-----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, U/IjwHpiofkZzMfZQPqrwgoXlMwE8SuCUzX491BAi67VMiXKCEm5SIQ2iYzfDghA kmkyiFCwI4Fst1ebgXWGkw== 0000891092-95-000176.txt : 19951118 0000891092-95-000176.hdr.sgml : 19951118 ACCESSION NUMBER: 0000891092-95-000176 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951109 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: 95588542 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 QUARTERLY REPORT ================================================================================ 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 SEPTEMBER 30, 1995 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 (I.R.S. Employer incorporation or organization) Identification No.) 1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036 (Address of principal executive offices) (Zip Code) (212) 536-1950 (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 October 30, 1995: 1,000 shares. ================================================================================ THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES (UNAUDITED) TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1995 and December 31, 1994. 2-3 Consolidated Income Statements for the three and nine month periods ended September 30, 1995 and 1994. 4 Consolidated Statements of Changes in Stockholders' Equity for the nine month periods ended September 30, 1995 and 1994. 5 Consolidated Statements of Cash Flows for the nine month periods ended September 30, 1995 and 1994. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 19 PART I. FINANCIAL INFORMATION Certain information and footnote disclosures normally included in 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 that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the December 31, 1994 Annual Report on Form 10-K and the March 31, 1995 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 statement 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. Amounts for 1994 have been reclassified, where necessary, to conform to 1995 presentations. -1- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) September 30, December 31, Assets 1995 1994 ------------- ------------ Financing and leasing assets Capital Equipment Financing ................ $ 4,466,977 $ 4,493,531 Business Credit ............................ 1,650,080 1,442,049 Credit Finance ............................. 766,539 719,642 ------------ ------------ Corporate Finance ........................ 6,883,596 6,655,222 Commercial Services ........................ 1,964,553 1,896,233 Industrial Financing ....................... 4,635,230 4,269,693 Sales Financing ............................ 1,367,059 1,402,443 ------------ ------------ Dealer and Manufacturer Financing ........ 6,002,289 5,672,136 Consumer Finance ........................... 930,558 570,772 ------------ ------------ Total finance receivables ............... 15,780,996 14,794,363 Reserve for credit losses .................. (202,142) (192,421) ------------ ------------ Net finance receivables .................. 15,578,854 14,601,942 Operating lease equipment .................. 1,017,625 867,914 ------------ ------------ Net financing and leasing assets ......... 16,596,479 15,469,856 Cash and cash equivalents .................. 109,652 6,558 Other assets ............................... 535,419 487,076 ------------ ------------ Total assets ............................. $ 17,241,550 $ 15,963,490 ============ ============ -2- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) September 30, December 31, Liabilities and Stockholders' Equity 1995 1994 ------------ ------------ Debt Commercial paper ................................. $ 5,231,479 $ 5,660,194 Variable rate notes .............................. 4,377,500 3,812,500 Fixed rate notes ................................. 3,442,582 2,623,150 Subordinated fixed rate notes .................... 300,000 300,000 ----------- ----------- Total debt ..................................... 13,351,561 12,395,844 Credit balances of factoring clients ............. 1,077,371 993,394 Accrued liabilities and payables ................. 493,806 354,714 Deferred Federal income taxes .................... 441,814 426,511 ----------- ----------- Total liabilities .............................. 15,364,552 14,170,463 Stockholders' equity Common stock - authorized, issued and outstanding - 1,000 shares ...................... 250,000 250,000 Paid-in capital .................................. 408,320 408,320 Retained earnings ................................ 1,218,678 1,134,707 ----------- ----------- Total stockholders' equity ..................... 1,876,998 1,793,027 ----------- ----------- Total liabilities and stockholders' equity ..... $17,241,550 $15,963,490 =========== =========== -3- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Dollar Amounts in Thousands)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- -------------------------------- 1995 1994 1995 1994 ------------- ------------- --------------- ------------- Finance income ................................ $ 388,789 $ 322,189 $ 1,133,052 $ 923,695 Interest expense .............................. 210,015 161,349 618,202 437,444 ---------- ---------- ------------ ---------- Net finance income .......................... 178,774 160,840 514,850 486,251 Fees and other income ......................... 47,847 46,966 133,063 131,748 ---------- ---------- ------------ ---------- Operating revenue ........................... 226,621 207,806 647,913 617,999 ---------- ---------- ------------ ---------- Salaries and general operating expenses ..................................... 85,890 85,194 252,989 252,189 Provision for credit losses ................... 24,039 20,041 67,223 72,333 Depreciation on operating lease equipment .................................... 21,462 16,397 56,278 47,275 ---------- ---------- ------------ ---------- Operating expenses .......................... 131,391 121,632 376,490 371,797 ---------- ---------- ------------ ---------- Income before provision for income taxes ...................................... 95,230 86,174 271,423 246,202 Provision for income taxes .................... 36,792 33,587 103,660 94,609 ---------- --------- ----------- ---------- Net income .................................. $ 58,438 $ 52,587 $ 167,763 $ 151,593 ========== ========= =========== ========== Ratio of earnings to fixed charges ............ -- -- 1.43 1.56
-4- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in Thousands) Nine Months Ended September 30, ------------------------------------ 1995 1994 ---------------- ----------------- Balance, January 1 ................... $ 1,793,027 $ 1,692,235 Net income ........................... 167,763 151,593 Dividends paid ....................... (83,792) (75,916) ----------- ----------- Balance, September 30 ................ $ 1,876,998 $ 1,767,912 =========== =========== -5- THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Nine Months Ended September 30, -------------------------- 1995 1994 ------------ ----------- CASH FLOWS FROM OPERATIONS Net income ....................................... $ 167,763 $ 151,593 Adjustments to reconcile net income to net cash flows from operations: Provision for credit losses ..................... 67,223 72,333 Depreciation and amortization ................... 62,577 54,413 Provision for deferred Federal income taxes ..... 15,040 11,112 Gains on asset sales ............................ (25,443) (20,916) Increase in accrued liabilities and payables .... 139,092 56,475 Increase in other assets ........................ (16,400) (3,846) Other ........................................... (16,435) (14,516) --------- --------- Net cash flows provided by operations .......... 393,417 306,648 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Loans extended ................................... (22,824,793) (16,667,886) Collections on loans ............................. 21,207,271 16,119,606 Purchases of assets to be leased ................. (611,880) (673,394) Collections on lease receivables ................. 589,240 400,396 Net decrease (increase) in short-term factoring receivables .......................... 12,463 (261,420) Proceeds from asset sales ........................ 602,522 493,209 Proceeds from sales of assets received in satisfaction of loans ........................... 20,818 34,896 Purchases of finance receivables portfolios ...... (22,767) (133,168) Acquisition of Barclays Commercial Corp. ......... -- (435,630) Other ............................................ (39,077) (27,060) ----------- ----------- Net cash flows used for investing activities ... (1,066,203) (1,150,451) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of variable and fixed rate notes ................................ 2,500,000 2,086,200 Repayments of variable and fixed rate notes ...... (1,115,568) (1,179,550) Net (decrease) increase in commercial paper ...... (428,715) 25,081 Proceeds from nonrecourse leveraged lease debt ... 3,499 27,571 Repayments of nonrecourse leveraged lease debt ... (99,544) (76,758) Cash dividends paid .............................. (83,792) (75,916) ----------- ----------- Net cash flows from financing activities ....... 775,880 806,628 ----------- ----------- Net increase (decrease) in cash and cash equivalents ............................... 103,094 (37,175) Cash and cash equivalents, beginning of period ... 6,558 101,554 ----------- ----------- Cash and cash equivalents, end of period ......... $ 109,652 $ 64,379 =========== =========== Supplemental disclosures Interest paid .................................... $ 636,770 $ 428,692 Federal and State and Local taxes paid ........... $ 76,213 $ 75,965 Noncash transfer of receivables to other assets .. $ 550,855 $ 48,381 Noncash transfers of financing and leasing assets to assets received in satisfaction of loans ..... $ 17,668 $ 37,984 -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET INCOME Net income for the 1995 third quarter totaled a record $58.4 million, an increase of $5.8 million (11.1%) from $52.6 million in 1994. For the nine months ended September 30, 1995, net income totaled a record $167.8 million, an increase of $16.2 million (10.7%) from the comparable 1994 period. The improvements in both 1995 periods were principally due to a higher level of financing and leasing assets and continued emphasis on credit quality, offset, in part, by increased interest expense. FINANCING AND LEASING ASSETS Changes in financing and leasing assets from year-end 1994 are presented in the following table.
Change September 30, December 31, --------------------- 1995 1994 Amount Percent ------------- ------------ ------ ------- (Dollar Amounts in Millions) Finance receivables Capital Equipment Financing .......... $ 4,467.0 $ 4,493.5 $ (26.5) (0.6)% Business Credit ...................... 1,650.1 1,442.1 208.0 14.4 Credit Finance ....................... 766.5 719.6 46.9 6.5 Commercial Services .................. 1,964.5 1,896.2 68.3 3.6 Industrial Financing ................. 4,635.2 4,269.7 365.5 8.6 Sales Financing ...................... 1,367.1 1,402.5 (35.4) (2.5) Consumer Finance ..................... 930.6 570.8 359.8 63.0 ---------- ----------- -------- ------ Total finance receivables .......... 15,781.0 14,794.4 986.6 6.7 ---------- ----------- -------- ------ Operating lease equipment Capital Equipment Financing .......... 717.4 648.7 68.7 10.6 Industrial Financing ................. 300.2 219.2 81.0 36.9 ---------- ----------- -------- ------ Total operating lease equipment .... 1,017.6 867.9 149.7 17.2 ---------- ----------- -------- ------ Total financing and leasing assets $ 16,798.6 $ 15,662.3 $1,136.3 7.2% ========== =========== ======== ======
-7- The changes from December 31, 1994, with respect to finance receivables, are discussed below for each business unit. o Capital Equipment Financing - Customized secured equipment financing and leasing of major capital equipment for medium and larger-sized companies. New business volume totaled $767.6 million in 1995, 7.5% higher than the comparable 1994 period. Finance receivables declined $26.5 million, principally due to normal liquidations and asset sales for risk management purposes. o Business Credit - Revolving and term loans, including debtor-in-possession and workout financing, for medium and larger-sized companies secured by accounts receivable, inventory and fixed assets. Finance receivables increased $208.0 million (14.4%) as a result of strong growth in new business volume of $341.1 million as well as the first quarter 1995 transfer from Commercial Services of approximately $75 million of revolving and term loans acquired as part of the Barclays Commercial Corporation ("BCC") purchase. o Credit Finance - Revolving and term loans, including restructurings, for small and medium-sized companies secured by accounts receivable, inventory and fixed assets. Finance receivables rose $46.9 million (6.5%) on new business volume of $135.8 million. o Commercial Services - Credit protection and lending facilities, including factoring of accounts receivable, as well as bookkeeping and collection activities. The increase of $68.3 million (3.6%) in finance receivables from year-end 1994 reflects seasonal trends and a relatively unchanged level of volume ($9.3 billion) due primarily to continued weakness in retail apparel sales. -8- o Industrial Financing - Secured equipment financing and leasing for medium-sized companies, including dealer and manufacturer financing. The increase in finance receivables of $365.5 million (8.6%) is due to record 1995 new business volume of $1.8 billion based on strong demand across most geographic and industry markets served. o Sales Financing - Retail secured financing of recreational vehicles, manufactured housing and recreational boats through dealers and manufacturers. Finance receivables declined $35.4 million (2.5%) from December 1994 due to securitizations totaling $517.0 million as well as the transfer of $98.3 million of finance receivables to assets held for sale at September 30, 1995. New business volume totaled a record $740.8 million (an increase of 48.4% from 1994), principally due to growth in manufactured housing volume. At September 30, 1995, Sales Financing was servicing $1.12 billion of finance receivables owned by other financial institutions and securitization trusts which are not included in the preceding table. o Consumer Finance - Loans secured by first or second mortgages on residential real estate. Finance receivables rose $359.8 million (63.0%) due to new business volume of $453.6 million in 1995 (up 58.6% from 1994) based on the combination of direct consumer originations and purchases of loans originated by others. Operating lease equipment increased $149.7 million (17.2%) from December 31, 1994, principally due to an increase in railroad equipment and commercial and corporate aircraft. (See the discussion in the "Commercial Airline Industry" section which follows.) -9- Commercial Airline Industry Commercial airline finance receivables and operating lease equipment totaled $1.89 billion (11.2% of total financing and leasing assets) at September 30, 1995 compared with $1.90 billion (12.1%) at December 31, 1994. The portfolio is secured by commercial aircraft and related equipment. Management continues to monitor the size of this portfolio relative to total financing and leasing assets. The following table presents information about the commercial airline portfolio. - -------------------------------------------------------------------------------- September 30, December 31, 1995 1994 ------------- ------------ (Dollar Amounts in Millions) Finance Receivables Amount outstanding(a) ........................ $1,382.6 $1,417.0 Number of obligors ........................... 49 46 Operating Leases Net carrying value ........................... $503.6 $482.3 Number of obligors ........................... 23 21 -------- -------- Total .......................................... $1,886.2 $1,899.3 -------- -------- Number of obligors(b) .......................... 66 62 -------- -------- Number of aircraft(c) .......................... 259 282 -------- -------- - --------------- (a) Includes accrued rents on operating leases of $0.2 million at September 30, 1995 and $1.1 million at December 31, 1994, which were classified as finance receivables in the Consolidated Balance Sheets. (b) Certain obligors have both finance receivable and operating lease transactions. (c) The decline in the number of aircraft from December 1994 principally reflects the maturity of loans with one obligor collateralized by 17 aircraft. - -------------------------------------------------------------------------------- As a result of an investigation by the Federal Aviation Administration, Express One International, a Dallas based cargo and passenger airline, grounded its fleet on June 6, 1995 and filed for protection under Chapter 11 of the Bankruptcy Code. After the filing, all operating lease agreements were cancelled. The Corporation took possession of the four related aircraft and, as of September 30, 1995, had placed two of these aircraft on operating lease with -10- two carriers and has agreements in place to deliver the remaining aircraft to two other carriers during the fourth quarter. The above transaction did not have a significant effect on the Corporation's consolidated financial position or results of operations. Highly Leveraged Transactions Highly leveraged transactions ("HLTs") totaled $419.8 million (2.5% of financing and leasing assets before the reserve for credit losses) at September 30, 1995 compared with $436.1 million (2.8%) at December 31, 1994. Unfunded HLT commitments to lend were $186.2 million at September 30, 1995 compared with $202.1 million at December 31, 1994. At September 30, 1995, the portfolio consisted of 34 obligors in 11 industry groups located throughout the United States, with the largest regional concentrations in the Southeast (30.1%) and the West (29.8%). Total HLT outstandings classified as nonaccrual totaled $36.0 million (3 accounts) at September 30, 1995 compared with $57.7 million (4 accounts) at December 31, 1994. -11- FINANCE INCOME An analysis of 1995 and 1994 net finance income is set forth below: - -------------------------------------------------------------------------------- Three Months Ended ---------------------------------- September 30, ---------------------- (Dollar Amounts in Millions) 1995 1994 Increase --------- --------- -------- Finance income ........................... $ 388.8 $ 322.1 $ 66.7 Interest expense ......................... 210.0 161.3 48.7 --------- --------- -------- Net finance income ....................... $ 178.8 $ 160.8 $ 18.0 ========= ========= ======== Average financing and leasing assets (AEA) $15,555.1 $13,732.1 $1,823.0 ========= ========== ======== Net finance income as a % of AEA ......... 4.60% 4.68% ========= ========== Nine Months Ended ---------------------------------- September 30, ---------------------- 1995 1994 Increase --------- --------- -------- Finance income ........................... $ 1,133.1 $ 923.7 $ 209.4 Interest expense ......................... 618.2 437.4 180.8 --------- --------- -------- Net finance income ....................... $ 514.9 $ 486.3 $ 28.6 ========= ========= ======== Average financing and leasing assets (AEA) $15,200.0 $13,408.6 $1,791.4 ========= ========= ======== Net finance income as a % of AEA ......... 4.52% 4.83% ========= ========= - -------------------------------------------------------------------------------- The increases in net finance income reflect the growth in financing and leasing assets, partially offset by higher interest expense. Net finance income, as a percentage of AEA, decreased in 1995 due to competitive pricing pressures and increased borrowing costs. -12- A comparative analysis of the weighted average interest rates paid on the Corporation's debt, before and after giving effect to interest rate swaps, is set forth below.
- ------------------------------------------------------------------------------------------------------------------- Three Months Ended September 30, Nine Months Ended September 30, ---------------------------------------------- -------------------------------------------- 1995 1994 1995 1994 -------------------- ----------------- ----------------- ------------------ Before After Before After Before After Before After Swaps Swaps Swaps Swaps Swaps Swaps Swaps Swaps -------------------- ----------------- ----------------- ------------------ Variable rate debt .. 5.98% 5.97% 4.70% 4.71% 6.09% 6.08% 4.08% 4.09% Fixed rate debt ..... 7.06% 6.76% 7.20% 6.68% 7.09% 6.76% 7.29% 6.69% Composite rate ...... 6.26% 6.33% 5.24% 5.49% 6.33% 6.38% 4.79% 5.11% - -------------------------------------------------------------------------------------------------------------------
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 swaps, is subject to a fixed rate. The Corporation enters into interest rate swaps as hedges against market interest rate fluctuations and not for trading or speculative purposes. -13- FEES AND OTHER INCOME Fees and other income totaled $47.8 million in the 1995 third quarter compared with $47.0 million in 1994, as higher gains on asset sales and securitizations totaling $12.0 million in 1995, as compared with $9.9 million in 1994, and an increase in other income more than offset lower factoring commissions. For the nine months ended September 30, 1995, fees and other income totaled $133.1 million compared with $131.7 million in 1994, including gains on asset sales and securitizations of $25.4 million in 1995 and $20.9 million in 1994. SALARIES AND GENERAL OPERATING EXPENSES The following table sets forth the components of salaries and general operating expenses.
- ------------------------------------------------------------------------------------------------------------------ Three Months Ended ---------------------------------------------------- September 30, Increase/(Decrease) ------------------------ ----------------------- (Dollar Amounts in Thousands) 1995 1994 Amount Percent --------- --------- ---------- ------- Salaries and employee benefits ......... $ 49,581 $ 46,861 $ 2,720 5.8 % General operating expenses ............. 36,309 38,333 (2,024) (5.3)% --------- --------- ---------- ----- Salaries and general operating expenses $ 85,890 $ 85,194 $ 696 0.8 % ========= ========= ========== ===== Percent to AEA ......................... 2.21% 2.48% ========= =========
Nine Months Ended ---------------------------------------------------- September 30, Increase/(Decrease) ------------------------ ----------------------- 1995 1994 Amount Percent --------- --------- ---------- ------- Salaries and employee benefits ........ $145,414 $139,168 $ 6,246 4.5 % General operating expenses ............ 107,575 113,021 (5,446) (4.8)% -------- -------- -------- ----- Salaries and general operating expenses $252,989 $252,189 $ 800 0.3 % ======== ======== ======== ===== Percent to AEA ........................ 2.22% 2.51% ======== ========
- -------------------------------------------------------------------------------- The improvements in the ratios of salaries and general operating expenses to AEA reflect further operating efficiencies across all business units, most notably in Commercial Services and Industrial Financing. -14- PAST DUE AND NONACCRUAL FINANCE RECEIVABLES AND ASSETS RECEIVED IN SATISFACTION OF LOANS Finance receivables past due 60 days or more totaled $275.5 million (1.75% of total finance receivables) at September 30, 1995 compared with $194.9 million (1.28% of total finance receivables) at June 30, 1995 and $176.9 million (1.20% of total finance receivables) at December 31, 1994. Excluding past due loans in Industrial Financing that have dealer or manufacturer recourse provisions, the percentage of finance receivables past due 60 days or more was 1.61% at September 30, 1995 compared with 1.03% at December 31, 1994. The increase from June 30, 1995 is primarily attributable to certain shipping industry and cruise line finance receivables placed on nonaccrual status during the third quarter (see discussion below). Finance receivables on nonaccrual status, included in past due finance receivables, increased to $156.2 million (0.99% of total finance receivables) at September 30, 1995 from $93.3 million (0.62% of total finance receivables) at June 30, 1995 and $110.2 million (0.75% of total finance receivables) at December 31, 1994. The third quarter balance includes approximately $52.0 million of finance receivables with a shipping company collateralized by oceangoing carriers. The fair value of the collateral, based upon third party appraisals, exceeds the carrying value at September 30, 1995. Additionally, finance receivables of approximately $37.0 million with a cruise line were placed on nonaccrual status during the third quarter. On October 30, 1995, the cruise line ceased operations and, on November 7, 1995, filed for protection under Chapter 11 of the Bankruptcy Code. These receivables are collateralized by two vessels. Management believes that this transaction will not have a significant effect on the Corporation's consolidated financial position or results of operations. -15- Assets received in satisfaction of loans declined to $41.3 million at September 30, 1995 from $84.8 million at June 30, 1995 and $86.5 million at December 31, 1994 due to two commercial aircraft being placed on long term leases which are included in finance receivables at September 30, 1995. PROVISION AND RESERVE FOR CREDIT LOSSES The following table summarizes the activity in the reserve for credit losses. - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended ----------------------- ----------------------- September 30, September 30, ----------------------- ----------------------- (Dollar Amounts in Millions) 1995 1994 1995 1994 -------- --------- --------- -------- Net credit losses ..................................... $ 21.9 $ 18.2 $ 56.7 $ 67.1 Provision for finance receivables change .............. 2.1 1.8 10.5 5.2 -------- --------- --------- --------- Total provision for credit losses ..................... $ 24.0 $ 20.0 $ 67.2 $ 72.3 ======== ========= ========= ========= Net credit losses as a percent (annualized) of average finance receivables ....................... 0.57% 0.52% 0.50% 0.66% ======== ========= ========= ========= - -------------------------------------------------------------------------------------------------------------------
Net credit losses for the three months ended September 30, 1995 totaled $21.9 million as compared with $18.2 million for the three months ended September 30, 1994. The increase is due to a higher level of credit losses in the Corporate Finance portfolio for the third quarter of 1995. Net credit losses for the nine months ended September 30, 1995 totaled $56.7 million as compared with $67.1 million for the nine months ended September 30, 1994. The decline was due to a higher level of recoveries for the nine month period of 1995. The reserve for credit losses at September 30, 1995 was $202.1 million (1.28% of total finance receivables) compared with $192.4 million (1.30%) at year-end 1994. INCOME TAXES The effective income tax rate for the 1995 third quarter was 38.6% compared with 39.0% from the prior year period. For the first nine months of 1995, the effective tax rate was 38.2% compared with 38.4% in 1994. -16- STATISTICAL DATA The following table presents components of net income as a percentage of AEA, along with other selected financial data: Nine Months Ended September 30, ------------------------------- 1995 1994 ----------- ----------- Finance income* ................................ 9.90% 9.08% Interest expense* .............................. 5.38 4.25 ----------- ----------- Net finance income ........................... 4.52 4.83 Fees and other income .......................... 1.17 1.31 ----------- ----------- Operating revenue ............................ 5.69 6.14 ----------- ----------- Salaries and general operating expenses ........ 2.22 2.51 Net credit losses** ............................ 0.50 0.66 Provision for finance receivables change ....... 0.09 0.05 ----------- ----------- Total provision for credit losses ............ 0.59 0.71 Depreciation on operating lease equipment ...... 0.49 0.47 ----------- ----------- Operating expenses ........................... 3.30 3.69 ----------- ----------- Income before provision for income taxes ....... 2.39 2.45 Provision for income taxes ..................... 0.92 0.94 ----------- ----------- Net income ................................... 1.47% 1.51% =========== =========== Average Financing and Leasing Assets (AEA) ..... $15,199,974 $13,408,639 =========== =========== Average Finance Receivables .................... $15,212,597 $13,518,880 =========== =========== * Excludes interest income and interest expense relating to short-term interest-bearing deposits. ** Percentage to average finance receivables. -17- LIQUIDITY AND CAPITALIZATION 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. The proceeds of such borrowings are 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 following table presents information regarding the Corporation's capital structure. - -------------------------------------------------------------------------------- September 30, December 31, 1995 1994 ------------- ------------ (Dollar Amounts in Thousands) Commercial Paper ................................. $ 5,231,479 $ 5,660,194 Term Debt ........................................ 8,120,082 6,735,650 Stockholders' Equity ............................. 1,876,998 1,793,027 ----------- ----------- Total Capitalization ............................. $15,228,559 $14,188,871 =========== =========== Ratios: Debt-to-equity ................................... 7.11 to 1 6.91 to 1 Debt-to-equity plus reserve for credit losses .... 6.42 to 1 6.24 to 1 - -------------------------------------------------------------------------------- During the first nine months of 1995, commercial paper borrowings decreased $428.7 million, the Corporation issued $1.6 billion of variable rate and $900.0 million of fixed rate term debt and repaid $1.1 billion of debt. At September 30, 1995, $6.46 billion of unissued debt securities remained available under shelf registration statements. At September 30, 1995, commercial paper borrowings were supported by $4.64 billion of committed credit line facilities, representing 89% of commercial paper outstanding. No borrowings have been made under credit lines since 1970. -18- PART II. OTHER INFORMATION 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 July 13, 1995 was filed with the Commission reporting the Corporation's announcement of results for the quarter ended June 30, 1995. (d) A Form 8-K report dated October 12, 1995 was filed with the Commission reporting the Corporation's announcement of results for the quarter ended September 30, 1995. -19- 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:November 9, 1995 -20- EX-12 2 EXHIBIT 12 EXHIBIT 12 THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts in Thousands) Nine Months Ended September 30, ---------------------- 1995 1994 -------- -------- Net Income ......................................... $167,763 $151,593 Provision for income taxes ......................... 103,660 94,609 -------- -------- Earnings before provision for income taxes ......... 271,423 246,202 -------- -------- Fixed charges: Interest and debt expense on indebtedness ........ 618,202 437,444 Interest factor - one third of rentals on real and personal properties .................... 5,227 5,857 -------- -------- Total fixed charges ................................ 623,429 443,301 -------- -------- Total earnings before provision for income taxes and fixed charges .......................... $894,852 $689,503 ======== ======== Ratio of earnings to fixed charges ................. 1.43 1.56 EX-27 3 FDS --
5 9-MOS 9-MOS DEC-31-1994 DEC-31-1995 SEP-30-1994 SEP-30-1995 64,379 109,652 0 0 14,370,708 15,780,996 185,321 202,142 0 0 0 0 0 0 0 0 15,437,284 17,241,550 0 0 4,885,650 8,120,082 250,000 250,000 0 0 0 0 1,517,912 1,626,998 15,437,284 17,241,550 0 0 1,055,443 1,266,115 0 0 252,189 252,989 0 0 72,333 67,223 437,444 618,202 246,202 271,423 94,609 103,660 151,593 167,763 0 0 0 0 0 0 151,593 167,763 0 0 0 0
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