================================================================================
UNITED STATES STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission File Number
1-1861
THE CIT GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2994534
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
(Address of principal executive offices) (Zip Code)
(212) 536-1390
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of April 30, 1998: Class A common stock - 37,167,810 shares;
Class B common stock - 126,000,000 shares.
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<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
TABLE OF CONTENTS PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997. 2
Consolidated Income Statements for the three
month periods ended March 31, 1998 and 1997. 3
Consolidated Statements of Changes in Stockholders' Equity for
the three month periods ended March 31, 1998 and 1997. 4
Consolidated Statements of Cash Flows for the three
month periods ended March 31, 1998 and 1997. 5
Notes to Condensed Consolidated Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
PART I. FINANCIAL INFORMATION
Certain information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested these
condensed consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the December 31,
1997 Annual Report on Form 10-K for The CIT Group, Inc. (the "Company"). The
discussion of the adoption of Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" as of January 1, 1998 is included in Item
1. Financial Statements.
-1-
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions)
March 31, December 31,
1998 1997
---- ----
(unaudited)
Assets
Financing and leasing assets
Loans
Commercial $10,264.9 $ 9,922.5
Consumer 3,733.1 3,664.8
Commercial lease receivables 4,102.1 4,132.4
--------- ---------
Finance receivables 18,100.1 17,719.7
Reserve for credit losses (240.2) (235.6)
--------- ---------
Net finance receivables 17,859.9 17,484.1
Operating lease equipment, net 2,054.2 1,905.6
Consumer finance receivables
held for sale 846.2 268.2
Cash and cash equivalents 242.2 140.4
Other assets 713.0 665.8
--------- ---------
Total assets $21,715.5 $20,464.1
========= =========
Liabilities and Stockholders' Equity
Debt
Commercial paper $ 5,835.5 $ 5,559.6
Variable rate senior notes 3,100.0 2,861.5
Fixed rate senior notes 7,151.7 6,593.8
Subordinated fixed rate notes 300.0 300.0
--------- ---------
Total debt 16,387.2 15,314.9
Credit balances of factoring clients 1,243.4 1,202.6
Accrued liabilities and payables 720.4 660.1
Deferred federal income taxes 614.8 603.6
--------- ---------
Total liabilities 18,965.8 17,781.2
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely debentures of the Company 250.0 250.0
Stockholders' equity
Class A common stock, par value $0.01 per
share, 700,000,000 shares authorized
and 37,167,810 and 37,173,527 issued
and outstanding at March 31, 1998 and
December 31, 1997, respectively 0.4 0.4
Class B common stock, par value $0.01 per
shares, 510,000,000 shares authorized and
126,000,000 issued and outstanding 1.3 1.3
Paid-in capital 949.7 948.3
Retained earnings 1,548.3 1,482.9
--------- ---------
Total stockholders' equity 2,499.7 2,432.9
--------- ---------
Total liabilities and stockholders'
equity $21,715.5 $20,464.1
========= =========
See accompanying notes to condensed consolifinancial statements.
-2-
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Amounts in Millions, except per share amounts)
Three Months Ended
March 31,
------------------------------
1998 1997
---- ----
(unaudited)
Finance income $472.6 $437.1
Interest expense 244.6 223.1
------ ------
Net finance income 228.0 214.0
Fees and other income 66.4 57.7
------ ------
Operating revenue 294.4 271.7
------ ------
Salaries and general operating expenses 101.7 99.9
Provision for credit losses 22.5 27.0
Depreciation on operating lease equipment 38.3 32.1
Minority interest in subsidiary trust
holding solely debentures of the Company 4.8 1.9
------ ------
Operating expenses 167.3 160.9
------ ------
Income before provision for income taxes 127.1 110.8
Provision for income taxes 45.4 40.7
------ ------
Net income $ 81.7 $ 70.1
====== ======
Net income per basic share $ 0.50 $0.45
Net income per diluted share $ 0.50 $0.44
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in Millions)
Three Months Ended
March 31,
-----------------------
1998 1997
---- ----
(unaudited)
Balance, January 1 $2,432.9 $2,075.4
Net income 81.7 70.1
Dividends declared (16.3) (21.0)
Other 1.4 8.5
-------- --------
Balance, March 31 $2,499.7 $2,133.0
======== ========
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
Three Months Ended
March 31,
----------------------
(unaudited)
CASH FLOWS FROM OPERATIONS
Net income $ 81.7 $ 70.1
Adjustments to reconcile net income to net
cash flows from operations:
Provision for credit losses 22.5 27.0
Depreciation and amortization 44.3 37.3
Provision (benefit) for deferred federal
income taxes 11.2 (2.1)
Gains on asset and receivable sales (21.3) (20.0)
Increase in accrued liabilities and payables 44.1 3.3
Increase in other assets (59.7) (24.4)
Other 6.6 (0.5)
-------- --------
Net cash flows provided by operations 129.4 90.7
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans extended (8,578.5) (7,300.7)
Collections on loans 7,847.3 7,052.2
Purchases of assets to be leased (228.3) (133.5)
Net increase in short-term factoring receivables (161.7) (149.2)
Proceeds from asset and receivable sales 71.3 67.3
Proceeds from sales of assets received in
satisfaction of loans 11.6 6.6
Purchases of investment securities (2.3) (9.2)
Other (6.9) (5.0)
-------- --------
Net cash flows used for investing activities (1,047.5) (471.5)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of variable and
fixed rate notes 1,557.9 999.0
Repayments of variable and fixed rate notes (761.5) (1,036.3)
Net increase in commercial paper 275.9 316.1
Repayments of nonrecourse leveraged lease debt (52.4) (53.2)
Proceeds from the issuance of company-obligated
mandatorily redeemable preferred
securities of subsidiary trust holding
solely debentures of the Company -- 250.0
Cash dividends paid -- (21.0)
-------- --------
Net cash flows provided by financing activities 1,019.9 454.6
-------- --------
Net increase in cash and cash equivalents 101.8 73.8
Cash and cash equivalents, beginning of period 140.4 103.1
-------- --------
Cash and cash equivalents, end of period $ 242.2 $ 176.9
======== ========
Supplemental disclosures
Interest paid $ 192.0 $ 208.8
Federal and state and local taxes paid $ 4.6 $ 2.0
Noncash transfers of finance receivables to
assets received in satisfaction of loans $ 10.2 $ 7.3
Noncash transfers of assets received in
satisfaction of loans to finance receivables $ -- $ 4.6
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The Company considers that all adjustments (all of which are normal recurring
accruals) necessary for a fair statement of financial position and results of
operations for these periods have been made; however, results for interim
periods are subject to year-end audit adjustments. Results for such interim
periods are not necessarily indicative of results for a full year.
Note2--Earnings Per Share
The reconciliation of the numerator and denominator of basic earnings per share
("EPS") with that of diluted EPS is presented below.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
---------------------------------------------------------------------------------------
1998 1997
----------------------------------------- ------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- -------- ----------- ------------- ---------
Dollars in Millions
(except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $81.7 162,225,000 $0.50 $70.1 157,500,000 $0.45
===== =====
Effect of Dilutive
Securities:
Restricted shares -- 947,098 -- 948,527
Stock options -- 326,286 -- --
----- ----------- ----- -----------
Diluted EPS $81.7 163,498,384 $0.50 $70.1 158,448,527 $0.44
===== =========== ===== ===== =========== =====
</TABLE>
Note 3 - Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board (the "FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income". This statement does not change the reporting of net income. However, it
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a separate
financial statement that is displayed with the same prominence as other
financial statements. This statement also requires that an enterprise
-6-
<PAGE>
display the accumulated balance of other comprehensive income separately from
retained earnings and paid-in-capital in the equity section of a statement of
financial position. The Company adopted this statement on January 1, 1998, but
does not have significant comprehensive income components to report at March 31,
1998.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about
Pensions and Other Post Retirement Benefits". SFAS No. 132 revises employer's
disclosures about pension and other post retirement benefit plans but does not
change the measurement or recognition of those plans. The Statement standardizes
the disclosure requirements to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer useful. SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. The Company will adopt this standard in its 1998 year-end
financial statements.
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Net income for the first quarter of 1998 totaled $81.7 million, an increase of
$11.6 million (16.5%) from $70.1 million in the comparable 1997 period. The
improvement resulted from growth in revenues from a higher level of financing
and leasing assets, improvements in operating efficiency, and lower net credit
losses. Return on average earning assets ("AEA") for the quarter ended March 31,
1998 increased to 1.71% compared with 1.60% for the same period of 1997. Return
on equity for the first quarter of 1998 was 13.2% compared with 13.3% for 1997
due to the additional capital raised in connection with the Company's recent
initial public offering.
Financing and leasing assets totaled a record $21.1 billion at March 31, 1998,
an increase of 5.5% over $20.0 billion at December 31, 1997. Managed assets,
comprised of financing and leasing assets and consumer finance receivables
previously securitized and currently managed by the Company, increased 4.3% to a
record $23.3 billion at March 31, 1998, from $22.3 billion at December 31, 1997.
NET FINANCE INCOME
A comparison of 1998 and 1997 net finance income is set forth below.
Three Months Ended
----------------------------------------------------
March 31, Increase
-------------------------- --------------------
1998 1997 Amount Percent
---- ---- ------ -------
(Dollar Amounts in Millions)
Finance income $ 472.6 $ 437.1 $ 35.5 8.1%
Interest expense 244.6 223.1 21.5 9.6%
--------- ---------- -------- ---
Net finance income $ 228.0 $ 214.0 $ 14.0 6.5%
========= ========== ======== ---
AEA $19,083.3 $ 17,590.1 $1,493.2 8.5%
========= ========== ======== ===
Net finance income
as a % of AEA 4.78% 4.87%
==== ====
-8-
<PAGE>
Finance income for the three months ended March 31, 1998 increased $35.5 million
or 8.1% to $472.6 million from $437.1 million in the comparable 1997 period. As
a percentage of AEA, finance income (excluding interest income relating to
short-term interest-bearing deposits) was 9.76% for the first quarter of 1998
and 9.87% for the comparable period of 1997.
Commercial segment finance income as a percentage of commercial AEA was 9.84%
for the three months ended March 31, 1998 compared with 9.93% for the comparable
period during 1997. The decline in the commercial segment finance income as a
percentage of commercial AEA reflects higher account termination payments during
1997 and an increased level of municipal equipment leasing activity in 1998,
which has a lower yield but a lower effective tax rate. Consumer segment finance
income as a percentage of consumer AEA was 9.42% for the three months ended
March 31, 1998 compared with 9.52% for the comparable period during 1997. The
decline in the consumer segment finance income as a percentage of consumer AEA
for the three months ended March 31, 1998 reflects the sale of certain higher
yielding high loan-to-value loans during the second quarter of 1997.
Interest expense for the three months ended March 31, 1998 increased $21.5
million or 9.6% to $244.6 million from $223.1 million in the comparable 1997
period. As a percentage of AEA, interest expense (excluding interest expense
relating to short-term interest-bearing deposits) for the three months ended
March 31, 1998 decreased to 4.98% from 5.00% for the comparable period of 1997.
-9-
<PAGE>
A comparative analysis of the weighted average principal outstanding and
interest rates paid on the Company's
debt for the three month periods ended March 31, 1998 and 1997, before and after
giving effect to interest rate swaps, is shown in the following tables.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
----------------------------------------------------------
Before Swaps After Swaps
--------------------- -----------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate senior
notes $ 8,520.7 5.66% $ 6,052.4 5.61%
Fixed rate senior and subordinated notes 7,056.5 6.41% 9,524.8 6.48%
---------- ----------
Composite $ 15,577.2 6.00% $ 15,577.2 6.14%
========== ==========
<CAPTION>
Three Months Ended March 31, 1997
----------------------------------------------------------
Before Swaps After Swaps
--------------------- -----------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate senior
notes $ 9,776.2 5.46% $ 6,258.9 5.38%
Fixed rate senior and subordinated notes 4,914.4 6.55% 8,431.7 6.50%
---------- ----------
Composite $ 14,690.6 5.82% $ 14,690.6 6.02%
========== ==========
</TABLE>
The Company's interest rate swaps principally convert floating rate debt to
fixed rate debt. The Company does not enter into derivative financial
instruments for trading or speculative purposes. The weighted average composite
rate increased from 6.00% to 6.14% in 1998 and from 5.82% to 6.02% in 1997,
primarily because a larger proportion of the Company's debt, after giving effect
to interest rate swaps, was subject to a fixed rate. However, the weighted
average interest rates before swaps do not necessarily reflect the interest
expense that would have been incurred had the Company chosen to manage interest
rate risk without the use of such swaps.
-10-
<PAGE>
FEES AND OTHER INCOME
For the three months ended March 31, 1998, fees and other income totaled $66.4
million, an increase of $8.7 million over the comparable 1997 period. The
following table sets forth the components of fees and other income.
Three Months Ended March 31,
--------------------------------
1998 1997
---- ----
Dollars in Millions
Factoring commissions $23.0 $21.2
Fees and other 22.1 17.0
Gains on sales of leasing equipment 14.8 11.4
Gains on sales of venture capital
investments 6.5 7.7
Gains on securitizations and sales of
finance receivables -- 0.4
----- -----
$66.4 $57.7
===== =====
SALARIES AND GENERAL OPERATING EXPENSES
Salaries and general operating expenses increased $1.8 million or 1.8% to $101.7
million in the first quarter of 1998 from $99.9 million in the comparable 1997
period as management continued to control expenses and improve productivity.
Salaries and employee benefits rose $1.7 million, or 2.8%, while general
operating expenses were unchanged.
Management monitors productivity via the analysis of the efficiency ratio and
the ratio of salaries and general operating expenses to average managed assets
("AMA"), which is comprised of average earning assets plus the average of
consumer finance receivables previously securitized and currently managed by the
Company. The improvement in the ratios in the following table reflects
-11-
<PAGE>
the ability of the Company to leverage its existing infrastructure and the
success of continuing productivity initiatives.
Three Months Ended March 31,
---------------------------------------
1998 1997
---------------- -------------
Dollars in Millions
Efficiency ratio 40.5% 42.0%
Salaries and general operating
expenses as a percentage of AMA 1.90% 2.10%
PROVISION AND RESERVE FOR CREDIT LOSSES/CREDIT QUALITY
The provision for credit losses for the first quarter of 1998 was $22.5 million,
down $4.5 million from $27.0 million for the first quarter of 1997. The decrease
was primarily the result of lower net commercial credit losses due to higher
1998 recoveries, partially offset by higher consumer net credit losses.
Comparative net credit loss experience is provided in the following table.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------------------------
1998 1997
-------------------------------------- ---------------------------------------
Total Commercial Consumer Total Commercial Consumer
----- ---------- -------- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Dollars in Millions
Net credit losses $20.0 $9.3 $10.7 $25.7 $17.1 $8.6
Net credit losses as a
percentage of average finance
receivables, excluding
consumer finance receivables
held for sale (annualized) 0.45% 0.27% 1.17% 0.60% 0.51% 0.97%
</TABLE>
As a percentage of average consumer managed finance receivables, consumer net
credit losses were 0.90% during the first quarter of 1998 compared with 0.94% in
1997.
The consolidated reserve for credit losses increased to $240.2 million (1.33% of
finance receivables) at March 31, 1998 from $235.6 million (1.33% of finance
receivables) at
-12-
<PAGE>
December 31, 1997. The ratio of the consolidated reserve for credit losses to
trailing twelve-month net credit losses improved to 2.5 times at March 31, 1998
from 2.3 times at December 31, 1997.
Past Due And Nonperforming Assets
The following table sets forth certain information concerning past due and
nonperforming assets (and the related percentages of finance receivables) at
March 31, 1998 and December 31, 1997.
At March 31, 1998 At December 31, 1997
---------------------- -----------------------
Dollars in Millions
Finance receivables,
past due 60 days
or more
Commercial $182.1 1.27% $168.9 1.20%
Consumer 122.3 3.28% 127.7 3.48%
------ ---- ------ ----
Total $304.4 1.68% $296.6 1.67%
====== ---- ====== ====
Nonperforming assets
Commercial $137.9 0.96% $105.5 0.75%
Consumer 107.4 2.88% 101.9 2.78%
------ ---- ------ ----
Total $245.3 1.35% $207.4 1.17%
====== ==== ====== ====
Nonperforming assets reflect both commercial and consumer finance receivables on
nonaccrual status and assets received in satisfaction of loans.
OPERATING LEASE EQUIPMENT
The operating lease equipment portfolio was $2.1 billion at March 31, 1998, up
7.8% from December 31, 1997 and up 36.8% from March 31, 1997. Depreciation on
operating lease equipment for the first quarter of 1998 was $38.3 million up
from $32.1 million for the same period in 1997.
-13-
<PAGE>
From time to time, financial or operational difficulties may adversely affect
future payments to the Company relating to operating lease equipment. At March
31, 1998, operators of certain aircraft assets and operations at an oil refinery
were subject to such difficulties. The approximate aggregate carrying value of
these assets was $56.3 million. The Company does not believe these difficulties
will have a material effect on its consolidated financial position or results of
operations.
INCOME TAXES
The effective income tax rates for the 1998 and 1997 first quarters were 35.7%
and 36.7%, respectively. The decrease in the effective tax rate for the three
months ended March 31, 1998 is a result of lower state and local income taxes.
-14-
<PAGE>
FINANCING AND LEASING ASSETS
Managed assets grew $950.5 million (4.3%) to $23.3 billion. Financing and
leasing assets increased $1.1 billion, or 5.5%, to $21.1 billion, as presented
in the following table.
At De- Change
At March 31, cember 31, --------------------
1998 1997 Amount Percent
---- ---- ------ -------
(Dollar Amounts in Millions)
Commercial
Equipment Financing and
Leasing
Finance receivables
Capital Finance $ 2,293.0 $ 2,400.7 $ (107.7) (4.5)%
Equipment Financing 7,559.6 7,403.4 156.2 2.1
--------- --------- -------- ----
9,852.6 9,804.1 48.5 0.5
--------- --------- -------- ----
Operating lease
equipment, net
Capital Finance 1,450.3 1,281.8 168.5 13.1
Equipment Financing 603.9 623.8 (19.9) (3.2)
--------- --------- -------- ----
2,054.2 1,905.6 148.6 7.8
--------- --------- -------- ----
Total Equipment Financing
and Leasing 11,906.8 11,709.7 197.1 1.7
--------- --------- -------- ----
Factoring
Commercial Services 2,312.4 2,113.1 199.3 9.4
--------- --------- -------- ----
Commercial Finance
Business Credit 1,298.2 1,247.9 50.3 4.0
Credit Finance 903.8 889.8 14.0 1.6
--------- --------- -------- ----
Total Commercial Finance 2,202.0 2,137.7 64.3 3.0
--------- --------- -------- ----
Other
Equity Investments 63.3 65.8 (2.5) (3.8)
--------- --------- -------- ----
Total commercial 16,484.5 16,026.3 458.2 2.9
--------- --------- -------- ----
Consumer
Consumer Finance 2,284.9 1,992.3 292.6 14.7
Sales Financing 2,294.4 1,940.7 353.7 18.2
--------- --------- -------- ----
Total consumer 4,579.3 3,933.0 646.3 16.4
--------- --------- -------- ----
Total financing and
leasing assets 21,063.8 19,959.3 1,104.5 5.5
--------- --------- -------- ----
Consumer finance receivables
previously securitized and
currently managed by
the Company
Consumer Finance 419.6 453.8 (34.2) (7.5)
Sales Financing 1,812.0 1,931.8 (119.8) (6.2)
--------- --------- -------- ----
2,231.6 2,385.6 (154.0) (6.5)
--------- --------- -------- ----
Total managed assets $23,295.4 $22,344.9 $ 950.5 4.3%
========= ========= ======== ===
Total commercial financing and leasing assets increased 2.9% from December 31,
1997 as a result of a rise in factoring receivables and growth in the operating
lease portfolio. Growth in factoring receivables was favorably impacted by
higher seasonal sales and client borrowings, as well as strong new business
signings. Growth in the operating lease portfolio occurred primarily in
-15-
<PAGE>
commercial aircraft and railcars. These increases were partially offset by the
continued high level of paydowns in the commercial financing sector and the
continued liquidation of the oceangoing maritime and power generation project
portfolios. Consumer managed assets increased to $6.8 billion at March 31, 1998
from $6.3 billion at December 31, 1997, up 7.8%. The consumer increase was the
result of strong originations, particularly in recreational boat and recreation
vehicle products.
Financing and Leasing Assets Composition
The Company's ten largest financing and leasing asset accounts at March 31, 1998
in the aggregate represented 4.3% of the Company's total financing and leasing
assets. All ten of such accounts are commercial accounts and are secured by
equipment, accounts receivable or inventory.
Geographic Composition
The following table presents financing and leasing assets by customer location.
<TABLE>
<CAPTION>
At March 31,1998 At December 31, 1997
------------------------------- -----------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Dollars in Millions
United States
West $ 4,925.7 23.4% $ 4,642.1 23.3%
Northeast 4,822.1 22.9 4,501.9 22.6
Midwest 4,472.8 21.2 4,290.0 21.5
Southeast 2,978.9 14.1 2,802.9 14.0
Southwest 2,475.1 11.8 2,360.7 11.8
Foreign (principally
commercial aircraft) 1,389.2 6.6 1,361.7 6.8
---------- ----- --------- -----
Total $ 21,063.8 100.0% $19,959.3 100.0%
========== ===== ========= =====
</TABLE>
The Company's managed asset geographic diversity does not differ significantly
from its owned asset geographic diversity.
-16-
<PAGE>
The Company's financing and leasing asset portfolio is diversified by state. At
March 31, 1998, with the exception of California (12.3%), New York (8.3%), and
Texas (7.7%), no state represented more than 5.0% of financing and leasing
assets.
Industry Composition
The following table presents financing and leasing assets by major industry
class.
<TABLE>
<CAPTION>
At March 31, 1998 At December 31, 1997
----------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Dollars in Millions
Manufacturing(1)(none greater than 4.5%) $ 4,538.3 21.5% $ 4,440.4 22.2%
Home mortgage(2) 2,284.9 10.8 1,992.3 10.0
Commercial airlines(3) 2,153.1 10.2 2,077.6 10.4
Retail 1,922.6 9.1 1,807.5 9.1
Construction equipment 1,850.9 8.8 1,791.4 9.0
Transportation(4) 1,390.0 6.6 1,283.7 6.4
Manufactured housing(5) 1,158.1 5.5 1,125.7 5.6
Other (none greater than 3.4%)(6) 5,765.9 27.5 5,440.7 27.3
--------- ----- --------- -----
Total $21,063.8 100.0% $19,959.3 100.0%
========= ===== ========= =====
</TABLE>
(1) Includes manufacturers of steel and metal products, textiles and apparel,
printing and paper products and other industries.
(2) On a managed asset basis, home mortgage outstandings were $2.7 billion or
11.6% of managed assets at March 31, 1998 as compared with $2.4 billion or
10.9% at December 31, 1997.
(3) See "--Concentrations" below for a discussion of the commercial airline
portfolio.
(4) Includes rail, bus, and over-the-road trucking industries and business
aircraft.
(5) On a managed asset basis, manufactured housing outstandings were $1.5
billion or 6.4% of managed assets at March 31, 1998 as compared to $1.5
billion or 6.5% at December 31, 1997.
(6) On a managed asset basis, recreation vehicle outstandings were $1.7 billion
or 7.1% of managed assets at March 31, 1998 as compared to $1.6 billion or
7.2% at December 31, 1997. On a managed asset basis, recreational boat
outstandings were $799.8 million or 3.4% of managed assets at March 31,
1998 as compared to $682.5 million or 3.1% of managed assets at December
31, 1997.
Concentrations
Commercial Airline Industry
Commercial airline financing and leasing assets totaled $2.2 billion or 10.2% of
total financing and leasing assets at March 31, 1998, up slightly from the
December 31, 1997 balance of $2.1 billion.
-17-
<PAGE>
The portfolio is secured by commercial aircraft and related equipment. Given
current improved industry performance, the Company has determined to grow this
portfolio, but will continue to monitor the size of the portfolio relative to
the Company's total financing and leasing assets.
The following table presents information about the commercial airline industry
portfolio. See also "Operating Lease Equipment".
At March 31, At December 31,
1998 1997
---- ----
(Dollar Amounts in Millions)
Finance Receivables
Amount outstanding(1) $1,213.2 $1,254.9
Number of obligors 51 54
Operating Lease Equipment, net
Net carrying value 939.9 822.7
Number of obligors 32 33
Total 2,153.1 2,077.6
Number of obligors(2) 67 67
Number of aircraft(3) 218 225
(1) Includes accrued rents on operating leases that are classified as finance
receivables in the Company's Consolidated Balance Sheets.
(2) Certain obligors are obligors under both finance receivable and operating
lease transactions.
(3) Regulations established by the Federal Aviation Administration (the "FAA")
limit the maximum permitted noise an aircraft may make. A Stage III
aircraft meets a more restrictive noise level requirement than a Stage II
aircraft. The FAA has issued rules that phase out the use of Stage II
aircraft in the United States through the year 2000. The International
Civil Aviation Organization has issued similar requirements for Europe. At
March 31, 1998, the portfolio consisted of Stage III aircraft of $2,019.9
million (93.8%) and Stage II aircraft of $102.1 million (4.8%), versus
Stage III aircraft of $1,933.5 million (93.1%) and Stage II aircraft of
$115.7 million (5.6%) at year-end 1997.
Foreign Outstandings
Financing and leasing assets to foreign obligors, primarily to the commercial
airline industry, are all U.S. dollar denominated and totaled $1.4 billion at
both March 31, 1998 and December 31, 1997. The foreign exposure was
geographically dispersed, with no individual country representing more than
0.75% of financing and leasing assets.
-18-
<PAGE>
LIQUIDITY
The Company manages liquidity risk by monitoring the relative maturities of
assets and liabilities and by borrowing funds, primarily in the U. S. money and
capital markets. Such cash is used to fund asset growth (including the bulk
purchase of finance receivables and the acquisition of other finance-related
businesses) and to meet debt obligations and other commitments on a timely and
cost-effective basis. The primary sources of funding are commercial paper
borrowings, medium-term notes, other term debt securities and asset-backed
securitizations.
Commercial paper outstanding increased $275.9 million from $5.6 billion at
December 31, 1997 to $5.8 billion. During the first quarter of 1998, the Company
issued $0.9 billion of prime-based variable-rate term debt and $0.7 billion of
fixed-rate debt, whereas repayments of term debt totaled $0.8 billion. At March
31, 1998, $4.9 billion of registered, but unissued, debt securities remained
available under shelf registration statements.
At March 31, 1998, commercial paper borrowings were supported by $5.0 billion of
committed revolving credit-line facilities. At March 31, 1998, such credit-line
facilities represented 88% of operating commercial paper outstanding (commercial
paper outstanding less interest-bearing deposits), as compared with 91% at
December 31, 1997. No borrowings have been made under credit lines supporting
commercial paper since 1970.
Periodically, the Company accesses the public and private asset-backed
securitization markets as an additional liquidity source. At March 31, 1998,
$2.7 billion of registered, but unissued, securities relating to the Company's
asset-backed securitization program remained available under shelf registration
statements. The Company did not access the securitization markets during the
first quarter of 1998.
-19-
<PAGE>
CAPITALIZATION
The following table presents information regarding the Company's capital
structure.
March 31, December 31,
1998 1997
-------- -----------
(Dollars in Millions)
Commercial paper $ 5,835.5 $ 5,559.6
Term debt 10,551.7 9,755.3
---------- ----------
Total debt 16,387.2 15,314.9
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trust holding solely
debentures of the Company 250.0 250.0
Stockholders' equity 2,499.7 2,432.9
---------- ----------
Total capitalization $ 19,136.9 $ 17,997.8
========== ==========
Total debt to stockholders'
equity and Company-
obligated mandatorily
redeemable preferred
securities of subsidiary
trust holding solely
debentures of the Company 5.96x 5.71x
Total debt and Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust holding
solely debentures of the
Company to stockholders'
equity 6.66x 6.40x
-20-
<PAGE>
STATISTICAL DATA
The following table presents components of net income as a percentage of AEA,
along with other selected financial data.
Three Months Ended
March 31,
---------------------
1998 1997
---- ----
Finance income* 9.76% 9.87%
Interest expense* 4.98 5.00
---- ----
Net finance income 4.78 4.87
Fees and other income 1.39 1.31
---- ----
Operating revenue 6.17 6.18
---- ----
Salaries and general operating expenses 2.14 2.27
Provision for credit losses 0.47 0.61
Depreciation on operating lease equipment 0.80 0.73
Minority interest in subsidiary trust holding solely
debentures of the company 0.10 0.04
---- ----
Operating expenses 3.51 3.65
---- ----
Income before provision for income taxes 2.66 2.53
Provision for income taxes 0.95 0.93
---- ----
Net income 1.71% 1.60%
==== ====
Average earning assets (in millions) $19,083.3 $17,590.1
========= ==========
*Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
-21-
<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 January 15, 1998 was filed with the
Commission reporting amendments to certain items of the Company's
1996 Form 10-K.
(d) A Form 8-K report dated January 28, 1998 was filed with the
Commission reporting the Company's announcement of financial
results for the quarter and year ended December 31, 1997.
(e) A Form 8-K report dated March 24, 1998 was filed with the
Commission reporting the Company's declaration of a dividend for
the quarter ended March 31, 1998 and the election of a new
director.
-22-
<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, Inc.
(Registrant)
BY /s/ J. M. Leone
-----------------------------
J. M. Leone
Executive Vice President and
Chief Financial Officer
(duly authorized and principal
accounting officer)
DATE: May 5, 1998
EXHIBIT 12
THE CIT GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts In Millions)
Three Months Ended
March 31,
--------------------
1998 1997
Net income $ 81.7 $70.1
Provision for income taxes 45.4 40.7
------ -----
Earnings before provision for income taxes 127.1 110.8
------ -----
Fixed charges:
Interest and debt expense on indebtedness 244.6 223.1
Minority interest in subsidiary trust holding solely
debentures of the company 4.8 1.9
Interest factor - one third of rentals on
real and personal properties 2.3 2.1
------ -----
Total fixed charges 251.7 227.1
------ -----
Total earnings before provision for income
taxes and fixed charges $378.8 $337.9
====== ======
Ratios of earnings to fixed charges 1.50x 1.49x
<TABLE> <S> <C>
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<S> <C> <C>
<PERIOD-TYPE> 3-mos 3-mos
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 242 177
<SECURITIES> 0 0
<RECEIVABLES> 18,100 17,016
<ALLOWANCES> 240 222
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<CURRENT-ASSETS> 0 0
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<TOTAL-ASSETS> 21,715 19,585
<CURRENT-LIABILITIES> 0 0
<BONDS> 10,552 8,741
250 250
0 0
<COMMON> 2 250
<OTHER-SE> 2,498 1,883
<TOTAL-LIABILITY-AND-EQUITY> 21,715 19,585
<SALES> 0 0
<TOTAL-REVENUES> 539 495
<CGS> 0 0
<TOTAL-COSTS> 102 100
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<INCOME-PRETAX> 127 111
<INCOME-TAX> 45 41
<INCOME-CONTINUING> 82 70
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 82 70
<EPS-PRIMARY> 0.50 0.45
<EPS-DILUTED> 0.50 0.44
</TABLE>
