Finance, $3.0 million in Business Credit, $2.9 million in Transportation Finance and $0.2 million in Inventory Finance. (5) Includes $304.3 million of financing contracts held for sale. (6) Primarily includes London-based FINOVA Capital Limited and other. 5 Reserve for Credit Losses: The reserve for credit losses at June 30, 1998 represents 2.0% of the Company's investment in financing transactions and securitized assets. Changes in the reserve for credit losses were as follows: Six Months Ended June 30, ---------------------------- 1998 1997 --------- --------- (Dollars in Thousands) Balance, beginning of period $ 177,088 $ 148,693 Provision for credit losses 25,500 26,300 Write-offs (28,272) (16,858) Recoveries 1,285 1,634 Other 2,469 (22) --------- --------- Balance, end of period $ 178,070 $ 159,747 ========= ========= A specific impairment reserve of $28.5 million at June 30, 1998 applies to $66.1 million of the $155.9 million of impaired loans. The remaining $149.6 million of the reserve for 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 transfer 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 SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED JUNE 30, 1997 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"). Results of Operations Net income for the six months ended June 30, 1998 was $82.0 million compared to $67.5 million for the six months ended June 30, 1997. Interest margins earned. Interest margins earned 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 and other owned assets. Interest margins earned were $222.8 million for the six months ended June 30, 1998 compared to $196.1 million for the six months ended June 30, 1997, a 14% increase. The increase was primarily due to a 15% growth in managed assets to $9.43 billion at June 30, 1998 from $8.22 billion at June 30, 1997. Interest margins earned remained at 5.5% of average earning assets (average funds employed less nonaccruing assets and deferred taxes on leveraged leases) for the six months ended June 30, 1998 and 1997. 6 Volume-based fee income. Volume-based fee income is generated by FINOVA's Inventory Finance, Commercial Services (formerly "Factoring Services") and Realty Capital lines of business. These fees are predominately based on volume originated business rather than the balance of outstanding financing transactions during the period. For the six months ended June 30, 1998, volume-based fee income was $41.3 million compared to $16.4 million for the same period in 1997. Fee-based volume for the first six months of 1998 totaled $3.8 billion compared to $1.7 billion in the same period one year ago. Included in the first six months of 1998 were fees associated with FINOVA Realty Capital ("FRC") and the Inventory Finance portfolio purchased from AT&T Capital Corp., both of which were acquired in the fourth quarter of 1997. Provision for credit losses. The provision for credit losses was $25.5 million for the six months ended June 30, 1998 compared to $26.3 million for the same period one year ago. Net write-offs during the six months ended June 30, 1998 were $27.0 million compared to $15.2 million for the same period in 1997. The 1998 net write-offs included $17.4 million of amounts written off relative to the Commercial Services line of business, a portion of which a specific reserve had previously been provided. Gains on disposal of assets. Gains on disposal of assets were $10.8 million for the six months ended June 30, 1998 compared to $13.7 million for the first six months of 1997. Included in the 1997 amount was a $5.6 million gain resulting from the sale of the Company's interest in a real estate leveraged lease transaction. Gains on disposal primarily relate to the sale of assets coming off lease and the sale of financing contracts held for sale (primarily generated by FRC). While, in the aggregate, FINOVA historically recognizes gains on such disposals, the timing and amount of these gains are sporadic in nature. There can be no assurance FINOVA will recognize such gains in the future, depending, in part, on market conditions at the time of sale. Selling, administrative and other operating expenses. Selling, administrative and other operating expenses ("operating expenses") were generally higher in all major categories and increased to $114.7 million for the first six months of 1998 compared to $92.5 million for the first six months of 1997. This increase was partially attributable to the growth in managed assets during the year. Also contributing to the increase was the addition of FRC, which has a higher operating structure than FINOVA, including over 80 business development officers and associated support staff. Meanwhile, operating expenses remained at 43.5% of operating margins for the six months ended June 30, 1998 and the comparable period in 1997. Excluding the addition of FRC, FINOVA's operating expense ratio would have been 41.6% for the six months ended June 30, 1998. Income taxes. Income taxes were higher for the first six months of 1998 compared to the corresponding period in 1997 due to the increase in pre-tax income and a higher effective tax rate in 1998 (39.1% vs 37.1%). The 1997 tax rate was lower due to certain tax credits realized in 1997. Financial Condition, Liquidity and Capital Resources Managed assets were $9.43 billion at June 30, 1998 compared to $8.86 billion at December 31, 1997. Included in managed assets at June 30, 1998 are $8.93 billion in funds employed (including $304.3 million of financing contracts held for sale generated by FRC), $367.9 million of securitized assets managed by FINOVA and $134.1 million of participations sold to third parties. The increase in managed assets was due to funded new business of $1.4 billion for the six 7 months ended June 30, 1998, coupled with a net increase in volume based receivables, partially offset by normal portfolio amortization and prepayments. The reserve for credit losses increased slightly to $178.1 million at June 30, 1998 from $177.1 million at December 31, 1997, while nonaccruing assets increased to $196.8 million at June 30, 1998 from $187.4 million at the end of 1997. However, nonaccruing assets remained at 2.1% of ending managed assets (excluding participations sold). At June 30, 1998, FINOVA had $7.35 billion of debt outstanding, representing 5.54 times the Company's equity base of $1.33 billion. At year-end 1997, FINOVA's debt was 5.37 times the equity base of $1.26 billion. Growth in funds employed is financed by FINOVA's internally generated funds and new borrowings. During the six months ended June 30, 1998, FINOVA issued $610 million of new long-term borrowings and recognized a net increase in commercial paper outstanding of $624 million. During the same period, FINOVA repaid $653 million of long-term borrowings. Year 2000 Date Conversion FINOVA continues to implement changes necessary to assure accurate date recognition and data processing with respect to the year 2000. Primary internal activities related to this issue are modifications to existing computer programs and conversions to new programs. The Company is also communicating with software vendors, financial institutions, clients and others with whom it conducts business to determine the nature of any impact on FINOVA. If needed modifications and conversions are not accomplished in a timely manner, this issue could have a material effect on the operations of FINOVA. As of this time, however, management believes that necessary corrections will be achieved on time. Costs related to this issue, which have been immaterial to date, are being expensed as incurred and are not expected to have a material impact on FINOVA's financial position. Recent Development and Business Outlook FINOVA continues to seek new business by emphasizing customer service, providing competitive interest rates and focusing on selected market niches. Additionally, FINOVA continues to evaluate potential acquisition opportunities it believes are consistent with its business strategies. New Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", effective for transactions entered into in fiscal quarters of fiscal years that begin after June 15, 1999. This statement establishes standards for the accounting and reporting for derivative instruments and for hedging activities. The future effect on the Company's financial position and the results of operations has not been determined. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - ------------------------------------------------------------ Omitted. 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 (interim period). 27* Financial Data Schedule. * Previously filed (b) Reports on Form 8-K: A Report on Form 8-K, dated July 30, 1998, was filed by Registrant which reported under Items 5 and 7 the revenues, net income and selected financial data and ratios for the second quarter ended June 30, 1998 (unaudited). 9 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: August 7, 1998 By: /s/ Bruno A. Marszowski -------------------------------------------------- Bruno A. Marszowski, Senior Vice President, Chief Financial Officer and Controller Principal Financial and Accounting Officer 10 -----END PRIVACY-ENHANCED MESSAGE-----