UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2004
Commission file number 1-11011
THE FINOVA GROUP INC.
(Exact name of registrant as specified in its charter)
| Delaware | 86-0695381 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) | |
| 4800 North Scottsdale Road Scottsdale, AZ |
85251-7623 | |
| (Address of principal executive offices) | (Zip code) | |
Registrant’s telephone number, including area code: 480-636-4800
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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by the court. Yes x No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 9, 2004, approximately 122,041,000 shares of Common Stock ($0.01 par value) were outstanding.
TABLE OF CONTENTS
| Page No. | ||||
| PART I FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements | 1 | ||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| Notes to Interim Condensed Consolidated Financial Statements |
5 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| Special Note Regarding Forward-Looking Statements | 24 | |||
| Item 3. |
Quantitative and Qualitative Disclosure About Market Risk | 26 | ||
| Item 4. |
Controls and Procedures | 26 | ||
| PART II OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 26 | ||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 27 | ||
| Item 5. |
Other Information | 27 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 27 | ||
| Signatures | 29 | |||
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| June 30, 2004 (Unaudited) |
December 31, 2003 (Audited) |
|||||||
| ASSETS |
||||||||
| Cash and cash equivalents |
$ | 642,279 | $ | 789,138 | ||||
| Restricted cash - impermissable restricted payments |
12,500 | — | ||||||
| Financing Assets: |
||||||||
| Loans and other financing contracts, net |
646,917 | 1,309,605 | ||||||
| Direct financing leases |
173,767 | 192,105 | ||||||
| Total financing assets |
820,684 | 1,501,710 | ||||||
| Reserve for credit losses |
(173,832 | ) | (274,828 | ) | ||||
| Net financing assets |
646,852 | 1,226,882 | ||||||
| Other Financial Assets: |
||||||||
| Assets held for sale |
164,746 | 138,224 | ||||||
| Operating leases |
71,852 | 102,381 | ||||||
| Assets held for the production of income |
42,404 | 25,477 | ||||||
| Investments |
32,111 | 38,192 | ||||||
| Total other financial assets |
311,113 | 304,274 | ||||||
| Total Financial Assets |
957,965 | 1,531,156 | ||||||
| Other assets |
19,754 | 23,882 | ||||||
| $ | 1,632,498 | $ | 2,344,176 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Liabilities: |
||||||||
| Berkadia Loan |
$ | — | $ | 525,000 | ||||
| Senior Notes, net (principal amount due of $2.7 billion and $3.0 billion, respectively) |
2,123,749 | 2,338,791 | ||||||
| Total debt |
2,123,749 | 2,863,791 | ||||||
| Accounts payable and accrued expenses |
97,555 | 129,082 | ||||||
| Deferred income taxes, net |
3,931 | 4,050 | ||||||
| Total Liabilities |
2,225,235 | 2,996,923 | ||||||
| Stockholders’ Equity: |
||||||||
| Common stock, $0.01 par value, 400,000,000 shares authorized and 125,873,000 shares issued |
1,259 | 1,259 | ||||||
| Additional capital |
108,256 | 108,256 | ||||||
| Accumulated deficit |
(703,651 | ) | (764,715 | ) | ||||
| Accumulated other comprehensive income |
1,935 | 2,989 | ||||||
| Common stock in treasury, 3,832,000 shares |
(536 | ) | (536 | ) | ||||
| Total Stockholders’ Equity |
(592,737 | ) | (652,747 | ) | ||||
| $ | 1,632,498 | $ | 2,344,176 | |||||
See notes to interim condensed consolidated financial statements.
1
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
| Three Months June 30, 2004 |
Three Months June 30, 2003 |
Six Months June 30, 2004 |
Six Months June 30, 2003 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Interest income |
$ | 33,934 | $ | 49,949 | $ | 82,343 | $ | 99,390 | ||||||||
| Rental income |
9,346 | 8,331 | 15,121 | 16,324 | ||||||||||||
| Operating lease income |
14,331 | 12,398 | 29,146 | 24,501 | ||||||||||||
| Fees and other income |
7,283 | 8,667 | 12,402 | 19,841 | ||||||||||||
| Total Revenues |
64,894 | 79,345 | 139,012 | 160,056 | ||||||||||||
| Interest expense |
(67,638 | ) | (80,389 | ) | (133,841 | ) | (164,083 | ) | ||||||||
| Operating lease and other depreciation |
(4,239 | ) | (7,664 | ) | (9,228 | ) | (15,838 | ) | ||||||||
| Interest Margin |
(6,983 | ) | (8,708 | ) | (4,057 | ) | (19,865 | ) | ||||||||
| Other Revenues and (Expenses): |
||||||||||||||||
| Reversal of provision for credit losses |
19,673 | 69,574 | 70,363 | 123,573 | ||||||||||||
| Net gain on financial assets |
19,852 | 35,514 | 32,680 | 32,372 | ||||||||||||
| Portfolio expenses |
(4,424 | ) | (8,005 | ) | (10,584 | ) | (18,529 | ) | ||||||||
| General and administrative expenses |
(13,128 | ) | (16,161 | ) | (27,338 | ) | (32,583 | ) | ||||||||
| Total Other Revenues and (Expenses) |
21,973 | 80,922 | 65,121 | 104,833 | ||||||||||||
| Income before income taxes |
14,990 | 72,214 | 61,064 | 84,968 | ||||||||||||
| Income tax expense |
— | — | — | — | ||||||||||||
| Net Income |
$ | 14,990 | $ | 72,214 | $ | 61,064 | $ | 84,968 | ||||||||
| Basic/diluted earnings per share |
$ | 0.12 | $ | 0.59 | $ | 0.50 | $ | 0.70 | ||||||||
| Weighted average shares outstanding |
122,041,000 | 122,041,000 | 122,041,000 | 122,041,000 | ||||||||||||
See notes to interim condensed consolidated financial statements.
2
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | 61,064 | $ | 84,968 | ||||
| Adjustments to reconcile net income to net cash used by operating activities: |
||||||||
| Reversal of provision for credit losses |
(70,363 | ) | (123,573 | ) | ||||
| Net cash gain on disposal of financial assets |
(40,131 | ) | (50,887 | ) | ||||
| Net non-cash charge-off of financial assets |
7,451 | 18,515 | ||||||
| Depreciation and amortization |
10,130 | 17,525 | ||||||
| Deferred income taxes, net |
(119 | ) | 6,608 | |||||
| Other amortization |
4,335 | 1,201 | ||||||
| Change in assets and liabilities: |
||||||||
| Decrease in other assets |
2,378 | 4,664 | ||||||
| Decrease in accounts payable and accrued expenses |
(26,970 | ) | (29,775 | ) | ||||
| Net Cash Used by Operating Activities |
(52,225 | ) | (70,754 | ) | ||||
| Investing Activities: |
||||||||
| Proceeds from disposals of leases and other owned assets |
35,604 | 80,279 | ||||||
| Proceeds from sales of investments |
9,193 | 5,120 | ||||||
| Proceeds from sales of loans and financing leases |
133,270 | 310,706 | ||||||
| Collections from financial assets |
523,525 | 832,118 | ||||||
| Fundings under existing customer commitments |
(43,002 | ) | (223,519 | ) | ||||
| Deposit of impermissible restricted payments into restricted cash account |
(12,500 | ) | ||||||
| Recoveries of loans previously written off |
21,776 | 44,437 | ||||||
| Net Cash Provided by Investing Activities |
667,866 | 1,049,141 | ||||||
| Financing Activities: |
||||||||
| Repayments of Berkadia Loan |
(525,000 | ) | (975,000 | ) | ||||
| Repayments of Senior Notes |
(237,500 | ) | ||||||
| Net Cash Used by Financing Activities |
(762,500 | ) | (975,000 | ) | ||||
| (Decrease) Increase in Cash and Cash Equivalents |
(146,859 | ) | 3,387 | |||||
| Cash and Cash Equivalents, beginning of period |
789,138 | 575,215 | ||||||
| Cash and Cash Equivalents, end of period |
$ | 642,279 | $ | 578,602 | ||||
See notes to interim condensed consolidated financial statements.
3
CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
| Common Stock |
Additional Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Common Stock in Treasury |
Total Stockholders’ Equity < | |||||||||||||||||