================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number
1-1861
THE CIT GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2994534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
(Address of principal executive offices) (Zip Code)
(212) 536-1950
(Registrant's telephone number, including area code)
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ____X___ No __________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 30, 1995: 1,000 shares.
================================================================================
<PAGE>
THE CIT GROUP HOLDINGS, INC.
AND SUBSIDIARIES
(UNAUDITED)
TABLE OF CONTENTS PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995 and
December 31, 1994. 2-3
Consolidated Income Statements for the three and nine
month periods ended September 30, 1995 and 1994. 4
Consolidated Statements of Changes in Stockholders' Equity for
the nine month periods ended September 30, 1995 and 1994. 5
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1995 and 1994. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
PART I. FINANCIAL INFORMATION
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the December 31, 1994 Annual
Report on Form 10-K and the March 31, 1995 quarterly report on Form 10-Q for The
CIT Group Holdings, Inc. (the "Corporation").
The Corporation considers that all adjustments (all of which are normal
recurring accruals) necessary for a fair statement of the financial position and
results of operations for these periods have been made; however, results for
such interim periods are subject to year-end audit adjustments. Results for such
interim periods are not necessarily indicative of results for a full year.
Amounts for 1994 have been reclassified, where necessary, to conform to 1995
presentations.
-1-
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
September 30, December 31,
Assets 1995 1994
------------- ------------
Financing and leasing assets
Capital Equipment Financing ................ $ 4,466,977 $ 4,493,531
Business Credit ............................ 1,650,080 1,442,049
Credit Finance ............................. 766,539 719,642
------------ ------------
Corporate Finance ........................ 6,883,596 6,655,222
Commercial Services ........................ 1,964,553 1,896,233
Industrial Financing ....................... 4,635,230 4,269,693
Sales Financing ............................ 1,367,059 1,402,443
------------ ------------
Dealer and Manufacturer Financing ........ 6,002,289 5,672,136
Consumer Finance ........................... 930,558 570,772
------------ ------------
Total finance receivables ............... 15,780,996 14,794,363
Reserve for credit losses .................. (202,142) (192,421)
------------ ------------
Net finance receivables .................. 15,578,854 14,601,942
Operating lease equipment .................. 1,017,625 867,914
------------ ------------
Net financing and leasing assets ......... 16,596,479 15,469,856
Cash and cash equivalents .................. 109,652 6,558
Other assets ............................... 535,419 487,076
------------ ------------
Total assets ............................. $ 17,241,550 $ 15,963,490
============ ============
-2-
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
September 30, December 31,
Liabilities and Stockholders' Equity 1995 1994
------------ ------------
Debt
Commercial paper ................................. $ 5,231,479 $ 5,660,194
Variable rate notes .............................. 4,377,500 3,812,500
Fixed rate notes ................................. 3,442,582 2,623,150
Subordinated fixed rate notes .................... 300,000 300,000
----------- -----------
Total debt ..................................... 13,351,561 12,395,844
Credit balances of factoring clients ............. 1,077,371 993,394
Accrued liabilities and payables ................. 493,806 354,714
Deferred Federal income taxes .................... 441,814 426,511
----------- -----------
Total liabilities .............................. 15,364,552 14,170,463
Stockholders' equity
Common stock - authorized, issued and
outstanding - 1,000 shares ...................... 250,000 250,000
Paid-in capital .................................. 408,320 408,320
Retained earnings ................................ 1,218,678 1,134,707
----------- -----------
Total stockholders' equity ..................... 1,876,998 1,793,027
----------- -----------
Total liabilities and stockholders' equity ..... $17,241,550 $15,963,490
=========== ===========
-3-
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------------
1995 1994 1995 1994
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Finance income ................................ $ 388,789 $ 322,189 $ 1,133,052 $ 923,695
Interest expense .............................. 210,015 161,349 618,202 437,444
---------- ---------- ------------ ----------
Net finance income .......................... 178,774 160,840 514,850 486,251
Fees and other income ......................... 47,847 46,966 133,063 131,748
---------- ---------- ------------ ----------
Operating revenue ........................... 226,621 207,806 647,913 617,999
---------- ---------- ------------ ----------
Salaries and general operating
expenses ..................................... 85,890 85,194 252,989 252,189
Provision for credit losses ................... 24,039 20,041 67,223 72,333
Depreciation on operating lease
equipment .................................... 21,462 16,397 56,278 47,275
---------- ---------- ------------ ----------
Operating expenses .......................... 131,391 121,632 376,490 371,797
---------- ---------- ------------ ----------
Income before provision for income
taxes ...................................... 95,230 86,174 271,423 246,202
Provision for income taxes .................... 36,792 33,587 103,660 94,609
---------- --------- ----------- ----------
Net income .................................. $ 58,438 $ 52,587 $ 167,763 $ 151,593
========== ========= =========== ==========
Ratio of earnings to fixed charges ............ -- -- 1.43 1.56
</TABLE>
-4-
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in Thousands)
Nine Months Ended
September 30,
------------------------------------
1995 1994
---------------- -----------------
Balance, January 1 ................... $ 1,793,027 $ 1,692,235
Net income ........................... 167,763 151,593
Dividends paid ....................... (83,792) (75,916)
----------- -----------
Balance, September 30 ................ $ 1,876,998 $ 1,767,912
=========== ===========
-5-
<PAGE>
THE CIT GROUP HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Nine Months Ended
September 30,
--------------------------
1995 1994
------------ -----------
CASH FLOWS FROM OPERATIONS
Net income ....................................... $ 167,763 $ 151,593
Adjustments to reconcile net income to net cash
flows from operations:
Provision for credit losses ..................... 67,223 72,333
Depreciation and amortization ................... 62,577 54,413
Provision for deferred Federal income taxes ..... 15,040 11,112
Gains on asset sales ............................ (25,443) (20,916)
Increase in accrued liabilities and payables .... 139,092 56,475
Increase in other assets ........................ (16,400) (3,846)
Other ........................................... (16,435) (14,516)
--------- ---------
Net cash flows provided by operations .......... 393,417 306,648
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans extended ................................... (22,824,793) (16,667,886)
Collections on loans ............................. 21,207,271 16,119,606
Purchases of assets to be leased ................. (611,880) (673,394)
Collections on lease receivables ................. 589,240 400,396
Net decrease (increase) in short-term
factoring receivables .......................... 12,463 (261,420)
Proceeds from asset sales ........................ 602,522 493,209
Proceeds from sales of assets received in
satisfaction of loans ........................... 20,818 34,896
Purchases of finance receivables portfolios ...... (22,767) (133,168)
Acquisition of Barclays Commercial Corp. ......... -- (435,630)
Other ............................................ (39,077) (27,060)
----------- -----------
Net cash flows used for investing activities ... (1,066,203) (1,150,451)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of variable and
fixed rate notes ................................ 2,500,000 2,086,200
Repayments of variable and fixed rate notes ...... (1,115,568) (1,179,550)
Net (decrease) increase in commercial paper ...... (428,715) 25,081
Proceeds from nonrecourse leveraged lease debt ... 3,499 27,571
Repayments of nonrecourse leveraged lease debt ... (99,544) (76,758)
Cash dividends paid .............................. (83,792) (75,916)
----------- -----------
Net cash flows from financing activities ....... 775,880 806,628
----------- -----------
Net increase (decrease) in cash and
cash equivalents ............................... 103,094 (37,175)
Cash and cash equivalents, beginning of period ... 6,558 101,554
----------- -----------
Cash and cash equivalents, end of period ......... $ 109,652 $ 64,379
=========== ===========
Supplemental disclosures
Interest paid .................................... $ 636,770 $ 428,692
Federal and State and Local taxes paid ........... $ 76,213 $ 75,965
Noncash transfer of receivables to other assets .. $ 550,855 $ 48,381
Noncash transfers of financing and leasing assets
to assets received in satisfaction of loans ..... $ 17,668 $ 37,984
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET INCOME
Net income for the 1995 third quarter totaled a record $58.4 million, an
increase of $5.8 million (11.1%) from $52.6 million in 1994. For the nine months
ended September 30, 1995, net income totaled a record $167.8 million, an
increase of $16.2 million (10.7%) from the comparable 1994 period. The
improvements in both 1995 periods were principally due to a higher level of
financing and leasing assets and continued emphasis on credit quality, offset,
in part, by increased interest expense.
FINANCING AND LEASING ASSETS
Changes in financing and leasing assets from year-end 1994 are presented in the
following table.
<TABLE>
<CAPTION>
Change
September 30, December 31, ---------------------
1995 1994 Amount Percent
------------- ------------ ------ -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance receivables
Capital Equipment Financing .......... $ 4,467.0 $ 4,493.5 $ (26.5) (0.6)%
Business Credit ...................... 1,650.1 1,442.1 208.0 14.4
Credit Finance ....................... 766.5 719.6 46.9 6.5
Commercial Services .................. 1,964.5 1,896.2 68.3 3.6
Industrial Financing ................. 4,635.2 4,269.7 365.5 8.6
Sales Financing ...................... 1,367.1 1,402.5 (35.4) (2.5)
Consumer Finance ..................... 930.6 570.8 359.8 63.0
---------- ----------- -------- ------
Total finance receivables .......... 15,781.0 14,794.4 986.6 6.7
---------- ----------- -------- ------
Operating lease equipment
Capital Equipment Financing .......... 717.4 648.7 68.7 10.6
Industrial Financing ................. 300.2 219.2 81.0 36.9
---------- ----------- -------- ------
Total operating lease equipment .... 1,017.6 867.9 149.7 17.2
---------- ----------- -------- ------
Total financing and leasing assets $ 16,798.6 $ 15,662.3 $1,136.3 7.2%
========== =========== ======== ======
</TABLE>
-7-
<PAGE>
The changes from December 31, 1994, with respect to finance receivables, are
discussed below for each business unit.
o Capital Equipment Financing - Customized secured equipment financing and
leasing of major capital equipment for medium and larger-sized companies.
New business volume totaled $767.6 million in 1995, 7.5% higher than the
comparable 1994 period. Finance receivables declined $26.5 million,
principally due to normal liquidations and asset sales for risk management
purposes.
o Business Credit - Revolving and term loans, including debtor-in-possession
and workout financing, for medium and larger-sized companies secured by
accounts receivable, inventory and fixed assets.
Finance receivables increased $208.0 million (14.4%) as a result of strong
growth in new business volume of $341.1 million as well as the first
quarter 1995 transfer from Commercial Services of approximately $75 million
of revolving and term loans acquired as part of the Barclays Commercial
Corporation ("BCC") purchase.
o Credit Finance - Revolving and term loans, including restructurings, for
small and medium-sized companies secured by accounts receivable, inventory
and fixed assets.
Finance receivables rose $46.9 million (6.5%) on new business volume of
$135.8 million.
o Commercial Services - Credit protection and lending facilities, including
factoring of accounts receivable, as well as bookkeeping and collection
activities.
The increase of $68.3 million (3.6%) in finance receivables from year-end
1994 reflects seasonal trends and a relatively unchanged level of volume
($9.3 billion) due primarily to continued weakness in retail apparel sales.
-8-
<PAGE>
o Industrial Financing - Secured equipment financing and leasing for
medium-sized companies, including dealer and manufacturer financing.
The increase in finance receivables of $365.5 million (8.6%) is due to
record 1995 new business volume of $1.8 billion based on strong demand
across most geographic and industry markets served.
o Sales Financing - Retail secured financing of recreational vehicles,
manufactured housing and recreational boats through dealers and
manufacturers.
Finance receivables declined $35.4 million (2.5%) from December 1994 due to
securitizations totaling $517.0 million as well as the transfer of $98.3
million of finance receivables to assets held for sale at September 30,
1995. New business volume totaled a record $740.8 million (an increase of
48.4% from 1994), principally due to growth in manufactured housing volume.
At September 30, 1995, Sales Financing was servicing $1.12 billion of
finance receivables owned by other financial institutions and
securitization trusts which are not included in the preceding table.
o Consumer Finance - Loans secured by first or second mortgages on
residential real estate.
Finance receivables rose $359.8 million (63.0%) due to new business volume
of $453.6 million in 1995 (up 58.6% from 1994) based on the combination of
direct consumer originations and purchases of loans originated by others.
Operating lease equipment increased $149.7 million (17.2%) from December 31,
1994, principally due to an increase in railroad equipment and commercial and
corporate aircraft. (See the discussion in the "Commercial Airline Industry"
section which follows.)
-9-
<PAGE>
Commercial Airline Industry
Commercial airline finance receivables and operating lease equipment totaled
$1.89 billion (11.2% of total financing and leasing assets) at September 30,
1995 compared with $1.90 billion (12.1%) at December 31, 1994. The portfolio is
secured by commercial aircraft and related equipment. Management continues to
monitor the size of this portfolio relative to total financing and leasing
assets.
The following table presents information about the commercial airline portfolio.
- --------------------------------------------------------------------------------
September 30, December 31,
1995 1994
------------- ------------
(Dollar Amounts in Millions)
Finance Receivables
Amount outstanding(a) ........................ $1,382.6 $1,417.0
Number of obligors ........................... 49 46
Operating Leases
Net carrying value ........................... $503.6 $482.3
Number of obligors ........................... 23 21
-------- --------
Total .......................................... $1,886.2 $1,899.3
-------- --------
Number of obligors(b) .......................... 66 62
-------- --------
Number of aircraft(c) .......................... 259 282
-------- --------
- ---------------
(a) Includes accrued rents on operating leases of $0.2 million at September 30,
1995 and $1.1 million at December 31, 1994, which were classified as finance
receivables in the Consolidated Balance Sheets.
(b) Certain obligors have both finance receivable and operating lease
transactions.
(c) The decline in the number of aircraft from December 1994 principally
reflects the maturity of loans with one obligor collateralized by 17
aircraft.
- --------------------------------------------------------------------------------
As a result of an investigation by the Federal Aviation Administration, Express
One International, a Dallas based cargo and passenger airline, grounded its
fleet on June 6, 1995 and filed for protection under Chapter 11 of the
Bankruptcy Code. After the filing, all operating lease agreements were
cancelled. The Corporation took possession of the four related aircraft and, as
of September 30, 1995, had placed two of these aircraft on operating lease with
-10-
<PAGE>
two carriers and has agreements in place to deliver the remaining aircraft to
two other carriers during the fourth quarter. The above transaction did not
have a significant effect on the Corporation's consolidated financial position
or results of operations.
Highly Leveraged Transactions
Highly leveraged transactions ("HLTs") totaled $419.8 million (2.5% of financing
and leasing assets before the reserve for credit losses) at September 30, 1995
compared with $436.1 million (2.8%) at December 31, 1994. Unfunded HLT
commitments to lend were $186.2 million at September 30, 1995 compared with
$202.1 million at December 31, 1994.
At September 30, 1995, the portfolio consisted of 34 obligors in 11 industry
groups located throughout the United States, with the largest regional
concentrations in the Southeast (30.1%) and the West (29.8%). Total HLT
outstandings classified as nonaccrual totaled $36.0 million (3 accounts) at
September 30, 1995 compared with $57.7 million (4 accounts) at December 31,
1994.
-11-
<PAGE>
FINANCE INCOME
An analysis of 1995 and 1994 net finance income is set forth below:
- --------------------------------------------------------------------------------
Three Months Ended
----------------------------------
September 30,
----------------------
(Dollar Amounts in Millions) 1995 1994 Increase
--------- --------- --------
Finance income ........................... $ 388.8 $ 322.1 $ 66.7
Interest expense ......................... 210.0 161.3 48.7
--------- --------- --------
Net finance income ....................... $ 178.8 $ 160.8 $ 18.0
========= ========= ========
Average financing and leasing assets (AEA) $15,555.1 $13,732.1 $1,823.0
========= ========== ========
Net finance income as a % of AEA ......... 4.60% 4.68%
========= ==========
Nine Months Ended
----------------------------------
September 30,
----------------------
1995 1994 Increase
--------- --------- --------
Finance income ........................... $ 1,133.1 $ 923.7 $ 209.4
Interest expense ......................... 618.2 437.4 180.8
--------- --------- --------
Net finance income ....................... $ 514.9 $ 486.3 $ 28.6
========= ========= ========
Average financing and leasing assets (AEA) $15,200.0 $13,408.6 $1,791.4
========= ========= ========
Net finance income as a % of AEA ......... 4.52% 4.83%
========= =========
- --------------------------------------------------------------------------------
The increases in net finance income reflect the growth in financing and leasing
assets, partially offset by higher interest expense. Net finance income, as a
percentage of AEA, decreased in 1995 due to competitive pricing pressures and
increased borrowing costs.
-12-
<PAGE>
A comparative analysis of the weighted average interest rates paid on the
Corporation's debt, before and after giving effect to interest rate swaps, is
set forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------------------- --------------------------------------------
1995 1994 1995 1994
-------------------- ----------------- ----------------- ------------------
Before After Before After Before After Before After
Swaps Swaps Swaps Swaps Swaps Swaps Swaps Swaps
-------------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable rate debt .. 5.98% 5.97% 4.70% 4.71% 6.09% 6.08% 4.08% 4.09%
Fixed rate debt ..... 7.06% 6.76% 7.20% 6.68% 7.09% 6.76% 7.29% 6.69%
Composite rate ...... 6.26% 6.33% 5.24% 5.49% 6.33% 6.38% 4.79% 5.11%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's interest rate swaps principally convert floating rate debt to
fixed rate debt and effectively lower both the variable and fixed rates. The
weighted average composite rate increases, however, because a larger proportion
of the Corporation's debt, after giving effect to interest rate swaps, is
subject to a fixed rate.
The Corporation enters into interest rate swaps as hedges against market
interest rate fluctuations and not for trading or speculative purposes.
-13-
<PAGE>
FEES AND OTHER INCOME
Fees and other income totaled $47.8 million in the 1995 third quarter compared
with $47.0 million in 1994, as higher gains on asset sales and securitizations
totaling $12.0 million in 1995, as compared with $9.9 million in 1994, and an
increase in other income more than offset lower factoring commissions. For the
nine months ended September 30, 1995, fees and other income totaled $133.1
million compared with $131.7 million in 1994, including gains on asset sales and
securitizations of $25.4 million in 1995 and $20.9 million in 1994.
SALARIES AND GENERAL OPERATING EXPENSES
The following table sets forth the components of salaries and general operating
expenses.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------
September 30, Increase/(Decrease)
------------------------ -----------------------
(Dollar Amounts in Thousands) 1995 1994 Amount Percent
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Salaries and employee benefits ......... $ 49,581 $ 46,861 $ 2,720 5.8 %
General operating expenses ............. 36,309 38,333 (2,024) (5.3)%
--------- --------- ---------- -----
Salaries and general operating expenses $ 85,890 $ 85,194 $ 696 0.8 %
========= ========= ========== =====
Percent to AEA ......................... 2.21% 2.48%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------------
September 30, Increase/(Decrease)
------------------------ -----------------------
1995 1994 Amount Percent
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Salaries and employee benefits ........ $145,414 $139,168 $ 6,246 4.5 %
General operating expenses ............ 107,575 113,021 (5,446) (4.8)%
-------- -------- -------- -----
Salaries and general operating expenses $252,989 $252,189 $ 800 0.3 %
======== ======== ======== =====
Percent to AEA ........................ 2.22% 2.51%
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The improvements in the ratios of salaries and general operating expenses to AEA
reflect further operating efficiencies across all business units, most notably
in Commercial Services and Industrial Financing.
-14-
<PAGE>
PAST DUE AND NONACCRUAL FINANCE RECEIVABLES
AND ASSETS RECEIVED IN SATISFACTION OF LOANS
Finance receivables past due 60 days or more totaled $275.5 million (1.75%
of total finance receivables) at September 30, 1995 compared with $194.9 million
(1.28% of total finance receivables) at June 30, 1995 and $176.9 million (1.20%
of total finance receivables) at December 31, 1994. Excluding past due loans in
Industrial Financing that have dealer or manufacturer recourse provisions, the
percentage of finance receivables past due 60 days or more was 1.61% at
September 30, 1995 compared with 1.03% at December 31, 1994. The increase from
June 30, 1995 is primarily attributable to certain shipping industry and cruise
line finance receivables placed on nonaccrual status during the third quarter
(see discussion below).
Finance receivables on nonaccrual status, included in past due finance
receivables, increased to $156.2 million (0.99% of total finance receivables) at
September 30, 1995 from $93.3 million (0.62% of total finance receivables) at
June 30, 1995 and $110.2 million (0.75% of total finance receivables) at
December 31, 1994. The third quarter balance includes approximately $52.0
million of finance receivables with a shipping company collateralized by
oceangoing carriers. The fair value of the collateral, based upon third party
appraisals, exceeds the carrying value at September 30, 1995. Additionally,
finance receivables of approximately $37.0 million with a cruise line were
placed on nonaccrual status during the third quarter. On October 30, 1995, the
cruise line ceased operations and, on November 7, 1995, filed for protection
under Chapter 11 of the Bankruptcy Code. These receivables are collateralized by
two vessels. Management believes that this transaction will not have a
significant effect on the Corporation's consolidated financial position or
results of operations.
-15-
<PAGE>
Assets received in satisfaction of loans declined to $41.3 million at September
30, 1995 from $84.8 million at June 30, 1995 and $86.5 million at December 31,
1994 due to two commercial aircraft being placed on long term leases which are
included in finance receivables at September 30, 1995.
PROVISION AND RESERVE FOR CREDIT LOSSES
The following table summarizes the activity in the reserve for credit losses.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -----------------------
September 30, September 30,
----------------------- -----------------------
(Dollar Amounts in Millions) 1995 1994 1995 1994
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Net credit losses ..................................... $ 21.9 $ 18.2 $ 56.7 $ 67.1
Provision for finance receivables change .............. 2.1 1.8 10.5 5.2
-------- --------- --------- ---------
Total provision for credit losses ..................... $ 24.0 $ 20.0 $ 67.2 $ 72.3
======== ========= ========= =========
Net credit losses as a percent (annualized)
of average finance receivables ....................... 0.57% 0.52% 0.50% 0.66%
======== ========= ========= =========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Net credit losses for the three months ended September 30, 1995 totaled $21.9
million as compared with $18.2 million for the three months ended September 30,
1994. The increase is due to a higher level of credit losses in the Corporate
Finance portfolio for the third quarter of 1995. Net credit losses for the nine
months ended September 30, 1995 totaled $56.7 million as compared with $67.1
million for the nine months ended September 30, 1994. The decline was due to a
higher level of recoveries for the nine month period of 1995. The reserve for
credit losses at September 30, 1995 was $202.1 million (1.28% of total finance
receivables) compared with $192.4 million (1.30%) at year-end 1994.
INCOME TAXES
The effective income tax rate for the 1995 third quarter was 38.6% compared with
39.0% from the prior year period. For the first nine months of 1995, the
effective tax rate was 38.2% compared with 38.4% in 1994.
-16-
<PAGE>
STATISTICAL DATA
The following table presents components of net income as a percentage of AEA,
along with other selected financial data:
Nine Months Ended
September 30,
-------------------------------
1995 1994
----------- -----------
Finance income* ................................ 9.90% 9.08%
Interest expense* .............................. 5.38 4.25
----------- -----------
Net finance income ........................... 4.52 4.83
Fees and other income .......................... 1.17 1.31
----------- -----------
Operating revenue ............................ 5.69 6.14
----------- -----------
Salaries and general operating expenses ........ 2.22 2.51
Net credit losses** ............................ 0.50 0.66
Provision for finance receivables change ....... 0.09 0.05
----------- -----------
Total provision for credit losses ............ 0.59 0.71
Depreciation on operating lease equipment ...... 0.49 0.47
----------- -----------
Operating expenses ........................... 3.30 3.69
----------- -----------
Income before provision for income taxes ....... 2.39 2.45
Provision for income taxes ..................... 0.92 0.94
----------- -----------
Net income ................................... 1.47% 1.51%
=========== ===========
Average Financing and Leasing Assets (AEA) ..... $15,199,974 $13,408,639
=========== ===========
Average Finance Receivables .................... $15,212,597 $13,518,880
=========== ===========
* Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
** Percentage to average finance receivables.
-17-
<PAGE>
LIQUIDITY AND CAPITALIZATION
The Corporation manages liquidity by monitoring the relative maturities of
assets and liabilities and by borrowing funds, primarily in the United States
money and capital markets. The proceeds of such borrowings are used to fund
asset growth (including the bulk purchase of finance receivables and the
acquisition of other finance-related businesses) and to meet debt obligations
and other commitments on a timely and cost-effective basis.
The following table presents information regarding the Corporation's capital
structure.
- --------------------------------------------------------------------------------
September 30, December 31,
1995 1994
------------- ------------
(Dollar Amounts in Thousands)
Commercial Paper ................................. $ 5,231,479 $ 5,660,194
Term Debt ........................................ 8,120,082 6,735,650
Stockholders' Equity ............................. 1,876,998 1,793,027
----------- -----------
Total Capitalization ............................. $15,228,559 $14,188,871
=========== ===========
Ratios:
Debt-to-equity ................................... 7.11 to 1 6.91 to 1
Debt-to-equity plus reserve for credit losses .... 6.42 to 1 6.24 to 1
- --------------------------------------------------------------------------------
During the first nine months of 1995, commercial paper borrowings decreased
$428.7 million, the Corporation issued $1.6 billion of variable rate and $900.0
million of fixed rate term debt and repaid $1.1 billion of debt. At September
30, 1995, $6.46 billion of unissued debt securities remained available under
shelf registration statements.
At September 30, 1995, commercial paper borrowings were supported by $4.64
billion of committed credit line facilities, representing 89% of commercial
paper outstanding. No borrowings have been made under credit lines since 1970.
-18-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges.
(b) Exhibit 27 - Financial Data Schedule
(c) A Form 8-K report dated July 13, 1995 was filed with the Commission
reporting the Corporation's announcement of results for the quarter
ended June 30, 1995.
(d) A Form 8-K report dated October 12, 1995 was filed with the
Commission reporting the Corporation's announcement of results for
the quarter ended September 30, 1995.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The CIT Group Holdings, Inc.
(Registrant)
By /s/ J. M. Leone
-----------------------------------
J. M. Leone
Executive Vice President and
Chief Financial Officer
(duly authorized and principal
accounting officer)
DATE:November 9, 1995
-20-
EXHIBIT 12
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts in Thousands)
Nine Months Ended
September 30,
----------------------
1995 1994
-------- --------
Net Income ......................................... $167,763 $151,593
Provision for income taxes ......................... 103,660 94,609
-------- --------
Earnings before provision for income taxes ......... 271,423 246,202
-------- --------
Fixed charges:
Interest and debt expense on indebtedness ........ 618,202 437,444
Interest factor - one third of rentals on
real and personal properties .................... 5,227 5,857
-------- --------
Total fixed charges ................................ 623,429 443,301
-------- --------
Total earnings before provision for income
taxes and fixed charges .......................... $894,852 $689,503
======== ========
Ratio of earnings to fixed charges ................. 1.43 1.56
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1995
<PERIOD-END> SEP-30-1994 SEP-30-1995
<CASH> 64,379 109,652
<SECURITIES> 0 0
<RECEIVABLES> 14,370,708 15,780,996
<ALLOWANCES> 185,321 202,142
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 15,437,284 17,241,550
<CURRENT-LIABILITIES> 0 0
<BONDS> 4,885,650 8,120,082
<COMMON> 250,000 250,000
0 0
0 0
<OTHER-SE> 1,517,912 1,626,998
<TOTAL-LIABILITY-AND-EQUITY> 15,437,284 17,241,550
<SALES> 0 0
<TOTAL-REVENUES> 1,055,443 1,266,115
<CGS> 0 0
<TOTAL-COSTS> 252,189 252,989
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 72,333 67,223
<INTEREST-EXPENSE> 437,444 618,202
<INCOME-PRETAX> 246,202 271,423
<INCOME-TAX> 94,609 103,660
<INCOME-CONTINUING> 151,593 167,763
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 151,593 167,763
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
