-----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, QOgsoPfFoGDYBblIll2NWSiKx/6U1IzGKFm1iCzAuHclya68kEs8d1JMHjuMnxRm nJqbz7lU9mtyDoVeTG72dw== 0000891092-98-000161.txt : 19980506 0000891092-98-000161.hdr.sgml : 19980506 ACCESSION NUMBER: 0000891092-98-000161 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980505 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIT GROUP INC 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: SEC FILE NUMBER: 001-01861 FILM NUMBER: 98610425 BUSINESS ADDRESS: STREET 1: 1211 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2125361390 MAIL ADDRESS: STREET 1: 1211 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: CIT GROUP HOLDINGS INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CIT FINANCIAL CORP/OLD/ DATE OF NAME CHANGE: 19860512 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES 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 MARCH 31, 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 1-1861 THE CIT GROUP, 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) ________________________________________________________________________________ (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 April 30, 1998: Class A common stock - 37,167,810 shares; Class B common stock - 126,000,000 shares. ================================================================================ THE CIT GROUP, INC. AND SUBSIDIARIES (UNAUDITED) TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements Consolidated Balance Sheets - March 31, 1998 and December 31, 1997. 2 Consolidated Income Statements for the three month periods ended March 31, 1998 and 1997. 3 Consolidated Statements of Changes in Stockholders' Equity for the three month periods ended March 31, 1998 and 1997. 4 Consolidated Statements of Cash Flows for the three month periods ended March 31, 1998 and 1997. 5 Notes to Condensed Consolidated Financial Statements. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-21 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 22 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, 1997 Annual Report on Form 10-K for The CIT Group, Inc. (the "Company"). The discussion of the adoption of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" as of January 1, 1998 is included in Item 1. Financial Statements. -1- THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Millions) March 31, December 31, 1998 1997 ---- ---- (unaudited) Assets Financing and leasing assets Loans Commercial $10,264.9 $ 9,922.5 Consumer 3,733.1 3,664.8 Commercial lease receivables 4,102.1 4,132.4 --------- --------- Finance receivables 18,100.1 17,719.7 Reserve for credit losses (240.2) (235.6) --------- --------- Net finance receivables 17,859.9 17,484.1 Operating lease equipment, net 2,054.2 1,905.6 Consumer finance receivables held for sale 846.2 268.2 Cash and cash equivalents 242.2 140.4 Other assets 713.0 665.8 --------- --------- Total assets $21,715.5 $20,464.1 ========= ========= Liabilities and Stockholders' Equity Debt Commercial paper $ 5,835.5 $ 5,559.6 Variable rate senior notes 3,100.0 2,861.5 Fixed rate senior notes 7,151.7 6,593.8 Subordinated fixed rate notes 300.0 300.0 --------- --------- Total debt 16,387.2 15,314.9 Credit balances of factoring clients 1,243.4 1,202.6 Accrued liabilities and payables 720.4 660.1 Deferred federal income taxes 614.8 603.6 --------- --------- Total liabilities 18,965.8 17,781.2 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 250.0 250.0 Stockholders' equity Class A common stock, par value $0.01 per share, 700,000,000 shares authorized and 37,167,810 and 37,173,527 issued and outstanding at March 31, 1998 and December 31, 1997, respectively 0.4 0.4 Class B common stock, par value $0.01 per shares, 510,000,000 shares authorized and 126,000,000 issued and outstanding 1.3 1.3 Paid-in capital 949.7 948.3 Retained earnings 1,548.3 1,482.9 --------- --------- Total stockholders' equity 2,499.7 2,432.9 --------- --------- Total liabilities and stockholders' equity $21,715.5 $20,464.1 ========= ========= See accompanying notes to condensed consolifinancial statements. -2- THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENTS (Amounts in Millions, except per share amounts) Three Months Ended March 31, ------------------------------ 1998 1997 ---- ---- (unaudited) Finance income $472.6 $437.1 Interest expense 244.6 223.1 ------ ------ Net finance income 228.0 214.0 Fees and other income 66.4 57.7 ------ ------ Operating revenue 294.4 271.7 ------ ------ Salaries and general operating expenses 101.7 99.9 Provision for credit losses 22.5 27.0 Depreciation on operating lease equipment 38.3 32.1 Minority interest in subsidiary trust holding solely debentures of the Company 4.8 1.9 ------ ------ Operating expenses 167.3 160.9 ------ ------ Income before provision for income taxes 127.1 110.8 Provision for income taxes 45.4 40.7 ------ ------ Net income $ 81.7 $ 70.1 ====== ====== Net income per basic share $ 0.50 $0.45 Net income per diluted share $ 0.50 $0.44 See accompanying notes to condensed consolidated financial statements. -3- THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in Millions) Three Months Ended March 31, ----------------------- 1998 1997 ---- ---- (unaudited) Balance, January 1 $2,432.9 $2,075.4 Net income 81.7 70.1 Dividends declared (16.3) (21.0) Other 1.4 8.5 -------- -------- Balance, March 31 $2,499.7 $2,133.0 ======== ======== See accompanying notes to condensed consolidated financial statements. -4- THE CIT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions) Three Months Ended March 31, ---------------------- (unaudited) CASH FLOWS FROM OPERATIONS Net income $ 81.7 $ 70.1 Adjustments to reconcile net income to net cash flows from operations: Provision for credit losses 22.5 27.0 Depreciation and amortization 44.3 37.3 Provision (benefit) for deferred federal income taxes 11.2 (2.1) Gains on asset and receivable sales (21.3) (20.0) Increase in accrued liabilities and payables 44.1 3.3 Increase in other assets (59.7) (24.4) Other 6.6 (0.5) -------- -------- Net cash flows provided by operations 129.4 90.7 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Loans extended (8,578.5) (7,300.7) Collections on loans 7,847.3 7,052.2 Purchases of assets to be leased (228.3) (133.5) Net increase in short-term factoring receivables (161.7) (149.2) Proceeds from asset and receivable sales 71.3 67.3 Proceeds from sales of assets received in satisfaction of loans 11.6 6.6 Purchases of investment securities (2.3) (9.2) Other (6.9) (5.0) -------- -------- Net cash flows used for investing activities (1,047.5) (471.5) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issuance of variable and fixed rate notes 1,557.9 999.0 Repayments of variable and fixed rate notes (761.5) (1,036.3) Net increase in commercial paper 275.9 316.1 Repayments of nonrecourse leveraged lease debt (52.4) (53.2) Proceeds from the issuance of company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company -- 250.0 Cash dividends paid -- (21.0) -------- -------- Net cash flows provided by financing activities 1,019.9 454.6 -------- -------- Net increase in cash and cash equivalents 101.8 73.8 Cash and cash equivalents, beginning of period 140.4 103.1 -------- -------- Cash and cash equivalents, end of period $ 242.2 $ 176.9 ======== ======== Supplemental disclosures Interest paid $ 192.0 $ 208.8 Federal and state and local taxes paid $ 4.6 $ 2.0 Noncash transfers of finance receivables to assets received in satisfaction of loans $ 10.2 $ 7.3 Noncash transfers of assets received in satisfaction of loans to finance receivables $ -- $ 4.6 See accompanying notes to condensed consolidated financial statements. -5- THE CIT GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1--Basis of Presentation The Company considers that all adjustments (all of which are normal recurring accruals) necessary for a fair statement of financial position and results of operations for these periods have been made; however, results for interim periods are subject to year-end audit adjustments. Results for such interim periods are not necessarily indicative of results for a full year. Note2--Earnings Per Share The reconciliation of the numerator and denominator of basic earnings per share ("EPS") with that of diluted EPS is presented below.
For the Three Months Ended March 31, --------------------------------------------------------------------------------------- 1998 1997 ----------------------------------------- ------------------------------------------ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- -------- ----------- ------------- --------- Dollars in Millions (except per share amounts) Basic EPS: Income available to common shareholders $81.7 162,225,000 $0.50 $70.1 157,500,000 $0.45 ===== ===== Effect of Dilutive Securities: Restricted shares -- 947,098 -- 948,527 Stock options -- 326,286 -- -- ----- ----------- ----- ----------- Diluted EPS $81.7 163,498,384 $0.50 $70.1 158,448,527 $0.44 ===== =========== ===== ===== =========== =====
Note 3 - Recent Accounting Pronouncements In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". This statement does not change the reporting of net income. However, it requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a separate financial statement that is displayed with the same prominence as other financial statements. This statement also requires that an enterprise -6- display the accumulated balance of other comprehensive income separately from retained earnings and paid-in-capital in the equity section of a statement of financial position. The Company adopted this statement on January 1, 1998, but does not have significant comprehensive income components to report at March 31, 1998. In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Post Retirement Benefits". SFAS No. 132 revises employer's disclosures about pension and other post retirement benefit plans but does not change the measurement or recognition of those plans. The Statement standardizes the disclosure requirements to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer useful. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. The Company will adopt this standard in its 1998 year-end financial statements. -7- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income for the first quarter of 1998 totaled $81.7 million, an increase of $11.6 million (16.5%) from $70.1 million in the comparable 1997 period. The improvement resulted from growth in revenues from a higher level of financing and leasing assets, improvements in operating efficiency, and lower net credit losses. Return on average earning assets ("AEA") for the quarter ended March 31, 1998 increased to 1.71% compared with 1.60% for the same period of 1997. Return on equity for the first quarter of 1998 was 13.2% compared with 13.3% for 1997 due to the additional capital raised in connection with the Company's recent initial public offering. Financing and leasing assets totaled a record $21.1 billion at March 31, 1998, an increase of 5.5% over $20.0 billion at December 31, 1997. Managed assets, comprised of financing and leasing assets and consumer finance receivables previously securitized and currently managed by the Company, increased 4.3% to a record $23.3 billion at March 31, 1998, from $22.3 billion at December 31, 1997. NET FINANCE INCOME A comparison of 1998 and 1997 net finance income is set forth below. Three Months Ended ---------------------------------------------------- March 31, Increase -------------------------- -------------------- 1998 1997 Amount Percent ---- ---- ------ ------- (Dollar Amounts in Millions) Finance income $ 472.6 $ 437.1 $ 35.5 8.1% Interest expense 244.6 223.1 21.5 9.6% --------- ---------- -------- --- Net finance income $ 228.0 $ 214.0 $ 14.0 6.5% ========= ========== ======== --- AEA $19,083.3 $ 17,590.1 $1,493.2 8.5% ========= ========== ======== === Net finance income as a % of AEA 4.78% 4.87% ==== ==== -8- Finance income for the three months ended March 31, 1998 increased $35.5 million or 8.1% to $472.6 million from $437.1 million in the comparable 1997 period. As a percentage of AEA, finance income (excluding interest income relating to short-term interest-bearing deposits) was 9.76% for the first quarter of 1998 and 9.87% for the comparable period of 1997. Commercial segment finance income as a percentage of commercial AEA was 9.84% for the three months ended March 31, 1998 compared with 9.93% for the comparable period during 1997. The decline in the commercial segment finance income as a percentage of commercial AEA reflects higher account termination payments during 1997 and an increased level of municipal equipment leasing activity in 1998, which has a lower yield but a lower effective tax rate. Consumer segment finance income as a percentage of consumer AEA was 9.42% for the three months ended March 31, 1998 compared with 9.52% for the comparable period during 1997. The decline in the consumer segment finance income as a percentage of consumer AEA for the three months ended March 31, 1998 reflects the sale of certain higher yielding high loan-to-value loans during the second quarter of 1997. Interest expense for the three months ended March 31, 1998 increased $21.5 million or 9.6% to $244.6 million from $223.1 million in the comparable 1997 period. As a percentage of AEA, interest expense (excluding interest expense relating to short-term interest-bearing deposits) for the three months ended March 31, 1998 decreased to 4.98% from 5.00% for the comparable period of 1997. -9- A comparative analysis of the weighted average principal outstanding and interest rates paid on the Company's debt for the three month periods ended March 31, 1998 and 1997, before and after giving effect to interest rate swaps, is shown in the following tables.
Three Months Ended March 31, 1998 ---------------------------------------------------------- Before Swaps After Swaps --------------------- ----------------------- (Dollar Amounts in Millions) Commercial paper and variable rate senior notes $ 8,520.7 5.66% $ 6,052.4 5.61% Fixed rate senior and subordinated notes 7,056.5 6.41% 9,524.8 6.48% ---------- ---------- Composite $ 15,577.2 6.00% $ 15,577.2 6.14% ========== ========== Three Months Ended March 31, 1997 ---------------------------------------------------------- Before Swaps After Swaps --------------------- ----------------------- (Dollar Amounts in Millions) Commercial paper and variable rate senior notes $ 9,776.2 5.46% $ 6,258.9 5.38% Fixed rate senior and subordinated notes 4,914.4 6.55% 8,431.7 6.50% ---------- ---------- Composite $ 14,690.6 5.82% $ 14,690.6 6.02% ========== ==========
The Company's interest rate swaps principally convert floating rate debt to fixed rate debt. The Company does not enter into derivative financial instruments for trading or speculative purposes. The weighted average composite rate increased from 6.00% to 6.14% in 1998 and from 5.82% to 6.02% in 1997, primarily because a larger proportion of the Company's debt, after giving effect to interest rate swaps, was subject to a fixed rate. However, the weighted average interest rates before swaps do not necessarily reflect the interest expense that would have been incurred had the Company chosen to manage interest rate risk without the use of such swaps. -10- FEES AND OTHER INCOME For the three months ended March 31, 1998, fees and other income totaled $66.4 million, an increase of $8.7 million over the comparable 1997 period. The following table sets forth the components of fees and other income. Three Months Ended March 31, -------------------------------- 1998 1997 ---- ---- Dollars in Millions Factoring commissions $23.0 $21.2 Fees and other 22.1 17.0 Gains on sales of leasing equipment 14.8 11.4 Gains on sales of venture capital investments 6.5 7.7 Gains on securitizations and sales of finance receivables -- 0.4 ----- ----- $66.4 $57.7 ===== ===== SALARIES AND GENERAL OPERATING EXPENSES Salaries and general operating expenses increased $1.8 million or 1.8% to $101.7 million in the first quarter of 1998 from $99.9 million in the comparable 1997 period as management continued to control expenses and improve productivity. Salaries and employee benefits rose $1.7 million, or 2.8%, while general operating expenses were unchanged. Management monitors productivity via the analysis of the efficiency ratio and the ratio of salaries and general operating expenses to average managed assets ("AMA"), which is comprised of average earning assets plus the average of consumer finance receivables previously securitized and currently managed by the Company. The improvement in the ratios in the following table reflects -11- the ability of the Company to leverage its existing infrastructure and the success of continuing productivity initiatives. Three Months Ended March 31, --------------------------------------- 1998 1997 ---------------- ------------- Dollars in Millions Efficiency ratio 40.5% 42.0% Salaries and general operating expenses as a percentage of AMA 1.90% 2.10% PROVISION AND RESERVE FOR CREDIT LOSSES/CREDIT QUALITY The provision for credit losses for the first quarter of 1998 was $22.5 million, down $4.5 million from $27.0 million for the first quarter of 1997. The decrease was primarily the result of lower net commercial credit losses due to higher 1998 recoveries, partially offset by higher consumer net credit losses. Comparative net credit loss experience is provided in the following table.
Three Months Ended March 31, ------------------------------------------------------------------------------- 1998 1997 -------------------------------------- --------------------------------------- Total Commercial Consumer Total Commercial Consumer ----- ---------- -------- ----- ---------- -------- Dollars in Millions Net credit losses $20.0 $9.3 $10.7 $25.7 $17.1 $8.6 Net credit losses as a percentage of average finance receivables, excluding consumer finance receivables held for sale (annualized) 0.45% 0.27% 1.17% 0.60% 0.51% 0.97%
As a percentage of average consumer managed finance receivables, consumer net credit losses were 0.90% during the first quarter of 1998 compared with 0.94% in 1997. The consolidated reserve for credit losses increased to $240.2 million (1.33% of finance receivables) at March 31, 1998 from $235.6 million (1.33% of finance receivables) at -12- December 31, 1997. The ratio of the consolidated reserve for credit losses to trailing twelve-month net credit losses improved to 2.5 times at March 31, 1998 from 2.3 times at December 31, 1997. Past Due And Nonperforming Assets The following table sets forth certain information concerning past due and nonperforming assets (and the related percentages of finance receivables) at March 31, 1998 and December 31, 1997. At March 31, 1998 At December 31, 1997 ---------------------- ----------------------- Dollars in Millions Finance receivables, past due 60 days or more Commercial $182.1 1.27% $168.9 1.20% Consumer 122.3 3.28% 127.7 3.48% ------ ---- ------ ---- Total $304.4 1.68% $296.6 1.67% ====== ---- ====== ==== Nonperforming assets Commercial $137.9 0.96% $105.5 0.75% Consumer 107.4 2.88% 101.9 2.78% ------ ---- ------ ---- Total $245.3 1.35% $207.4 1.17% ====== ==== ====== ==== Nonperforming assets reflect both commercial and consumer finance receivables on nonaccrual status and assets received in satisfaction of loans. OPERATING LEASE EQUIPMENT The operating lease equipment portfolio was $2.1 billion at March 31, 1998, up 7.8% from December 31, 1997 and up 36.8% from March 31, 1997. Depreciation on operating lease equipment for the first quarter of 1998 was $38.3 million up from $32.1 million for the same period in 1997. -13- From time to time, financial or operational difficulties may adversely affect future payments to the Company relating to operating lease equipment. At March 31, 1998, operators of certain aircraft assets and operations at an oil refinery were subject to such difficulties. The approximate aggregate carrying value of these assets was $56.3 million. The Company does not believe these difficulties will have a material effect on its consolidated financial position or results of operations. INCOME TAXES The effective income tax rates for the 1998 and 1997 first quarters were 35.7% and 36.7%, respectively. The decrease in the effective tax rate for the three months ended March 31, 1998 is a result of lower state and local income taxes. -14- FINANCING AND LEASING ASSETS Managed assets grew $950.5 million (4.3%) to $23.3 billion. Financing and leasing assets increased $1.1 billion, or 5.5%, to $21.1 billion, as presented in the following table. At De- Change At March 31, cember 31, -------------------- 1998 1997 Amount Percent ---- ---- ------ ------- (Dollar Amounts in Millions) Commercial Equipment Financing and Leasing Finance receivables Capital Finance $ 2,293.0 $ 2,400.7 $ (107.7) (4.5)% Equipment Financing 7,559.6 7,403.4 156.2 2.1 --------- --------- -------- ---- 9,852.6 9,804.1 48.5 0.5 --------- --------- -------- ---- Operating lease equipment, net Capital Finance 1,450.3 1,281.8 168.5 13.1 Equipment Financing 603.9 623.8 (19.9) (3.2) --------- --------- -------- ---- 2,054.2 1,905.6 148.6 7.8 --------- --------- -------- ---- Total Equipment Financing and Leasing 11,906.8 11,709.7 197.1 1.7 --------- --------- -------- ---- Factoring Commercial Services 2,312.4 2,113.1 199.3 9.4 --------- --------- -------- ---- Commercial Finance Business Credit 1,298.2 1,247.9 50.3 4.0 Credit Finance 903.8 889.8 14.0 1.6 --------- --------- -------- ---- Total Commercial Finance 2,202.0 2,137.7 64.3 3.0 --------- --------- -------- ---- Other Equity Investments 63.3 65.8 (2.5) (3.8) --------- --------- -------- ---- Total commercial 16,484.5 16,026.3 458.2 2.9 --------- --------- -------- ---- Consumer Consumer Finance 2,284.9 1,992.3 292.6 14.7 Sales Financing 2,294.4 1,940.7 353.7 18.2 --------- --------- -------- ---- Total consumer 4,579.3 3,933.0 646.3 16.4 --------- --------- -------- ---- Total financing and leasing assets 21,063.8 19,959.3 1,104.5 5.5 --------- --------- -------- ---- Consumer finance receivables previously securitized and currently managed by the Company Consumer Finance 419.6 453.8 (34.2) (7.5) Sales Financing 1,812.0 1,931.8 (119.8) (6.2) --------- --------- -------- ---- 2,231.6 2,385.6 (154.0) (6.5) --------- --------- -------- ---- Total managed assets $23,295.4 $22,344.9 $ 950.5 4.3% ========= ========= ======== === Total commercial financing and leasing assets increased 2.9% from December 31, 1997 as a result of a rise in factoring receivables and growth in the operating lease portfolio. Growth in factoring receivables was favorably impacted by higher seasonal sales and client borrowings, as well as strong new business signings. Growth in the operating lease portfolio occurred primarily in -15- commercial aircraft and railcars. These increases were partially offset by the continued high level of paydowns in the commercial financing sector and the continued liquidation of the oceangoing maritime and power generation project portfolios. Consumer managed assets increased to $6.8 billion at March 31, 1998 from $6.3 billion at December 31, 1997, up 7.8%. The consumer increase was the result of strong originations, particularly in recreational boat and recreation vehicle products. Financing and Leasing Assets Composition The Company's ten largest financing and leasing asset accounts at March 31, 1998 in the aggregate represented 4.3% of the Company's total financing and leasing assets. All ten of such accounts are commercial accounts and are secured by equipment, accounts receivable or inventory. Geographic Composition The following table presents financing and leasing assets by customer location.
At March 31,1998 At December 31, 1997 ------------------------------- ----------------------------- Amount Percent Amount Percent ------ ------- ------ ------- Dollars in Millions United States West $ 4,925.7 23.4% $ 4,642.1 23.3% Northeast 4,822.1 22.9 4,501.9 22.6 Midwest 4,472.8 21.2 4,290.0 21.5 Southeast 2,978.9 14.1 2,802.9 14.0 Southwest 2,475.1 11.8 2,360.7 11.8 Foreign (principally commercial aircraft) 1,389.2 6.6 1,361.7 6.8 ---------- ----- --------- ----- Total $ 21,063.8 100.0% $19,959.3 100.0% ========== ===== ========= =====
The Company's managed asset geographic diversity does not differ significantly from its owned asset geographic diversity. -16- The Company's financing and leasing asset portfolio is diversified by state. At March 31, 1998, with the exception of California (12.3%), New York (8.3%), and Texas (7.7%), no state represented more than 5.0% of financing and leasing assets. Industry Composition The following table presents financing and leasing assets by major industry class.
At March 31, 1998 At December 31, 1997 ----------------------- ----------------------- Amount Percent Amount Percent ------ ------- ------ ------- Dollars in Millions Manufacturing(1)(none greater than 4.5%) $ 4,538.3 21.5% $ 4,440.4 22.2% Home mortgage(2) 2,284.9 10.8 1,992.3 10.0 Commercial airlines(3) 2,153.1 10.2 2,077.6 10.4 Retail 1,922.6 9.1 1,807.5 9.1 Construction equipment 1,850.9 8.8 1,791.4 9.0 Transportation(4) 1,390.0 6.6 1,283.7 6.4 Manufactured housing(5) 1,158.1 5.5 1,125.7 5.6 Other (none greater than 3.4%)(6) 5,765.9 27.5 5,440.7 27.3 --------- ----- --------- ----- Total $21,063.8 100.0% $19,959.3 100.0% ========= ===== ========= =====
(1) Includes manufacturers of steel and metal products, textiles and apparel, printing and paper products and other industries. (2) On a managed asset basis, home mortgage outstandings were $2.7 billion or 11.6% of managed assets at March 31, 1998 as compared with $2.4 billion or 10.9% at December 31, 1997. (3) See "--Concentrations" below for a discussion of the commercial airline portfolio. (4) Includes rail, bus, and over-the-road trucking industries and business aircraft. (5) On a managed asset basis, manufactured housing outstandings were $1.5 billion or 6.4% of managed assets at March 31, 1998 as compared to $1.5 billion or 6.5% at December 31, 1997. (6) On a managed asset basis, recreation vehicle outstandings were $1.7 billion or 7.1% of managed assets at March 31, 1998 as compared to $1.6 billion or 7.2% at December 31, 1997. On a managed asset basis, recreational boat outstandings were $799.8 million or 3.4% of managed assets at March 31, 1998 as compared to $682.5 million or 3.1% of managed assets at December 31, 1997. Concentrations Commercial Airline Industry Commercial airline financing and leasing assets totaled $2.2 billion or 10.2% of total financing and leasing assets at March 31, 1998, up slightly from the December 31, 1997 balance of $2.1 billion. -17- The portfolio is secured by commercial aircraft and related equipment. Given current improved industry performance, the Company has determined to grow this portfolio, but will continue to monitor the size of the portfolio relative to the Company's total financing and leasing assets. The following table presents information about the commercial airline industry portfolio. See also "Operating Lease Equipment". At March 31, At December 31, 1998 1997 ---- ---- (Dollar Amounts in Millions) Finance Receivables Amount outstanding(1) $1,213.2 $1,254.9 Number of obligors 51 54 Operating Lease Equipment, net Net carrying value 939.9 822.7 Number of obligors 32 33 Total 2,153.1 2,077.6 Number of obligors(2) 67 67 Number of aircraft(3) 218 225 (1) Includes accrued rents on operating leases that are classified as finance receivables in the Company's Consolidated Balance Sheets. (2) Certain obligors are obligors under both finance receivable and operating lease transactions. (3) Regulations established by the Federal Aviation Administration (the "FAA") limit the maximum permitted noise an aircraft may make. A Stage III aircraft meets a more restrictive noise level requirement than a Stage II aircraft. The FAA has issued rules that phase out the use of Stage II aircraft in the United States through the year 2000. The International Civil Aviation Organization has issued similar requirements for Europe. At March 31, 1998, the portfolio consisted of Stage III aircraft of $2,019.9 million (93.8%) and Stage II aircraft of $102.1 million (4.8%), versus Stage III aircraft of $1,933.5 million (93.1%) and Stage II aircraft of $115.7 million (5.6%) at year-end 1997. Foreign Outstandings Financing and leasing assets to foreign obligors, primarily to the commercial airline industry, are all U.S. dollar denominated and totaled $1.4 billion at both March 31, 1998 and December 31, 1997. The foreign exposure was geographically dispersed, with no individual country representing more than 0.75% of financing and leasing assets. -18- LIQUIDITY The Company manages liquidity risk by monitoring the relative maturities of assets and liabilities and by borrowing funds, primarily in the U. S. 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 asset-backed securitizations. Commercial paper outstanding increased $275.9 million from $5.6 billion at December 31, 1997 to $5.8 billion. During the first quarter of 1998, the Company issued $0.9 billion of prime-based variable-rate term debt and $0.7 billion of fixed-rate debt, whereas repayments of term debt totaled $0.8 billion. At March 31, 1998, $4.9 billion of registered, but unissued, debt securities remained available under shelf registration statements. At March 31, 1998, commercial paper borrowings were supported by $5.0 billion of committed revolving credit-line facilities. At March 31, 1998, such credit-line facilities represented 88% of operating commercial paper outstanding (commercial paper outstanding less interest-bearing deposits), as compared with 91% at December 31, 1997. No borrowings have been made under credit lines supporting commercial paper since 1970. Periodically, the Company accesses the public and private asset-backed securitization markets as an additional liquidity source. At March 31, 1998, $2.7 billion of registered, but unissued, securities relating to the Company's asset-backed securitization program remained available under shelf registration statements. The Company did not access the securitization markets during the first quarter of 1998. -19- CAPITALIZATION The following table presents information regarding the Company's capital structure. March 31, December 31, 1998 1997 -------- ----------- (Dollars in Millions) Commercial paper $ 5,835.5 $ 5,559.6 Term debt 10,551.7 9,755.3 ---------- ---------- Total debt 16,387.2 15,314.9 Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 250.0 250.0 Stockholders' equity 2,499.7 2,432.9 ---------- ---------- Total capitalization $ 19,136.9 $ 17,997.8 ========== ========== Total debt to stockholders' equity and Company- obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company 5.96x 5.71x Total debt and Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company to stockholders' equity 6.66x 6.40x -20- STATISTICAL DATA The following table presents components of net income as a percentage of AEA, along with other selected financial data. Three Months Ended March 31, --------------------- 1998 1997 ---- ---- Finance income* 9.76% 9.87% Interest expense* 4.98 5.00 ---- ---- Net finance income 4.78 4.87 Fees and other income 1.39 1.31 ---- ---- Operating revenue 6.17 6.18 ---- ---- Salaries and general operating expenses 2.14 2.27 Provision for credit losses 0.47 0.61 Depreciation on operating lease equipment 0.80 0.73 Minority interest in subsidiary trust holding solely debentures of the company 0.10 0.04 ---- ---- Operating expenses 3.51 3.65 ---- ---- Income before provision for income taxes 2.66 2.53 Provision for income taxes 0.95 0.93 ---- ---- Net income 1.71% 1.60% ==== ==== Average earning assets (in millions) $19,083.3 $17,590.1 ========= ========== *Excludes interest income and interest expense relating to short-term interest-bearing deposits. -21- 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 January 15, 1998 was filed with the Commission reporting amendments to certain items of the Company's 1996 Form 10-K. (d) A Form 8-K report dated January 28, 1998 was filed with the Commission reporting the Company's announcement of financial results for the quarter and year ended December 31, 1997. (e) A Form 8-K report dated March 24, 1998 was filed with the Commission reporting the Company's declaration of a dividend for the quarter ended March 31, 1998 and the election of a new director. -22- 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, Inc. (Registrant) BY /s/ J. M. Leone ----------------------------- J. M. Leone Executive Vice President and Chief Financial Officer (duly authorized and principal accounting officer) DATE: May 5, 1998 EX-12 2 COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES EXHIBIT 12 THE CIT GROUP, INC. AND SUBSIDIARIES COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES (Dollar Amounts In Millions) Three Months Ended March 31, -------------------- 1998 1997 Net income $ 81.7 $70.1 Provision for income taxes 45.4 40.7 ------ ----- Earnings before provision for income taxes 127.1 110.8 ------ ----- Fixed charges: Interest and debt expense on indebtedness 244.6 223.1 Minority interest in subsidiary trust holding solely debentures of the company 4.8 1.9 Interest factor - one third of rentals on real and personal properties 2.3 2.1 ------ ----- Total fixed charges 251.7 227.1 ------ ----- Total earnings before provision for income taxes and fixed charges $378.8 $337.9 ====== ====== Ratios of earnings to fixed charges 1.50x 1.49x EX-27 3 FDS --
5 1,000,000 3-mos 3-mos DEC-31-1998 DEC-31-1997 MAR-31-1998 MAR-31-1997 242 177 0 0 18,100 17,016 240 222 0 0 0 0 0 0 0 0 21,715 19,585 0 0 10,552 8,741 250 250 0 0 2 250 2,498 1,883 21,715 19,585 0 0 539 495 0 0 102 100 42 34 23 27 245 223 127 111 45 41 82 70 0 0 0 0 0 0 82 70 0.50 0.45 0.50 0.44
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