Company Press Release: The FINOVA Group Inc.
January 21, 2000
SCOTTSDALE, AZ -- The FINOVA Group Inc. (NYSE: FNV) yesterday announced record net income of $215.2 million ($3.41
per diluted share) for the year ended Dec. 31, 1999, compared to $160.3 million ($2.70 per diluted share) in 1998,
a 34% increase in net income and a 26% increase in diluted earnings per share. (Earnings per share in 1999 included
a higher average share count.)
Fourth Quarter Year
1999 1998 1999 1998
Net income (in millions) $56.6 $38.2 $215.2 $160.3
Diluted earnings per
common share $0.89 $0.65 $3.41 $2.70
Diluted cash earnings
per common share* $1.34 $1.20 $5.06 $4.18
Operating margin 5.7% 6.3% 5.8% 6.3%
Efficiency ratio 37.5% 36.4% 37.0% 38.3%
*Cash earnings exclude goodwill amortization, non-cash loss provisions and
non-cash taxes.
Net income for the fourth quarter of 1999 was a record $56.6 million ($0.89 per diluted share) compared to $38.2
million of net income ($0.65 per diluted share) for the fourth quarter of 1998, a 48% increase in net income and
a 37% increase in diluted earnings per share.
Sam Eichenfield, FINOVA Chairman and CEO, said, ``I am very pleased with FINOVA's performance in 1999. Our accomplishments
included three acquisitions that rounded out certain product lines of the company; a Preferred Partner Program
with J. P. Morgan to free our balance sheet of the CMBS product; record new business volume and portfolio growth;
a significant increase in earnings; and, recognition for once again being one of the best companies in America
to work. In light of these accomplishments, my major disappointment has been the performance of FINOVA stock, which
has not tracked the company's overall performance.''
The company culminated the year with a record $1.4 billion of new business in the fourth quarter, the sixth consecutive
quarter it exceeded $1 billion in new lease and loan business. New business for the year was $4.9 billion, an increase
of $886 million over the $4.0 billion generated in 1998. This new business, combined with acquired assets of $1.1
billion, resulted in managed assets growing by $3.0 billion to $13.6 billion at Dec. 31, 1999 from $10.6 billion
at the end of 1998, a 29% increase. Excluding acquired assets, managed assets grew by $1.9 billion, or 18% during
1999. FINOVA's backlog of new business increased to $2.0 billion at Dec. 31, 1999, from $1.9 billion at Dec. 31,
1998, but declined from $2.4 billion at the end of the third quarter due to the changes made at FINOVA Realty Capital
wherein new CMBS deals will be funded by our partner J.P. Morgan and not flow through FINOVA's backlog.
Interest margins earned improved by $108 million in 1999, a 24% increase primarily due to portfolio growth. As
a percent of average earning assets, interest margins earned declined to 5.3% for both the fourth quarter and full-year
1999 from 5.4% for the comparable 1998 periods. The reduction is attributable to an increase in FINOVA's cost of
funds, resulting from efforts to extend maturities on short-term borrowings over year-end 1999, thereby avoiding
liquidity issues in connection with Y2K concerns, and to higher cost fixed-rate debt raised in November 1999.
Volume-based fees were down by $8.0 million in the fourth quarter of 1999 when compared to the fourth quarter of
1998 ($11.8 million in 1999 vs $19.8 million in 1998) and down by $27.6 million for the full year ($50.1 million
in 1999 vs $77.7 million in 1998) due to lower fee-based volume in 1999 and returns on that volume that were lower
by 0.27% (0.80% in 1999 vs 1.07% in 1998). Fee-based volumes were down $382 million in the fourth quarter of 1999
when compared to 1998's fourth quarter ($1.475 billion compared to $1.857 billion) and down by $942 million for
the full year ($6.315 billion compared to $7.257 billion) principally due to lower volume originated by FINOVA
Realty Capital.
Portfolio quality, measured by nonaccruing assets as a percent of managed assets, was 2.2% at Dec. 31, 1999 up
from 2.0% at Dec 31, 1998, but down from 2.3% at Sept. 30, 1999. Nonaccruing assets at Dec. 31, 1999 were $295
million compared to $205 million a year ago. Net write-offs for the full year in 1999 were approximately the same
as in 1998 at $56.9 million but down slightly for the fourth quarter ($17.3 million in 1999 compared to $19.8 million
in 1998). As a percent of average managed assets, net write-offs in 1999 were 0.48% compared to 0.60% in 1998.
Reserves for credit losses were 2.0% of ending managed assets at the end of both 1998 and 1999. Loss provisions
were lower in 1999 for both the fourth quarter ($24.8 million in 1999 compared to $37.7 million in 1998) and the
full year ($76.8 million in 1999 vs $82.2 million in 1998). Changes in the reserve and resulting loss provisions
are impacted by net write-offs, changes in the portfolio and acquisitions.
Gains on disposal of assets were $22.0 million in the fourth quarter of 1999, up from $12.5 million for the comparable
1998 period, and for the year were $68.0 million in 1999 compared to $27.9 million in 1998. Gains in 1999 included
$21 million from the sale of residuals coming off lease, $35 million from sale of investments and $12 million of
CMBS gains.
Operating efficiency, which is the ratio of operating expenses to operating margin and gains, was 37.0% in 1999,
an improvement from the 38.3% in 1998. Operating expenses were $253.8 million in 1999, up from $216.7 million in
1998 primarily due to higher personnel costs related to acquisitions in 1999 and higher sales incentive compensation
related to the increased new business levels.
``In summary, FINOVA enjoyed another fine year in 1999 and is well positioned for 2000 and the future,'' Eichenfield
said.
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 development offices throughout the U.S. and
in London, U.K., and Toronto, Canada. FINOVA was once again 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 Twelve Months Ended
December 31, December 31,
1999 1998 1999 1998
Interest earned from
financing transactions $312,821 $247,467 $1,114,181 $891,571
Operating lease income 28,213 28,095 114,462 116,202
Interest expense (172,380) (131,268) (592,858) (478,177)
Operating lease
depreciation (14,606) (18,541) (67,987) (70,081)
Interest margins earned 154,048 125,753 567,798 459,515
Volume-based fees 11,764 19,777 50,080 77,723
Operating margin 165,812 145,530 617,878 537,238
Provision for credit
losses (24,750) (37,700) (76,800) (82,200)
Gains on disposal
of assets 22,010 12,483 68,020 27,912
Operating expenses (70,416) (57,521) (253,754) (216,653)
Income before income
taxes 92,656 62,792 355,344 266,297
Income taxes (35,092) (23,620) (136,318) (102,174)
Income before
preferred dividends 57,564 39,172 219,026 164,123
Preferred dividends,
net of tax (945) (945) (3,782) (3,782)
Net Income $56,619 $38,227 $215,244 $160,341
Basic earnings per share $0.93 $0.69 $3.59 $2.87
Basic average shares
outstanding 60,888,000 55,358,000 59,880,000 55,946,000
Diluted earnings
per share $0.89 $0.65 $3.41 $2.70
Average shares
outstanding
assuming dilution 64,860,000 59,848,000 64,300,000 60,705,000
Dividends declared
per common share $0.18 $0.16 $0.68 $0.60
The FINOVA Group Inc.
Selected Consolidated Financial Data and Ratios (Unaudited) (A)
(Dollars in Thousands)
As of December 31,
FINANCIAL POSITION: 1999 1998 1997
Ending funds employed $13,121,977 $10,020,221 $8,420,462
Securitizations and
participations sold (B) 483,397 537,596 457,967
Total managed assets 13,605,374 10,557,817 8,878,429
Reserve for credit losses 264,983 207,618 177,088
Nonaccruing assets 295,123 205,233 187,356
Nonaccruing assets
as% of managed assets (C) 2.2% 2.0% 2.1%
Reserve for credit
losses as a % of:
Ending managed assets (C) (D) 2.00% 2.03% 2.02%
Nonaccruing assets 89.8% 101.2% 94.5%
Total assets $14,050,293 $10,441,236 $8,724,626
Total debt 11,407,767 8,394,578 6,764,581
Preferred securities 111,550 111,550 111,550
Common shareowners' equity 1,663,381 1,167,231 1,092,254
Backlog 2,025,867 1,935,106 1,601,218
Common shares repurchased 1,833,241 1,299,207 1,035,800
Leverage (debt to
common and preferred equity) 6.4x 6.6x 5.6x
For the Quarter Ended For the Year Ended
December 31, December 31,
PERFORMANCE HIGHLIGHTS: 1999 1998 1999 1998
Average managed
assets $12,874,560 $10,314,440 $11,845,460 $9,502,823
Average earning
assets (E) 11,673,692 9,287,136 10,718,941 8,546,715
New business 1,434,538 1,238,803 4,865,746 3,979,265
Fee-based volume 1,475,049 1,856,692 6,315,296 7,257,003
Net write-offs 17,269 19,830 56,854 56,758
Net write-offs
(annualized) as a % of
average managed
assets (C) 0.54% 0.78% 0.48% 0.60%
Operating margin
(annualized) as a % of
average earning assets 5.7% 6.3% 5.8% 6.3%
Interest margins earned
(annualized) as a % of
average earning assets 5.3% 5.4% 5.3% 5.4%
Operating expenses as a
% of operating margin
plus gains 37.5% 36.4% 37.0% 38.3%
Return (annualized) on
average common equity 14.0% 13.3% 14.4% 14.1%
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) Excludes financing contracts held for sale.
E) Average earning assets equal average funds employed less average
deferred taxes on leveraged leases and average nonaccruing assets.
SOURCE: The FINOVA Group Inc.