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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, 1996
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
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(Exact name of registrant as specified in its charter)
DELAWARE 13-2994534
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
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(Address of principal executive offices) (Zip Code)
(212) 536-1950
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(Registrant's telephone number, including area code)
NONE
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(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 November 1, 1996: 1,000 shares.
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<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, 1996 and
December 31, 1995. 2
Consolidated Income Statements for the three and nine
month periods ended September 30, 1996 and 1995. 3
Consolidated Statements of Changes in Stockholders' Equity for
the nine month periods ended September 30, 1996 and 1995. 4
Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1996 and 1995. 5
Note to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-18
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 the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the December
31, 1995 Annual Report on Form 10-K and the March 31, 1996 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.
-1-
<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN MILLIONS)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
ASSETS
FINANCING AND LEASING ASSETS
Loans
Commercial $10,526.2 $10,356.3
Consumer 2,730.3 2,344.0
Lease receivables 3,303.7 3,095.2
--------- ---------
Finance receivables 16,560.2 15,795.5
Reserve for credit losses (214.2) (206.0)
--------- ---------
Net finance receivables 16,346.0 15,589.5
Operating lease equipment, net 1,365.0 1,113.0
CASH AND CASH EQUIVALENTS 117.0 161.5
OTHER ASSETS 797.5 556.3
--------- ---------
TOTAL ASSETS $18,625.5 $17,420.3
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEBT
Commercial paper $ 5,913.2 $ 6,105.6
Variable rate senior notes 3,997.5 3,827.5
Fixed rate senior notes 4,182.0 3,337.0
Subordinated fixed rate notes 300.0 300.0
--------- ---------
Total debt 14,392.7 13,570.1
Credit balances of factoring clients 1,155.4 980.9
Accrued liabilities and payables 539.2 485.9
Deferred Federal income taxes 506.8 469.2
--------- ---------
Total liabilities 16,594.1 15,506.1
STOCKHOLDERS' EQUITY
Common stock - authorized, issued
and outstanding - 1,000 shares 250.0 250.0
Paid-in capital 408.3 408.3
Retained earnings 1,373.1 1,255.9
--------- ---------
Total stockholders' equity 2,031.4 1,914.2
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,625.5 $17,420.3
========= =========
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<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(DOLLAR AMOUNTS IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1996 1995 1996 1995
---- ---- ---- ----
Finance income $415.8 $388.8 $1,222.3 $1,133.0
Interest expense 214.4 210.0 628.2 618.2
------ ------ -------- --------
Net finance income 201.4 178.8 594.1 514.8
Fees and other income 50.9 47.8 176.8 133.1
------ ------ -------- --------
Operating revenue 252.3 226.6 770.9 647.9
------ ------ -------- --------
Salaries and general operating
expenses 97.9 85.9 291.4 253.0
Provision for credit losses 24.2 24.0 78.6 67.2
Depreciation on operating lease
equipment 28.0 21.4 84.3 56.2
------ ------ -------- --------
Operating expenses 150.1 131.3 454.3 376.4
------ ------ -------- --------
Income before provision for
income taxes 102.2 95.3 316.6 271.5
Provision for income taxes 37.1 36.8 119.3 103.7
------ ------ -------- --------
Net income $ 65.1 $ 58.5 $ 197.3 $ 167.8
====== ====== ======== ========
Ratio of earnings to fixed charges -- -- 1.50 1.43
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<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(AMOUNTS IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
---- ----
Balance, January 1 $1,914.2 $1,793.0
Net income 197.3 167.8
Dividends paid (80.1) (83.8)
-------- --------
Balance, September 30 $2,031.4 $1,877.0
======== ========
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<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATIONS
Net income $ 197.3 $ 167.8
Adjustments to reconcile net income to net cash
flows from operations:
Provision for credit losses 78.6 67.2
Depreciation and amortization 97.8 62.6
Provision for deferred Federal income taxes 37.6 15.0
Gains on asset and receivable sales (55.3) (25.4)
Increase in accrued liabilities and payables 34.1 139.1
Increase in other assets (44.8) (16.4)
Other (17.6) (16.4)
--------- ---------
Net cash flows provided by operations 327.7 393.5
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans extended (22,601.1) (22,824.8)
Collections on loans 21,645.9 21,207.3
Purchases of assets to be leased (1,093.1) (611.9)
Collections on lease receivables 593.9 589.2
Net (increase) decrease in short-term factoring
receivables (127.1) 12.5
Proceeds from asset and receivable sales 691.3 602.5
Proceeds from sales of assets received in
satisfaction of loans 56.0 20.8
Purchases of finance receivables portfolios (164.5) (22.8)
Purchases of investment securities (18.1) (8.9)
Other (21.4) (30.2)
--------- ---------
Net cash flows used for investing activities (1,038.2) (1,066.3)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of variable and
fixed rate notes 3,026.4 2,500.0
Repayments of variable and fixed rate notes (2,011.4) (1,115.6)
Net decrease in commercial paper (192.4) (428.7)
Proceeds from nonrecourse leveraged lease debt 36.4 3.5
Repayments of nonrecourse leveraged lease debt (112.9) (99.5)
Cash dividends paid (80.1) (83.8)
--------- ---------
Net cash flows provided by financing activities 666.0 775.9
--------- ---------
Net (decrease) increase in cash and cash equivalents (44.5) 103.1
Cash and cash equivalents, beginning of period 161.5 6.6
--------- ---------
Cash and cash equivalents, end of period $ 117.0 $ 109.7
========= =========
Supplemental disclosures
Interest paid $ 611.9 $ 636.8
Federal and State and local taxes paid $ 90.0 $ 76.2
Noncash transfers of finance receivables to
other assets $ 610.7 $ 550.9
Noncash transfers of finance receivables to
assets received in satisfaction of loans $ 88.3 $ 17.7
Noncash transfers of assets received in
satisfaction of loans to finance receivables $ 10.9 $ 40.6
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<PAGE>
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". This statement is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996 and application is prospective. Management believes that the adoption of
this standard will not have a material effect on the Corporation's consolidated
financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NET INCOME
Net income for the 1996 third quarter totaled $65.1 million, an increase of $6.6
million (11.3%) from $58.5 million in 1995. For the nine months ended September
30, 1996, net income totaled a record $197.3 million compared to $167.8 million
in 1995, an increase of 17.6%. Return on average financing and leasing assets
for the quarter and nine months increased to 1.57% and 1.61%, respectively, from
1.50% and 1.47% for the same periods in 1995. The improvements resulted from
strong operating revenues including increased portfolio spreads, partially
offset by higher operating expenses.
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<PAGE>
FINANCE INCOME
A comparison of 1996 and 1995 net finance income is set forth below.
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Three Months Ended
-----------------------------------------
September 30, Increase
--------------------- -----------------
1996 1995 Amount Percent
--------- --------- -------- -------
(Dollar Amounts in Millions)
Finance income $ 415.8 $ 388.8 $ 27.0 6.9%
Interest expense 214.4 210.0 4.4 2.1%
--------- --------- -------- -----
Net finance income $ 201.4 $ 178.8 $ 22.6 12.6%
========= ========= ======== =====
Average financing and leasing
assets (AEA) $16,636.6 $15,555.1 $1,081.5 7.0%
========= ========= ======== =====
Net finance income as a % of AEA 4.84% 4.60%
===== =====
Nine Months Ended
-----------------------------------------
September 30, Increase
--------------------- -----------------
1996 1995 Amount Percent
--------- --------- -------- -------
(Dollar Amounts in Millions)
Finance income $ 1,222.3 $ 1,133.0 $ 89.3 7.9%
Interest expense 628.2 618.2 10.0 1.6%
--------- --------- -------- -----
Net finance income $ 594.1 $ 514.8 $ 79.3 15.4%
========= ========= ======== =====
Average financing and leasing
assets (AEA) $16,311.9 $15,200.0 $1,111.9 7.3%
========= ========= ======== =====
Net finance income as a % of AEA 4.86% 4.52%
===== =====
The improvements in net finance income reflect an increase in average financing
and leasing assets, a change in portfolio mix toward higher yielding consumer
finance receivables, lower borrowing costs and higher fees on account
terminations.
-7-
<PAGE>
A comparative analysis of the weighted average principal outstanding and
interest rates on the Corporation's debt for the three and nine month periods
ended September 30, 1996 and 1995, before and after giving effect to interest
rate swaps, is shown in the following tables.
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Three Months Ended September 30, 1996
--------------------------------------------------
Before Swaps After Swaps
------------------- -------------------
(Dollar Amounts in Millions)
Variable rate debt $ 9,880.3 5.54% $ 6,656.8 5.42%
Fixed rate debt 4,073.7 6.80% 7,297.2 6.67%
--------- ---------
Composite interest rate $13,954.0 5.91% $13,954.0 6.07%
========= =========
Three Months Ended September 30, 1995
----------------------------------------------------
Before Swaps After Swaps
--------------------- ---------------------
(Dollar Amounts in Millions)
Variable rate debt $ 9,679.9 5.98% $ 7,157.3 5.97%
Fixed rate debt 3,448.8 7.06% 5,971.4 6.76%
--------- ---------
Composite interest rate $13,128.7 6.26% $13,128.7 6.33%
========= =========
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 1996
----------------------------------------------------
Before Swaps After Swaps
--------------------- ---------------------
(Dollar Amounts in Millions)
Variable rate debt $10,025.9 5.48% $ 6,958.9 5.43%
Fixed rate debt 3,709.9 6.86% 6,776.9 6.69%
--------- ---------
Composite interest rate $13,735.8 5.86% 13,735.8 6.05%
========= =========
Nine Months Ended September 30, 1995
----------------------------------------------------
Before Swaps After Swaps
--------------------- ---------------------
(Dollar Amounts in Millions)
Variable rate debt $ 9,719.9 6.09% $ 7,249.8 6.08%
Fixed rate debt 3,124.3 7.09% 5,594.4 6.76%
--------- ---------
Composite interest rate $12,844.2 6.33% $12,844.2 6.38%
========= =========
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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 does not enter into derivative
financial instruments for trading or speculative purposes.
-8-
<PAGE>
FEES AND OTHER INCOME
Fees and other income totaled $50.9 million in the 1996 third quarter compared
to $47.8 million in 1995, primarily the result of an increase in factoring
commissions and in fees associated with the servicing of third party
receivables, including those that have been securitized by the Corporation. For
the nine months ended September 30, 1996, fees and other income totaled $176.8
million, an increase of $43.7 million over the comparable 1995 period. The
increase for the nine months includes the higher servicing fee income as well as
higher gains from the venture capital operation and other asset sales.
SALARIES AND GENERAL OPERATING EXPENSES
The following table sets forth the components of salaries and general operating
expenses.
Three Months Ended
----------------------------------------
September 30, Increase
--------------- -----------------
1996 1995 Amount Percent
---- ---- ------ -------
(Dollar Amounts in Millions)
Salaries and employee benefits $57.8 $49.6 $ 8.2 16.5%
General operating expenses 40.1 36.3 3.8 10.5%
----- ----- ----- -----
$97.9 $85.9 $12.0 14.0%
===== ===== ===== =====
Percent to AEA 2.35% 2.21%
===== =====
Percent to average managed assets 2.13% 2.08%
===== =====
Nine Months Ended
----------------------------------------
September 30, Increase
--------------- -----------------
1996 1995 Amount Percent
---- ---- ------ -------
(Dollar Amounts in Millions)
Salaries and employee benefits $166.9 $145.5 $21.4 14.7%
General operating expenses 124.5 107.5 17.0 15.8%
----- ------ ----- -----
$291.4 $253.0 $38.4 15.2%
===== ====== ===== =====
Percent to AEA 2.38% 2.22%
===== ======
Percent to average managed assets 2.15% 2.10%
===== ======
-9-
<PAGE>
The increases in salaries and general operating expenses are primarily
attributable to developing the Consumer Finance delivery system as well as
portfolio growth and the servicing of a higher managed asset portfolio in Sales
Financing.
PROVISION AND RESERVE FOR CREDIT LOSSES
The following table compares 1996 and 1995 provision for credit losses.
- --------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDE
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollar Amounts in Millions)
Net credit losses $ 22.3 $21.9 $71.4 $56.6
Provision for finance receivables increase 1.9 2.1 7.2 10.6
------ ------ ----- -----
Total provision for credit losses $ 24.2 $ 24.0 $78.6 67.2
====== ===== ===== =====
Net credit losses as a percent (annualized)
of average finance receivables 0.54% 0.57% 0.59% 0.50%
====== ===== ===== =====
Net credit losses were essentially unchanged for the third quarter compared to
the prior year period. For the nine months of 1996, the higher level of credit
losses compared to the same period of 1995, reflects provisions related to
certain nonaccrual loans secured by shipping and cruise line vessels. The
reserve for credit losses at September 30, 1996 was $214.2 million (1.29% of
finance receivables) compared to $206.0 million (1.30%) at year-end 1995.
DEPRECIATION ON OPERATING LEASE EQUIPMENT
Depreciation on operating lease equipment for the third quarter and nine months
of 1996 was $28.0 million and $84.3 million, respectively, up from $21.4 million
and $56.2 million for the same periods in 1995, due to growth in the operating
lease portfolio.
-10-
<PAGE>
INCOME TAXES
The effective income tax rates for the 1996 and 1995 third quarters were 36.3%
and 38.6%, respectively. The decrease was primarily due to lower state and local
income taxes. For the first nine months of 1996, the effective tax rate was
37.7% compared with 38.2% in 1995.
FINANCING AND LEASING ASSETS
Financing and leasing assets (finance receivables plus operating lease
equipment) grew $1.0 billion (6.0%) from December 31, 1995 and $741.1 million
(4.3%) from June 30, 1996 to $17.9 billion at September 30, 1996. The changes in
financing and leasing assets by business unit from December 31, 1995 are
presented in the following table.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Change
September 30, December 31, ----------------
1996 1995 Amount Percent
------------ ------------- ------ -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance receivables
Business Credit $ 1,541.5 $ 1,471.0 $ 70.5 4.8%
Capital Equipment Financing 4,272.9 4,548.7 (275.8) (6.1)
Credit Finance 798.7 758.7 40.0 5.3
Industrial Financing 5,250.8 4,929.9 320.9 6.5
Commercial Services 1,966.0 1,743.3 222.7 12.8
Consumer Finance 1,474.2 1,039.0 435.2 41.9
Sales Financing 1,256.1 1,304.9 (48.8) (3.7)
--------- --------- -------- ----
Total finance receivables 16,560.2 15,795.5 764.7 4.8
--------- --------- -------- ---
Operating lease equipment
Capital Equipment Financing 991.6 750.0 241.6 32.2
Industrial Financing 373.4 363.0 10.4 2.9
--------- --------- -------- ---
Total operating lease equipment 1,365.0 1,113.0 252.0 22.6
--------- --------- -------- ---
Total financing and leasing assets $17,925.2 $16,908.5 $1,016.7 6.0%
========= ========= ======== ===
</TABLE>
-11-
<PAGE>
A discussion of the changes in finance receivables from December 31, 1995 is
presented below.
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 $70.5 million (4.8%). Strong new business
originations of $529 million were offset by syndications as well as
liquidations resulting from a highly competitive financing marketplace.
o Capital Equipment Financing - Customized secured equipment financing and
leasing of major capital equipment for medium and larger-sized companies.
The decline in finance receivables of $275.8 million (6.1%) reflects new
business originations of $671 million, offset by liquidations and the net
transfer of $65.8 million of finance receivables to assets received in
satisfaction of loans.
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 increased $40.0 million (5.3%) from December 31, 1995,
reflecting new business originations of $167 million, reduced by
liquidations.
o Industrial Financing - Secured equipment financing and leasing for
medium-sized companies, including dealer and manufacturer financing.
Finance receivables increased by $320.9 million (6.5%) from December 31,
1995, reflecting strong new business originations of $2.0 billion,
partially offset by liquidations.
o Commercial Services - Factoring of accounts receivable, including credit
protection, bookkeeping and collection activities, and revolving and term
loans.
The increase of $222.7 million (12.8%) in finance receivables during 1996
reflects seasonal trends. Third quarter growth in factoring volume of 9.0%
over the prior year period also contributed to the increase in finance
receivables.
-12-
<PAGE>
o Consumer Finance - Loans secured by first or second mortgages on
residential real estate and home equity lines of credit generated through
brokers and direct marketing.
Finance receivables increased $435.2 million (41.9%) from December 31,
1995, reflecting continued emphasis on growth of this portfolio. Strong
loan originations during 1996 totaled $772 million.
o Sales Financing - Retail secured financing of recreational vehicles,
recreational boats, and manufactured housing through dealers and
manufacturers.
Finance receivables decreased $48.8 million (3.7%) from December 31, 1995.
New business volume totaled $785 million, principally due to growth in
recreational boat and recreational vehicle volume, offset by lower
manufactured housing volume. During the first nine months of 1996, $454
million of recreational vehicle finance receivables were securitized.
Additionally, at September 30, 1996, $260 million of recreational vehicle
and recreational boat volume was classified as assets held for sale for
future securitizations. At September 30, 1996, Sales Financing was
servicing finance receivables of $1.2 billion owned by securitization
trusts and $601 million owned by other institutions, which are not included
in the preceding table.
Operating lease equipment grew $252.0 million (22.6%) principally due to
increases in the commercial aircraft and rail segments. (See discussion in the
"Commercial Airline Industry" section which follows.)
CONCENTRATIONS
Commercial Airline Industry
Commercial airline financing and leasing assets totaled $1.93 billion or 10.8%
of total financing and leasing assets at September 30, 1996, compared to the
December 31, 1995 balance of $1.91 billion or 11.3%. The portfolio is secured by
commercial aircraft and related equipment. Management continues to limit the
growth in this portfolio relative to total financing and leasing assets.
-13-
<PAGE>
The following table presents information about the commercial airline industry
portfolio.
- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
------------- -----------
Finance Receivables (Dollar Amounts in Millions)
Amount outstanding(a) $1,320.6 $1,412.2
Number of obligors 54 51
Operating Leases
Net carrying value $ 614.2 $ 499.4
Number of obligors 30 24
Total $1,934.8 $1,911.6
Number of obligors(b) 73 68
Number of aircraft 256 266
a Includes accrued rents which were classified as finance receivables in the
Consolidated Balance Sheets.
b Certain obligors have both finance receivable and
operating lease transactions.
- --------------------------------------------------------------------------------
Kiwi International Airlines ("Kiwi") filed for protection under Chapter 11 of
the Bankruptcy Code ("Code") on September 30, 1996 and grounded its fleet in
mid-October. Under provisions of the Code, Kiwi has sixty days from the date of
filing to cure its payment defaults covering four aircraft under operating lease
agreements with the Corporation. The aircraft are included in operating lease
equipment at September 30, 1996 in the amount of $31.7 million. The above event
will not have a significant effect on the Corporation's consolidated financial
position or results of operations.
Highly Leveraged Transactions
Highly leveraged transactions ("HLTs") totaled $405.8 million (2.3% of financing
and leasing assets) at September 30, 1996 compared with $412.6 million (2.4%) at
December 31, 1995. The Corporation's HLT outstandings are generally secured by
collateral, as distinguished from HLTs that rely primarily on cash flow from
operations. Unfunded commitments to lend in secured HLTs were $145.0 million at
September 30, 1996 compared with $220.4 million at December 31, 1995.
-14-
<PAGE>
At September 30, 1996, the HLT portfolio consisted of 30 obligors in 12 industry
groups located throughout the United States, with the largest regional
concentrations in the Southeast (31.7%) and the Northeast (26.6%). One account
with a balance of $17.7 million and $20.1 million was classified as nonaccrual
at September 30, 1996 and December 31, 1995, respectively.
PAST DUE AND NONACCRUAL FINANCE RECEIVABLES
AND ASSETS RECEIVED IN SATISFACTION OF LOANS
Finance receivables past due 60 days or more declined to $248.0 million (1.50%
of finance receivables) at September 30, 1996 from $263.9 million (1.67%) at
December 31, 1995. Past due finance receivables on nonaccrual status decreased
to $88.1 million (0.53% of finance receivables) at September 30, 1996 from
$139.5 million (0.88%) at December 31, 1995. The decrease primarily reflects
transfers of cruise line vessels and oceangoing carriers to assets received in
satisfaction of loans. The Corporation is in the process of remarketing the
cruise line vessels and repossessing and remarketing the remaining oceangoing
carriers.
Assets received in satisfaction of loans increased to $66.9 million at September
30, 1996 from $42.0 million at December 31, 1995, due to the previously
mentioned transfers, offset by the sale of an equity interest in a building
supply retailer.
Total nonperforming assets, comprised of past due finance receivables on
nonaccrual status and assets received in satisfaction of loans decreased to
$155.0 million at September 30, 1996 from $181.5 million at year end. As a
percentage of finance receivables, total nonperforming assets declined to 0.94%
at September 30, 1996 from 1.15% at December 31, 1995.
-15-
<PAGE>
LIQUIDITY
The Corporation manages liquidity by monitoring the relative maturities of
assets and liabilities and by borrowing funds, primarily in the United States
money and capital markets. 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 primary sources
of funding are commercial paper issuances, proceeds from the sales of
medium-term notes and other debt securities, and securitizations.
During the first nine months of 1996, commercial paper borrowings decreased
$192.4 million, and the Corporation issued $1.50 billion of variable rate term
debt and $1.53 billion of fixed rate term debt. Repayments of term debt totaled
$2.01 billion. At September 30, 1996, $5.4 billion of registered but unissued
term debt securities remained available under shelf registration statements.
As part of the Corporation's continuing program of accessing both the public and
private asset backed securitization markets as an additional liquidity source,
the Corporation securitized through the public market recreational vehicle
finance receivables of $454 million in the first nine months of 1996. At
September 30, 1996, $211.8 million of registered but unissued securities
relating to the Corporation's asset backed securitization program remained
available under shelf registration statements.
-16-
<PAGE>
At September 30, 1996, commercial paper borrowings were supported by $5.18
billion of committed revolving credit line facilities, representing 88% of
operating commercial paper outstanding (commercial paper outstanding less
interest-bearing deposits). No borrowings have been made under credit lines
supporting commercial paper since 1970.
CAPITALIZATION
The following table presents information regarding the Corporation's capital
structure.
- --------------------------------------------------------------------------------
September 30, December 31,
1996 1995
------------- ------------
(Dollars in Millions)
Commercial Paper $ 5,913.2 $ 6,105.6
Term Debt 8,479.5 7,464.5
Stockholders' Equity 2,031.4 1,914.2
--------- ---------
Total Capitalization $16,424.1 $15,484.3
========= =========
Debt-to-equity ratio 7.08 to 1 7.09 to 1
Commencing with the 1996 second quarter dividend, the dividend policy of the
Corporation was changed to require the payment of dividends by the Corporation
of 30% of net operating earnings on a quarterly basis. Previously, the
Corporation's dividend policy required the payment of dividends by the
Corporation of 50% of net operating earnings on a quarterly basis.
-17-
<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,
-------------------
1996 1995
---- ----
Finance income* 9.94% 9.90%
Interest expense* 5.08 5.38
---- ----
Net finance income 4.86 4.52
Fees and other income 1.44 1.17
---- ----
Operating revenue 6.30 5.69
---- ----
Salaries and general operating expenses 2.38 2.22
Net credit losses** 0.59 0.50
Provision for finance receivables increase 0.06 0.09
---- ----
Provision for credit losses 0.64 0.59
Depreciation on operating lease equipment 0.69 0.49
---- ----
Operating expenses 3.71 3.30
---- ----
Income before provision for income taxes 2.59 2.39
Provision for income taxes 0.98 0.92
---- ----
Net income 1.61% 1.47%
==== ====
Average Financing and Leasing Assets (in millions) $16,311.9 $15,200.0
========= =========
Average Finance Receivables (in millions) $16,090.3 $15,212.6
========= =========
* Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
** Percentage to average finance receivables.
-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 16, 1996 was filed with the
Commission reporting the Corporation's announcement of results
for the quarter ended June 30, 1996.
(d) A Form 8-K report dated October 17, 1996 was filed with the
Commission reporting the Corporation's announcement of results
for the quarter ended September 30, 1996.
-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 5, 1996
-20-
EXHIBIT 12
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1996 1995
------ ------
Net income $197.3 $167.8
Provision for income taxes 119.3 103.7
------ ------
Earnings before provision for income taxes 316.6 271.5
------ -------
Fixed charges:
Interest and debt expense on indebtedness 628.2 618.2
Interest factor - one third of rentals on
real and personal properties 6.0 5.2
------ ------
Total fixed charges 634.2 623.4
------ ------
Total earnings before provision for income
taxes and fixed charges $950.8 $894.9
====== ======
Ratio of earnings to fixed charges 1.50 1.43
====== ======
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<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> SEP-30-1995 SEP-30-1996
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<SECURITIES> 0 0
<RECEIVABLES> 15,781 16,560
<ALLOWANCES> 202 214
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<TOTAL-ASSETS> 17,242 18,626
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<BONDS> 8,120 8,480
0 0
0 0
<COMMON> 250 250
<OTHER-SE> 1,627 2,031
<TOTAL-LIABILITY-AND-EQUITY> 17,242 18,626
<SALES> 0 0
<TOTAL-REVENUES> 1,266 1,399
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<TOTAL-COSTS> 253 291
<OTHER-EXPENSES> 56 84
<LOSS-PROVISION> 67 79
<INTEREST-EXPENSE> 618 628
<INCOME-PRETAX> 272 317
<INCOME-TAX> 104 119
<INCOME-CONTINUING> 168 198
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 168 198
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