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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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Form 10-K
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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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 (I.R.S. Employer
of incorporation or organization) Identification No.)
1211 Avenue of the Americas, New York, New York 10036
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 536-1950
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
8 3/4% Notes Due April 15, 1998.................... New York Stock Exchange
5 7/8% Notes Due October 15, 2008.................. New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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 3 No .
Indicate by check mark if disclosure of delinquent files pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant.
None of the voting stock of the Registrant is held by non-affiliates of
the Registrant. 60% of the voting stock of the Registrant is owned by
The Dai-Ichi Kangyo Bank, Limited and 40% by MHC Holdings (Delaware)
Inc., a wholly-owned subsidiary of Chemical Banking Corporation.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date. March 1,
1994--Common Stock--1,000 Shares
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933.
None
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<PAGE>
TABLE OF CONTENTS
Form 10-K
Item No. Name of Item Page
-------- ------------ ----
Part I
Item 1. Business 1
General 1
Business and Services 1
Industry Concentration 3
Competition 3
Regulation 3
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote
of Security Holders 4
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 47
Part III
Item 10. Directors and Executive Officers of the Registrant 48
Item 11. Executive Compensation 50
Long-Term Incentive Plan 51
Defined Benefit Plans 51
Employment Agreements 53
Termination Arrangements 54
Item 12. Security Ownership of Certain
Beneficial Owners and Management 54
Item 13. Certain Relationships and Related Transactions 55
Part IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K 56
<PAGE>
PART I
Item 1. Business
General
The CIT Group Holdings, Inc. (the "Corporation"), a Delaware corporation,
is a successor to a company founded in St. Louis, Missouri on February 11, 1908.
It has its principal executive offices at 1211 Avenue of the Americas, New York,
New York 10036, and its telephone number is (212) 536-1950. The Corporation,
operating directly or through its subsidiaries primarily in the United States,
engages in financial services activities through a nationwide distribution
network. The Corporation provides financing primarily on a secured basis to
commercial borrowers, ranging from middle-market to larger companies. While
these secured lending activities reduce the risk of losses from extending
credit, the Corporation's results of operations can also be affected by other
factors, including general economic conditions, competitive conditions, the
level and volatility of interest rates, concentrations of credit risk, and
government regulation and supervision. The Corporation does not finance the
development or construction of commercial real estate. The Corporation has eight
strategic business units, seven of which offer corporate financing, dealer and
manufacturer financing, and factoring products and services to clients, and an
eighth strategic business unit which commenced operations in the last quarter of
1992 offering consumer second mortgage financing and which is planning to offer
home equity lines of credit to consumers in early 1994. The Corporation had
2,424 employees at December 31, 1993, up from 2,355 employees at December 31,
1992.
Effective at year-end 1989, The Dai-Ichi Kangyo Bank, Limited ("DKB")
purchased sixty percent (60%) of the issued and outstanding shares of common
stock of the Corporation from Manufacturers Hanover Corporation ("MHC"). MHC
retained a forty percent (40%) common stock interest in the Corporation.
Effective March 29, 1990, MHC transferred its forty percent (40%) common stock
interest in the Corporation to MHC Holdings (Delaware) Inc., a wholly-owned
subsidiary of MHC ("MHC Holdings"). On December 31, 1991, MHC and Chemical
Banking Corporation merged in a stock-for-stock transaction. The merged
corporation is called Chemical Banking Corporation ("CBC"). CBC retains a forty
percent (40%) common stock interest in the Corporation through MHC Holdings.
In accordance with a stockholders agreement among DKB, CBC, as successor to
MHC, and the Corporation (the "Stockholders Agreement"), the Corporation amended
its Certificate of Incorporation and its By-Laws in conformity therewith.
Pursuant to the Stockholders Agreement, immediately after MHC sold the sixty
percent (60%) interest in the Corporation to DKB, the stockholders elected a new
Board of Directors comprised of the President and Chief Executive Officer and
the Vice Chairman of the Corporation, six nominees designated by DKB, and two
nominees designated by MHC. The Stockholders Agreement also contains provisions
for the management of the Corporation, majority voting by DKB on the
Corporation's Executive Committee, consent of MHC Holdings with respect to major
corporate and business changes, and restrictions with respect to the transfer of
the stock of the Corporation to third parties.
BUSINESS AND SERVICES
Corporate Finance Group
The Corporation's Corporate Finance Group is comprised of Business Credit,
Capital Equipment Financing and Credit Finance.
The CIT Group/Business Credit offers revolving and term loans secured by
accounts receivable, inventories and fixed assets to medium and larger-sized
companies. Such loans are used by clients primarily for acquisitions and
refinancings. It also offers specialty financing for companies in the paper,
printing and chemical industries and debtor-in-possession and workout financing
for turnaround situations. The CIT Group/Business Credit sells participation
interests in such loans to other lenders and will occasionally purchase
participation interests in such loans originated by other lenders. Business is
developed through direct calling efforts and through other sources originated by
individual new business development officers. The CIT Group/Business Credit is
headquartered in New York City, with sales offices in New York, Chicago, Dallas,
Los Angeles, and Atlanta.
1
<PAGE>
The CIT Group/Capital Equipment Financing specializes in customized secured
financing and leasing of equipment in larger transactions, including single
investor leases and the debt and equity portions of leveraged leases for major
capital equipment such as aircraft, rail cars, maritime shipping, and containers
and chassis, for its own account and for syndications. Such business is
developed directly with large companies and through third parties. The CIT
Group/Capital Equipment Financing also provides secured financing and leasing
products to middle-market and larger companies seeking medium and longer term
financings. Such transactions are developed through direct calling efforts and
financial intermediaries. Financing products include direct secured loans, sale
and leaseback arrangements, and project financings. Two business groups within
The CIT Group/Capital Equipment Financing augment its marketing efforts and
provide services relating to its areas of expertise. The first group, The CIT
Group/Capital Investments, acts as an agent, broker, and advisor in financing
and leasing transactions. The CIT Group/Capital Investments is a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. The second group, The CIT Group/Asset Management, received approval in
December 1992 from the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") to provide asset management services to financial
institutions and certain non-financial institutions for equipment financing
transactions and portfolios. The CIT Group/Capital Equipment Financing is
headquartered in New York City, with sales offices in eight cities, including
New York, Chicago and Los Angeles.
The CIT Group/Credit Finance offers revolving and term loans to small and
medium-sized companies secured by accounts receivable, inventories, and fixed
assets. Such loans are used by clients for working capital and in refinancings,
acquisitions, and leveraged buyouts. The CIT Group/Credit Finance also offers
financing for reorganizations, restructurings, and Chapter 11 situations.
Business is developed through direct calling efforts and through other sources
developed by individual new business development officers. The CIT Group/Credit
Finance is headquartered in New York City, with sales offices in ten cities,
including New York, Chicago and Los Angeles.
Dealer and Manufacturer Financing Group
The Corporation's Dealer and Manufacturer Financing Group is comprised of
Industrial Financing, Sales Financing, and Consumer Finance.
The CIT Group/Industrial Financing offers secured equipment financing
products, including direct secured loans, leases, secured lines of credit, sale
and leaseback arrangements, vendor financing for manufacturers, wholesale and
retail financing for dealers/distributors, acquisition of chattel paper and
other installment receivables, and acquisition of portfolios originated by
others. It has a nationwide network of local offices and business aircraft,
intermediary and national accounts financing units. The CIT Group/Industrial
Financing is headquartered in Livingston, New Jersey, with sales offices in
twenty cities, including Berwyn, Pennsylvania, Tempe, Arizona, Atlanta, Georgia
and Irving, Texas, which also serve as regional offices.
The CIT Group/Sales Financing, working through dealers and manufacturers,
provides retail secured financing on a nationwide basis for the purchase of
recreational vehicles, recreational boats and manufactured housing. The CIT
Group/Sales Financing also purchases portfolios of these assets from banks,
savings and loans, investment banks and others and provides servicing for
portfolios owned by other financial institutions and securitization trusts. The
CIT Group/Sales Financing is headquartered in Livingston, New Jersey with an
asset service center in Oklahoma City, Oklahoma, and covers the United States
from sales offices in 13 cities (which are in the process of being consolidated
into five regional sales centers located in Atlanta, Boston, Kansas City,
Sacramento and Seattle).
In December 1992, The CIT Group/Consumer Finance, a newly formed strategic
business unit, began offering loans secured primarily by a first or second
mortgage on residential real estate. The CIT Group/Consumer Finance generates
business through direct marketing efforts and, to a lesser extent, through
brokers. It also acquires "home equity" portfolios originated by others. In
early 1994, The CIT Group/Consumer Finance plans to introduce home equity lines
of credit to consumers. This strategic business unit is headquartered in
Livingston, New Jersey with 35 sales offices serving 23 states, two of which
originate mortgage loans for resale to third parties, in addition to originating
mortgage loans for the business unit's own portfolio. Administrative support is
provided by the Sales Financing asset service center located in Oklahoma City,
Oklahoma.
2
<PAGE>
Factoring
The CIT Group/Commercial Services (formerly The CIT Group/Factoring) offers
a full range of factoring services providing for the purchase of accounts
receivable, including credit protection, bookkeeping, and collection activities.
Financing is also provided in the form of revolving and term loans, and letter
of credit support. The CIT Group/Commercial Services is headquartered in New
York City, with sales offices in New York, Los Angeles, Charlotte, Atlanta and
Hong Kong. Bookkeeping and collection functions are located in a service center
in Danville, Virginia.
On February 28, 1994, the Corporation acquired Barclays Commercial
Corporation ("BCC"), a company of The Barclays Group. BCC had total assets of
approximately $700.0 million at December 31, 1993 and total factoring volume of
approximately $5.00 billion for the year then ended. The business and acquired
assets of BCC were transferred to The CIT Group/BCC, Inc., a wholly owned
subsidiary of The CIT Group/Commercial Services, Inc., a wholly owned subsidiary
of the Corporation. BCC is engaged in the same lines of business as The CIT
Group/Commercial Services, with BCC adding a significant geographical presence
in the Southeastern United States. BCC is headquartered in Charlotte, with five
sales offices in Charlotte, New York, Dallas, Louisville and Los Angeles.
Equity Investments
The CIT Group/Equity Investments provides capital to medium-sized companies
and emerging growth companies through the purchase of private issuances of
common stock, preferred stock, and subordinated debt. Capital is used by clients
to make acquisitions and to finance growth. Business is developed through
referrals from the Corporation's other business units and from venture capital
and regional investment banking firms. In June 1992, The CIT Group/Venture
Capital, a wholly-owned subsidiary of The CIT Group/Equity Investments, received
approval from the U.S. Small Business Administration for a license as a small
business investment company. The Cit Group/Equity Investments is headquartered
in Livingston, New Jersey.
Multi-National Marketing
Supplementing the Corporation's marketing efforts, the Corporation's
Multi-National Marketing Group promotes the services of the Corporation's
various business units to the U.S. subsidiaries of foreign corporations in need
of asset-based financing. Business is developed through referrals from DKB and
through direct calling efforts. The Multi-National Marketing Group is located in
the Corporation's offices in New York City.
INDUSTRY CONCENTRATION
With the exception of the airline industry, which accounts for $1.89
billion, or 14.2%, of total financing and leasing assets (before the reserve for
credit losses) as of December 31, 1993, the portfolio of the Corporation was
diversified with no other industry group accounting for more than 10% of the
Corporation's financing and leasing assets. See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations, "Industry
Composition" and "Financing and Leasing Assets Concentrations."
COMPETITION
The business in which the Corporation engages is highly competitive, with
business developed primarily on the basis of interest rates and service. The
Corporation is subject to competition from many financial institutions,
including finance companies, banks, leasing companies and investment banks. The
Corporation's Commercial Services unit is among the largest factoring operations
in the United States.
The interest rates charged by the Corporation for the various classes of
financing and leasing assets vary depending upon the credit quality of the
borrower, the costs of servicing, the income tax consequences of the
transaction, the amount and maturity of the loan, the cost of borrowing to the
Corporation, and, to a lesser degree, state usury laws and other governmental
regulations, when applicable. The Corporation's finance receivables have both
variable rates and fixed rates of interest. Variable rate loans reprice in
accordance with various agreed upon indices, usually a published reference or
corporate base lending rate.
REGULATION
Both DKB and CBC are bank holding companies within the meaning of the Bank
Holding Company Act of 1956 (the "Act"), and each is registered as such with the
Federal Reserve Board. As a result, the Corporation is subject to certain
provisions of the Act. In general, the Act limits the activities in which a bank
3
<PAGE>
holding company and its subsidiaries may engage to those of banking or managing
or controlling banks or performing services for their subsidiaries and to
continuing activities which the Federal Reserve Board has determined to be "so
closely related to banking or managing or controlling banks as to be a proper
incident thereto." The Corporation's current principal business activities
constitute permissible activities for a subsidiary of a bank holding company.
The operations of the Corporation and its subsidiaries are subject, in
certain instances, to supervision and regulation by governmental authorities and
may be subject to various laws and judicial and administrative decisions
imposing various requirements and restrictions, including among other things,
regulating credit granting activities, establishing maximum interest rates and
finance charges, regulating customers' insurance coverages, requiring
disclosures to customers, governing secured transactions, and setting
collection, repossession, and claims handling procedures and other trade
practices. In most states the consumer sales finance and loan business and the
consumer second mortgage and home equity line of credit businesses are subject
to licensing or regulation. In some states the industrial finance business is
subject to similar licensing or regulation. The consumer second mortgage, home
equity line of credit, sales finance, and loan businesses, including those
conducted by the Corporation, are also subject to a number of Federal statutes,
including the Federal Consumer Credit Protection Act, which requires, among
other things, disclosure of the finance charge in terms of an annual percentage
rate, as well as the total dollar cost.
In the judgment of management, existing statutes and regulations have not
had a materially adverse effect on the business conducted by the Corporation and
its subsidiaries. However, it is not possible to forecast the nature of future
legislation, regulations, judicial decisions, orders, or interpretations, nor
their impact upon the future business, earnings, or otherwise, of the
Corporation and its subsidiaries.
Item 2. Properties.
The operations of the Corporation and its subsidiaries are generally
conducted in leased office space located in numerous cities and towns throughout
the United States. Such leased office space is suitable and adequate for the
needs of the Corporation. The Corporation utilizes, or plans to utilize in the
foreseeable future, substantially all of its leased office space. For a summary
of the Corporation's past rental expense and future minimum rentals, see Item 8.
Financial Statements and Supplementary Data, "Note 10--Lease Commitments."
Item 3. Legal Proceedings.
Various claims and actions against the Corporation and its subsidiaries
arise from time to time in the normal course of business. A number of these
actions, some of which purport to be class actions, are now pending. While no
prediction can be made as to the ultimate outcome of any particular action,
management believes that meritorious defenses are generally available and the
aggregate liability, if any, likely to result therefrom will not materially
affect the consolidated financial condition of the Corporation.
Item 4. Submission of Matters to a Vote of Security Holders.
On April 15, 1993, DKB and MHC Holdings, by unanimous written consent,
elected the following ten persons to the Board of Directors, to serve for a
period of one year or until the next annual meeting of shareholders:
Messrs. Hisao Kobayashi (Chairman)
Albert R. Gamper, Jr.
Takasuke Kaneko
Hideo Kitahara
Michio Murata
Joseph A. Pollicino
Paul N. Roth
Tomoaki Tanaka
Peter J. Tobin
William H. Turner
Subsequently, on April 30, 1993, Mr. Hideo Kitahara resigned from the Board
and the stockholders, by unanimous written consent, elected Mr. Toshiji Tokiwa
for the balance of Mr. Kitahara's term as Director. On May 21, 1993, Mr.
Takasuke Kaneko resigned from the Board and the stockholders, by unanimous
written consent, elected Mr. Keiji Torii for the balance of Mr. Kaneko's term.
4
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The outstanding common stock of the Corporation is owned 60% by DKB and 40%
by MHC Holdings. There is no public trading market for the Corporation's common
stock.
DKB, MHC Holdings and the Corporation operate under a policy requiring the
payment of dividends by the Corporation equal to and not exceeding 50% of net
operating earnings on a quarterly basis. Such dividends are paid to DKB and MHC
Holdings based upon their respective stock ownership in the Corporation.
However, on December 28, 1992, with consent of the Corporation's
stockholders, the Corporation paid a one-time special dividend in the aggregate
amount of $150.0 million to its stockholders. Each stockholder immediately
contributed an amount equal to its share of the one-time special dividend to the
Corporation as additional paid-in-capital. The Corporation intends to continue
to operate under the fifty-percent dividend policy set forth in the preceding
paragraph. Below is a listing of the dividends paid during the past two years:
Dividends Paid 1993 1992
-------------- ---- ----
Amounts in Thousands
Regular Dividends
First Quarter ....................... $ 21,931 $ 18,564
Second Quarter ...................... 23,221 19,782
Third Quarter ....................... 23,722 21,587
Fourth Quarter ...................... 22,290 21,060
-------- --------
Sub Total ....................... 91,164 80,993
Special Dividend .................... -- 150,000
-------- --------
Total ........................... $ 91,164 $230,993
======== ========
Stockholders' equity at December 31, 1993 was $1.69 billion. Under the most
restrictive provisions of agreements relating to outstanding debt, the
Corporation may not, without the consent of the holders of such debt, permit
stockholders' equity to be less than $200.0 million.
5
<PAGE>
Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial information
regarding the Corporation's financial position and results of operations, which
has been extracted from the Corporation's consolidated financial statements for
the five years ended December 31, 1993. This information should be read in
conjunction with Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 8. Financial Statements and
Supplementary Data.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Interest and fees earned ........... $ 1,181,914 $ 1,174,796 $ 1,278,617 $ 1,196,000 $ 1,135,147
Interest expense ................... 508,006 552,017 709,373 711,645 694,280
------------ ------------ ------------ ------------ ------------
Net interest revenue ............. 673,908 622,779 569,244 484,355 440,867
------------ ------------ ------------ ------------ ------------
Gains on asset sales ............... 23,945 13,883 25,626 25,675 20,112
Salaries and employee benefits ..... 152,139 137,914 127,060 113,612 110,856
Other operating expenses ........... 130,043 123,721 119,273 101,615 90,188
Provision for restructuring costs .. -- -- -- -- 10,600
------------ ------------ ------------ ------------ ------------
Operating expenses before provision
for credit losses ............... 282,182 261,635 246,333 215,227 211,644
------------ ------------ ------------ ------------ ------------
Provision for net charge-offs ...... 94,408 98,284 95,169 88,610 41,845
Provision for credit losses for
reserve increase ................ 10,466 4,891 1,883 9,489 8,612
------------ ------------ ------------ ------------ ------------
Total provision for credit losses .. 104,874 103,175 97,052 98,099 50,457
------------ ------------ ------------ ------------ ------------
Total operating expenses ......... 387,056 364,810 343,385 313,326 262,101
------------ ------------ ------------ ------------ ------------
Income before provision for income
taxes, extraordinary item and
cumulative effect of a change in
accounting principle ............ 310,797 271,852 251,485 196,704 198,878
Provision for income taxes ......... 128,489 105,311 100,032 76,995 72,722
------------ ------------ ------------ ------------ ------------
Income before extraordinary item
and cumulative effect of a change
in accounting principle ......... 182,308 166,541 151,453 119,709 126,156
Extraordinary item--loss on early
extinguishment of debt, net of
income tax benefit .............. -- (4,241) (1,325) (5,937) --
Cumulative effect of a change in
accounting for income taxes ..... -- -- -- 20,350 --
Net income ......................... $ 182,308 $ 162,300 $ 150,128 $ 134,122 $ 126,156
============ ============ ============ ============ ============
Ratio of earnings to fixed charges . 1.60 1.49 1.35 1.27 1.28
At December 31,
------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
Dollar Amounts in Thousands
Finance receivables ................ $ 12,624,094 $ 11,771,495 $ 11,521,600 $ 11,021,591 $ 9,983,183
Reserve for credit losses .......... (169,378) (158,483) (155,107) (144,037) (133,629)
Net finance receivables ............ 12,454,716 11,613,012 11,366,493 10,877,554 9,849,554
Equipment under operating lease, net 751,901 462,757 148,030 -- --
Total assets 13,728,481 13,028,428 12,202,227 11,373,863 10,145,350
Capitalization:
Commercial paper ................. 6,516,139 6,173,465 5,476,517 4,551,663 3,198,770
Variable rate notes .............. 1,686,500 1,477,830 1,305,030 1,349,000 1,249,000
Fixed rate notes ................. 2,392,500 2,479,011 2,408,234 2,675,464 2,932,090
Subordinated fixed rate notes .... 200,000 200,000 353,901 262,551 272,056
Stockholders' equity ............. 1,692,235 1,601,091 1,519,784 1,444,705 1,377,583
Dividends paid--regular ............ 91,164 80,993 75,049 67,000 60,906
Dividends paid--special ............ -- 150,000 -- -- --
Ratio of total debt to stockholders'
equity (excluding short-term
interest-bearing deposits) ...... 6.38-1 6.07-1 6.06-1 5.95-1 5.53-1
</TABLE>
6
<PAGE>
Statistical Data
The following table presents the components of net income as a percentage
of average financing and leasing assets ("AEA").
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Interest and fees earned(a) ........... 9.50% 10.13% 11.20% 11.95% 12.39%
Interest expense(a) ................... 4.00 4.67 6.06 6.98 7.49
----- ----- ----- ----- -----
Net interest revenue .................. 5.50 5.46 5.14 4.97 4.90
----- ----- ----- ----- -----
Gains on asset sales .................. 0.20 0.12 0.23 0.26 0.22
----- ----- ----- ----- -----
Salaries and employee benefits ........ 1.24 1.21 1.15 1.17 1.23
Other operating expenses .............. 1.06 1.09 1.08 1.04 1.00
Provision for restructuring costs ..... -- -- -- -- 0.12
----- ----- ----- ----- -----
Operating expenses before provision
for credit losses .................. 2.30 2.30 2.23 2.21 2.35
----- ----- ----- ----- -----
Provision for net charge-offs(b) ...... 0.77 0.84 0.82 0.86 0.43
Provision for credit losses for
reserve increase ................... 0.09 0.04 0.02 0.10 0.10
----- ----- ----- ----- -----
Total provision for credit losses ..... 0.86 0.90 0.88 1.01 0.56
----- ----- ----- ----- -----
Income before provision for income
taxes, extraordinary item and
cumulative effect of a change in
accounting principle ............... 2.54 2.38 2.27 2.02 2.21
Provision for income taxes ............ 1.05 0.92 0.90 0.79 0.81
----- ----- ----- ----- -----
Income before extraordinary item and
cumulative effect of a change in
accounting principle ............... 1.49 1.46 1.37 1.23 1.40
Extraordinary item--loss on early
extinguishment of debt, net
of income tax benefit .............. -- (0.04) (0.01) (0.06) --
Cumulative effect of a change in
accounting for income taxes ........ -- -- -- 0.21 --
----- ----- ----- ----- -----
Net income ............................ 1.49% 1.42% 1.36% 1.38% 1.40%
===== ===== ===== ===== =====
Average financing and leasing assets(c) $12,262,902 $11,401,683 $11,062,581 $ 9,744,127 $8,995,899
Average finance receivables ........... $12,266,125 $11,675,622 $11,540,085 $ 10,349,202 $9,618,320
Number of employees ................... 2,424 2,355 2,346 2,309 2,322
<FN>
- ---------
(a) Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
(b) Percentage to average finance receivables.
(c) Average financing and leasing assets ("AEA") is calculated using finance
receivables net of credit balances of factoring clients, equipment under
operating lease, and investments included in other assets in the
Consolidated Balance Sheets.
</FN>
</TABLE>
7
<PAGE>
Reserve for Credit Losses
The reserve for credit losses is established and periodically reviewed for
adequacy based on the nature and characteristics of the finance receivables
portfolio, economic conditions and trends, charge-off experience, delinquencies
and underlying collateral and guarantees (including recourse provisions with
dealers and manufacturers). It is management's judgement that the reserve for
credit losses is adequate to provide for potential credit losses. The finance
receivables portfolio is reviewed periodically to determine the probability of
loss on individual receivables. Charge-offs are taken after considering such
factors as the obligor's financial condition and the value of the underlying
collateral and guarantees. Because the reserve for credit losses is intended to
provide for future events, which by their nature are uncertain, changes in
economic conditions or other discrete events adversely affecting specific
obligors or industries may necessitate additions to the reserve for credit
losses. The following table sets forth information as of the dates shown
concerning the reserve for credit losses.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Balance, January 1 ........ $ 158,483 $ 155,107 $ 144,037 $ 133,629 $ 125,017
Provision for credit losses 104,874 103,175 97,052 98,099 50,457
Receivables charged-off ... (105,613) (110,199) (105,699) (104,345) (63,420)
Recoveries on receivables
previously charged-off .. 11,205 11,915 10,530 15,735 21,575
--------- --------- --------- --------- ---------
Net credit losses ..... (94,408) (98,284) (95,169) (88,610) (41,845)
Reserve increase .......... 10,466 4,891 1,883 9,489 8,612
Portfolio acquisitions
(dispositions), net ..... 429 (1,515) 9,187 919 --
--------- --------- --------- --------- ---------
Balance, December 31 ...... $ 169,378 $ 158,483 $ 155,107 $ 144,037 $ 133,629
========= ========= ========= ========= =========
Reserve as a percentage of
finance receivables ..... 1.34% 1.35% 1.35% 1.31% 1.34%
========= ========= ========= ========= =========
</TABLE>
8
<PAGE>
Analysis of Past Due Finance Receivables and Net Charge-offs
The following table sets forth information as of the dates shown concerning
finance receivables (net of unearned finance income), past due finance
receivables and net credit losses incurred. This information should be read in
conjunction with the discussion of "Past Due and Nonaccrual Finance Receivables
and Assets Received in Satisfaction of Loans" in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Balance Past Due % to
60 Days or More (a) Average
Finance ------------------- Net Finance
Receivables Amount Percent Charge-Offs Receivables
----------- ------ ------- ----------- -----------
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
December 31, 1993
Capital Equipment Financing............... $ 4,394,528 $ 18,437 0.42% $ 15,909 0.36%
Business Credit........................... 1,282,133 36,868 2.88 22,827 1.70
Credit Finance............................ 645,642 805 0.12 1,950 0.32
Industrial Financing...................... 3,880,991 96,158 2.48 16,152 0.48
Sales Financing(b)........................ 1,438,865 16,334 1.14 11,437 0.78
Commercial Services....................... 981,935 47,545 4.84 26,133 2.29
----------- -------- ---- --------- ----
Total $ 12,624,094 $ 216,147 1.71% $ 94,408 0.77%
=========== ======== ==== ========= ====
December 31, 1992
Capital Equipment Financing............... $ 4,429,089 $ 99,742 2.25% $ 32,399 0.74%
Business Credit........................... 1,281,283 32,420 2.53 13,246 1.00
Credit Finance............................ 545,023 -- -- -- --
Industrial Financing...................... 3,094,102 125,270 4.05 16,546 0.56
Sales Financing(b)........................ 1,411,812 17,745 1.26 12,621 0.91
Commercial Services....................... 1,010,186 60,633 6.00 23,472 2.14
----------- -------- ---- --------- ----
Total $ 11,771,495 $ 335,810 2.85% $ 98,284 0.84%
=========== ======== ==== ========= ====
December 31, 1991
Capital Equipment Financing............... $ 4,389,954 $ 72,901 1.66% $ 31,962 0.71%
Business Credit........................... 1,194,929 54,465 4.56 11,486 0.95
Credit Finance............................ 493,845 119 0.02 -- --
Industrial Financing...................... 2,989,982 178,790 5.98 21,127 0.73
Sales Financing........................... 1,424,991 21,594 1.52 17,932 1.24
Commercial Services....................... 1,027,899 23,227 2.26 12,662 1.18
----------- -------- ---- --------- ----
Total $ 11,521,600 $ 351,096 3.05% $ 95,169 0.82%
=========== ======== ==== ========= ====
December 31, 1990
Capital Equipment Financing............... $ 4,534,043 $ 98,894 2.18% $ 35,266 0.78%
Business Credit........................... 1,243,415 7,389 0.59 16,991 1.45
Industrial Financing...................... 2,835,241 137,826 4.86 9,426 0.35
Sales Financing........................... 1,417,805 24,485 1.73 16,173 1.38
Commercial Services....................... 991,087 16,823 1.70 10,754 0.97
----------- -------- ---- --------- ----
Total $ 11,021,591 $ 285,417 2.59% $ 88,610 0.86%
=========== ======== ==== ========= ====
December 31, 1989
Capital Equipment Financing............... $ 4,107,362 $ 98,961 2.41% $ 7,537 0.19%
Business Credit........................... 1,062,244 834 0.08 2,145 0.22
Industrial Financing...................... 2,637,585 122,187 4.63 6,780 0.27
Sales Financing........................... 1,091,084 28,002 2.57 17,784 1.66
Commercial Services....................... 1,084,908 24,440 2.25 7,599 0.66
----------- -------- ---- --------- ----
Total $ 9,983,183 $274,424 2.75% $ 41,845 0.43%
=========== ======== ==== ========= ====
- ---------
<FN>
(a) Past due finance receivables include those on nonaccrual status.
(b) Includes amounts relating to Consumer Finance.
</FN>
</TABLE>
9
<PAGE>
Nonaccrual Finance Receivables
The Corporation has nonaccrual finance receivables on which it has ceased
to recognize interest income. Except for certain Sales Financing accounts which
are subject to automatic charge-off procedures, the accrual of interest revenue
is suspended and an account is placed on nonaccrual status either when a payment
is contractually delinquent for ninety days or more and collateral is
insufficient to cover both the outstanding principal and accrued interest or
immediately if, in the opinion of management, full collection of principal and
interest is doubtful.
The following table sets forth information as of the dates shown concerning
the carrying value of nonaccrual finance receivables outstanding. This
information should be read in conjunction with the discussion of "Past Due and
Nonaccrual Finance Receivables and Assets Received in Satisfaction of Loans" in
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Nonaccrual finance receivables ......... $139,941 $234,195 $190,732 $165,460 $149,492
Nonaccrual finance receivables as
a percentage of finance
receivables ......................... 1.11% 1.99% 1.66% 1.50% 1.50%
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
1993 vs. 1992
Highlights
Net income for the year ended December 31, 1993 was a record $182.3
million, an increase of $20.0 million (12.3%) from the $162.3 million earned in
1992. The current year results represent the third consecutive year of record
earnings and are the highest earnings in the Corporation's eighty-six year
history. Excluding $4.2 million of after-tax extraordinary charges related to
the early redemption of long-term debt in 1992 (none of which were incurred in
1993), net income increased $15.8 million (9.5%) in 1993.
The gain in 1993 earnings reflects strong receivables growth, improved fee
income, and higher gains on asset sales, partially offset by the effect of the
1% increase in the statutory Federal corporate income tax rate, start-up costs
of the new Consumer Finance home equity loan operation and normal operating
expense increases. Profitability was broad-based, validating the Corporation's
strategy to continue expanding its operations into new markets and products that
complement existing lines of business.
Total financing and leasing assets, which include finance receivables and
equipment under operating lease, were a record $13.38 billion at December 31,
1993, a $1.14 billion (9.3%) increase, compared to $12.23 billion at December
31, 1992. This growth is primarily due to excellent new business volume,
particularly with middle market companies, complemented by purchases of
portfolios of financing and leasing assets. Average financing and leasing assets
("AEA") were $12.26 billion for 1993, an $861.2 million (7.6%) increase,
compared to $11.40 billion for 1992.
The following table highlights certain financial data in the Statements of
Income.
<TABLE>
<CAPTION>
Years Ended December 31, Change
------------------------ -------------------------
1993 1992 Amount Percent
-------- -------- ------ -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Net interest revenue............................ $673.9 $622.8 $51.1 8.2%
Gains on asset sales............................ 23.9 13.9 10.0 72.5
Operating expenses before the provision
for credit losses............................ 282.2 261.6 20.5 7.9
Net charge-offs................................. 94.4 98.3 (3.9) (3.9)
Provision for credit losses for reserve increase 10.5 4.9 5.6 114.0
------ ------ ----- ----
Provision for credit losses................... 104.9 103.2 1.7 1.6
Provision for income taxes...................... 128.5 105.3 23.2 22.0
Net income...................................... $182.3 $162.3 $20.0 12.3%
</TABLE>
Net Interest Revenue
Net interest revenue (interest and fees earned less interest expense) was
$673.9 million in 1993, up $51.1 million (8.2%) from $622.8 million in 1992. Net
interest revenue, as a percentage of AEA, improved to 5.50% in 1993 from 5.46%
in 1992.
Interest and fees earned in 1993 totaled $1.18 billion, essentially
unchanged from $1.17 billion earned in 1992 as interest rates charged on fixed
and floating rate receivables trended down in 1993, in line with declining
market interest rates. However, such decreased interest revenues were more than
offset by revenues generated from the incremental growth in AEA and improved fee
income.
Interest expense decreased $44.0 million (8.0%) to $508.0 million in 1993,
compared with $552.0 million in 1992. The decrease reflects lower funding costs
due to the aforementioned decline in market interest rates during 1993,
partially offset by the cost of funding the incremental growth in AEA.
11
<PAGE>
A comparative analysis of the weighted average interest rates paid on the
Corporation's debt, after the effect of interest rate swaps, is shown in the
following table.
Years Ended December 31,
------------------------
1993 1992
---- ----
Floating rate debt ................... 3.36% 4.12%
Fixed rate debt ...................... 7.37% 7.66%
Composite interest rate .............. 4.85% 5.66%
Based upon the assumption that moderate economic growth will continue in
1994, management anticipates that net interest revenue, as a percentage of AEA,
will remain relatively stable in 1994. However, net interest revenue as a
percentage of AEA will continue to be affected by market interest rate
movements, the level of fee-based business, the amount of non-performing assets,
and the state of the economy.
Gains on Asset Sales
Gains on asset sales totaled $23.9 million in 1993, a $10.1 million
(72.5%) increase compared to $13.9 million in 1992. The current year gains
included $15.3 million from a securitization of manufactured housing receivables
($6.6 million in 1992) and $8.6 million from the sale of equipment coming off
lease ($7.3 million in 1992).
Operating Expenses Before the Provision for Credit Losses
Operating expenses before the provision for credit losses totaled $282.2
million in 1993, a $20.5 million (7.9%) increase, compared to $261.6 million in
1992. The increase is primarily attributable to start-up costs for Consumer
Finance, which amounted to $14.2 million in 1993. As a percentage of AEA,
operating expenses were unchanged from 1992 at 2.30%. However, excluding
Consumer Finance, operating expenses as a percentage of AEA declined to 2.20% in
1993 compared with 2.28% in 1992, reflecting the Corporation's continuing
commitment to prudent expense control and the capability to leverage the
existing expense structure to support further growth in earning assets.
Salaries and employee benefits were $152.1 million for 1993, $14.2 million
(10.3%) above the $137.9 million reported in 1992. The rise is principally due
to staffing Consumer Finance and improvements to employee incentive compensation
and benefit plans. Postretirement benefits expense also increased due to the
adoption, in 1993, of Statement of Financial Accounting Standards No. 106,
"Employer's Accounting for Post-retirement Benefits Other Than Pensions".
Employee headcount was 2,424 at December 31, 1993 versus 2,355 a year ago.
However, excluding personnel hired for Consumer Finance, headcount declined by
more than 25 since year-end 1992 in spite of the excellent growth in financing
and leasing assets.
Other operating expenses were $130.0 million in 1993, up $6.3 million
(5.1%), compared to $123.7 million in 1992, due to additional advertising and
marketing expenses, particularly in Consumer Finance.
The Corporation manages expenditures using a comprehensive budgetary
process. Expenses are monitored closely by operating unit management and are
reviewed monthly with senior management of the Corporation. To ensure overall
project cost control, a review and approval procedure is in place for all major
capital expenditures, such as purchases of computer equipment, including a
post-implementation analysis of the realization of projected benefits.
Income Taxes
The provision for Federal and state and local income taxes was $128.5
million in 1993, up $23.2 million (22.0%), compared to $105.3 million in 1992.
The effective income tax rate was 41.3%, compared to 38.7% in 1992. These
increases reflect additional provisions to the Corporation's current and
deferred taxes, including deferred taxes on leasing transactions, to record the
impact of the 1% increase in the statutory Federal corporate income tax rate
provided for in the Revenue Reconciliation Act of 1993.
12
<PAGE>
The following table presents data on the impact of the tax rate change on
the provision for income taxes.
Year Ended December 31, 1993
--------------------------------
Provision at 1% Rate Total
Former Rates Increase Provision
------------ -------- ---------
Dollar Amounts in Millions
Federal Tax Provision on 1993 earnings $ 92.8 $ 2.6 $ 95.4
Adjustments to Deferred Federal
Tax liabilities ..................... -- 8.2 8.2
State and Local Tax Provision on 1993
earnings ............................ 24.9 -- 24.9
------ ----- ------
Total Provision for Income Taxes ...... $ 117.7 $ 10.8 $ 128.5
====== ===== ======
Effective Tax Rate .................... 37.9% 3.4% 41.3%
====== ===== ======
Provision and Reserve for Credit Losses
A recovery in certain sectors of the economy contributed to a modest
decrease of $3.9 million (3.9%) in net charge-offs for 1993 and an improvement
in the percentage of net charge-offs to average finance receivables to .77% in
1993, compared with .84% in 1992. Information concerning net charge-offs and the
provision for credit losses is summarized in the following table.
Years ended December 31,
------------------------
1993 1992
---- ----
Dollar Amounts in Thousands
Net charge-offs .................... $ 94,408 $ 98,284
Provision for credit losses for
reserve increase ................ 10,466 4,891
-------- --------
Provision for credit losses ........ $104,874 $103,175
======== ========
Percent of net charge-offs to
average finance receivables ..... .77% .84%
======== ========
The reserve for credit losses was $169.4 million (1.34% of finance
receivables) at December 31, 1993 compared to $158.5 million (1.35%) at year-end
1992. The reserve for credit losses is maintained at an amount considered
adequate by management to provide for potential credit losses, based on periodic
evaluation of the overall risk characteristics of the finance receivables
portfolio. In evaluating the adequacy of the reserve for credit losses,
management considers such factors as the nature and characteristics of the
finance receivables, economic conditions and trends, charge-off experience,
delinquencies, and underlying collateral and guarantees (including recourse
provisions with dealers and manufacturers).
Finance Receivables
Finance receivables were $12.62 billion at December 31, 1993, an increase
of $852.6 million (7.2%) from $11.77 billion at year-end 1992. Changes in
finance receivables during 1993 are discussed below for each of the
Corporation's operating units.
o Capital Equipment Financing--Customized secured equipment financing and
leasing for major capital equipment. Finance receivables were $4.39 billion at
December 31, 1993 compared with $4.43 billion in 1992, a decrease of $34.6
million (0.8%). The small decrease is due to weakness in certain sectors of the
market for equipment financing with larger corporations and the repossession of
approximately $85 million of finance receivables (principally, oil refinery
assets totaling $66.0 million that were subsequently placed on lease and were
included in equipment under operating lease at December 1993).
o Business Credit--Revolving and term loans, including debtor-in-possession
and workout financing, to medium and larger-sized companies secured by accounts
receivable, inventory and fixed assets. Finance receivables of $1.28 billion at
December 31, 1993 were basically unchanged from 1992 reflecting $451.1 million
in new business volume which was mostly offset by customer paydowns.
o Credit Finance--Revolving and term loans, including restructurings, to
small and medium-sized companies secured by accounts receivable, inventory and
fixed assets. Finance receivables increased $100.6 million during 1993, ending
the year at $645.6 million compared with $545.0 million the prior year. The
18.5% growth was largely due to new business volume with various middle market
manufacturing companies.
13
<PAGE>
o Industrial Financing--Secured equipment financing and leasing for
medium-sized companies, including dealer and manufacturer financing. Finance
receivables grew $786.9 million (25.4%) to $3.88 billion in 1993 compared with
$3.09 billion in 1992, as strong volume with middle market clients was
complemented by purchases of financing and leasing asset portfolios totaling
approximately $320 million in 1993.
o Sales Financing--Retail secured financing of recreational vehicles,
recreational boats, and manufactured housing through dealers and manufacturers.
Finance receivables were $1.44 billion in 1993, compared to $1.41 billion in
1992, a $27.1 million (1.9%) increase. Included at year-end 1993 were $131.3
million of new Consumer Finance receivables. The overall increase is the result
of the growth in Consumer Finance and excellent volume in Sales Financing's
established markets of recreational vehicles and manufactured housing, partially
offset by a $155 million securitization of manufactured housing receivables in
the third quarter of 1993 and a $150 million securitization of recreational
vehicle receivables in January 1994. The latter were held for sale and, thus,
reclassified from finance receivables to other assets in the Consolidated
Balance Sheet at December 31, 1993. Additionally, Sales Financing was providing
servicing for portfolios, owned by other financial institutions and
securitization trusts with total outstandings of $415.0 million at December 31,
1993 ($338.0 million in 1992) which were not included in finance receivables.
o Commercial Services--Factoring of accounts receivables, including credit
protection, bookkeeping and collection activities. Finance receivables
experienced a modest decline of $28.3 million (2.8%) during 1993, ending the
year at $981.9 million, compared to $1.01 billion at year-end 1992. Factoring
volume for 1993 rose to $7.67 billion (up 3.9%) from $7.38 billion in 1992.
Finance Receivables Composition
The finance receivables portfolio is principally composed of loans and
direct financing and leveraged leases with commercial customers located
throughout the United States.
Considering current economic forecasts and depending upon the amount of
growth in Consumer Finance home equity loans, management expects no major shifts
in geographic composition or industry composition of the portfolio in 1994.
Geographic Composition
The following table presents the finance receivables portfolio by customer
location, excluding equipment under operating lease:
<TABLE>
<CAPTION>
At December 31, 1993 At December 31, 1992
-------------------------- --------------------------
Amount Percent Amount Percent
---------- ------- ---------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
United States
Northeast .............................. $ 3,414.0 27.1% $ 3,218.2 27.3%
West ................................... 2,540.3 20.1 2,449.7 20.8
Midwest ................................ 2,523.5 20.0 2,119.8 18.0
Southeast .............................. 1,744.9 13.8 1,738.0 14.8
Southwest .............................. 1,554.8 12.3 1,435.2 12.2
Foreign (principally commercial aircraft) . 846.6 6.7 810.6 6.9
---------- ----- ---------- -----
Total .................................. $ 12,624.1 100.0% $ 11,771.5 100.0%
========== ===== ========== =====
</TABLE>
14
<PAGE>
Industry Composition
The following table presents the finance receivables portfolio by
industry, excluding equipment under operating lease. Amounts for 1992 have been
restated to conform to the 1993 presentation.
<TABLE>
<CAPTION>
At December 31, 1993 At December 31, 1992
------------------------- -----------------------
Amount Percent Amount Percent
---------- ------- ---------- -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Commercial airlines ....................... $ 1,437.3 11.4% $ 1,594.3 13.6%
Construction (non-real estate)(a) ......... 1,208.5 9.6 1,018.2 8.7
Recreational vehicles ..................... 872.0 6.9 930.3 7.9
Manufacturers
Apparel ................................ 284.8 2.3 321.3 2.7
Textile and mill products .............. 358.2 2.8 358.8 3.1
Steel and metal products ............... 424.3 3.4 486.5 4.1
Industrial machinery and equipment ..... 432.9 3.4 381.9 3.2
Printing and paper products ............ 274.2 2.2 249.6 2.1
Transportation equipment ............... 421.5 3.3 243.4 2.1
Other .................................. 1,085.3 8.6 969.7 8.2
Retailers
Apparel ................................. 482.4 3.8 533.3 4.5
General merchandise .................... 248.3 2.0 181.7 1.5
Building materials ..................... 29.6 0.2 27.5 0.2
Other .................................. 83.8 0.7 71.3 0.6
Printing and publishing ................... 610.1 4.8 504.8 4.3
Transportation(b) ......................... 591.8 4.7 531.0 4.5
Wholesalers ............................... 521.1 4.1 501.2 4.3
Shipping(c) ............................... 419.5 3.3 352.5 3.0
Manufactured housing ...................... 399.5 3.2 462.1 3.9
Electrical generation ..................... 242.9 1.9 227.9 1.9
Service businesses ........................ 223.0 1.8 167.7 1.4
Mining, oil and gas extraction ............ 221.7 1.8 186.3 1.6
Equipment leasing and rental .............. 197.8 1.6 110.3 0.9
Financial institutions .................... 186.9 1.5 211.5 1.8
Consumer--home equity ..................... 131.3 1.0 6.1 0.1
Others (each class less than 2.0% of finance
receivables) ........................... 1,235.4 9.7 1,142.3 9.8
--------- ----- --------- -----
Total .................................. $ 12,624.1 100.0% $ 11,771.5 100.0%
========= ===== ========= =====
</TABLE>
- ----------
(a) The construction portfolio included approximately 5,800 general contractor
and equipment dealer obligors at December 31, 1993. Approximately 31% of
the portfolio at year-end 1993 was located in the western region of the
United States, with the remaining balance widely dispersed throughout other
regions of the country.
(b) Transportation included rail, bus, over-the-road trucking, and business
aircraft industries and consisted of approximately 730 obligors at December
31, 1993. The portfolio was widely dispersed throughout the United States.
(c) At December 31, 1993, the shipping industry portfolio was widely dispersed
and included 56 obligors financing cruise and freight-carrying ships,
intermodal equipment, barges, tugboats, containers and chassis.
Equipment Under Operating Lease
Capital Equipment Financing and Industrial Financing enter into lease
transactions (with estimated residual value in excess of 20% of the original
purchase price) which are accounted for as operating leases. In addition to
rentals under the current lease, other components of operating lease
profitablity include re-leasing rentals and expected proceeds from remarketing
the assets. In accordance with the policy of reviewing and adjusting the net
15
<PAGE>
carrying values of lease residuals to projected fair market values, management
or outside consultants periodically perform appraisals of the equipment under
operating lease. Based upon such periodic appraisals, the aggregate fair values
of equipment under operating lease exceeded carrying value at December 31, 1993.
The following table presents the net book value of operating lease assets.
<TABLE>
<CAPTION>
At December 31, 1993 At December 31, 1992
------------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
Dollar Amounts in Millions
<S> <C> <C> <C> <C>
Commercial aircraft......................... $457.6 60.9% $359.3 77.6%
Business aircraft........................... 88.3 11.7 44.2 9.5
Oil refinery................................ 86.2 11.5 -- --
Over-the-road transportation equipment...... 81.8 10.9 40.1 8.7
Construction and mining equipment........... 18.2 2.4 10.1 2.2
Rail equipment.............................. 11.6 1.5 5.9 1.3
Other....................................... 8.2 1.1 3.2 0.7
------ ----- ------ -----
Total $751.9 100.0% $462.8 100.0%
====== ===== ====== =====
</TABLE>
Capital Equipment Financing equipment under operating lease totaled $565.7
million in 1993 compared to $384.3 million in 1992. The $181.4 million (47.2%)
increase is due to leasing two commercial aircraft and the return to earning
status, in December 1993, of certain oil refinery assets which are being
utilized by a major international oil company under a long-term operating
agreement. Such oil refinery assets were classified as a nonaccrual loan at
year-end 1992 and were repossessed, together with other lenders, through a
foreclosure in May 1993.
Industrial Financing equipment under operating lease grew $107.7 million
(137.3%) in 1993 to $186.2 million, from $78.5 million in 1992. The growth
resulted from the leasing of business aircraft and over-the-road trucking
equipment to several industry groups.
Financing and Leasing Assets Concentrations
Commercial Airlines
Commercial airline finance receivables of $1.44 billion and equipment
under operating lease of $457.6 million totaled $1.89 billion (14.2% of total
financing and leasing assets before the reserve for credit losses) at December
31, 1993 compared to $1.95 billion (16.0%) in 1992. The portfolio is secured by
commercial aircraft and related equipment. Management continues to monitor
closely the growth in this portfolio relative to total financing and leasing
assets.
The following table presents information about the commercial airline
industry portfolio.
At December 31,
--------------------------
1993 1992
-------- --------
Dollar Amounts in Millions
Finance Receivables
Amount Outstanding(a) .......... $1,437.3 $1,594.3
Number of obligors ............. 43 47
-------- --------
Operating Leases
Net carrying value ............. $ 457.6 $ 359.3
Number of obligors ............. 21 17
-------- --------
Total ........................ $1,894.9 $1,953.6
-------- --------
Number of obligors(b) .......... 58 57
Number of aircraft(c) .......... 276 304
-------- --------
- --------------
(a) Includes accrued rents on operating leases of $1.0 million and $1.5 million
at December 31, 1993 and December 31, 1992, respectively, which are
classified as finance receivables in the Consolidated Balance Sheets.
(b) Certain obligors have both finance receivable and operating lease
transactions.
(c) 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 which 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
year-end 1993, the portfolio consisted of 214 Stage III aircraft (78%) and
62 Stage II aircraft (22%) versus 231 Stage III aircraft (80%) and 73 Stage
II aircraft (20%) at year-end 1992.
16
<PAGE>
The following table presents data on commercial airline obligors (included
in the preceding table) that are subject to proceedings under Chapter 11 of the
Bankruptcy Reform Act of 1978, as amended.
At December 31,
----------------------
1993 1992
------ ------
Dollar Amounts in Millions
Finance Receivables
Amount Outstanding(a) .............. $ 3.4 $111.0
Number of obligors ................. 1 3
------ ------
Operating Leases
Net carrying value ................. $ 60.8 $ 87.0
Number of obligors ................. 1 2
------ ------
Total ............................ $ 64.2 $198.0
------ ------
Number of obligors(b) .............. 1 3
Number of aircraft ................. 5 32
------ ------
- --------------
(a) Includes accrued rents on operating leases of $0.3 million and $ 0.5
million at December 31, 1993 and December 31, 1992 respectively.
(b) Certain obligors have both finance receivable and operating lease
transactions.
The declines from year-end 1992 reflected in the table above are primarily
the result of the emergence of Continental Airlines, Inc. and Trans World
Airlines, Inc. from Chapter 11 bankruptcy proceedings during 1993. In February
1993, the Corporation took title to a Boeing 757-200 from America West which was
re-leased to another airline in July 1993 after completion of maintenance
inspections required under FAA regulations. At December 31, 1993, America West,
the remaining airline under Chapter 11 bankruptcy protection, was current on all
remaining contractual obligations owed to the Corporation.
Foreign Outstandings
Financing and leasing assets to foreign obligors, primarily to the
commercial airline industry, totaled $1.05 billion at December 31, 1993,
consisting of $846.6 million in finance receivables and $204.5 million in
equipment under operating lease. The largest exposures at December 31, 1993 were
to Mexico, $167.4 million (1.22% of total assets) and the United Kingdom, $128.0
million (.93% of total assets). The remaining foreign exposure is well disbursed
with no individual country representing more than .75% of total assets.
At December 31, 1992, financing and leasing assets to foreign obligors
totaled $951.2 million, consisting of $810.6 million in finance receivables and
$140.6 million in equipment under operating lease. Outstandings to obligors in
the United Kingdom totaled $135.7 million, representing 1.04% of total assets.
No other foreign obligor had aggregate outstandings exceeding .86% of total
assets.
Highly Leveraged Transactions
Certain regulatory agencies require that a buyout financing or
recapitalization be reported as a highly leveraged transaction ("HLT") if it
meets or exceeds $20 million in original financing and fulfills one of the
following criteria:
o The transaction at least doubles the borrower's liabilities and results
in a leverage ratio (as defined) higher than 50%.
o The transaction results in a leverage ratio higher than 75%.
o The transaction is designated as an HLT by a syndication agent.
A transaction, originally reported as an HLT, can be removed from this
classification ("delisted") if the leveraged company has demonstrated the
ability to operate successfully as a highly leveraged entity for at least two
years after the original financing and meets one of the following criteria:
o The original financing has been repaid using cash flow from operations,
planned asset sales, or a capital infusion.
o The debt has been serviced without undue reliance on unplanned asset
sales, and certain leverage ratios (related to the original criteria
under which the financing qualified as an HLT) have been maintained.
17
<PAGE>
The Corporation, primarily through Business Credit, originates and
participates in HLTs which totaled $476.6 million (3.6% of financing and leasing
assets before the reserve for credit losses) at December 31, 1993, down from
$493.7 million (4.0%) at December 31, 1992. The decline in HLT outstandings
during 1993 was primarily due to delisting companies, with approximately $138
million of finance receivables owed to the Corporation at year-end 1992, that
met the aforementioned delisting criteria, partially offset by new fundings that
met the HLT criteria. The Corporation's HLT outstandings are generally secured
by collateral, as distinguished from HLTs that rely primarily on cash flow from
operations.
At December 31, 1993, the HLT portfolio consisted of 28 obligors in 13
different industry groups, with approximately 31.9% of the outstandings located
in the Northeast region of the United States and 30.5% in the Southeast. Three
accounts totaling $34.7 million were classified as nonaccrual at December 31,
1993 compared to $14.8 million (two accounts) at year-end 1992. Unfunded
commitments to lend in secured HLT situations were $123.1 million at December
31, 1993 compared to $78.4 million at year-end 1992.
Credit Risk Management
Financing and leasing assets are monitored for credit and collateral risk
both during the credit granting process and periodically after the advancement
of funds. Each business unit is responsible for developing and implementing a
formal credit management process in accordance with formal uniform guidelines
established by the Executive Credit Committee of the Corporation. These
guidelines set forth risk acceptance criteria for: (1) selected target markets
and products; (2) the creditworthiness of borrowers, including credit history,
financial condition, adequacy of cash flow and quality of management; and (3)
the type and value of underlying collateral and guarantees (including recourse
provisions with dealers and manufacturers). The financing and leasing asset
portfolio is diversified by industry, geographic location, and collateral type.
As economic and market conditions change, credit risk management practices are
reviewed and modified, if necessary, to minimize the risk of credit loss.
Periodically, financing and leasing assets are evaluated based upon credit
criteria developed under the Corporation's uniform credit grading system and the
use of a comprehensive exposure reporting system that analyzes the financing and
leasing assets portfolio by obligor, and by industry, geographic location, and
collateral type. Concentrations are monitored and limits are changed by
management as conditions warrant to minimize the risk of credit loss.
Past Due and Nonaccrual Finance Receivables
and Assets Received in Satisfaction of Loans
Finance receivables past due 60 days or more declined to $216.1 million
(1.71% of finance receivables before the reserve for credit losses) at December
31, 1993, from $335.8 million (2.85%) at December 31, 1992. Excluding finance
receivables in Industrial Financing that have dealer or manufacturer recourse
provisions, the percentage of past due receivables 60 days or more was 1.47% at
year-end 1993 compared to 2.57% at year-end 1992.
Finance receivables on nonaccrual status included in past due finance
receivables declined to $139.9 million (1.11% of finance receivables before the
reserve for credit losses) at December 31, 1993, from $234.2 million (1.99%) at
December 31, 1992 due principally to the return to earning status of the oil
refinery assets discussed in the Equipment Under Operating Lease section. At
year-end 1993, nonaccrual finance receivables were principally related to
manufacturing companies, including a manufacturer placed on nonaccrual status in
1992. Collection efforts regarding this borrower are ongoing; however, the
outlook for this loan remains uncertain at this time.
Assets received in satisfaction of loans decreased by $6.8 million in
1993, principally due to the sale of business aircraft and retail equipment
partially offset by the in-substance foreclosure in December 1993 of a
commercial aircraft which the Corporation took legal title to in February 1994.
A nonrefundable deposit has been received in connection with remarketing the
aforementioned commercial aircraft to another airline.
18
<PAGE>
The following table presents the assets received in satisfaction of loans
including in-substance foreclosures.
At December 31,
--------------------
1993 1992
------ ------
Amounts in Thousands
Retail merchandise, property and
accounts receivable(a) ................ $29,214 $37,262
Commercial aircraft ...................... 17,235 --
Other transportation(b) .................. 15,255 28,034
Property and equipment ................... 13,480 14,203
Other .................................... 11,773 14,281
------- -------
Total .................................. $86,957 $93,780
======= =======
- --------------
(a) Retail merchandise, property and accounts receivable includes the assets of
a bankrupt building supply retailer.
(b) Other transportation includes business aircraft, trailers, and recreational
vehicles.
The economic recovery contributed to the decline in past due and
nonaccrual finance receivables and assets received in satisfaction of loans in
1993. If the economy continues to strengthen, management believes that some
modest further improvement may occur in the levels of either past due finance
receivables, nonaccrual finance receivables, or assets received in satisfaction
of loans, from the improved year-end 1993 levels.
Asset/Liability Management
Management strives to optimize net interest revenue while managing
interest rate and liquidity risk under formal policies established and monitored
by the Capital Committee, which is comprised of members of senior management.
The Capital Committee establishes and regularly reviews interest sensitivity,
funding, liquidity, and asset-pricing guidelines, along with other market
interest rate risk management strategies.
Interest Rate Risk
Fluctuations in market interest rates can affect net interest revenue
through changes in the spread between interest rates charged on interest-earning
assets and interest rates paid on interest-bearing liabilities. As the level of
market interest rates and the relationship between short-term and long-term
market interest rates change, there is exposure to potential increases or
decreases in net interest revenue.
The degree of interest rate sensitivity is continuously monitored by
measuring the repricing characteristics of interest-sensitive assets and
liabilities. These characteristics include the dollar amounts of
interest-sensitive assets and liabilities, the contractual interest rate, the
prime rate or other repricing index, the maturity, and estimated prepayments.
The potential effect of market interest rate fluctuations is simulated through
computer modeling, incorporating not only the current degree of interest rate
sensitivity, but also the effects of various repricing scenarios for
interest-sensitive assets and liabilities. The Capital Committee actively
manages the interest rate sensitivity by changing the relationship of fixed and
floating rate debt and by utilizing interest rate swaps and caps.
The notional principal amount of interest rate swap transactions at
December 31, 1993 totaled $3.69 billion and were principally used to convert the
effective interest rate on floating rate debt to a fixed interest rate. The
Corporation also purchased interest rate caps with an outstanding notional
principal amount of $1.45 billion at December 31, 1993 to hedge the interest
rate on commercial paper borrowings of a like amount. Of these, $1.15 billion
was purchased in conjunction with the sale of an equal amount of caps to hedge
the net interest margin on a comparable amount of floating rate finance
receivables, which reprice based on the prime rate and are funded by commercial
paper, from short-term market interest rate fluctuations.
Liquidity Risk
The Capital Committee manages liquidity through the monitoring of: (1)
expected principal repayments of the existing finance receivables portfolio, (2)
the expected generation of cash flow from operations and, (3) the borrowing of
funds, primarily in the United States money and capital markets. Such cash is
used to fund asset growth (including the bulk purchase of 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 source
19
<PAGE>
of funding is commercial paper borrowings, augmented by proceeds from the sales
of medium-term notes and other debt securities. The Corporation also enters into
structured financings (involving the issuance of debt coupled with an interest
rate swap of corresponding maturity) which not only improve liquidity, but
result in a lower overall funding cost than could be achieved by issuing debt
alone. For example, a medium-term variable rate note is issued and coupled with
a swap exchanging floating rate interest for a fixed rate creating, in effect, a
lower cost medium-term fixed rate obligation. The liquidity position was also
enhanced by issuing commercial paper with an average maturity of 91 days in 1993
and 89 days in 1992.
Commercial paper outstanding increased $342.7 million to $6.52 billion at
December 31, 1993, representing 60.4% of total debt outstanding at year-end
1993, due principally to funding the growth in financing and leasing assets,
offset by a decrease in short-term interest-bearing deposits maintained for
liquidity purposes. Term debt with maturities ranging from one to fifteen years
was $4.28 billion (39.6% of total debt outstanding) at December 31, 1993, of
which $1.69 billion (15.6% of total debt outstanding) was variable rate notes.
Commercial paper borrowings are supported by a variety of bank credit
facilities. At December 31, 1993, credit lines with 84 banks totaled $4.49
billion and support the current commercial paper position as well as growth in
the foreseeable future. In 1993, $1.52 billion of new facilities were arranged
with domestic and foreign banks, principally through a three-year revolving
credit agreement. As a result, credit line coverage increased to 68.9% of
operating commercial paper outstanding (commercial paper outstanding less
interest-bearing deposits) at year-end 1993, up from 64.2% in 1992. No
borrowings have been made under credit lines since 1970.
Capitalization
The following table presents information regarding the Corporation's
capital structure.
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1993 1992
------------ ------------
Dollar Amounts in Thousands
<S> <C> <C>
Commercial paper.............................................. $ 6,516,139 $ 6,173,465
Variable rate notes........................................... 1,686,500 1,477,830
Fixed rate notes.............................................. 2,592,500 2,679,011
----------- -----------
Total debt.................................................... $10,795,139 $10,330,306
Stockholders' equity.......................................... 1,692,235 1,601,091
----------- -----------
Total capitalization.......................................... $12,487,374 $11,931,397
=========== ===========
Debt-to-equity ratio (excluding interest-bearing deposits)*... 6.38 to 1 6.07 to 1
=========== ===========
</TABLE>
- --------------
* For purposes of managing capital resources, management considers short-term
interest-bearing deposits to be, in substance, a reduction of short-term
debt. There were no short-term interest-bearing deposits at December 31,
1993.
Dividend policy requires the payment of quarterly dividends equal to and
not exceeding 50% of net operating earnings. During 1993, regular cash dividends
of $91.2 million were paid to DKB and MHC Holdings (a subsidiary of Chemical
Banking Corporation) based upon their respective 60% and 40% stock ownership. At
year-end 1992, a one-time special dividend of $150.0 million was paid to the
stockholders. Immediately thereafter, DKB and MHC Holdings contributed $150.0
million to additional paid-in capital of the Corporation in proportion to their
respective ownership interests.
In 1993, a shelf registration statement to offer publicly $3.00 billion in
medium-term notes and other debt securities was filed with the Securities and
Exchange Commission. During the year, $1.55 billion of variable rate notes and
$635.0 million of fixed rate notes were issued with individual terms ranging
from one to fifteen years. Repayments of term debt during 1993 totaled $2.06
billion. At December 31, 1993, $2.87 billion of registered but unissued debt
securities remained available under shelf registration statements.
The Corporation's commercial paper, publicly issued variable rate and
fixed rate senior debt, and senior subordinated long-term notes and debentures
are rated by Moody's Investors Service, Standard & Poor's Corporation and Duff &
Phelps Credit Rating Company.
20
<PAGE>
Recently Issued Accounting Pronouncements
Accounting by Creditors for Impairment of a Loan
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"), was issued by the Financial
Accounting Standards Board in May 1993. SFAS 114 requires that the value of an
impaired loan be measured based upon: (1) the present value of expected future
cash flows discounted at the loan's effective interest rate; or (2) the fair
value of the collateral less estimated costs to sell, if the loan is collateral
dependent. SFAS 114 is effective for fiscal years beginning after December 15,
1994.In general, the Corporation's loans are collateral dependent and, when
impaired, are usually carried at the lower of book value or the fair value of
the collateral. Although management has not completed evaluating the effect of
implementing SFAS 114, at this time, it does not expect the effect on the
consolidated financial position or results of operations to be significant.
Accounting for Certain Investments in Debt and Equity Securities
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which is effective for fiscal years
beginning after December 15, 1993. SFAS 115 supersedes Statement of Financial
Accounting Standards No. 12, "Accounting for Certain Marketable Securities" and
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. At December 31, 1993, an insignificant amount of the Corporation's
assets would be subject to the provisions of SFAS 115, therefore, management
believes that SFAS 115 will not have a significant impact on the consolidated
financial position or results of operations.
1992 vs. 1991
Net Income
Net income for the year ended December 31, 1992 was a record $162.3
million, an increase of $12.2 million (8.1%) from the $150.1 million reported in
1991. Excluding $4.2 million of after-tax extraordinary charges related to
redeeming long-term debt in 1992 ($1.3 million in 1991), net income increased
10.0% to $166.5 million compared to $151.5 million in 1991. Factors that
contributed to the improvement in earnings included an increase in net interest
revenue and higher fees and other non-interest sources of revenue, partially
offset by moderate increases in the provision for credit losses and operating
expenses.
Net Interest Revenue
Net interest revenue for 1992 was $622.8 million, an increase of $53.5
million (9.4%) compared to $569.2 million in 1991. Factors contributing to the
improvements in net interest revenue and net interest margin included the
following:
o In 1992, amid a lower interest rate environment, the Corporation's
borrowing costs declined more than the yields on its financing and leasing
assets due to effective pricing of new business. As a percentage of AEA, net
interest revenue was 5.46% for 1992 compared to 5.14% for 1991.
o AEA increased to $11.40 billion in 1992 versus $11.06 billion in 1991.
o The full year effect of Credit Finance, acquired in February 1991,
increased net interest revenue.
o Fees, commissions and other non-interest sources of revenue increased in
1992 compared to 1991 reflecting a greater amount of fee-based transactions and
establishing fees for a wider range of services.
o The interest rate repricing characteristics of assets and liabilities
were closely monitored to prudently benefit from the decline in interest rates
during 1992.
Interest and fees earned in 1992 totaled $1.17 billion, a decrease of
$103.8 million (8.1%) from $1.28 billion earned in 1991. The decline in revenues
was mainly due to lower yields on AEA, which fell to 10.13% in 1992 from 11.20%
in 1991. Yields on fixed and floating rate receivables were negatively impacted
by declining interest rates in 1992, which led to higher than normal customer
paydowns as borrowers refinanced existing higher-yielding loans at market
21
<PAGE>
interest rates. Additionally, the average level of nonperforming assets rose in
1992, resulting in a higher level of foregone interest revenue. Nonaccrual
finance receivables were $234.2 million at December 31, 1992 versus $190.7
million at year-end 1991.
Interest expense for 1992 decreased $157.4 million (22.2%) to $552.0
million from $709.4 million in 1991. The decrease reflects $178.2 million in
lower funding costs of earning assets and $19.9 million of lower funding costs
related to interest-bearing deposits maintained for liquidity purposes,
partially offset by an increase of $40.7 million for funding the growth in
average earning assets.
A comparative analysis of the weighted average interest rates paid on the
Corporation's debt, after the effect of interest rate swaps, is shown in the
accompanying table.
Year Ended December 31,
-----------------------
1992 1991
---------- ----------
Floating rate debt ................... 4.12% 6.31%
Fixed rate debt ...................... 7.66% 9.15%
Composite interest rate .............. 5.66% 7.31%
Gains on Asset Sales
Gains on asset sales in 1992 totaled $13.9 million, down from $25.6
million in 1991. The 1992 gains included $7.3 million from the sale of equipment
coming off lease ($11.8 million in 1991) and $6.6 million from a securitization
of manufactured housing receivables. The 1991 gains included $13.8 million from
the sale of assets received in satisfaction of loans.
Operating Expenses before Provision for Credit Losses
Operating expenses, before the provision for credit losses, totaled $261.6
million in 1992, an increase of $15.3 million (6.2%), compared to $246.3 million
in 1991. The 1992 amount included the full year effect of Credit Finance,
acquired in February 1991. As a percentage of AEA, such operating expenses were
2.30% in 1992 versus 2.23% in 1991.
Salaries and employee benefits for 1992 were $137.9 million, $10.9 million
(8.5%) above the $127.1 million reported in 1991, mainly due to higher salaries
and incentive compensation. Employee headcount was 2,355 at December 31, 1992
versus 2,346 in 1991. Excluding personnel for the new Consumer Finance
operation, headcount declined by more than 20 since year-end 1991.
Other operating expenses in 1992 totaled $123.7 million, an increase of
$4.4 million (3.7%), compared to $119.3 million in 1991. The 1992 amount was
impacted by higher repossession expenses, depreciation of commercial aircraft
while being re-marketed, and start-up expenses related to Consumer Finance.
Excluding these expenses, other operating expenses in 1992 were basically
unchanged from 1991.
Income Taxes
The provision for Federal and state and local income taxes in 1992
increased to $105.3 million from $100.0 million in 1991. The effective income
tax rate was 38.7%, down from 39.8% in 1991.
Financing and Leasing Assets
Finance receivables and equipment under operating lease were $12.23
billion at December 31, 1992, a rise of $564.6 million (4.8%) from $11.67
billion at year-end 1991. At year-end 1992, finance receivables totaled $11.77
billion, an increase of $249.9 million (2.2%) from $11.52 billion at year-end
1991. Equipment under operating lease totaled $462.8 million at December 31,
1992, up from $148.0 million at year-end 1991.
Capital Equipment Financing receivables and equipment under operating
lease totaled $4.81 billion at December 31, 1992, an increase of 6.7% from
year-end 1991. The increase was primarily due to financings to the commercial
airline and shipping industries, offset in part by sluggish economic conditions.
Business Credit receivables amounted to $1.28 billion at year-end 1992, an
increase of 7.2% from year-end 1991. The increase in finance receivables was
largely due to new business opportunities in the manufacturing and retail
22
<PAGE>
sectors, partially offset by higher than normal customer paydowns and the
receipt of assets in satisfaction of a loan from a bankrupt building supply
concern. Credit Finance receivables totaled $545.0 million at December 31, 1992,
an increase of 10.4% from year-end 1991, reflecting new business with various
manufacturers, primarily paper and metal producers.
Industrial Financing receivables and equipment under operating lease
totaled $3.17 billion at December 31, 1992, an increase of 5.2% from year-end
1991. The rise reflected strong fourth quarter volume, including portfolio
acquisitions from equipment dealers and a rise in business aircraft
transactions. Sales Financing receivables totaled $1.41 billion at December 31,
1992, a decrease of 0.9% since year-end 1991. This unit's expanding recreational
vehicle portfolio was offset by higher prepayment activity earlier in the year,
the sale of the remaining business equipment leasing receivables, and a
securitization of manufactured housing receivables.
Commercial Services receivables totaled $1.01 billion at December 31,
1992, a decrease of 1.7% from year-end 1991. The modest decline reflects
paydowns from the retail sector during the fourth quarter of 1992.
Finance Receivables Composition
The finance receivables portfolio is principally composed of commercial and
industrial loans and direct financing and leveraged leasing receivables. The
portfolio mix and finance receivables concentrations did not significantly
change from year-end 1991.
Financing and Leasing Assets Concentrations
Commercial Airlines
Commercial airline finance receivables of $1.59 billion and operating
leases of $359.3 million totaled $1.95 billion (16.0% of total financing and
leasing assets before the reserve for credit losses) at December 31, 1992
compared to $1.70 billion (14.5%) at year-end 1991. The portfolio is secured by
commercial aircraft and related equipment.
The following table presents the commercial airline industry portfolio.
Year Ended December 31,
--------------------------
1992 1991
-------- --------
Dollar Amounts in Millions
Finance Receivables
Amount outstanding(a) .......... $1,594.3 $1,592.4
Number of obligors ............. 47 43
-------- --------
Operating Leases
Net carrying value ............. $ 359.3 $ 103.4
Number of obligors ............. 17 5
-------- --------
Total ...................... $1,953.6 $1,695.8
======== ========
Number of obligors (b) ......... 57 46
Number of aircraft (c) ......... 304 294
======== ========
- --------------
(a) Includes accrued rents on operating leases of $1.5 million and $0.2 million
at December 31, 1992 and December 31, 1991, respectively.
(b) Certain obligors have both finance receivable and operating lease
transactions.
(c) 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 which 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
year-end 1992, the portfolio consisted of 231 Stage III aircraft (80%) and
73 Stage II aircraft (20%) versus 208 Stage III aircraft (75%) and 86 Stage
II (25%) at year-end 1991.
At December 31, 1992, outstandings of $18.6 million on three commercial
aircraft with two of the three bankrupt airlines (each with collateral value in
excess of carrying value) were included in finance receivables past due 60 days
or more. No other commercial airline finance receivables or lease payments were
past due 60 days or more at December 31, 1992.
At year-end 1991, six commercial aircraft with a carrying value of $96.8
million were included in assets received in satisfaction of loans. The
Corporation re-leased, under operating lease agreements, all six commercial
aircraft during 1992. No commercial aircraft were included in assets received in
satisfaction of loans at December 31, 1992.
23
<PAGE>
Retail Industry
Retail industry receivables, principally through Commercial Services,
totaled $813.8 million (6.7% of financing and leasing earning assets before the
reserve for credit losses) at December 31, 1992 compared to $872.5 million
(7.5%) at December 31, 1991. Outstandings to retailers on nonaccrual status
declined to $20.9 million at December 31, 1992 from $61.0 million at year-end
1991, primarily due to the receipt of assets of a bankrupt building supply
retailer by Business Credit.
Highly Leveraged Transactions
HLTs totaled $493.7 million (4.0% of financing and leasing assets before
the reserve for credit losses) at December 31, 1992, down from $588.8 million
(5.0%) at December 31, 1991. The decline in HLT outstandings in 1992 was
primarily due to delisting $73.2 million of finance receivables and to the
receipt of assets of the bankrupt building supply concern previously referred to
in the Retail Industry section. The Corporation's HLT outstandings are generally
secured by collateral, as distinguished from HLTs that rely primarily on cash
flow from operations. At December 31, 1992, the HLT portfolio consisted of 25
obligors in 13 different industry groups, with approximately 24.5% of the
outstandings located in the Northeast region of the United States and 44.1% in
the Southeast. Two accounts totaling $14.8 million were classified as nonaccrual
at December 31, 1992 compared to $57.2 million (3 accounts) at year-end 1991.
Unfunded commitments to lend in secured HLT situations were $78.4 million at
December 31, 1992 compared to $76.3 million at year-end 1991.
Provision and Reserve for Credit Losses
Continued weakness in the U.S. economy throughout 1992 led to a modest rise
in charge-offs in 1992, while the amounts of past due loans declined and
non-performing assets remained relatively unchanged from 1991. Information
concerning the provision for credit losses and net charge-offs is summarized
below:
Year Ended December 31,
-----------------------
1992 1991
---------- ----------
Dollar Amounts in Thousands
Net charge-offs ...................... $ 98,284 $ 95,169
Provision for credit losses
for reserve increase .............. 4,891 1,883
-------- --------
Provision for credit losses .......... $103,175 $ 97,052
======== ========
Percent of net charge-offs
to average finance receivables .... .84% .82%
======== ========
Net charge-offs increased by a modest $3.1 million (3.3%) in 1992. The
ratio of net charge-offs to average finance receivables rose slightly in 1992 to
.84% from .82% in 1991.
The reserve for credit losses amounted to $158.5 million (1.35% of
outstanding finance receivables) at December 31, 1992 compared to $155.1 million
(1.35%) at year-end 1991.
Past Due and Nonaccrual Finance Receivables
and Assets Received in Satisfaction of Loans
Finance receivables past due 60 days or more totaled $335.8 million (2.85%
of finance receivables) at December 31, 1992, down from $351.1 million (3.05%)
at December 31, 1991. Excluding finance receivables in Industrial Financing
which have dealer or manufacturer recourse provisions, the percentage of past
due loans 60 days or more was 2.57% at year-end 1992 compared to 2.65% at
year-end 1991.
Finance receivables on nonaccrual status included in past due receivables
totaled $234.2 million (1.99% of finance receivables) at December 31, 1992, up
from $190.7 million (1.66%) at December 31, 1991. At year-end 1992, the
nonaccrual finance receivables portfolio was principally related to the retail,
oil refining, manufacturing, and construction industries.
24
<PAGE>
The following table lists the assets received in satisfaction of loans,
including in-substance foreclosures.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1992 1991
-------- --------
Amounts in Thousands
<S> <C> <C>
Commercial aircraft (a) -- $ 96,762
Other transportation (b) $28,034 21,246
Retail merchandise, property and accounts receivable (c) 37,262 --
Property and equipment 14,203 15,741
Construction and mining 7,566 3,616
Other 6,715 2,785
------- --------
Total $93,780 $140,150
======= ========
</TABLE>
- --------------
(a) Commercial aircraft includes aircraft and related equipment. A discussion
of this equipment category is presented in "Financing and Leasing Assets
Concentrations--Commercial Airlines."
(b) Other transportation includes business aircraft, trucks, trailers, and
recreational vehicles.
(c) Retail merchandise, property and accounts receivable includes the assets of
a bankrupt building supply retailer.
25
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Independent Auditors' Report
The Board of Directors
The CIT Group Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of The CIT
Group Holdings, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1993. These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The CIT
Group Holdings, Inc. and subsidiaries at December 31, 1993 and 1992, and the
results of their operations and cash flows for each of the years in the
three-year period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," in 1993.
KPMG PEAT MARWICK
Short Hills, New Jersey
January 18, 1994
26
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
Assets 1993 1992
----------- -----------
Financing and leasing assets Amounts in Thousands
Finance receivables (net of unearned finance
income of $1,482,069 and $1,592,049)
(Note 2)
Corporate Finance
Capital Equipment Financing ..................... $ 4,394,528 $ 4,429,089
Business Credit ................................. 1,282,133 1,281,283
Credit Finance .................................. 645,642 545,023
------------ ------------
6,322,303 6,255,395
Dealer and Manufacturer Financing
Industrial Financing ............................ 3,880,991 3,094,102
Sales Financing ................................. 1,438,865 1,411,812
------------ ------------
5,319,856 4,505,914
Factoring
Commercial Services ............................. 981,935 1,010,186
------------ ------------
Finance receivables .......................... 12,624,094 11,771,495
Reserve for credit losses (Note 3) .............. (169,378) (158,483
------------ ------------
Net finance receivables ...................... 12,454,716 11,613,012
Equipment under operating lease, net (Note 4) ... 751,901 462,757
------------ ------------
Net Financing and leasing assets ............. 13,206,617 12,075,769
Cash and cash equivalents
Cash ............................................ 101,554 89,793
Interest-bearing deposits ....................... -- 610,000
------------ ------------
Cash and cash equivalents .................... 101,554 699,793
Other assets .................................... 420,310 252,866
------------ ------------
Total assets ................................. $ 13,728,481 $ 13,028,428
============ ============
Liabilities and Stockholders' Equity
Debt (Notes 5 and 6)
Commercial paper ................................ $ 6,516,139 $ 6,173,465
Variable rate notes ............................. 1,686,500 1,477,830
Fixed rate notes ................................ 2,392,500 2,479,011
Subordinated fixed rate notes ................... 200,000 200,000
------------ ------------
Total debt ................................... 10,795,139 10,330,306
Credit balances of factoring clients ............ 521,728 452,606
Accrued liabilities and payables ................ 324,520 284,427
Deferred Federal income taxes and
investment tax credits ....................... 394,859 359,998
------------ ------------
Total liabilities ............................ 12,036,246 11,427,337
Stockholders' equity (Notes 8 and 15)
Common stock--authorized,
issued and outstanding--1,000 shares .......... 250,000 250,000
Paid-in capital ................................. 408,320 408,320
Retained earnings ............................... 1,033,915 942,771
------------ ------------
Total stockholders' equity ................... 1,692,235 1,601,091
------------ ------------
Total liabilities and stockholders' equity ... $ 13,728,481 $ 13,028,428
============ ============
See accompanying notes to consolidated financial statements.
27
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Amounts in Thousands
Interest and fees earned ................................................ $ 1,181,914 $ 1,174,796 $ 1,278,617
Interest expense ........................................................ 508,006 552,017 709,373
----------- ----------- -----------
Net interest revenue ................................................ 673,908 622,779 569,244
----------- ----------- -----------
Gains on asset sales .................................................... 23,945 13,883 25,626
----------- ----------- -----------
Salaries and employee benefits .......................................... 152,139 137,914 127,060
Other operating expenses ................................................ 130,043 123,721 119,273
----------- ----------- -----------
Operating expenses before provision for credit losses ............... 282,182 261,635 246,333
Provision for credit losses (Note 3) .................................... 104,874 103,175 97,052
----------- ----------- -----------
Total operating expenses ............................................ 387,056 364,810 343,385
----------- ----------- -----------
Income before provision for income
taxes and extraordinary item ...................................... 310,797 271,852 251,485
Provision for income taxes (Note 7) ..................................... 128,489 105,311 100,032
----------- ----------- -----------
Income before extraordinary item .................................... 182,308 166,541 151,453
Extraordinary item--loss on early
extinguishment of debt, net of income
tax benefit of $2,523 in 1992 and
$789 in 1991 (Note 5) ................................................. -- (4,241) (1,325)
----------- ----------- -----------
Net income .......................................................... $ 182,308 $ 162,300 $ 150,128
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1992 1991
---------- ----------- ---------
Amounts in Thousands
<S> <C> <C> <C>
Common stock
Balance, beginning and end of period .......................... $ 250,000 $ 250,000 $ 250,000
---------- ----------- ---------
Paid-in capital
Balance, beginning of period .................................. $ 408,320 $ 258,320 $ 258,320
Capital contribution from stockholders (Note 15) .............. -- 150,000 --
---------- ---------- ---------
Balance, end of period ........................................ $ 408,320 $ 408,320 $ 258,320
---------- ---------- ---------
Retained earnings
Balance, beginning of period .................................. $ 942,771 $1,011,464 $ 936,385
Net income .................................................... 182,308 162,300 150,128
Dividends paid--regular ....................................... (91,164) (80,993) (75,049)
--special (Note 15) ................................. -- (150,000) --
---------- ---------- ---------
Balance, end of period ........................................ $1,033,915 $ 942,771 $1,011,464
---------- ---------- ---------
Total stockholders' equity (Note 8) ........................... $1,692,235 $1,601,091 $1,519,784
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1993 1992 1991
------------ ------------ ------------
Amounts in Thousands
<S> <C> <C> <C>
Cash flows from operations
Net income ............................................................ $ 182,308 $ 162,300 $ 150,128
Adjustments to reconcile net income to net cash flows from
operations:
Extraordinary item--loss on early extinguishment of debt,
net of income tax benefit ......................................... -- 4,241 1,325
Provision for credit losses ......................................... 104,874 103,175 97,052
Depreciation and amortization ....................................... 49,728 29,041 16,555
Provision for deferred Federal income taxes ......................... 34,861 33,552 19,478
Gains on asset sales ................................................ (23,945) (13,883) (25,626)
Increase in accrued liabilities and payables ........................ 31,980 20,717 45,665
Decrease in other assets ............................................ 817 22,923 19,751
Other ............................................................... (27,560) (24,879) (12,289)
------------ ------------ ------------
Net cash flows provided by operations ........................... 353,063 337,187 312,039
------------ ------------ ------------
Cash flows from investing activities
Loans extended ........................................................ (20,854,006) (16,810,392) (13,940,882)
Collections on loans .................................................. 20,081,910 16,521,953 13,862,376
Purchases of assets to be leased ...................................... (940,938) (1,019,513) (765,498)
Collections on lease receivables ...................................... 486,364 271,723 205,471
Purchases of finance receivables portfolios ........................... (477,436) (112,431) (236,376)
Proceeds from asset sales ............................................. 215,556 75,247 92,472
Proceeds from sales of assets received in satisfaction of loans ....... 43,029 32,408 83,877
Net decrease (increase) in short-term factoring receivables ........... 90,465 (67,147) (33,543)
Proceeds from sales of receivables .................................... -- 70,243 114,549
Purchase of Credit Finance subsidiary ................................. -- -- (501,866)
Other ................................................................. (16,930) (24,561) (20,812)
------------ ------------ ------------
Net cash flows used for investing activities .................... (1,371,986) (1,062,470) (1,140,232)
------------ ------------ ------------
Cash flows from financing activities
Net increase in commercial paper ...................................... 342,674 696,948 924,854
Proceeds from the issuance of fixed rate notes ........................ 635,000 830,000 1,030,000
Proceeds from the issuance of variable rate notes ..................... 1,550,000 1,228,000 899,830
Repayments of variable rate, fixed rate and subordinated
fixed rate notes .................................................... (2,062,841) (1,968,324) (2,149,680)
Proceeds from non-recourse leveraged lease debt ....................... 118,531 382,555 266,320
Repayments of non-recourse leveraged lease debt ....................... (71,516) (60,715) (16,108)
Cash dividends paid ................................................... (91,164) (230,993) (75,049)
Capital contribution from stockholders ................................ -- 150,000 --
------------ ------------ ------------
Net cash flows from financing activities ........................ 420,684 1,027,471 880,167
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents .................. (598,239) 302,188 51,974
Cash and cash equivalents, beginning of year .......................... 699,793 397,605 345,631
------------ ------------ ------------
Cash and cash equivalents, end of year ................................ $ 101,554 $ 699,793 $ 397,605
============ ============ ============
Supplemental disclosures
Interest paid ......................................................... $ 505,317 $ 582,119 $ 701,536
Federal and State and local income taxes paid ......................... $ 85,689 $ 61,894 $ 65,985
Noncash transfers of receivables to other assets ...................... $ 305,038 -- --
Noncash transfers of receivables to assets received
in satisfaction of loans ............................................ $ 166,885 $ 124,959 $ 218,188
Noncash transfers of assets received in satisfaction of loans
to equipment under operating lease .................................. $ 85,173 $ 121,952 $ 4,877
Noncash transfers of receivables to equipment under
operating lease ..................................................... $ 5,960 $ 134,517 $ 100,808
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Consolidation of Financial Statements and Footnotes
The consolidated financial statements and accompanying notes include the
accounts of The CIT Group Holdings, Inc. and its subsidiaries (the
"Corporation"). All significant intercompany transactions have been eliminated.
Prior period amounts (that are not significant) have been restated to conform to
the current presentation.
Consolidated Statements of Cash Flows
For purposes of preparing the Statements of Cash Flows, the Corporation
defines cash and interest-bearing deposits as cash and cash equivalents. Cash
inflows and outflows from commercial paper borrowings and most factoring
receivables are presented on a net basis as their term is generally less than 90
days. Interest-bearing deposits generally represent overnight money market
investments of excess cash borrowed in the commercial paper market that are
maintained for liquidity purposes.
Revenue Recognition
Interest revenue on finance receivables other than leveraged leases is
recognized on an accrual basis commencing in the month of origination using
methods that generally approximate the actuarial method . Revenue on leveraged
leases is recognized on a basis calculated to achieve a constant after-tax rate
of return for periods in which the Corporation has a positive net investment,
net of related deferred tax liabilities. Rental income on operating leases is
included in interest and fees earned, net of depreciation expense for the
related asset, over the term of the lease.
Except for certain Sales Financing accounts which are subject to automatic
charge-off procedures, the accrual of interest revenue is suspended and an
account is placed on nonaccrual status either when a payment is contractually
delinquent for 90 days or more and collateral is insufficient to cover both the
outstanding principal and accrued interest or immediately if, in the opinion of
management, full collection of principal and interest is doubtful. Revenue
accrued but not collected at the date an account is placed on nonaccrual status
is reversed and charged against current revenue when the collateral does not
satisfy the principal and accrued interest outstanding. Subsequent revenue
received is either applied to the outstanding principal balance or recorded as
interest income, depending on management's assessment of the ultimate
collectibility of principal and interest.
Fees earned include factoring commissions, commitment and facility fees,
and letters of credit and syndication fees. Origination and other nonrefundable
fees and related direct origination costs are deferred and amortized as an
adjustment of yield over the contractual life of the transaction.
Gains and losses realized upon the sale of assets coming off lease, the
securitization of finance receivables and the disposition of assets received in
satisfaction of loans are reflected in gains on asset sales.
Lease Financing
The Corporation engages in direct financing, operating and leveraged
leasing arrangements. Funding for direct financing leases is provided by the
Corporation. Direct financing leases are carried at the aggregate future minimum
lease payments plus estimated residual values less unearned finance income.
Purchases of equipment to be placed on operating lease consist of various
types of commercial and industrial equipment. Equipment under operating lease is
stated at cost less accumulated depreciation. Assets are depreciated to
estimated future fair market value using the straight-line method over the
longer of the lease term or projected holding period of the asset. Equipment
acquired in satisfaction of loans and subsequently placed on operating lease is
recorded at the lower of carrying value or estimated fair value when acquired.
31
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Funding for the major portion of leveraged leases is provided by third
party lenders, with the Corporation providing the balance and acquiring title to
the property. Leveraged leases are carried at the aggregate value of future
minimum lease payments plus estimated residual value, less amounts due to
non-recourse third party lenders and unearned finance income. In the event of
default by the lessee, the third party lenders have no recourse to the
Corporation.
Reserve for Credit Losses on Finance Receivables
The reserve for credit losses is established and periodically reviewed for
adequacy based on the nature and characteristics of the accounts, economic
conditions and trends, charge-off experience, delinquencies, and underlying
collateral and guarantees. It is management's judgment that the reserve for
credit losses is adequate to provide for potential credit losses.
Charge-off of Finance Receivables
The finance receivables portfolio is reviewed periodically to determine the
probability of loss on individual receivables. Charge-offs are taken after
considering such factors as the customer's financial condition and the value of
underlying collateral and guarantees. Such charge-offs are deducted from the
carrying value of the related receivables. To the extent that an unrecovered
balance remains due, a final charge-off is taken at the time collection efforts
are no longer deemed useful. Automatic charge-offs are taken for certain Sales
Financing receivables when no payments are received for 120 days or at 180 days
notwithstanding any partial payments received.
Other Assets
Assets received in satisfaction of loans, including in-substance
foreclosures, are carried at the lower of carrying value or estimated fair value
less selling costs, with write-downs at the time of receipt or in-substance
foreclosure charged to the reserve for credit losses. Subsequent write-downs of
these assets, which may be required due to a decline in estimated fair market
value after receipt or in substance foreclosure, are reflected in other
operating expenses.
Fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed principally using the
straight-line method over the estimated useful lives of the related assets.
At the time management decides to proceed with a securitization of finance
receivables, such receivables are considered held for sale and are reclassified
to other assets.
Derivative Financial Instruments
The Corporation enters into interest rate swap and interest rate cap
agreements as part of its overall interest rate risk management process.
Transactions under these agreements are accounted for on an accrual basis over
their contractual term.
Federal Income Taxes and Investment Tax Credits
On January 1, 1993, the Corporation adopted, on a prospective basis,
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under the asset and liability method of SFAS 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are determined using enacted tax rates
expected to apply in the year in which those temporary differences are expected
to be recovered or settled. Under SFAS 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income at the time of
enactment. The adoption of SFAS 109 did not have a significant impact on the
Corporation's consolidated results of operations in 1993 due to the prior
adoption of Statement of Financial Accounting Standards No. 96, "Accounting for
Income Taxes".
32
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Federal investment tax credits realized for income tax purposes on lease
financing transactions have been deferred for financial statement purposes. Such
credits are amortized as a reduction of the provision for income taxes on an
actuarial method over the life of the related asset.
Note 2--Finance Receivables
The following table presents lease receivables which are included in
finance receivables in the Consolidated Balance Sheets.
December 31,
------------------------
1993 1992
---------- -----------
Amounts in Thousands
Direct financing lease receivables $1,997,309 $ 1,699,243
Leveraged lease receivables* ..... 535,725 488,262
---------- -----------
Total lease receivables $2,533,034 $ 2,187,505
========== ===========
- -----------
* Excludes lease receivables offset by related non-recourse debt payable to
third party lenders of $1,083,616,000 and $934,808,000 in 1993 and 1992,
respectively, including amounts owed to affiliates of The Dai-Ichi Kangyo
Bank, Limited ("DKB") and Chemical Banking Corporation ("CBC") which totaled
$225,800,000 and $20,989,000 at year-end 1993, respectively, and $230,268,000
and $23,508,000 at year-end 1992, respectively.
Information about concentrations of credit risk is set forth in "Industry
Composition" and "Geographic Composition" in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Contractual maturities of finance receivables at December 31, 1993 and 1992
are set forth in Note 18--Maturity of Finance Receivables.
The following table sets forth information regarding past due finance
receivables on nonaccrual status and assets received in satisfaction of loans,
including in-substance foreclosures.
December 31,
-------------------
1993 1992
-------- --------
Amounts in Thousands
Nonaccrual finance receivables .............. $139,941 $234,195
Assets received in satisfaction of loans .... 86,957 93,780
-------- --------
Total nonperforming assets ............. $226,898 $327,975
======== ========
Percent to total financing and leasing assets 1.70% 2.68%
======== ========
- -----------
The amount of interest income which would have been recorded under contractual
terms for year-end nonaccrual receivables totaled $21,198,000, $30,283,000, and
$25,649,000 in 1993, 1992 and 1991, respectively. The amount of interest income
recognized for such nonaccrual receivables totaled $3,854,000, $14,901,000 and
$10,655,000 in 1993, 1992 and 1991, respectively.
At December 31, 1993, and 1992, the Corporation had $15.0 million and $49.1
million, respectively, of receivables that met the criteria of troubled debt
restructurings, which are not included in the preceding table. Interest income
on these restructured receivables would have been $2.3 million, $5.8 million and
$2.3 million for 1993, 1992 and 1991, respectively, had income been recognized
at original contractual interest rates. Interest earned on troubled debt
restructurings totaled $0.8 million, $4.1 million and $1.3 million in 1993, 1992
and 1991, respectively.
33
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Reserve for Credit Losses
The following table presents changes in the reserve for credit losses.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1993 1992 1991
--------- --------- ---------
Dollar Amounts in Thousands
<S> <C> <C> <C>
Balance, January 1 ........................................... $ 158,483 $ 155,107 $ 144,037
Provision for credit losses .................................. 104,874 103,175 97,052
Receivables charged-off ...................................... (105,613) (110,199) (105,699)
Recoveries on receivables previously charged-off ............. 11,205 11,915 10,530
--------- --------- ---------
Net credit losses ........................................ (94,408) (98,284) (95,169)
Reserve increase ............................................. 10,466 4,891 1,883
Portfolio acquisitions (dispositions), net ................... 429 (1,515) 9,187
--------- --------- ---------
Balance, December 31 ......................................... $ 169,378 $ 158,483 $ 155,107
========= ========= =========
Reserve as a percent of finance receivables .................. 1.34% 1.35% 1.35%
========= ========= =========
</TABLE>
Note 4--Equipment Under Operating Lease
The following table provides an analysis of equipment under operating lease
by equipment type.
December 31,
----------------------
1993 1992
--------- ---------
Amounts in Thousands
Commercial aircraft ...................... $ 504,163 $ 378,868
Business aircraft ........................ 93,132 46,189
Over-the-road transportation equipment ... 91,004 43,020
Oil refinery ............................. 86,623 --
Construction and mining equipment ........ 23,984 13,079
Rail equipment ........................... 12,260 6,300
Other .................................... 9,501 3,904
--------- ---------
$ 820,667 $ 491,360
Less accumulated depreciation ............ (68,766) (28,603)
--------- ---------
Total .......................... $ 751,901 $ 462,757
========= =========
The following table presents future minimum lease rentals on noncancellable
operating leases as of December 31, 1993. Excluded from this table are the
variable rentals calculated on the level of asset usage, re-leasing rentals, and
expected sales proceeds from remarketing the assets at the expiration of the
current leases, all of which are important components of operating lease
profitability.
Year Ended December 31, Amounts in Thousands
1994 ..................................... $ 75,637
1995 ..................................... 58,534
1996 ..................................... 50,073
1997 ..................................... 41,401
1998 ..................................... 32,081
Thereafter ............................... 36,451
--------
Total ................................. $294,177
========
34
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Debt
The following table presents data on commercial paper borrowings.
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
Dollar Amounts in Thousands
<S> <C> <C> <C>
At December 31,
Borrowings outstanding ................................ $6,516,139 $6,173,465 $5,476,517
Weighted average interest rate ........................ 3.35% 3.41% 5.12%
Weighted average maturity ............................. 55 days 57 days 78 days
Year ended December 31,
Daily average borrowings .............................. $6,080,504 $5,872,844 $5,321,733
Maximum amount outstanding ............................ $6,709,415 $6,566,570 $5,889,042
Year ended December 31,
(excluding amounts related to short-term
interest-bearing deposits)
Daily average borrowings .............................. $5,533,781 $5,334,547 $4,666,571
Maximum amount outstanding ............................ $6,564,609 $5,939,633 $5,210,375
Weighted average interest cost ........................ 3.29% 4.08% 6.32%
</TABLE>
35
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
The following table presents interest rates, contractual maturities and outstanding balances for term debt
at December 31, 1993.
December 31,
------------------------
Contractual Maturity Rate 1993 1992
- -------------------- ---- ---------- ----------
<S> <C> <C> <C>
Dollar Amounts in Thousands
Variable rate notes
Due March 18, 1993................................................ -- -- $ 25,000
Due March 26, 1993................................................ -- -- 50,000
Due April 19, 1993................................................ -- -- 5,000
Due April 30, 1993................................................ -- -- 50,000
Due May 6, 1993................................................... -- -- 25,000
Due May 15, 1993.................................................. -- -- 18,000
Due May 19, 1993.................................................. -- -- 100,000
Due May 21, 1993.................................................. -- -- 29,830
Due June 4, 1993.................................................. -- -- 100,000
Due June 10, 1993................................................. -- -- 100,000
Due September 1, 1993............................................. -- -- 100,000
Due October 29, 1993.............................................. -- -- 100,000
Due November 1, 1993.............................................. -- -- 100,000
Due November 5, 1993............................................. -- -- 50,000
Due November 16, 1993............................................. -- -- 100,000
Due November 24, 1993............................................. -- -- 100,000
Due December 10, 1993............................................. -- -- 150,000
Due February 3, 1994.............................................. 3.400%(a) $ 100,000 --
Due March 1, 1994................................................. 3.400 (a) 100,000 --
Due March 3, 1994................................................. 3.375 (a) 100,000 --
Due April 1, 1994................................................. 3.575 (b) 25,000 25,000
Due April 22, 1994 ............................................... 10.500 (c) 30,000 30,000
Due May 26, 1994.................................................. 3.200 (a) 150,000 --
Due July 26, 1994 ................................................ 3.300 (a) 100,000 --
Due August 10, 1994 .............................................. 3.350 (a) 150,000 --
Due October 3, 1994 .............................................. 3.430 (a) 150,000 --
Due October 17, 1994 ............................................. -- -- 125,000
Due June 5, 1995.................................................. 4.313 (d) 25,000 --
Due June 19, 1995................................................. 3.250 (e) 50,000 --
Due August 31, 1995............................................... 3.550 (a) 200,000 --
Due September 15, 1995............................................ 3.600 (a) 200,000 --
Due December 15, 1995............................................. 3.320 (f) 200,000 --
Due June 25, 1997................................................. 3.563 (g) 25,000 --
Due March 11, 1998................................................ 3.590 (h) 61,500 61,500
Due November 12, 2003............................................. 3.640 (i) 20,000 33,500
---------- ----------
Total variable rate notes.................................. $1,686,500 $1,477,830
========== ==========
Fixed rate notes
Due March 25, 1993................................................ -- -- $ 30,000
Due July 15, 1993................................................ -- -- 150,000
Due October 22, 1993.............................................. -- -- 15,000
Due December 15, 1993............................................. -- -- 200,000
Due December 24, 1993............................................. -- -- 150,000
Due January 1, 1994............................................... 8.625% $ 100,000 100,000
Due February 1, 1994.............................................. 5.500 100,000 100,000
Due August 15, 1994............................................... 8.875 200,000 200,000
Due November 26, 1994............................................. -- -- 76,511
Due December 1, 1994.............................................. 8.600 200,000 200,000
Due August 8, 1995................................................ -- -- 10,000
Due September 11, 1995............................................ -- -- 50,000
Due November 1, 1995.............................................. 5.500 100,000 100,000
Due November 15, 1995............................................. 5.650 150,000 150,000
Due December 1, 1995.............................................. 5.875 100,000 100,000
Due February 15, 1996............................................. 8.750 250,000 250,000
Due March 15, 1996................................................ 4.750 150,000 --
Due June 15, 1996................................................. 8.875 150,000 150,000
Due February 15, 1997............................................. 6.000 112,500 127,500
Due July 1, 1997.................................................. 8.750 150,000 150,000
Due April 1, 1998................................................. 5.625 100,000 --
Due April 6, 1998................................................. 5.020 (j) 50,000 --
Due April 15, 1998................................................ 8.750 150,000 150,000
Due April 30, 1999................................................ 5.920 (k) 20,000 20,000
Due April 22, 2000................................................ 6.150 20,000 --
Due April 28, 2003................................................ 4.900 (k) 40,000 --
Due May 12, 2003.................................................. 5.020 (k) 30,000 --
Due August 30, 2003............................................... 5.500 (k) 20,000 --
Due October 15, 2008.............................................. 5.875 200,000 --
---------- ----------
Total fixed rate notes........................................ $2,392,500 $2,479,011
========== ==========
Subordinated fixed rate notes
Due March 15, 2001................................................ 9.250% $ 100,000 $ 100,000
Due November 1, 2001.............................................. 8.375 100,000 100,000
---------- ----------
Total subordinated fixed rate notes........................ $ 200,000 $ 200,000
========== ==========
</TABLE>
36
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
- -----------
(a) The interest rate resets daily based on the prime interest rate minus a
weighted average of 2.58%.
(b) The interest rate resets quarterly based on the LIBOR plus .20%.
(c) The interest rate resets quarterly based upon the 3-month Japanese yen
LIBOR.
(d) The interest rate resets quarterly based upon 13.50% minus the 3-month
Italian lira LIBOR.
(e) The interest rate resets daily based upon the federal funds rate plus .25%.
(f) The interest rate resets quarterly based upon the 91 day treasury bill rate
plus .20%.
(g) The interest rate resets quarterly based on the LIBOR plus .25%. Subject to
repayment by the Corporation prior to maturity under provisions set forth
in the Pricing Supplement dated June 18, 1993.
(h) The interest rate resets monthly and is equal to the 30-day commercial
paper rate plus .15%. Repayable quarterly at the option of the holder after
nine months' notice to the Corporation. Redeemable at the option of the
Corporation on 30 days' notice.
(i) The interest rate resets monthly and is equal to the 30-day commercial
paper rate plus .20%, or at a lower rate under certain circumstances,
repayable quarterly at the option of the holder with twenty-one months'
notice to the Corporation. Redeemable at the option of the Corporation on
30 days' notice.
(j) Subject to repayment by the Corporation prior to maturity under provisions
set forth in the Pricing Supplement dated March 16, 1993.
(k) These are yen denominated debt obligations. Principal and interest payments
are fully hedged under interest rate and currency swap agreements resulting
in a weighted average floating rate of 3.63% at December 31, 1993.
The following table presents the contractual maturities of total debt at
December 31, 1993. Certain debt may be repaid at earlier dates as detailed in
footnotes (g) through (j) of the preceeding table.
Commercial Variable rate Fixed rate
paper notes notes
---------- ---------- ----------
Amounts in Thousands
At December 31,
1994 ....................... $6,516,139 $ 905,000 $ 622,500
1995 ....................... -- 675,000 380,000
1996 ....................... -- -- 580,000
1997-2000 .................. -- 86,500 520,000
2001-2008 .................. -- 20,000 490,000
---------- ---------- ----------
Total .................. $6,516,139 $1,686,500 $2,592,500
========== ========== ==========
In 1993, the Corporation did not incur any premiums or other costs to
redeem term debt. After-tax extraordinary losses for premiums and other expenses
relating to early redemptions totaled $4.2 million and $1.3 million in 1992 and
1991, respectively.
The following table presents information on unsecured lines of credit with
84 banks at December 31, 1993. There have been no borrowings under lines of
credit since 1970.
Amount Credit Lines Maturity
---------- ------------ --------
Amounts in Thousands
$1,705,300 364-Day Renewable Credit Renewable periodically (a)
1,115,000 Revolving Credit Facility May 1996 (b)
690,000 Revolving Credit Facility September 1997 (c)
266,700 Revolving Credit Facility July 1996 (d)
200,000 Note Issuance Facility January 1994 - 96 (e)
90,000 3 Year Revolving Credit June-November 1996 (f)
----------
4,067,000 Total Committed Credit Lines
420,100 Uncommitted Credit Lines Renewable annually
----------
$4,487,100 Total Credit Lines
==========
- -----------
(a) Each agreement is extendible upon written notice by the Corporation at any
time but not more than twice in any twelve month period, subject to written
consent by individual banks within 30 days from receipt of notice from the
Corporation. Each agreement is extendible for an additional period to a
date not more than 364 days from the date of written consent by individual
banks. These agreements include a syndicated facility with DKB as agent,
totaling $322,000,000.
(b) This facility is extendible an additional year at the option of the
Corporation upon written notice 60 days prior to May 19 of each year and
subject to written consent by two-thirds of the participating banks within
30 days from receipt of notice from the Corporation. The Corporation may
extend this facilty a maximum of two times, but in no event beyond May 19,
1998.
(c) Prior to maturity, this facility is extendible an additional year at the
option of the Corporation upon written notice 60 days prior to September 28
of each year and subject to termination upon written notice by
participating banks within 35 days from receipt of notice from the
Corporation. Five banks have notified the Corporation that they are
terminating their participation with respect to $75,000,000 effective
September 1994.
37
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(d) This facility is extendible an additional year at the option of the
Corporation upon written notice 60 days prior to July 30 of each year and
subject to written consent by two-thirds of the participating banks within
35 days from receipt of notice by the Corporation. The Corporation may
extend this facility a maximum of two times, but in no event beyond July
30, 1997.
(e) This facility is automatically extended each year for an additional
one-year period unless terminated by the Corporation upon written notice
within three months prior to each January 15. In addition, the facility is
subject to termination by participating banks upon three years' written
notice within three months prior to January 15. As of January 15, 1992,
eight banks had notified the Corporation that they are terminating their
participation with respect to $135,000,000 effective in January 1994. One
bank has notified the Corporation that it is terminating its participation
with respect to $30,000,000 effective in January 1995, if the facility is
extended beyond that date.
(f) Each agreement is extendible an additional year at the option of the
Corporation upon written notice 60 days prior to each agreement's
anniversary date subject to written consent of each individual bank.
Credit lines with DKB in the preceding table totaled $357.0 million at
December 31, 1993 and $345.0 million at December 31, 1992.
Note 6--Derivative Financial Instruments
As part of managing the exposure to changes in market interest rates, the
Corporation has entered into various interest rate swap and cap transactions
with other financial institutions acting as principal counterparties, including
subsidiaries of DKB and CBC. The swaps have remaining terms ranging from one
month to fifteen years. The following table presents the notional principal
amounts and the weighted average interest rates on the interest rate swaps at
December 31, 1993.
Total CIT CIT
Notional Receives Pays
Amount Interest at Interest at
---------- ----------- -----------
Dollar Amounts in Thousands
Floating to fixed rate swaps .......... $2,473,000 3.34% 6.08%
Fixed to floating rate swaps .......... 832,500 6.72 3.41
Floating to floating rate swaps ....... 380,000 3.96 3.59
----------
Total ............................. $3,685,500
==========
Additionally, there were interest rate swaps with a notional principal
amount of $110.0 million on which the Corporation was paying interest at a
weighted average rate of 3.63% at December 31, 1993 that effectively converted
yen denominated debt into U.S. dollar obligations.
At December 31, 1993, the Corporation had purchased interest rate caps with
an outstanding notional principal amount of $1.45 billion and remaining terms
ranging from one to twenty-three months to hedge the interest rate on commercial
paper of a like amount. Included in that amount are $1.15 billion of caps
purchased in conjunction with the sale of an equal amount of caps to hedge the
net interest margin on a comparable amount of floating rate finance receivables,
which reprice based upon changes in the prime rate and are funded by commercial
paper, from short-term market interest rate fluctuations.
The Corporation's exposure to counterparty credit risk at December 31, 1993
was not significant. Counterparty credit risk is represented by the cost to
replace interest rate swap contracts and interest rate cap agreements at current
market rates should the counterparty default.
Note 7--Income Taxes
The Revenue Reconciliation Act of 1993 (the "Act") which became effective
in August 1993, provides for a 1% increase in the statutory Federal corporate
income tax rate. The rate change increased the 1993 provision for income taxes
by $10.8 million including an adjustment of $8.2 million to deferred tax
balances, primarily related to the lease portfolio. In addition, as required by
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("SFAS 13"), the after-tax rate of return and the allocation of income was
recalculated from inception for the leveraged lease portfolio to reflect the
impact of the change in rate, the net effect of which was not significant.
38
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The effective tax rate of the Corporation varied from the statutory Federal
corporate income tax rate as follows:
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
Percentage of Pretax Income
Federal income tax rate ............. 35.0% 34.0% 34.0%
Increase (decrease) due to:
State and local income taxes, net
of Federal income tax benefit ... 5.2 6.3 6.3
Effect of tax rate increase on
Federal deferred tax balances ... 2.8 -- --
Investment tax credits ............ (0.7) (0.7) (0.9)
Other ............................. (1.0) (0.9) 0.4
---- ---- ----
Effective tax rate .................. 41.3% 38.7% 39.8%
==== ==== ====
The types of temporary differences that give rise to significant portions
of the deferred tax liability and the deferred provision (benefit) for income
taxes are shown in the accompanying table.
Year Ended December 31,
1993 1992 1991
-------- -------- --------
Amounts in Thousands
Current Federal income tax provision ...... $ 68,732 $ 45,906 $ 56,618
-------- -------- --------
Deferred Federal income tax provision:
Lease financing ......................... 52,020 48,551 31,483
Net charge-offs ......................... (10,487) (5,667) (7,386)
Investment tax credits amortization ..... (2,221) (1,958) (2,298)
State and local taxes ................... (1,272) (613) (1,821)
Other ................................... (3,179) (6,761) (500)
-------- -------- --------
Total deferred Federal income tax provision 34,861 33,552 19,478
-------- -------- --------
Total Federal income taxes ................ 103,593 79,458 76,096
State and local income taxes .............. 24,896 25,853 23,936
-------- -------- --------
Total provision for income taxes ........ $128,489 $105,311 $100,032
======== ======== ========
Deferred Federal income taxes and investment tax credits included deferred
Federal income taxes of $386.6 million at December 31, 1993 and $349.5 million
at December 31, 1992.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 are presented below.
Year Ended December 31, 1993
----------------------------
Amounts in Thousands
Assets
Provision for credit losses ..................... $ (54,990)
Loan origination fees ........................... (7,493)
Other ........................................... (9,466)
---------
Total deferred tax assets ......................... (71,949)
---------
Liabilities
Leasing transactions ............................ 451,112
Depreciation of fixed assets .................... 1,751
Other ........................................... 5,693
---------
Total deferred tax liabilities .................... 458,556
---------
Net deferred tax liability ........................ $ 386,607
=========
39
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Included in the accrued liabilities and payables caption in the
Consolidated Balance Sheets are State and local deferred tax liabilities of
$73.6 million and $58.8 million at December 31, 1993 and December 31, 1992,
respectively, arising from the temporary differences shown in the above tables.
Note 8--Stockholders' Equity
Under the most restrictive provisions of agreements relating to outstanding
debt, the Corporation may not, without the consent of the holders of such debt,
permit stockholders' equity to be less than $200.0 million.
Note 9--Benefit Plans
Retirement Plan
Substantially all employees of the Corporation who have completed one year
of service and have attained the age of 21 years participate in The CIT Group
Holdings, Inc. Retirement Plan ("CIT Plan"). The retirement benefits under the
CIT Plan are based on the employee's age, years of benefit service, and a
percentage of qualifying compensation during the final years of employment. Plan
assets consist of marketable securities, including common stock and government
and corporate debt securities. The Corporation funds the plan by the amount
charged to operating expense to the extent it qualifies for an income tax
deduction.
The accompanying table sets forth the funded status of the CIT Plan and the
amounts recognized in the Consolidated Balance Sheets.
At December 31,
---------------------------
1993 1992 1991
---- ---- ----
Amounts in Thousands
Actuarial present value of benefit obligations:
Accumulated benefit obligation including
vested benefits of $34,879 in 1993,
$25,480 in 1992 and $21,181 in 1991 .... $ 42,955 $ 32,004 $ 27,031
======== ======== ========
Plan assets at fair market value ........... $ 86,873 $ 76,534 $ 70,193
Projected benefit obligation ............... (60,092) (48,358) (43,372)
-------- -------- --------
Excess plan assets ......................... 26,781 28,176 26,821
Unrecognized prior service cost ............ 2,002 -- --
Prepaid pension cost ....................... 10,034 8,184 9,586
-------- -------- --------
Unrecognized net gain ...................... $ 14,745 $ 19,992 $ 17,235
======== ======== ========
Pension cost (benefit) included the following components:
Service cost--benefits earned
during the period ........................ $ 3,254 $ 3,142 $ 2,834
Interest cost on projected
benefit obligation ....................... 4,115 3,656 3,294
Actual return on plan assets ............... (12,407) (7,990) (14,894)
Net amortization and deferral .............. 4,811 971 9,494
-------- -------- --------
Pension cost (benefit) ..................... $ (227) $ (221) $ 728
======== ======== ========
40
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following assumptions were used for calculating the projected benefit
obligations shown in the preceding table.
1993 1992 1991
---- ---- ----
Discount rate .................................... 7.50% 8.50% 8.50%
Rate of increase in compensation ................. 5.00% 5.50% 5.50%
Expected long-term rate of return on plan assets . 9.00% 9.00% 9.00%
Postretirement Benefits
The Corporation provides certain health care and life insurance benefits to
eligible retired employees. Salaried participants generally become eligible for
retiree health care benefits after reaching age 55 with 10 years of benefit
service and 9 years of medical plan participation in 1993, increasing to 11
years of medical plan participation in 1995. Generally, the medical plans pay a
stated percentage of most medical expenses reduced by a deductible as well as by
payments made by government programs and other group coverage. The plans are
unfunded.
The Corporation adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting of Postretirement Benefits Other Than Pensions"
("SFAS 106") as of January 1, 1993. SFAS 106 requires the accrual, during the
active service period of the employee, of the cost of providing postretirement
benefits, including medical and life insurance coverage. The Corporation elected
to amortize the SFAS 106 transition obligation over a twenty-year period.
The following table sets forth the postretirement benefit liability at
December 31, 1993.
Amounts in Thousands
Accumulated postretirement benefit obligation (APBO):
Retirees .......................................... $26,042
Fully eligible, active plan participants .......... 3,648
Other active plan participants .................... 10,872
-------
40,562
Fair value of plan assets ........................... --
-------
Unfunded postretirement obligation .................. 40,562
Unrecognized net loss ............................... 3,240
Unrecognized transition obligation .................. 31,629
-------
Accrued postretirement benefit cost ................. $ 5,693
=======
The components of net periodic postretirement benefit expenses were as
follows:
Year Ended
December 31, 1993
-----------------
Amounts in Thousands
Service cost, benefits earned
during the period ..................................... $1,065
Interest cost on accumulated
postretirement benefit obligation ..................... 2,920
Amortization of transition obligation ................... 1,665
------
Net periodic postretirement benefit cost ................ $5,650
======
The discount rate and the rate of future compensation increases used in
determining the APBO at December 31, 1993 were 7.5% and 5.0%, respectively. The
assumed health care cost trend rate for 1994 used in measuring the APBO at
December 31, 1993 was 12.0%, declining to an ultimate rate of 5.5% for retirees
prior to reaching age 65 and 9.0%, declining to an ultimate rate of 5.5% for
retirees older than 65, then remaining level thereafter.
41
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If the health care cost trend rate were increased by 1%, the APBO as of
December 31, 1993, would be increased by 15.0%, and the sum of the service cost
and interest cost components of net periodic postretirement benefit cost for
1993 would be increased by 15.1%.
Savings Incentive Plan
Certain employees of the Corporation participate in The CIT Group Holdings,
Inc. Savings Incentive Plan. This plan qualifies under section 401(k) of the
Internal Revenue Code. The Corporation's expense is based on specific
percentages of employee contributions and plan administrative costs and
aggregated $6.8 million, $6.3 million and $5.6 million for the years 1993, 1992
and 1991, respectively.
Note 10--Lease Commitments
The Corporation has entered into noncancellable long-term lease agreements
for premises and equipment. The following table presents future minimum rentals
under such noncancellable leases that have initial or remaining terms in excess
of one year at December 31, 1993.
At December 31, Amounts in Thousands
1994 .............. $ 20,778
1995 .............. 18,726
1996 .............. 18,477
1997 .............. 15,785
1998 .............. 14,454
Thereafter ........ 95,358
--------
Total ........... $183,578
========
- -----------
In addition to fixed lease rentals, leases require payment of maintenance
expenses and real estate taxes, both of which are subject to escalation
provisions. Minimum payments have not been reduced by minimum sublease rentals
of $28.7 million due in the future under noncancellable subleases.
Rental expense, net of sublease income on premises and equipment, was as
follows.
Year Ended December 31,
----------------------------------
1993 1992 1991
-------- -------- --------
Amounts in Thousands
Premises ............. $ 17,265 $ 17,444 $ 17,254
Equipment ............ 6,738 7,391 7,851
Less sublease income (1,347) (1,316) (1,242)
-------- -------- --------
Total ................ $ 22,656 $ 23,519 $ 23,863
======== ======== ========
- -----------
Rental expense paid to CBC totaled $2.1 million, $5.3 million and $4.9 million
in 1993, 1992 and 1991, respectively.
Note 11--Legal Proceedings
In the ordinary course of business, there are various legal proceedings
pending against the Corporation. Management believes that the aggregate
liabilities, if any, arising from such actions would not have a material adverse
effect on the consolidated financial position of the Corporation.
42
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12--Credit-Related Commitments
In the normal course of meeting the financing needs of its customers, the
Corporation enters into various credit-related commitments. These financial
instruments generate fees and involve, to varying degrees, elements of credit
risk in excess of the amounts recognized in the Consolidated Balance Sheets. To
minimize potential credit risk, the Corporation generally requires collateral
and other credit-related terms and conditions from the customer. In the event a
customer defaults on the underlying transaction, the maximum potential loss to
the Corporation represents the contractual amount outstanding less the value of
all underlying collateral and guarantees.
The accompanying table summarizes the contractual amounts of credit-related
commitments.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
Due to expire Total Total
--------------------------
Within After outstanding outstanding
one year one year 1993 1992
---------- -------- ---------- ----------
Amounts in Thousands
<S> <C> <C> <C> <C>
Unused commitments to extend credit
Loans........................................ $1,086,458 -- $1,086,458 $647,400
Leases....................................... 76,434 -- 76,434 6,035
Letters of credit and acceptances
Standby letters of credit.................... 132,377 $21,288 153,665 147,188
Other letters of credit...................... 149,323 -- 149,323 128,633
Acceptances.................................. 2,490 -- 2,490 2,189
Guarantees..................................... 8,863 6,552 15,415 16,452
Foreign exchange contracts..................... 913 -- 913 3,254
</TABLE>
Note 13--Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS 107") requires disclosure of the
estimated fair value of the Corporation's financial instruments, excluding
leasing transactions accounted for under SFAS 13. The fair value estimates are
made at a discrete point in time based on relevant market information and
information about the financial instrument. Because no trading market exists for
a significant portion of the Corporation's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature,
involving uncertainties and matters of significant judgment and, therefore
cannot be determined with precision. Changes in assumptions or estimation
methods may significantly affect the estimated fair values. Because of these
limitations, management provides no assurance that the estimated fair values
presented would necessarily be realized upon disposition or sale.
Actual fair values in the marketplace are affected by other significant
factors, such as supply and demand, investment trends and the motivations of
buyers and sellers, which are not considered in the methodology used to
determine the estimated fair values presented. In addition, fair value estimates
are based on existing on-and off-balance sheet financial instruments without
attempting to estimate the value of future business transactions and the value
of assets and liabilities that are part of the Corporation's overall value but
are not considered financial instruments. Significant assets and liabilities
that are not considered financial assets or liabilities include customer base,
premises and equipment, assets received in satisfaction of loans, and deferred
tax liabilities. In addition, tax effects relating to the unrealized gains and
losses (differences in estimated fair values and carrying values) have not been
considered in these estimates and can have a significant effect on fair value
estimates.
The carrying amounts for cash and cash equivalents approximate fair value
because they have short maturities and do not present significant credit risks.
Credit-related commitments as disclosed in Note 12 are primarily floating rate
contracts, and, if exercised, the disclosed amounts would approximate fair
value.
43
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Estimated fair values, recorded carrying values and various assumptions
used in valuing the Corporation's financial instruments at December 31, 1993 and
December 31, 1992 are set forth below.
<TABLE>
<CAPTION>
1993 1992
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
Asset Asset Asset Asset
(Liability) (Liability) (Liability) (Liability)
----------- ----------- ----------- -----------
Amounts in Thousands
<S> <C> <C> <C> <C>
Finance Receivables--Loans(a) ................... $ 9,957,459 $10,180,795 $ 9,426,062 $ 9,620,508
Other Assets(b) ................................. $ 232,874 $ 256,370 $ 61,755 $ 65,220
Commercial Paper(c) ............................. $(6,516,139) $(6,516,139) $(6,173,465) $(6,173,465)
Fixed rate notes and subordinated
fixed rate notes(d) .......................... $(2,592,500) $(2,721,662) $(2,679,011) $(2,804,000)
Variable rate notes(e) .......................... $(1,686,500) $(1,686,500) $(1,477,830) $(1,477,830)
Credit balances of factoring clients &
Accrued liabilities and payables(f) .......... $ (734,098) $ (734,098) $ (630,974) $ (630,974)
Derivative Financial Instruments(g)
Interest Rate Swaps .......................... $ (6,510) $ (73,560) $ (11,765) $ (62,653)
Interest Rate Caps ........................... $ -- $ 920 $ -- $ 154
</TABLE>
- -----------
(a) The fair value of performing fixed-rate loans is estimated based upon a
present value discounted cash flow analysis, using interest rates that were
being offered at the end of the year for loans with similar terms to
borrowers of similar credit quality. Discount rates used in the present
value calculation range from 7.20% to 10.40% for 1993 and 7.77% to 13.47%
for 1992. The maturities used represent the average contractual maturities
adjusted for prepayments. For floating rate loans that reprice frequently
and have no significant change in credit quality, fair values approximate
carrying value. Higher than normal credit risk loans, principally
nonaccrual loans, are valued using estimated cash flows discounted using a
rate commensurate with the associated risk. The methodologies used to
estimate fair value are further limited with respect to nonaccrual, past
due and other higher than normal credit risk loans because such loans are
subject to significantly greater differences in the estimated amount and
timing of their projected cash flows and appropriate discount rates. The
net carrying value of lease finance receivables not subject to fair value
disclosure totaled $2,497,257,000 in 1993 and $2,186,950,000 in 1992.
(b) Other assets subject to fair value disclosure include accrued interest
receivable and investment securities. The carrying amount of accrued
interest receivable approximates fair value. Investment securities actively
traded in a secondary market have been valued using quoted available market
prices. Investments not actively traded in a secondary market have been
valued based upon recent selling price or present value discounted cash
flow analysis. The carrying value of other assets not subject to fair value
disclosure totaled $178,169,000 in 1993 and $185,012,000 in 1992. Accrued
interest receivable related to swap agreements totaled $9,267,000 in 1993
and $6,099,000 in 1992.
(c) The estimated fair value of commercial paper approximates carrying value
due to the relatively short maturities.
(d) Fixed rate term debt has been valued using a present value discounted cash
flow analysis with a discount rate approximating current market rates for
issuances by the Corporation of similar term debt at the end of the year.
Discount rates used in the present value calculation ranged from 3.16% to
6.68% in 1993 and 3.65% to 7.54% in 1992. The estimated fair value for
floating rate term debt is presumed to approximate carrying value because
the debt reprices to market terms within 90 days.
(e) The estimated fair value for floating rate term debt is presumed to
approximate carrying value because the debt reprices to market terms within
90 days.
(f) The estimated fair value of credit balances of factoring clients
approximates carrying value due to their short settlement terms. Accrued
liabilities and payables with no stated maturities have an estimated fair
value which approximates carrying value. The carrying value of other
liabilities not subject to fair value disclosure totaled $491,232,000 in
1993 and $448,193,000 in 1992. Accrued interest payable related to swap
agreements totaled $15,777,000 in 1993 and $17,864,000 in 1992.
(g) The notional amount of interest rate swaps totaled $3,685,500,000 in 1993
and $4,613,500,000 in 1992, and the notional amount of interest rate caps
totaled $2,600,000,000 in 1993 and $100,000,000 in 1992. The estimated fair
value of interest rate swaps and caps is obtained from dealer quotes and
represents the net amount payable to terminate the swap or cap agreement,
taking into account current market interest rates and counterparty credit
risk. The amount shown under carrying value represents net interest payable
arising from these swap agreements.
44
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 14--Recently Issued Accounting Pronouncements
Accounting by Creditors for Impairment of a Loan
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"), was issued by the Financial
Accounting Standards Board in May 1993. SFAS 114 requires that the value of an
impaired loan be measured based upon: (1) the present value of expected future
cash flows discounted at the loan's effective interest rate or, (2) at the fair
value of the collateral, if the loan is collateral dependent. SFAS 114 is
effective for fiscal years beginning after December 15, 1994. In general, the
Corporation's loans are collateral dependent and, when impaired, are usually
carried at the lower of book value or the fair value of the collateral. Although
management has not completed evaluating the effect of implementing SFAS 114, at
this time, it does not expect the effect on the consolidated financial position
or results of operations to be significant.
Accounting for Certain Investments in Debt and Equity Securities
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"), which is effective for fiscal years
beginning after December 15, 1993. SFAS 115 supersedes Statement of Financial
Accounting Standards No. 12, "Accounting for Certain Marketable Securities" and
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. At December 31, 1993, an insignificant amount of the Corporation's
assets would be subject to the provisions of SFAS 115, therefore, the
Corporation believes that SFAS 115 will not have a significant impact on the
consolidated financial position or results of operations.
Note 15--Ownership of the Corporation
At year-end 1989, The Dai-Ichi Kangyo Bank, Limited purchased 60% of the
issued and outstanding shares of the Corporation's common stock from
Manufacturers Hanover Corporation ("MHC"). MHC retained a 40% common stock
interest in the Corporation. Effective March 29, 1990, MHC transferred its
common stock interest to its wholly-owned subsidiary, MHC Holdings (Delaware)
Inc. ("MHC Holdings"). On December 31, 1991, MHC and Chemical Banking
Corporation merged in a stock-for-stock transaction. The merged corporation is
Chemical Banking Corporation. CBC retains a 40% common stock interest in the
Corporation through MHC Holdings.
At year-end 1992, the Corporation paid a one-time special dividend in the
aggregate amount of $150.0 million to its stockholders, DKB and MHC Holdings.
The stockholders then immediately contributed $150.0 million to the
Corporation's additional paid-in capital in proportion to their 60% and 40%
common stock ownership interests.
Note 16--Subsequent Event--Acquisition
On February 28, 1994, the Corporation acquired Barclays Commercial
Corporation ("BCC"), a company of the Barclays Group. BCC had total assets of
approximately $700.0 million at December 31, 1993 and total factoring volume of
approximately $5.00 billion for the year then ended. The business and acquired
assets of BCC were transferred to The CIT Group/BCC, Inc., a wholly-owned
subsidiary of The CIT Group/Commercial Services, Inc., a wholly-owned subsidiary
of the Corporation, offering a full range of factoring services, including
purchase of accounts receivables, credit protection, bookkeeping, and collection
activities.
Note 17--Acquisition of Credit Finance
In February 1991, the Corporation purchased the commercial finance business
and certain loan assets of Fidelcor Business Credit Corporation ("FBCC"),
formerly a subsidiary of First Fidelity Bancorporation, for approximately $502.0
million in cash. The excess of cost over the fair value of net assets acquired
totaled approximately $37.0 million, which is being amortized over the estimated
lives of the related assets on a straight-line basis. The business and acquired
assets of FBCC were transferred to The CIT Group/Credit Finance, Inc., a
wholly-owned subsidiary of the Corporation, which conducts its operations as a
separate operating unit, with continuing emphasis on middle market inventory and
accounts receivable financing.
45
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Note 18--Maturity of Finance Receivables, Net of Unearned Finance Income--Contractual Basis
December 31, 1993
-----------------------------------------------------------------------
Due Within Due Within
Due Within One to Two to Due After
Total One Year Two Years Four Years Four Years
----------- ---------- ---------- ---------- ----------
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Corporate Finance
Capital Equipment Financing ............. $ 4,394,528 $ 678,035 $ 628,845 $ 928,704 $2,158,944
Business Credit ......................... 1,282,133 799,359 234,717 136,328 111,729
Credit Finance .......................... 645,642 242,879 257,503 145,260 0
----------- ---------- ---------- ---------- ----------
6,322,303 1,720,273 1,121,065 1,210,292 2,270,673
----------- ---------- ---------- ---------- ----------
Dealer and Manufacturer Financing
Industrial Financing .................... 3,880,991 1,266,545 965,537 1,147,218 501,691
Sales Financing ......................... 1,438,865 119,511 122,048 252,447 944,859
----------- ---------- ---------- ---------- ----------
5,319,856 1,386,056 1,087,585 1,399,665 1,446,550
Factoring
Commercial Services ..................... 981,935 949,938 6,581 13,648 11,768
----------- ---------- ---------- ---------- ----------
Total ................................. $12,624,094 $4,056,267 $2,215,231 $2,623,605 $3,728,991
=========== ========== ========== ========== ==========
Percent to Total --
Contractual Basis ..................... 100.0% 32.13% 17.55% 20.78% 29.54%
Liquidation Basis ..................... 100.0% 36.73% 19.79% 21.21% 22.27%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
-----------------------------------------------------------------------
Due Within Due Within
Due Within One to Two to Due After
Total One Year Two Years Four Years Four Years
----------- ---------- ---------- ---------- ----------
Dollar Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Corporate Finance
Capital Equipment Financing ............. $ 4,429,089 $ 648,930 $ 551,964 $ 967,160 $2,261,035
Business Credit ......................... 1,281,283 890,534 195,235 125,094 70,420
Credit Finance .......................... 545,023 200,674 212,661 131,688 --
----------- ---------- ---------- ---------- ----------
6,255,395 1,740,138 959,860 1,223,942 2,331,455
----------- ---------- ---------- ---------- ----------
Dealer and Manufacturer Financing
Industrial Financing .................... 3,094,102 1,021,395 770,834 915,709 386,164
Sales Financing ......................... 1,411,812 109,036 110,837 230,520 961,419
----------- ---------- ---------- ---------- ----------
4,505,914 1,130,431 881,671 1,146,229 1,347,583
Factoring
Commercial Services ..................... 1,010,186 951,500 22,371 19,715 16,600
----------- ---------- ---------- ---------- ----------
Total ................................. $11,771,495 $3,822,069 $1,863,902 $2,389,886 $3,695,638
=========== ========== ========== ========== ==========
Percent to Total--
Contractual Basis ..................... 100.0% 32.47% 15.83% 20.30% 31.40%
Liquidation Basis ..................... 100.0% 35.73% 17.39% 20.45% 26.43%
</TABLE>
- -----------
The maturities shown above are based on contractual terms. Also shown, for
comparative purposes, are unaudited percentage data based on a liquidation
basis, which gives effect to estimated prepayments.
46
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19--Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
--------- -------- --------- --------- ---------
Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Net interest revenue ...................................... $ 162,995 $168,457 $ 176,909 $ 165,547 $ 673,908
Gains on asset sales ...................................... 1,272 2,906 18,850 917 23,945
Operating expenses before provision for
credit losses ......................................... 67,670 68,858 72,950 72,704 282,182
Provision for credit losses on net charge-offs ............ 22,387 22,174 27,201 22,646 94,408
Provision for credit losses for reserve increase .......... 1,914 4,718 1,203 2,631 10,466
Provision for income taxes ................................ 28,764 29,010 46,956 23,759 128,489
Net income ................................................ $ 43,532 $ 46,603 $ 47,449 $ 44,724 $ 182,308
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992
----------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
--------- -------- --------- --------- ---------
Amounts in Thousands
<S> <C> <C> <C> <C> <C>
Net interest revenue ...................................... $ 148,483 $152,634 $ 157,421 $ 164,241 $ 622,779
Gains on asset sales ...................................... 1,550 490 7,831 4,012 13,883
Operating expenses before provision for
credit losses ......................................... 63,473 64,963 64,499 68,700 261,635
Provision for credit losses on net charge-offs ............ 21,867 21,535 26,582 28,300 98,284
Provision for credit losses for reserve increase .......... 361 908 1,413 2,209 4,891
Provision for income taxes ................................ 25,657 25,175 28,116 26,363 105,311
Income before extraordinary item .......................... 38,675 40,543 44,642 42,681 166,541
Extraordinary item--loss on early extinguish-
ment of debt, net of income tax benefit ................ (1,361) -- (2,513) (367) (4,241)
Net income ................................................ $ 37,314 $ 40,543 $ 42,129 $ 42,314 $ 162,300
----------------------------------------------------------------
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
47
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The names and ages of all directors, executive officers and certain
significant employees of the Corporation as of March 1, 1994, and a biographical
summary of each such person, appear on the following pages. No family
relationship exists among these persons. The executive officers were appointed
by and hold office at the will of the Board of Directors.
<TABLE>
<CAPTION>
Other Positions/Offices
Current Positions/Offices Held During the Past Five Years
Name and Age and Date of Appointment and Date of Appointment
------------ ------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
DIRECTORS
Hisao Kobayashi 58 Chairman, The CIT Group 7/92 Managing Director, DKB 6/91
Holdings, Inc. ("CIT") Director & General Manager, 9/88
Senior Managing Director, The Dai-Ichi 5/93 International Planning & Coordination
Kangyo Bank, Limited ("DKB") Division, DKB
Director, CIT 12/89
Albert R. Gamper Jr. 52 President & Chief Executive Officer, 12/89 Chairman & Chief Executive Officer, 6/87
CIT CIT
Director, CIT 5/84
Michio Murata 46 Senior Executive Vice President, CIT 5/93 Executive Vice President, CIT 5/92
Director, CIT 5/92 General Manager, Gaien-Mae Branch, DKB 4/90
Assistant General Manager of 11/88
Administration and Coordination Group,
International Planning & Coordination
Division, DKB
Joseph A. Pollicino 54 Vice Chairman, CIT 12/87 Not applicable
Director, CIT 8/86
Paul N. Roth 54 Director, CIT 12/89 Not applicable
Partner, Schulte Roth & Zabel 8/69
Tomoaki Tanaka 51 Director, CIT 6/92 General Manager, International 4/92
Director & General Manager, 6/92 Planning Division, DKB
International Planning Division, DKB General Manager, International 6/91
Finance Division, DKB
Joint General Manager, 4/89
New York Branch, DKB
Deputy General Manager, Corporate 10/87
Banking Division VI, DKB
Peter J. Tobin 49 Executive Vice President & Chief 1/92 Executive Vice President & Chief 12/85
Financial Officer, Chemical Bank & Financial Officer, Manufacturers Hanover
Chemical Banking Corporation Trust Company & Manfacturers Hanover
Director, CIT 5/84 Corporation
Toshiji Tokiwa 54 Director, CIT 4/93 Director & General Manager 6/92
Director & General Manager 4/93 International Treasury Division, DKB
New York Branch, DKB General Manager 2/92
International Treasury Division, DKB
General Manager 5/90
Treasury Division, DKB
Deputy General Manager 8/87
Treasury Division, DKB
Keiji Torii 46 Executive Vice President, CIT 5/93 Chief Inspector 2/92
Director, CIT 5/93 Inspecting Division, DKB
Assistant General Manager 6/91
Securities Division, DKB
Joint General Manager 12/88
Ginza--dori Branch, DKB
William H. Turner 53 Director, CIT 1/92 Vice Chairman, Chemical Bank 8/90
Senior Executive Vice President, 1/92 Group Executive, Chemical Bank 2/87
Chemical Banking Corporation
48
<PAGE>
Other Positions/Offices
Current Positions/Offices Held During the Past Five Years
Name and Age and Date of Appointment and Date of Appointment
------------ ------------------------- -------------------------------
EXECUTIVE
OFFICERS (1)
Thomas L. Abbate 48 Executive Vice President, Chief 8/90 Executive Vice President, Credit 3/87
Credit Officer, The CIT Group/ Administration, CIT
Industrial Financing & Executive Vice
President, Credit Administration, CIT
William Baronoff 63 Executive Vice President & Special 2/94 Senior Vice President, 10/87
Counsel, CIT General Counsel & Secretary, CIT
Joseph J. Carroll 62 Executive Vice President & Chief 3/87 Director, CIT 8/86
Financial Officer, CIT
Emmanuel Darmanin 50 President & CEO, The CIT 12/87 Not applicable
Group/Business Credit
James J. Egan Jr. 54 President & CEO, The CIT 9/87 Director, CIT 8/86
Group/Sales Financing
George J. Finguerra 53 Senior Executive Vice President, 4/91 President & CEO, The CIT 6/87
The CIT Group/Capital Group/Equipment & Project Financing
Equipment Financing
Thomas A. Johnson 47 General Auditor, CIT 1/90 Deputy General Auditor, MHC 11/84
Joseph M. Leone 40 Executive Vice President, The CIT Group/ 6/91 Senior Vice President & Controller, 3/87
Sales Financing The CIT Group, Inc.
Lawrence A. Marsiello 44 President & CEO, The CIT 1/92 President, The CIT Group/Factoring 8/90
Group/Commercial Services Executive Vice President, The CIT 12/87
(formerly The CIT Group/Factoring) Group/Business Credit
Robert J. Merritt 52 President & CEO, The CIT 12/86 Director, CIT 8/86
Group/Industrial Financing
Drew Neidorf 41 President & CEO, The CIT 2/91 President, Fidelcor Business Credit 2/90
Group/Credit Finance Corporation
Executive Vice President, Fidelcor 1/87
Business Credit Corporaiton
William M. O'Grady 54 Executive Vice President, 1/86 Director, CIT 8/86
Administration, CIT
Thomas J. O'Rourke 55 Senior Vice President, Marketing, 10/84 Director, CIT 8/86
CIT
Ernest D. Stein 54 Executive Vice President, 2/94 Senior Vice President & Deputy General 4/93
General Counsel & Secretary Counsel, CIT
Senior Vice
President & Assistant 3/92
General Counsel, CIT
Executive Vice President & General 12/85
Counsel, Manufacturers Hanover Corp.
Nikita Zdanow 56 President & CEO, The CIT Group/ 4/91 President & CEO, The CIT 4/85
Capital Equipment Financing Group/Capital Financing
Director, CIT 8/86
<FN>
- --------------
(1) Messrs. Gamper, Murata, Torii, and Pollicino, whose biographical summaries
are listed on the preceding page, are also Executive Officers of the
Corporation.
</FN>
</TABLE>
Stockholders Agreement
The Corporation entered into a Stockholders Agreement simultaneously with
the acquisition of a sixty percent (60%) interest in the Corporation by DKB. The
agreement provides for a Board of Directors consisting of ten directors, two of
which shall be the Chief Executive Officer of the Corporation and the Vice
Chairman of the Corporation designated by the Board of Directors. DKB, as
majority stockholder, has the right to designate six nominees for director and
MHC Holdings, as minority stockholder, has the right to designate two nominees
for director. DKB and MHC Holdings each agreed to vote for the other's nominees
for director. Regular meetings of the Board of Directors shall be held
quarterly. See Item 1 "Business--General".
Outside Directorships
As indicated in the table, some of the Directors of the Corporation
concurrently hold positions as directors or executive officers of DKB or CBC or
of subsidiaries or other affiliates of the Corporation, DKB, or CBC. Mr. Turner
is a director of Standard Motor Products, Inc., a manufacturing company not
affiliated with the Corporation, which is listed on the New York Stock Exchange.
A number of the Executive Officers are also directors of privately held and
not-for-profit organizations not affiliated with the Corporation.
49
<PAGE>
Item 11. Executive Compensation.
The table below sets forth the annual and long-term compensation, including
bonuses and deferred compensation, of the President and Chief Executive Officer,
the Vice Chairman, and the other three most highly compensated executive
officers of the Corporation for services rendered in all capacities to the
Corporation and its subsidiaries during the fiscal years ended December 31,
1993, 1992, and 1991.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation Payouts
----------------------------------------- ----------
(a) (b) (c) (d) (e) (f) (g)
Name and Other Annual LTIP All Other
Principal Position Year Salary Bonus (1) Compensation(2) Payouts(3) Compensation (4)
- ------------------ ---- ------ --------- --------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Albert R. Gamper, Jr. ...... 1993 $489,996 $500,000 $48,919 $295,748 $28,594
President and Chief 1992 $458,914 $430,000 $64,720 $295,748 $23,536
Executive Officer 1991 $434,609 $490,000 -- -- --
Joseph A. Pollicino ........ 1993 $359,996 $355,000 $29,220 $177,440 $23,394
Vice Chairman 1992 $339,224 $300,000 $42,360 $177,440 $22,297
1991 $323,072 $345,000 -- -- --
Emmanuel Darmanin .......... 1993 $228,615 $125,000 $14,086 $ 82,066 $18,139
President and Chief 1992 $216,500 $140,000 $17,334 $ 82,066 $17,320
Executive Officer 1991 $203,231 $160,000 -- -- --
Business Credit
Robert J. Merritt .......... 1993 $245,000 $160,000 $14,009 $ 81,312 $18,794
President and Chief 1992 $230,577 $135,000 $17,504 $ 81,312 $17,951
Executive Officer 1991 $219,769 $ 50,000 -- -- --
Industrial Financing
Nikita Zdanow .............. 1993 $242,654 $210,000 $15,779 $ 96,128 $18,700
President and Chief 1992 $230,231 $185,000 $20,333 $ 96,128 $17,937
Executive Officer 1991 $210,000 $200,000 -- -- --
Capital Equipment
Financing
<FN>
- --------------
(1) Under The CIT Group Bonus Plan, cash awards for each calendar year may be
paid in amounts determined by the Executive Committee of the Board of
Directors in its discretion. Senior Officer awards are reviewed and
approved by the Board of Directors. The amount of awards depends on a
variety of factors, including corporate performance and individual
performance during the calendar year for which awards are made. All or a
part of a cash award for a particular year may be paid currently or
deferred and paid upon retirement in up to 5 annual installments at the
option of the participant. All awards are subject to appropriate taxes and
deferred amounts are credited annually with interest.
(2) The payments set forth under Other Annual Compensation represent the
dividends paid under the CIT Career Incentive Plan. For the performance
period 1990-1992 under the CIT Career Incentive Plan, Mr. Gamper holds
6,666 phantom shares of stock, Mr. Pollicino 4,000 phantom shares, Mr.
Darmanin 1,850 phantom shares, Mr. Merritt 1,833 phantom shares and Mr.
Zdanow 2,166 phantom shares. For the performance period 1993-1995, Mr.
Gamper was awarded 12,000 phantom shares of stock, Mr. Pollicino 7,500
phantom shares, Mr. Darmanin 3,375 phantom shares, Mr. Merritt 3,600
phantom shares and Mr. Zdanow 3,750 phantom shares.
(3) The payments set forth under LTIP Payouts represent the payout of shares
vested under the CIT Career Incentive Plan. Dividends received under this
Plan are set forth under Other Annual Compensation. (The CIT Career
Incentive Plan is described in "Long Term Incentive Plan".)
(4) The payments set forth under All Other Compensation represent the matching
employer contribution to each participant's account and an employer
flexible retirement contribution to each participant's flexible retirement
account under The CIT Group Holdings, Inc. Savings Incentive Plan (the "CIT
Savings Plan"). The matching employer contribution is made pursuant to a
compensation deferral feature of the CIT Savings Plan under Section 401(k)
of the Internal Revenue Code of 1986. The payments set forth under All
Other Compensation also represent contributions to each participant's
account under the Supplemental Savings Plan of CIT (the "CIT Supplemental
Savings Plan"), which is an unfunded, non-qualified plan.
</FN>
</TABLE>
50
<PAGE>
LONG-TERM INCENTIVE PLAN
Under The CIT Group Holdings, Inc. Career Incentive Plan (the "CIT Career
Incentive Plan"), awards are granted in the form of phantom shares of stock by
the Executive Committee of the Board of Directors in its discretion.
Participants in the CIT Career Incentive Plan are selected by the Executive
Committee from among the executives of the Corporation and its subsidiaries who
are in a position to make a substantial contribution to the long-term financial
success of the Corporation or its subsidiaries. Grants to the members of the
Executive Committee are made by the Board of Directors. The amount of phantom
shares eligible for allocation during a Performance Period is determined by the
Committee. The Performance Period is at least three consecutive calendar years.
The Committee determines the Performance Goals for each Performance Period,
which are tied to net income growth targets and return on equity performance.
The value of the phantom shares is determined at the end of each Performance
Period and compared against the pre-established Performance Goals. Following the
end of a Performance Period there is a two year vesting period. Cash dividends
on individual shares are paid quarterly based on the number of phantom shares
granted to a participant. The basis of the dividend is the quarterly return on
equity of the Corporation.
All or a part of the value of a vested award may be paid currently in cash
or deferred in up to 5 annual installments. Deferred amounts are credited with
an interest rate determined annually by the Committee.
LONG-TERM INCENTIVE PLANS
AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based Plans
---------------------------------------------
(a) (b) (c) (d) (e) (f)
Number of Shares, Performance or
Units or Other Other Period Until Threshold Target Maximum
Name Rights (#) Maturation or Payout($ per share) ($ per share) ($ per share)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Albert R. Gamper, Jr............ 12,000 1993-1995 -- 69.15 162.12
President and Chief
Executive Officer
Joseph A. Pollicino............. 7,500 1993-1995 -- 69.15 162.12
Vice Chairman
Emmanuel Darmanin............... 3,375 1993-1995 -- 69.15 162.12
President and Chief
Executive Officer
Business Credit
Robert J. Merritt............... 3,600 1993-1995 -- 69.15 162.12
President and Chief
Executive Officer
Industrial Financing
Nikita Zdanow................... 3,750 1993-1995 -- 69.15 162.12
President and Chief
Executive Officer
Capital Equipment
Financing
</TABLE>
DEFINED BENEFIT PLANS
Retirement Plans
Effective January 1, 1990, The CIT Group Holdings, Inc. Retirement Plan
(the "CIT Retirement Plan") was established. Assets necessary to fund the CIT
Retirement Plan were transferred from the MHC Retirement Plan, Inc., the
predecessor plan in which the Corporation's employees participated. Accumulated
years of benefit service under the MHC Retirement Plan are included in the
benefit formula of the CIT Retirement Plan, which covers officers and salaried
employees who have one year of service and have attained age 21.
51
<PAGE>
Subject to certain exceptions, at the normal retirement age of 65, an
employee's pension is 1.25% of final average salary, as defined below, for each
of the first 20 years of benefit service as a participant and .75% of such
salary for each year of the next 20 years of benefit service. In general, an
employee who was a participant in the MHC Retirement Plan before 1985 will not
receive a pension of less than 2% of final average salary for each of the first
20 years of benefit service as a participant and 1% of such salary for each of
the next 20 years of benefit service, reduced by .4% of the participant's
covered compensation for each year of such benefit service up to a maximum of 35
years and further reduced by the value of certain benefits under the CIT Savings
Plan. An employee who was a participant in the former CIT Retirement Plan on
June 30, 1986, will not receive a pension of less than 1.1% of final average
salary up to certain Social Security limits plus 1.5 % of final average salary
in excess of the Social Security limits, for each year of benefit service to a
maximum of 35 years, reduced by certain benefits under the CIT Savings Plan.
"Final average salary" is the highest average annual salary received in any five
consecutive years in the last ten years. "Salary" includes all wages paid by the
Corporation, including before-tax contributions made to the CIT Savings Plan and
salary reduction contributions to any Section 125 Plan, but excluding
commissions, bonuses, incentive compensation, overtime, reimbursement of
expenses, directors' fees, severance pay, and deferred compensation. This salary
is comparable to the "Salary" shown in the Summary Compensation Table. After
completing 5 years of service, an employee whose employment with the
participating company has terminated is entitled to a benefit, as of the
employee's normal retirement date, equal to the benefit earned to the date of
termination of employment, or an actuarially reduced benefit commencing at any
time after age 55 if the participant is eligible for early retirement under the
CIT Retirement Plan. Certain death benefits are available to eligible surviving
spouses of participants.
Since various laws and regulations set limits on the amounts allocable to a
participant under the CIT Savings Plan and benefits under the CIT Retirement
Plan, the Corporation has a supplemental retirement plan (the "CIT Supplemental
Retirement Plan"). The CIT Supplemental Retirement Plan provides retirement
benefits on an unfunded basis to participants (whose benefits under the CIT
Retirement Plan would be restricted by the limits) of an amount equal to the
difference between the annual retirement benefits permitted and the amount that
would have been paid but for the limitations imposed.
The amounts set forth in the table are the amounts which would be paid to
employees hired before 1985 pursuant to the CIT Retirement Plan and the CIT
Supplemental Retirement Plan at a participant's normal retirement age assuming
the indicated final average salary and the indicated years of benefit service
and assuming that the straight life annuity form of benefit will be elected and
that CIT Supplemental Retirement Plan benefits will be paid in the form of an
annuity. The amounts may be overstated to the extent that they do not reflect
the reduction for any benefits under the CIT Savings Plan.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Final
Average Annual Benefits Based on Years of Credited Service (1)
Salary of ---------------------------------------------------------------------------------
Employee 15 20 25 30 35 40
-------- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$150,000 ............. $ 43,541 $ 58,055 $ 65,069 $ 72,083 $ 79,096 $ 86,596
200,000 ............. 58,541 78,055 87,569 97,083 106,596 116,596
250,000 ............. 73,541 98,055 110,069 122,083 134,096 146,596
300,000 ............. 88,541 118,055 132,569 147,083 161,596 176,596
350,000 ............. 103,541 138,055 155,069 172,083 189,096 206,596
400,000 ............. 118,541 158,055 177,569 197,083 216,596 236,596
450,000 ............. 133,541 178,055 200,069 222,083 244,096 266,596
500,000 ............. 148,541 198,055 222,569 247,083 271,596 296,596
- --------------
<FN>
(1) At December 31, 1993, Messrs. Gamper, Pollicino, Darmanin, Merritt, and
Zdanow had 26, 29, 22, 19 and 26 years of benefit service, respectively.
</FN>
</TABLE>
Permanent Life Insurance Options Plan
Twenty-two officers of the Corporation, including Mr. Gamper, Mr.
Pollicino, Mr. Darmanin, Mr. Merritt and Mr. Zdanow, are participants under the
Permanent Life Insurance Options Plan. The benefit provided is paid-up life
insurance equal to approximately three times salary with a life annuity option
52
<PAGE>
payable monthly by the Corporation upon retirement. The Participant pays a
portion of the annual premium and the Corporation pays the balance on behalf of
the participant. The Corporation is entitled to recoup its payments from the
proceeds of the policy. Upon the participant's retirement a life annuity will be
payable out of the current income of the Corporation and the Corporation
anticipates recovering the cost of the life annuity out of the proceeds of the
life insurance policy payable upon the death of the employee.
In addition to the table of pension benefits shown on the preceding page,
the Corporation is conditionally obligated to m annual payments under the
Permanent Life Insurance Options Plan in the amounts indicated to the following
persons at retirement: Gamper, $263,130, Mr. Pollicino, $161,642; Mr. Darmanin,
$136,400, Mr. Merritt, $152,383 and Mr. Zdanow, $93,616.
Compensation Committee Interlocks and Insider Participation
The Executive Committee of the Board of Directors functions as the
compensation committee and sets the compensation for all executives except
Messrs. Gamper, Pollicino, Murata and Torii. The members of the Executive
Committee are as follows:
Albert R. Gamper, Jr.
Michio Murata
Joseph A. Pollicino
Peter J. Tobin
Keiji Torii
The Board of Directors, except for Messrs. Gamper and Pollicino, who are
absent from any portion of meetings when their compensation is discussed,
deliberates over the compensation of Messrs. Gamper and Pollicino. DKB
determines the compensation for Messrs. Murata and Torii. Mr. Tobin is an
executive of CBC.
EMPLOYMENT AGREEMENTS
Mr. Gamper has an employment agreement with the Corporation which provides
that he will serve as the Chief Executive Officer, President, Chairman of the
Executive Committee and member of the Board of Directors of the Corporation. His
employment agreement runs for five years from December 29, 1989 and provides for
the payment of an annual base salary of $400,000, to be reviewed at least
annually by the Board of Directors of the Corporation, subject to increases but
not to decreases. In December 1992, Mr. Gamper's employment agreement was
extended for one additional year. Mr. Gamper's employment agreement also
provides for executive incentive compensation under Incentive Plans which will
be designed to be no less favorable to him than the Incentive Plans in effect
prior to the purchase by DKB of 60% of the Corporation's shares. For the
calendar years of 1991, and 1992, Mr. Gamper's incentive compensation was
required to be equal to at least 50% of his base salary during each such
respective calendar year.
Mr. Pollicino has an employment agreement with the Corporation which
provides that he shall serve as the Vice Chairman and member of the Board of
Directors of the Corporation. Mr. Pollicino's employment agreement runs for five
years from December 29, 1989 and provides for the payment of an annual base
salary of $300,000, to be reviewed at least annually by the Board of Directors
of the Corporation, subject to increases but not to decreases. In December 1992,
Mr. Pollicino's employment agreement was extended for one additional year. Mr.
Pollicino's employment agreement also provides for executive incentive
compensation under Incentive Plans which will be designed to be no less
favorable to him than the Incentive Plans in effect prior to the purchase by DKB
of 60% of the Corporation's shares. For the calendar years 1991, and 1992, Mr.
Pollicino's incentive compensation was required to be equal to at least 50% of
his base salary during each such respective calendar year.
In addition to Mr. Gamper and Mr. Pollicino, Mr. Darmanin, Mr. Merritt and
Mr. Zdanow have employment agreements with the Corporation, each of which
initially ran three years from December 29, 1989 through December 31, 1992 and
provides for the payment of base salary of not less than the amount received
prior to the purchase by DKB of 60% of the Corporations's shares, to be reviewed
at least annually by the Chief Executive Officer, subject to increases but not
to decreases. In December 1992, the employment agreements were extended for an
additional two years. These employment agreements also provide for executive
53
<PAGE>
incentive compensation under Incentive Plans which will be designed to be no
less favorable to the executive officers than the Incentive Plans in effect
prior to the aforesaid share purchase by DKB.
TERMINATION ARRANGEMENTS
Mr. Gamper's and Mr. Pollicino's employment agreements with the Corporation
provide that if their employment is terminated without cause (as defined in the
agreement) or if they resign for good reason (as defined in the agreement) they
will be entitled to receive severance payments equal to their base salary for
the greater of thirty-six months or the remainder of the term, provided that
they do not violate the non-competition provisions of the agreement, in which
case the Corporation would have no obligation to make any remaining payments.
Further, if Mr. Gamper's and Mr. Pollicino's employment is terminated without
cause or if they resign for good reason, they will be entitled to receive, among
other things, full employee welfare benefit coverage as if they had retired with
the Corporation's consent at age 55, a pension benefit commencing at age 55 in
an amount equal to their accrued benefit under the Corporation's Retirement Plan
as of the date of their termination of employment as if they had attained age 55
and had retired on such date with the Corporation's consent, a lump sum equal to
the then full value of their restricted stock award under the Long Term
Incentive Program of Manufacturers Hanover Corporation and its subsidiaries (the
"MHC Long Term Incentive Plan") and any vested award under any similar plan as
may have been adopted by the Corporation, and a single life annuity equivalent
to the single life annuity they would have normally been entitled to receive
under the Corporation's Permanent Life Insurance Options Plan.
The employment agreements of Mr. Darmanin, Mr. Merritt and Mr. Zdanow
provide that if their employment is terminated without cause (as defined in the
agreement) or if they resign for good reason (as defined in the agreement), they
will be entitled to receive severance payments equal to their base salary for
the greater of 24 months or the remainder of the term, provided that they do not
violate the non-competition provisions of the agreement, in which case the
Corporation would have no obligation to make any remaining payments. Further, if
the employment of such executive officer is terminated without cause or if he
resigns for good reason, he will be entitled to continued participation in
employee welfare benefit coverage for eighteen months, a lump sum equal to the
then full value of his restricted stock award under the MHC Long Term Incentive
Program and any vested award under any similar plan as may have been adopted by
the Corporation, and if age 55 or older on the date of termination, the benefits
payable under the Corporation's Permanent Life Insurance Options Plan or if
under age 55 a lump sum payment which represents the equivalent of the net
after-tax present value of the single life annuity that would have been payable
to the individual executive officer at age 55.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the ownership of all of the issued and
outstanding common stock of the Corporation, as of March 1, 1994.
Name and Address of Owner Shares Owned Percentage
------------------------- ------------ ----------
The Dai-Ichi Kangyo Bank, Limited 600 60%
1-5, Uchisaiwaicho 1-chome
Chiyoda-ku, Tokyo 100
MHC Holdings (Delaware) Inc. 400 40%
270 Park Avenue
New York, NY 10017
No officer or director of the Corporation owns any common stock of the
Corporation. In addition, the voting securities of any class of securities of
DKB and CBC, the parent of MHC Holdings, owned by each officer and director of
the Corporation individually, and all officers and directors as a group, does
not exceed one percent of the issued and outstanding securities comprising any
such class of stock so owned.
54
<PAGE>
Item 13. Certain Relationships and Related Transactions.
Transactions with Management and Others
The Corporation has in the past and may in the future enter into certain
transactions with affiliates of the Corporation. It is anticipated that such
transactions will be entered into at a fair market value for the transaction.
The Corporation's interest-bearing deposits generally represent overnight
money market investments of excess cash that are maintained for liquidity
purposes. At December 31, 1993, the Corporation had no interest-bearing deposits
with DKB or CBC. From time to time, the Corporation may maintain such deposits
with DKB or CBC.
At December 31, 1993, the Corporation's credit line coverage with 84 banks
totaled $4.49 billion, including $4.07 billion of committed facilities.
Additional information regarding these credit lines can be found in Item 8.
Financial Statements and Supplementary Data, "Note 5--Debt". At December 31,
1993, DKB was a committed bank under a $1.12 billion Revolving Credit Facility,
a $690.0 million revolving credit facility, and a $322.0 million 364-day
renewable credit facility, with commitments of $60.0 million, $100.0 million and
$182.0 million, respectively. DKB is a Co-Agent under the $1.12 billion
Revolving Credit Facility and the Agent under the $322.0 million facility. DKB's
wholly-owned subsidiary, DKB International Limited (formerly known as Dai-Ichi
Kangyo International Limited), is a committed bank under a $200.0 million Note
Issuance Facility, with a commitment of $15.0 million.
In addition, Manufacturers Hanover Limited, an affiliate of MHC Holdings,
serves as Issuing Agent on the $200.0 million Note Issuance Facility. DKB
participates in all facilities on the same terms and conditions as all other
participating banks and the Corporation believes that Manufacturers Hanover
Limited is serving as agent on terms which were prevailing at the time for
comparable transactions.
The Corporation has entered into interest rate swap and foreign currency
swap agreements with financial institutions acting as principal counterparties,
including affiliates of DKB and CBC. At December 31, 1993, the notional
principal amount outstanding on interest rate swap agreements with DKB and CBC
totaled $270.0 million and $300.0 million, respectively. The notional principal
amount outstanding on foreign currency swaps totaled $60.0 million with DKB
at year-end 1993.
The Corporation has entered into leveraged leasing arrangements with third
party loan participants, including affiliates of DKB and CBC. Amounts owed to
affiliates of DKB and CBC are discussed in Item 8. Financial Statements and
Supplementary Data, "Note 2--Finance Receivables".
The Corporation has also entered into various noncancellable long-term
facility lease agreements with CBC. Future minimum rentals under these leases
are $1.7 million in 1994, $1.6 million in 1995, $1.5 million in 1996, $.6
million in 1997, and $.1 million in 1998.
At December 31, 1993, the Corporation had entered into a credit-related
commitment with DKB in the form of a letter of credit totaling $6.6 million
equal to the amount of the single lump sum premium necessary to provide group
life insurance coverage to certain eligible retired employees.
Schulte Roth & Zabel, of which Mr. Roth is a partner, provides legal
services to the Corporation. Attorney's fees for services to the Corporation did
not constitute more than 5% of the law firm's gross revenues for the last fiscal
year. Schulte Roth & Zabel has been retained in the past and will continue in
the future to serve as outside counsel for DKB.
55
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed with the Securities and Exchange
Commission as part of this report:
1. The financial statements of The CIT Group Holdings, Inc. and
Subsidiaries as set forth on pages 26-47.
2. The financial statement schedule as follows:
II. Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees other than Related Parties as set forth
on page S-1.
All other schedules are omitted because they are not applicable
or because the required information appears in the
consolidated financial statements or the notes thereto.
3. The following is an index of the Exhibits required by Item 601 of
Regulation S-K filed with the Securities and Exchange Commission
as part of this report:
3(a) Restated Certificate of Incorporation of The CIT Group
Holdings, Inc., amended as of December 29, 1989
(incorporated by reference to Exhibit 3(a) to Form 10-K
filed by the Corporation for the fiscal year ended
December 31, 1989).
3(b) By-Laws of The CIT Group Holdings, Inc., amended as of
December 29, 1989 (incorporated by reference to Exhibit
3(b) to Form 10-K filed by the Corporation for the
fiscal year ended December 31, 1989).
4(a) Upon the request of the Securities and Exchange
Commission, the Registrant will furnish a copy of all
instruments defining the rights of holders of long-term
debt of the Registrant.
10(a) Stockholders Agreement (incorporated by reference to
Exhibit 10(a) to Form 10-K filed by the Corporation for
the fiscal year ended December 31, 1989).
10(b)(1) Employment Agreement of Albert R. Gamper, Jr.
(incorporated by reference to Exhibit 10(b) to Form
10-K filed by the Corporation for the fiscal year ended
December 31, 1989).
10(b)(2) Extension of Employment Agreement of Albert R. Gamper,
Jr. (incorporated by reference to Exhibit 10 (b)(2) to
Form 10-K filed by the Corporation for the fiscal year
ended December 31, 1992).
10(c)(1) Employment Agreement of Nikita Zdanow (incorporated by
reference to Exhibit 10(c)(1) to Form 10-K filed by the
Corporation for the fiscal year ended December 31,
1992).
10(c)(2) Extension of Employment Agreement of Nikita Zdanow
(incorporated by reference to Exhibit 10(c)(2) to Form
10-K filed by the Corporation for the fiscal year ended
December 31, 1992).
10(d) The CIT Group Bonus Plan (incorporated by reference to
Exhibit 10(d) to Form 10-K filed by the Corporation for
the fiscal year ended December 31, 1992).
10(e) The CIT Group Holdings, Inc. Career Incentive Plan
(incorporated by reference to Exhibit 10(e) to Form
10-K filed by the Corporation for the fiscal year ended
December 31, 1992).
10(f) The CIT Group Holdings, Inc. Supplemental Savings Plan
(incorporated by reference to Exhibit 10(f) to Form
10-K filed by the Corporation for the fiscal year ended
December 31, 1992).
10(g) The CIT Group Holdings, Inc. Supplemental Retirement
Plan (incorporated by reference to Exhibit 10(g) to
Form 10-K filed by the Corporation for the fiscal year
ended December 31, 1992).
12 Computation of Ratios of Earnings to Fixed Charges.
22 Subsidiaries of the Registrant.
24 Consent of KPMG Peat Marwick.
25 Powers of Attorney.
(b) A Form 8-K dated November 8, 1993 was filed with the Commission
reporting that the Corporation had signed an agreement to acquire Barclays
Commercial Corporation.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Ernest D. Stein
-----------------------------------------
Ernest D. Stein
Executive Vice President, General Counsel
and Secretary
March 23, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C>
Signature and Title Date
------------------- ----
Albert R. Gamper, Jr.*
----------------------------------------------
President, Chief Executive Officer and Director
(principal executive officer)
Hisao Kobayashi*
----------------------------------------------
Director
Michio Murata*
----------------------------------------------
Director
Joseph A. Pollicino*
----------------------------------------------
Director
Paul N. Roth*
----------------------------------------------
Director
*By: /s/ Ernest D. Stein March 23, 1994
---------------------
Ernest D. Stein
Attorney-In-Fact
Tomoaki Tanaka*
----------------------------------------------
Director
Toshiji Tokiwa*
----------------------------------------------
Director
Peter J. Tobin*
----------------------------------------------
Director
Keiji Torii*
----------------------------------------------
Director
William H. Turner*
----------------------------------------------
Director
/s/ Joseph J. Carroll March 23, 1994
----------------------------------------------
Joseph J. Carroll
Executive Vice President and
Chief Financial Officer
(principal accounting officer)
</TABLE>
Original powers of attorney authorizing Albert R. Gamper, Jr., Ernest D.
Stein, and Donald J. Rapson and each of them to sign on behalf of the
above-mentioned directors and are held by the Corporation and available for
examination by the Securities and Exchange Commission pursuant to Item 302(b) of
Regulation S-T.
57
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
Schedule II -- Amounts Receivable from Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties
(Amounts in Thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------------
Deductions
Balance ------------------- Balance
beginning Amounts Amounts at end
Name of debtor of period Additions Collected Written off of period
- -------------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1993:
The Dai-Ichi Kangyo Bank, Limited
and Subsidiaries:
Other assets-- interest rate swaps (a)....... $ -- $ 1,214 $ 265 $ -- $ 949
======= ======== ======= ======= ======
December 31, 1992:
Chemical Banking Corporation
and Subsidiaries:
Other assets-- interest rate swaps........... $ -- $ -- $ -- $ -- $ --
======= ======== ======= ======= ======
December 31, 1991:
Chemical Banking Corporation
and Subsidiaries:
Other assets-- interest rate swaps (b)....... $ 4,228 $ 1,011 $ 5,239 $ -- $ --
======= ======== ======= ======= ======
<FN>
- --------------
(a) Represents interest receivable from a subsidiary of DKB on two interest
rate swap agreements with notional principal amounts of $200,000,000 and
$20,000,000 and maturity dates of October 15, 2008 and April 22, 2000,
respectively. These agreements call for the Corporation to receive
semi-annual interest payments at a weighted average fixed rate of 5.94%
and pay interest at a floating rate based upon the six month LIBOR.
(b) CBC and subsidiaries (formerly MHC) terminated the 8.90% $150,000,000
notional principal amount interest rate exchange agreement with the
Corporation in April 1991. The 10.46% $150,000,000 notional principal
amount interest rate exchange agreement between the Corporation and CBC
and subsidiaries matured in March 1991.
</FN>
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors
of The CIT Group Holdings, Inc.:
Under date of January 18, 1994, we reported on the consolidated balance
sheets of The CIT Group Holdings, Inc. and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1993, as contained in the 1993 Annual Report on Form
10-K of The CIT Group Holdings, Inc. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule in the 1993 Annual Report on Form 10-K of
The CIT Group Holdings, Inc. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK
Short Hills, New Jersey
January 18, 1994
Exhibit 12
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
------------------------------
1993 1992 1991
---- ---- ----
Dollar Amounts in Thousands
Net income .................................... $182,308 $162,300 $150,128
Provision for income taxes .................... 128,489 105,311 100,032
Extraordinary item--loss on early
extinguishment of debt,
net of income tax benefit .................. -- 4,241 1,325
-------- -------- --------
Earnings before provision for income
taxes and extraordinary item ............... 310,797 271,852 251,485
-------- -------- --------
Fixed Charges:
Interest and debt expenses on
indebtedness ........................... 508,006 552,017 709,373
Interest factor--one third of
rentals on real and personal
properties ............................. 8,001 8,278 8,368
-------- -------- --------
Total fixed charges ....................... 516,007 560,295 717,741
-------- -------- --------
Total earnings before provisions
for income taxes, extraordinary
item, and fixed charges ............. $826,804 $832,147 $969,226
======== ======== ========
Ratios of Earnings to Fixed Charges ........... 1.60 1.49 1.35
EXHIBIT 22
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
December 31, 1993
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
------------------ ---------------
<S> <C>
The CIT Group/Credit Finance, Inc.............................................. Delaware
The CIT Group/Sales Financing, Inc............................................. Delaware
The CIT Group/Consumer Finance, Inc............................................ Delaware
Equipment Credit Services, Inc................................................. Delaware
North American Exchange, Inc................................................... Delaware
C.I.T. Corporation (Maine)..................................................... Maine
C.I.T. Corporation of the South, Inc. ......................................... Delaware
William Iselin & Company, Inc.................................................. New York
The CIT Group/Commercial Services, Inc. (Del.)................................. Delaware
The CIT Group/Capital Transportation, Inc.................................. Delaware
The CIT Group/Commercial Services, Inc. ....................................... New York
CIT Foreign Sales Corporation One, Ltd..................................... Barbados,
CIT FSC Two, Ltd........................................................... Bermuda
CIT FSC Three, Ltd......................................................... Bermuda
CIT FSC Four, Ltd.......................................................... Bermuda
CIT FSC Seven, Ltd......................................................... Bermuda
CIT FSC Nine, Ltd.......................................................... Bermuda
CIT FSC Ten, Ltd........................................................... Bermuda
The CIT Group/Capital Aircraft, Inc........................................ Delaware
The CIT Group/Factoring One, Inc........................................... New York
CIT FSC Five, Ltd...................................................... Bermuda
The CIT Group/Commercial Acquisition Inc................................... Delaware
The CIT Group, Inc............................................................. New Jersey
The CIT Group/Capital Investments, Inc......................................... New York
Assurers Exchange, Inc......................................................... Delaware
C.I.T. Financial Management, Inc............................................... New York
The CIT Group/Capital Equipment Financing, Inc................................. Delaware
Banord Limited............................................................. United Kingdom
Equipment Acceptance Corporation........................................... New York
The CIT Group/Asset Management Inc............................................. Delaware
Commercial Investment Trust Corporation........................................ Delaware
The CIT Group/Business Credit, Inc............................................. New York
Meinhard-Commercial Corporation................................................ New York
650 Management Corp............................................................ New Jersey
The CIT Group/Equity Investments, Inc.......................................... New Jersey
The CIT Group/Venture Capital, Inc......................................... New Jersey
The CIT Group/Equipment Financing, Inc......................................... New York
C.I.T. Realty Corporation.................................................. Delaware
CIT FSC Eleven, Ltd........................................................ Bermuda
CIT FSC Twelve, Ltd........................................................ Bermuda
CIT FSC Fourteen, Ltd...................................................... Bermuda
CIT FSC Fifteen, Ltd....................................................... Bermuda
CIT FSC Sixteen, Ltd....................................................... Bermuda
CIT FSC Seventeen, Ltd..................................................... Bermuda
CIT FSC Eighteen, Ltd...................................................... Bermuda
CIT FSC Nineteen, Ltd...................................................... Bermuda
The CIT Group/El Paso Refinery, Inc........................................ Delaware
Bunga Bebaru, Ltd....................................................... Bermuda
CIT Leasing (Bermuda) LTD............................................... Bermuda
The CIT Group/Corporate Aviation, Inc...................................... Delaware
CIT Leasing Corporation.................................................... Delaware
CIT FSC Six, Ltd....................................................... Bermuda
CIT FSC Eight, Ltd..................................................... Bermuda
The CIT Group Securitization Corporation....................................... Delaware
The CIT Group/Consumer Finance, Inc. (NY)...................................... New York
C.I.T. Financial International, N. V........................................... Netherlands Antilles
C.I.T. Financial Overseas, B. V................................................ Netherlands Antilles
</TABLE>
EXHIBIT 24
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
of The CIT Group Holdings, Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-42529, No. 33-50666, No. 33-58418 and No. 33-52685 on Forms S-3 of the CIT
Group Holdings, Inc. of our reports dated January 18, 1994, relating to the
consolidated balance sheets of The CIT Group Holdings, Inc. and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1993 and related schedule for each of
the years in the three-year period ended December 31, 1993, which reports appear
in the December 31, 1993 Annual Report on Form 10-K of The CIT Group Holdings,
Inc.
KPMG PEAT MARWICK
Short Hills, New Jersey
March 23, 1994
Exhibit-25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Albert R. Gamper, Jr.
----------------------------
Albert R. Gamper, Jr.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ToshijiTokiwa
----------------------------
Toshiji Tokiwa
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/Keiji Torii
----------------------------
Keiji Torii
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Hisao Kobayashi
----------------------------
Hisao Kobayashi
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Michio Murata
----------------------------
Michio Murata
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Joseph A. Pollicino
----------------------------
Joseph A. Pollicino
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Paul N. Roth
----------------------------
Paul N. Roth
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Tomoaki Tanaka
----------------------------
Tomoaki Tanaka
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ Peter J. Tobin
----------------------------
Peter J. Tobin
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director and/or
officer of THE CIT GROUP HOLDINGS, INC., a Delaware corporation, which is about
to file with the Securities and Exchange Commission, Washington, D.C., under the
provisions of the Securities Act of 1934, as amended, an annual report on Form
10-K, hereby constitutes and appoints ALBERT R. GAMPER, JR., ERNEST D. STEIN,
and DONALD J. RAPSON his true and lawful attorneys-in-fact and agents, and each
of them with full power to act without the others, his true and lawful
attorneys-in-fact and agents, for him and in his name, place, and stead, in any
and all capacities, to sign such Form 10-K and any and all amendments thereof,
with power where appropriate to affix the corporate seal of said corporation
thereto and to attest to said seal, and to file such Form 10-K and each such
amendment, with all exhibits thereto, and any and all other documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform any and all acts and things requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and hereby ratifies and confirms all that said
attorneysin-fact and agents, or any of them, may lawfully do or cause to be done
by virtue hereby.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand on the 4th
day of March, 1994.
/s/ William H. Turner
----------------------------
William H. Turner
