-----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, UUMhHooMliZWpRB4w/v38Ojs2y9SqM9w0/Fr9Qd6J433IRYR8X0N28ef17v2JfbM n/M0AW09Sp48JwleVPlqNg== 0000891092-97-000314.txt : 19970814 0000891092-97-000314.hdr.sgml : 19970814 ACCESSION NUMBER: 0000891092-97-000314 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIT GROUP HOLDINGS INC /DE/ CENTRAL INDEX KEY: 0000020388 STANDARD INDUSTRIAL CLASSIFICATION: SHORT-TERM BUSINESS CREDIT INSTITUTIONS [6153] IRS NUMBER: 132994534 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01861 FILM NUMBER: 97659703 BUSINESS ADDRESS: STREET 1: 1211 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2125361950 MAIL ADDRESS: STREET 1: 1211 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: CIT FINANCIAL CORP/OLD/ DATE OF NAME CHANGE: 19860512 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 JUNE 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 1-1861 ---------------------- THE CIT GROUP HOLDINGS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-2994534 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212) 536-1390 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) NONE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of August 1, 1997: 1,000 shares. ================================================================================ THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES (UNAUDITED) TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements Consolidated Balance Sheets - June 30, 1997 and December 31, 1996. 2 Consolidated Income Statements for the three and six month periods ended June 30, 1997 and 1996. 3 Consolidated Statements of Changes in Stockholders' Equity for the six month periods ended June 30, 1997 and 1996. 4 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1997 and 1996. 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6-16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 PART I. FINANCIAL INFORMATION Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the December 31, 1996 Annual Report on Form 10-K and the March 31, 1997 quarterly report on Form 10-Q for The CIT Group Holdings, Inc. (the "Corporation"). The Corporation considers that all adjustments (all of which are normal recurring accruals) necessary for a fair presentation of the financial position and results of operations for these periods have been made; however, results for such interim periods are subject to year-end audit adjustments. Results for such interim periods are not necessarily indicative of results for a full year. -1- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Millions) June 30, December 31, 1997 1996 --------- --------- Assets Financing and leasing assets Loans Commercial $ 9,776.3 $10,195.6 Consumer 3,100.1 3,239.0 Lease receivables 3,938.3 3,562.0 --------- --------- Finance receivables 16,814.7 16,996.6 Reserve for credit losses (221.9) (220.8) --------- --------- Net finance receivables 16,592.8 16,775.8 Operating lease equipment, net 1,573.0 1,402.1 Consumer finance receivables held for sale 950.1 116.3 Cash and cash equivalents 252.0 103.1 Other assets 585.7 535.2 --------- --------- Total assets $19,953.6 $18,932.5 ========= ========= Liabilities and Stockholders' Equity Debt Commercial paper $ 6,377.8 $ 5,827.0 Variable rate senior notes 3,261.5 3,717.5 Fixed rate senior notes 5,360.5 4,761.2 Subordinated fixed rate notes 300.0 300.0 --------- --------- Total debt 15,299.8 14,605.7 Credit balances of factoring clients 1,089.1 1,134.1 Accrued liabilities and payables 603.3 594.0 Deferred Federal income taxes 520.8 523.3 --------- --------- Total liabilities 17,513.0 16,857.1 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company 250.0 -- Stockholders' equity Common stock - authorized, issued and outstanding - 1,000 shares 250.0 250.0 Paid-in capital 573.3 573.3 Retained earnings 1,367.3 1,252.1 --------- --------- Total stockholders' equity 2,190.6 2,075.4 --------- --------- Total liabilities and stockholders' equity $19,953.6 $18,932.5 ========= ========= -2- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Dollar Amounts in Millions) Three Months Ended Six Months Ended June 30, June 30, ---------------- ---------------- 1997 1996 1997 1996 ------- ------- ------- ------- Finance income $ 451.9 $ 403.9 $ 889.0 $ 806.5 Interest expense 233.6 206.6 456.7 413.8 ------- ------- ------- ------- Net finance income 218.3 197.3 432.3 392.7 Fees and other income 49.4 73.2 107.1 125.9 Gain on sale of equity interest acquired in loan workout 58.0 -- 58.0 -- ------- ------- ------- ------- Operating revenue 325.7 270.5 597.4 518.6 ------- ------- ------- ------- Salaries and general operating expenses 110.6 97.6 210.5 193.5 Provision for credit losses 29.0 26.6 56.0 54.4 Depreciation on operating lease equipment 33.9 28.8 66.0 56.3 Minority interest in subsidiary trust holding solely debentures of the company 4.8 -- 6.7 -- ------- ------- ------- ------- Operating expenses 178.3 153.0 339.2 304.2 ------- ------- ------- ------- Income before provision for income taxes 147.4 117.5 258.2 214.4 Provision for income taxes 53.7 45.1 94.4 82.2 ------- ------- ------- ------- Net income $ 93.7 $ 72.4 $ 163.8 $ 132.2 ======= ======= ======= ======= -3- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in Millions) Six Months Ended June 30, -------------------- 1997 1996 -------- -------- Balance, January 1 $2,075.4 $1,914.2 Net income 163.8 132.2 Dividends paid(1) (48.6) (60.4) -------- -------- Balance, June 30 $2,190.6 $1,986.0 ======== ======== (1) Commencing with the 1996 second quarter dividend, the dividend policy of the Corporation was changed to require the payment of dividends by the Corporation of 30% of net operating earnings on a quarterly basis. Previously, the Corporation's dividend policy required the payment of dividends by the Corporation of 50% of net operating earnings on a quarterly basis. -4- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions)
Six Months Ended June 30, --------------------- 1997 1996 --------- --------- CASH FLOWS FROM OPERATIONS Net income $ 163.8 $ 132.2 Adjustments to reconcile net income to net cash flows from operations Provision for credit losses 56.0 54.4 Depreciation and amortization 76.8 64.9 (Benefit) provision for deferred Federal income taxes (2.5) 10.3 Gains on asset and receivable sales (86.5) (43.2) Increase in accrued liabilities and payables 9.3 1.6 Increase in other assets (50.5) (17.1) Other 4.7 (19.2) --------- --------- Net cash flows provided by operations 171.1 183.9 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans extended (15,919.0) (14,936.5) Collections on loans 15,165.4 14,512.4 Purchases of assets to be leased (275.6) (194.4) Net increase in short-term factoring receivables (137.8) (60.7) Proceeds from asset and receivable sales 377.5 371.0 Proceeds from sales of assets received in satisfaction of loans 13.6 17.5 Purchases of finance receivables portfolios (58.6) (81.9) Purchases of investment securities (11.6) (14.2) Other (11.7) (16.3) --------- --------- Net cash flows used for investing activities (857.8) (403.1) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of variable and fixed rate notes 1,949.3 1,977.1 Repayments of variable and fixed rate notes (1,806.0) (1,146.0) Proceeds from the issuance of company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company 250.0 -- Net increase (decrease) in commercial paper 550.8 (532.3) Proceeds from nonrecourse leveraged lease debt 33.0 9.2 Repayments of nonrecourse leveraged lease debt (92.9) (79.8) Cash dividends paid (48.6) (60.4) --------- --------- Net cash flows provided by financing activities 835.6 167.8 --------- --------- Net increase (decrease) in cash and cash equivalents 148.9 (51.4) Cash and cash equivalents, beginning of period 103.1 161.5 --------- --------- Cash and cash equivalents, end of period $ 252.0 $ 110.1 ========= ========= Supplemental disclosures Interest paid $ 458.3 $ 432.2 Federal and State and local taxes paid $ 60.3 $ 59.5 Noncash transfer of finance receivables to finance receivables held for sale $ 972.9 $ 318.3 Noncash transfers of finance receivables to assets received in satisfaction of loans $ 12.5 $ 70.9 Noncash transfers of assets received in satisfaction of loans to finance receivables $ 4.6 $ --
-5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET INCOME Net income for the 1997 second quarter totaled a record $93.7 million, an increase of $21.3 million (29.4%) from $72.4 million in 1996. For the six months ended June 30, 1997, net income totaled a record $163.8 million compared with $132.2 million in 1996, an increase of 23.9%. Return on average financing and leasing assets for the quarter and six months increased to 2.07% and 1.83%, respectively, compared with 1.79% and 1.64% for the same periods in 1996. The improvements resulted from growth in net finance income from a higher level of earning assets and a gain on the sale of an equity interest acquired in a loan workout. NET FINANCE INCOME A comparison of 1997 and 1996 net finance income is set forth below. - --------------------------------------------------------------------------------
Three Months Ended ------------------------------------------- June 30, Increase ----------------------- ----------------- 1997 1996 Amount Percent ---------- ---------- -------- ------- (Dollar Amounts in Millions) Finance income $ 451.9 $ 403.9 $ 48.0 11.9% Interest expense 233.6 206.6 27.0 13.1% ---------- ---------- -------- ---- Net finance income $ 218.3 $ 197.3 $ 21.0 10.6% ========== ========== ======== ==== Average financing and leasing assets (AEA) $ 18,132.7 $ 16,192.3 $1,940.4 12.0% ========== ========== ======== ==== Net finance income as a % of AEA 4.82% 4.87% ========== ==========
Six Months Ended ------------------------------------------- June 30, Increase ----------------------- ----------------- 1997 1996 Amount Percent ---------- ---------- -------- ------- (Dollar Amounts in Millions) Finance income $ 889.0 $ 806.5 $ 82.5 10.2% Interest expense 456.7 413.8 42.9 10.4% ---------- ---------- -------- ---- Net finance income $ 432.3 $ 392.7 $ 39.6 10.1% ========== ========== ======== ==== Average financing and leasing assets (AEA) $ 17,870.0 $ 16,146.3 $1,723.7 10.7% ========== ========== ======== ==== Net finance income as a % of AEA 4.84% 4.87% ========== ==========
-6- The changes in net finance income reflect increases in AEA (primarily comprised of finance receivables, less credit balances of factoring clients, consumer finance receivables held for sale and operating lease equipment) offset by lower yields due to a highly competitive marketplace. A comparative analysis of the weighted average principal outstanding and interest rates paid on the Corporation's debt for the three and six month periods ended June 30, 1997 and 1996, before and after giving effect to interest rate swaps, is shown in the following tables. - -------------------------------------------------------------------------------- Three Months Ended June 30, 1997 ------------------------------------------ Before Swaps After Swaps ------------------ ------------------ (Dollar Amounts in Millions) Variable rate debt $ 9,846.2 5.65% $ 6,483.6 5.57% Fixed rate debt 5,165.4 6.59% 8,528.0 6.54% --------- --------- Composite interest rate $15,011.6 5.97% $15,011.6 6.12% ========= ========= Three Months Ended June 30, 1996 ------------------------------------------ Before Swaps After Swaps ------------------ ------------------ (Dollar Amounts in Millions) Variable rate debt $10,028.1 5.43% $ 6,990.9 5.36% Fixed rate debt 3,602.0 6.88% 6,639.2 6.71% --------- --------- Composite interest rate $13,630.1 5.81% $13,630.1 6.01% ========= ========= - -------------------------------------------------------------------------------- Six Months Ended June 30, 1997 ------------------------------------------ Before Swaps After Swaps ------------------ ------------------ (Dollar Amounts in Millions) Variable rate debt $ 9,811.4 5.55% $ 6,456.4 5.48% Fixed rate debt 5,040.6 6.57% 8,395.6 6.52% --------- --------- Composite interest rate $14,852.0 5.90% $14,852.0 6.07% ========= ========= Six Months Ended June 30, 1996 ------------------------------------------ Before Swaps After Swaps ------------------ ------------------ (Dollar Amounts in Millions) Variable rate debt $10,044.4 5.49% $ 7,073.3 5.44% Fixed rate debt 3,505.7 6.94% 6,476.8 6.75% --------- --------- Composite interest rate $13,550.1 5.86% $13,550.1 6.06% ========= ========= - -------------------------------------------------------------------------------- The Corporation's interest-rate swaps principally convert floating-rate debt to fixed-rate debt and effectively lower both the variable and fixed rates. The weighted average composite rate increases, however, because a larger proportion of the Corporation's debt, after giving effect to interest-rate -7- swaps, is subject to a fixed rate. The Corporation does not enter into derivative financial instruments for trading or speculative purposes. FEES AND OTHER INCOME Fees and other income totaled $49.4 million in the 1997 second quarter, compared with $73.2 million in 1996. For the six months ended June 30, 1997, fees and other income totaled $107.1 million, a decrease of $18.8 million over the comparable 1996 period. The 1996 results included a $16.2 million pretax gain in the Equity Investments portfolio. GAIN ON SALE OF EQUITY INTEREST ACQUIRED IN LOAN WORKOUT The Corporation originated a loan in the 1980's to a telecommunications company that subsequently went into default. Pursuant to a workout agreement, the stock of the company was transferred to the Corporation and a co-lender. In 1991 the Corporation received all amounts due and retained an equity interest in the company, which was sold in 1997 for a pretax gain of $58.0 million. -8- SALARIES AND GENERAL OPERATING EXPENSES The following table sets forth the components of salaries and general operating expenses. - -------------------------------------------------------------------------------- Three Months Ended -------------------------------------- June 30, Increase ------------------ ---------------- 1997 1996 Amount Percent ------- ------- ------- ------- (Dollar Amounts in Millions) Salaries and employee benefits $ 64.0 $ 53.0 $ 11.0 20.8% General operating expenses 46.6 44.6 2.0 0.4% ------- ------- ------- ------- $ 110.6 $ 97.6 $ 13.0 13.3% ======= ======= ======= ======= Percent to AEA 2.44% 2.41% ======= ======= Percent to average serviced assets 2.21% 2.18% ======= ======= Six Months Ended -------------------------------------- June 30, Increase ------------------ ---------------- 1997 1996 Amount Percent ------- ------- ------- ------- (Dollar Amounts in Millions) Salaries and employee benefits $ 123.3 $ 109.1 $ 14.2 13.0% General operating expenses 87.2 84.4 2.8 3.3% ------- ------- ------- ------- $ 210.5 $ 193.5 $ 17.0 8.8% ======= ======= ======= ======= Percent to AEA 2.36% 2.40% ======= ======= Percent to average serviced assets 2.13% 2.17% ======= ======= - -------------------------------------------------------------------------------- The increases in salaries and employee benefits are primarily attributable to the higher level of serviced assets and higher performance-based incentive accruals. The increases in general operating expenses were primarily the result of a provision for vacant leased office space recorded in the second quarter of 1997. Management monitors productivity via the relationship of salaries and general operating expenses to AEA and average serviced assets, which is comprised of financing and leasing assets, off-balance sheet securitized finance receivables, and other consumer receivables serviced for third parties. -9- PROVISION AND RESERVE FOR CREDIT LOSSES The provisions for credit losses for the second quarter and first six months of 1997 were $29.0 million and $55.0 million, respectively, compared with $26.6 million and $54.4 million for the same periods of 1996. Comparative net credit loss experience is provided in the following table. - --------------------------------------------------------------------------------
1997 1996 ---------------- ---------------- (Dollar Amounts in Millions) Net credit losses (percent of average finance receivables excluding consumer finance receivables held for sale) for the three months ended June 30, $ 29.9 0.71% $ 23.7 0.59% ======= ======= ======= ======= Net credit losses (percent of average finance receivables excluding consumer finance receivables held for sale) for the six months ended June 30, $ 55.5 0.67% $ 49.1 0.62% ======= ======= ======= =======
- -------------------------------------------------------------------------------- The increases for both periods were primarily the result of higher consumer net credit losses due to portfolio seasoning. The reserve for credit losses increased to $221.9 million (1.32% of finance receivables) at June 30, 1997 from $220.8 million (1.30% of finance receivables) at December 31, 1996. OPERATING LEASE EQUIPMENT Depreciation on operating lease equipment for the second quarter and first six months of 1997 was $33.9 million and $66.0 million, respectively, up from $28.8 million and $56.3 million for the same periods in 1996, reflecting growth in the operating lease portfolio. From time to time, certain operators of leased equipment may experience financial or operational difficulties that may affect their ability to meet their contractual obligations with the Corporation. At June 30, 1997, commercial aircraft and oil refinery assets with an approximate carrying value of $95.5 million were subject to agreements with operators that are experiencing such difficulties that may -10- affect future payments to the Corporation. The Corporation does not believe these difficulties will have a significant effect on its consolidated financial position or results of operations. INCOME TAXES The effective income tax rates for the 1997 and 1996 second quarters were 36.4% and 38.4%, respectively. For the first six months of 1997, the effective tax rate was 36.6% compared with 38.3% in 1996. The decreases are a result of lower state and local income taxes. FINANCING AND LEASING ASSETS The changes in financing and leasing assets by business unit are presented in the following table: Change June 30, December 31, ----------------- 1997 1996 Amount Percent --------- --------- --------- ------- (Dollar Amounts in Millions) Commercial Business Credit $ 1,357.2 $ 1,235.6 $ 121.6 9.8% Capital Finance(1) 2,529.5 4,302.7 (1,773.2) (41.2) Commercial Services, net(2) 805.3 670.6 134.7 20.1 Credit Finance 812.3 797.8 14.5 1.8 Equipment Financing(1) 7,121.2 5,616.8 1,504.4 26.8 --------- --------- --------- ------ 12,625.5 12,623.5 2.0 -- --------- --------- --------- ------ Consumer Consumer Finance 2,202.2 2,005.5 196.7 9.8 Sales Financing 1,848.0 1,349.8 498.2 36.9 --------- --------- --------- ------ 4,050.2 3,355.3 694.9 20.7 --------- --------- --------- ------ 16,675.7 15,978.8 696.9 4.4 --------- --------- --------- ------ Operating lease equipment, net Capital Finance 1,101.3 975.5 125.8 12.9 Equipment Financing 471.7 426.6 45.1 10.6 --------- --------- --------- ------ 1,573.0 1,402.1 170.9 12.2 --------- --------- --------- ------ Total financing and leasing assets $18,248.7 $17,380.9 $ 867.8 5.0% ========= ========= ========= ====== (1) On January 1, 1997, $1.5 billion of financing and leasing assets were transferred from Capital Finance to Equipment Financing. (2) Net of credit balances of factoring clients of $1,089.1 million and $1,134.1 million at June 30, 1997 and December 31, 1996, respectively. The deduction of client credit balances from gross factored receivables results in the presentation of actual funds employed by the Commercial Services unit. -11- Commercial finance receivables were relatively unchanged from December 31, 1996 due to continued paydowns and a highly competitive marketplace. The increase in consumer finance receivables is a result of 43.4% growth in Sales Financing new business originations, primarily in the recreational marine and manufactured housing products. Principally all 1997 recreational marine, recreational vehicle, and home equity originations are classified as held for sale. The growth in operating lease equipment occurred primarily in commercial aircraft and railroad equipment. Concentrations Commercial Airline Industry Commercial airline financing and leasing assets totaled $2.0 billion or 10.9% of total financing and leasing assets at June 30, 1997, up slightly from the December 31, 1996 balance of $1.9 billion. The portfolio is secured by commercial aircraft and related equipment. Management continues to limit the growth in this portfolio relative to total financing and leasing assets. The following table presents information about the commercial airline industry portfolio. - -------------------------------------------------------------------------------- June 30, December 31, 1997 1996 -------- -------- Finance Receivables (Dollar Amounts in Millions) Amount outstanding(1) $1,271.6 $1,286.0 Number of obligors 50 54 Operating Leases, net Net carrying value $ 726.7 $ 624.0 Number of obligors 34 32 Total $1,998.3 $1,910.0 Number of obligors(2) 67 72 Number of aircraft 228 239 (1) Includes accrued rents on operating leases that are classified as finance receivables in the Consolidated Balance Sheets. (2) Cerrtain obligors have both finance receivable and operating lease transactions. - -------------------------------------------------------------------------------- See discussion of Operating Lease Equipment. -12- PAST DUE AND NONACCRUAL FINANCE RECEIVABLES AND ASSETS RECEIVED IN SATISFACTION OF LOANS Finance receivables, past due 60 days or more, declined to $284.1 million (1.69% of finance receivables) at June 30, 1997 from $292.3 million (1.72%) at December 31, 1996. Finance receivables on nonaccrual status decreased to $107.1 million (0.64% of finance receivables) at June 30, 1997 from $119.6 million (0.70%) at December 31, 1996. Assets received in satisfaction of loans decreased to $44.5 million at June 30, 1997 from $47.9 million at December 31, 1996. Total nonperforming assets, comprised of finance receivables on nonaccrual status and assets received in satisfaction of loans, as a percentage of finance receivables, decreased to 0.90% at June 30, 1997 from 0.99% at December 31, 1996. LIQUIDITY The Corporation manages liquidity by monitoring the relative maturities of assets and liabilities and by borrowing funds, primarily in the United States money and capital markets. Such cash is used to fund asset growth (including the bulk purchase of finance receivables and the acquisition of other finance-related businesses) and to meet debt obligations and other commitments on a timely and cost-effective basis. The primary sources of funding are commercial paper borrowings, medium-term notes, other term debt securities and securitizations. During the first six months of 1997, commercial paper borrowings increased $550.8 million and the Corporation issued $1.0 billion of prime-based variable-rate term debt and $0.9 billion of fixed-rate debt. Repayments of term debt totaled $1.8 billion. At June 30, 1997, $9.06 billion of registered, but unissued, debt securities remained available under shelf registration statements. -13- At June 30, 1997, commercial paper borrowings were supported by $5.04 billion of committed revolving credit-line facilities, representing 81% of operating commercial paper outstanding (commercial paper outstanding less interest-bearing deposits). No borrowings have been made under credit lines supporting commercial paper since 1970. As part of the Corporation's continuing program of accessing the public and private asset-backed securitization markets as an additional liquidity source, recreational marine finance receivables of $139.1 million were securitized by the Corporation during the first six months of 1997. Additionally, in July 1997, home equity finance receivables totaling $500.0 million were securitized. At June 30, 1997, $1.2 billion of registered, but unissued, securities relating to the Corporation's asset-backed securitization program, remained available under shelf registration statements. In February 1997 CIT Capital Trust I, a wholly owned subsidiary of the Corporation, issued $250.0 million of 7.70% Preferred Capital Securities; the proceeds of which were invested in Junior Subordinated Debentures of the Corporation having identical rates and payment dates. CAPITALIZATION The following table presents information regarding the Corporation's capital structure. - -------------------------------------------------------------------------------- June 30, December 31, 1997 1996 --------- --------- (Dollars in Millions) Commercial paper $ 6,377.8 $ 5,827.0 Term debt 8,922.0 8,778.7 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company 250.0 -- Stockholders' equity 2,190.6 2,075.4 --------- --------- Total capitalization $17,740.4 $16,681.1 ========= ========= Ratio of total debt to stockholders' equity and company- obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the company 6.27 to 1 7.04 to 1 - -------------------------------------------------------------------------------- -14- STATISTICAL DATA The following table presents components of net income as a percentage of AEA, along with other selected financial data.
Six Months Ended June 30, ---------------------- 1997 1996 ---------- ---------- Finance income* 9.87% 9.94% Interest expense* 5.03 5.07 ---------- ---------- Net finance income 4.84 4.87 Fees and other income 1.20 1.56 Gain on sale of equity interest acquired in loan workout 0.65 -- ---------- ---------- Operating revenue 6.69 6.43 ---------- ---------- Salaries and general operating expenses 2.36 2.40 Provision for credit losses 0.63 0.67 Depreciation on operating lease equipment 0.74 0.70 Minority interest in subsidiary trust holding solely debentures of the company 0.07 -- ---------- ---------- Operating expenses 3.80 3.77 ---------- ---------- Income before provision for income taxes 2.89 2.66 Provision for income taxes 1.06 1.02 ---------- ---------- Net income 1.83% 1.64% ========== ========== Average financing and leasing assets (in millions) $ 17,870.0 $ 16,146.3 ========== ==========
* Excludes interest income and interest expense relating to short-term interest-bearing deposits. -15- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On April 25, 1997, The Dai-Ichi Kangyo Bank, Limited and CBC Holdings (Delaware), Inc., by unanimous written consent, elected the following ten persons to the Board of Directors to serve until April 30, 1998, or until their successors shall have been elected and qualified: Messrs. Hisao Kobayashi (Chairman) Albert R. Gamper, Jr. Takasuke Kaneko Kenji Nakamura Joseph A. Pollicino Paul N. Roth Peter J. Tobin Tohru Tonoike Yasuo Tsunemi Yukiharu Uno On July 30, 1997, The Dai-Ichi Kangyo Bank, Limited and CBC Holdings (Delaware), Inc., by unanimous consent, elected Mr. Yoshiro Aoki and Mr. Keiji Torii to replace Mr. Kenji Nakamura and Mr. Yasuo Tsunemi on the Board of Directors to serve until April 30, 1998, or until their successors shall have been elected and qualified. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges. (b) Exhibit 27 - Financial Data Schedule (c) A Form 8-K report dated April 17, 1997 was filed with the Commission reporting the Corporation's announcement of financial results for the quarter ended March 31, 1997. -16- 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. The CIT Group Holdings, Inc. --------------------------------- (Registrant) BY /s/ J. M. Leone ------------------------------ J. M. Leone Executive Vice President and Chief Financial Officer (duly authorized and principal accounting officer) DATE: August 13, 1997 -17- EX-12 2 RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12 THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts In Millions) Six Months Ended June 30, ----------------- 1997 1996 ------- ------- Net income $ 163.8 $ 132.2 Provision for income taxes 94.4 82.2 ------- ------- Earnings before provision for income taxes 258.2 214.4 ------- ------- Fixed charges: Interest and debt expense on indebtedness 456.7 413.8 Minority interest in subsidiary trust holding solely debentures of the company 6.7 -- Interest factor - one third of rentals on real and personal properties 4.7 3.9 ------- ------- Total fixed charges 468.1 417.7 ------- ------- Total earnings before provision for income taxes and fixed charges $ 726.3 $ 632.1 ======= ======= Ratios of earnings to fixed charges 1.55x 1.51x ------- ------- EX-27 3 FDS --
5 1,000,000 6-MOS 6-MOS DEC-31-1997 DEC-31-1996 JUN-30-1997 JUN-30-1996 252 110 0 0 16,815 15,947 222 212 0 0 0 0 0 0 0 0 19,954 17,792 0 0 8,922 8,296 0 0 0 0 250 250 1,941 1,736 19,954 17,792 0 0 1,054 932 0 0 211 194 73 56 56 54 457 414 258 214 94 82 164 132 0 0 0 0 0 0 164 132 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----