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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 JUNE 30, 1999
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
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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
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(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 August 2, 1999: Class A Common Stock - 161,604,093 shares.
================================================================================
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
TABLE OF CONTENTS PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets - June 30, 1999 and
December 31, 1998. 2
Consolidated Income Statements for the three and six month
periods ended June 30, 1999 and 1998. 3
Consolidated Statements of Changes in Stockholders' Equity for
the six month periods ended June 30, 1999 and 1998. 4
Consolidated Statements of Cash Flows for the six month
periods ended June 30, 1999 and 1998. 5
Notes to Condensed Consolidated Financial Statements. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-28
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Such risks and uncertainties
include, but are not limited to, potential changes in interest rates,
competitive factors, and general economic conditions.
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,
1998 Annual Report on Form 10-K and the March 31, 1999 quarterly report on Form
10-Q for The CIT Group, Inc. ("we", "our", "us", "CIT", or the "Company").
1
<PAGE>
<TABLE>
<CAPTION>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions)
June 30, December 31,
Assets 1999 1998
- ------ --------- ------------
(unaudited)
<S> <C> <C>
Financing and leasing assets
Loans
Commercial $12,482.2 $11,415.5
Consumer 4,176.4 4,266.9
Lease receivables 4,239.0 4,173.6
--------- ---------
Finance receivables 20,897.6 19,856.0
Reserve for credit losses (276.8) (263.7)
--------- ---------
Net finance receivables 20,620.8 19,592.3
Operating lease equipment, net 3,433.2 2,774.1
Consumer finance receivables held for sale 864.4 987.4
Cash and cash equivalents 92.9 73.6
Other assets 1,133.0 875.7
--------- ---------
Total assets $26,144.3 $24,303.1
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Debt
Commercial paper $ 5,674.3 $ 6,144.1
Variable rate senior notes 5,349.7 4,275.0
Fixed rate senior notes 8,611.3 8,032.3
Subordinated fixed rate notes 200.0 200.0
--------- ---------
Total debt 19,835.3 18,651.4
Credit balances of factoring clients 1,761.6 1,302.1
Accrued liabilities and payables 675.9 694.3
Deferred federal income taxes 775.1 703.7
--------- ---------
Total liabilities 23,047.9 21,351.5
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;
Authorized: 700,000,000 shares
Issued: 163,186,543 shares in 1999 and 163,144,879
shares in 1998
Outstanding: 161,712,782 shares in 1999 and
162,176,949 shares in 1998 1.7 1.7
Paid-in capital 957.2 952.5
Retained earnings 1,928.5 1,772.8
Treasury stock at cost (1,473,761 shares in 1999 and 967,930
shares in 1998; Class A Common Stock) (41.0) (25.4)
--------- ---------
Total stockholders' equity 2,846.4 2,701.6
--------- ---------
Total liabilities and stockholders' equity $26,144.3 $24,303.1
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Amounts in Millions, except Net Income per Share)
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
------------------ -------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Finance income $ 554.4 $ 498.2 $ 1,095.9 $ 970.8
Interest expense 280.8 257.8 554.1 502.4
------- ------- --------- -------
Net finance income 273.6 240.4 541.8 468.4
Fees and other income 74.8 60.7 139.5 127.1
------- ------- --------- -------
Operating revenue 348.4 301.1 681.3 595.5
------- ------- --------- -------
Salaries and general operating expenses 113.0 104.0 222.0 205.7
Provision for credit losses 23.8 21.9 45.7 44.4
Depreciation on operating lease equipment 59.2 40.4 115.3 78.7
Minority interest in subsidiary trust holding
solely debentures of the Company 4.8 4.8 9.6 9.6
------- ------- --------- -------
Operating expenses 200.8 171.1 392.6 338.4
------- ------- --------- -------
Income before provision for income taxes 147.6 130.0 288.7 257.1
Provision for income taxes 51.3 46.3 100.5 91.7
------- ------- --------- -------
Net income $ 96.3 $ 83.7 $ 188.2 $ 165.4
======= ======= ========= =======
Net income per basic share $ 0.60 $ 0.52 $ 1.17 $ 1.02
Net income per diluted share $ 0.59 $ 0.51 $ 1.16 $ 1.01
</TABLE>
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)
Six Months Ended
June 30,
--------------------------
1999 1998
---------- ----------
(unaudited)
Balance, January 1 $ 2,701.6 $ 2,432.9
Net income 188.2 165.4
Dividends declared (32.4) (16.3)
Treasury stock purchased (15.6) --
Other 4.6 2.7
---------- ----------
Balance, June 30 $ 2,846.4 $ 2,584.7
========== ==========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
Six Months Ended
June 30,
----------------------
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income $ 188.2 $ 165.4
Adjustments to reconcile net income to net cash flows from operations:
Provision for credit losses 45.7 44.4
Depreciation and amortization 131.6 91.4
Provision for deferred federal income taxes 71.4 38.4
Gains on asset and receivable sales (41.2) (37.5)
(Decrease) increase in accrued liabilities and payables (27.0) 17.8
Increase in other assets (131.3) (46.3)
Other 29.3 7.8
--------- ---------
Net cash flows provided by operations 266.7 281.4
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans extended (16,879.7) (17,171.3)
Collections on loans 15,535.0 15,986.1
Proceeds from asset and receivable sales 1,663.0 518.2
Purchases of assets to be leased (879.2) (362.5)
Purchase of loan portfolios (452.7) (314.5)
Net increase in short-term factoring receivables (269.1) (190.0)
Proceeds from sales of assets received in satisfaction of loans 19.8 23.6
Purchases of investment securities (9.7) (16.1)
Other (11.0) (18.9)
--------- ---------
Net cash flows used for investing activities (1,283.6) (1,545.4)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of variable and fixed rate notes 4,348.9 2,858.4
Repayments of variable and fixed rate notes (2,695.3) (2,110.4)
Net (decrease) increase in commercial paper (469.8) 637.4
Repayments of nonrecourse leveraged lease debt (99.6) (82.5)
Proceeds from nonrecourse leveraged lease debt -- 6.4
Cash dividends paid (32.4) (16.3)
Purchase of treasury stock (15.6) --
--------- ---------
Net cash flows provided by financing activities 1,036.2 1,293.0
--------- ---------
Net increase in cash and cash equivalents 19.3 29.0
Cash and cash equivalents, beginning of period 73.6 140.4
--------- ---------
Cash and cash equivalents, end of period $ 92.9 $ 169.4
========= =========
Supplemental disclosures
Interest paid $ 552.5 $ 501.7
Federal and state and local income taxes paid $ 45.2 $ 38.8
</TABLE>
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
We believe 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 interim periods are not
necessarily indicative of results for a full year.
Note 2--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 June 30,
-----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Dollar Amounts in Millions
(except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 96.3 160,879,207 $ 0.60 $ 83.7 162,225,000 $ 0.52
Effect of Dilutive Securities: ====== ======
Restricted shares -- 966,325 -- 942,375
Stock options -- 274,351 -- 487,835
------- ----------- ------- -----------
Diluted EPS $ 96.3 162,119,883 $ 0.59 $ 83.7 163,655,210 $ 0.51
======= =========== ====== ======= =========== ======
-----------------------------------------------------------------------------------------
For the Six Months Ended June 30,
-----------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -----------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
Dollar Amounts in Millions
(except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 188.2 161,021,757 $ 1.17 $ 165.4 162,225,000 $ 1.02
Effect of Dilutive Securities: ====== ======
Restricted shares -- 962,684 -- 945,012
Stock options -- 283,500 -- 409,684
------- ----------- ------- -----------
Diluted EPS $ 188.2 162,267,941 $ 1.16 $ 165.4 163,579,696 $ 1.01
======= =========== ====== ======= =========== ======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Note 3--Business Segment Information
The following table presents reportable segment information and the
reconciliation to the consolidated totals as of June 30, 1999 and 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Equipment
Financing Commercial Total Corporate Consolidated
and Leasing Finance Consumer Segments and Other Total
----------- ---------- -------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1999 (Dollars in Millions)
Operating revenue $ 366.1 $ 191.1 $ 120.3 $ 677.5 $ 3.8 $ 681.3
Net income 119.0 66.0 27.8 212.8 (24.6) 188.2
Total managed assets 14,170.4 5,984.0 8,149.4 28,303.8 91.7 28,395.5
June 30, 1998
Operating revenue 299.3 166.7 105.8 571.8 23.7 595.5
Net income 96.7 59.4 21.6 177.7 (12.3) 165.4
Total managed assets 12,014.6 4,709.3 7,120.5 23,844.4 75.5 23,919.9
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 4--Pending Acquisition
On August 5, 1999 we announced that we had reached a new agreement with Newcourt
Credit Group Inc. ("Newcourt") under which CIT will acquire Newcourt in an
exchange of .70 share of CIT stock for each outstanding common share of
Newcourt. This agreement amends and restates the original acquisition agreement
dated March 7, 1999.
The acquisition, which has been approved by the Boards of Directors of both
companies, is expected to close during the fourth quarter of 1999. Completion of
this transaction is conditioned upon, among other things, customary regulatory
and shareholder approvals.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Net income for the second quarter ended June 30, 1999 and 1998 totaled $96.3
million and $83.7 million, respectively. Six month net income totaled $188.2
million and $165.4 million for 1999 and 1998, respectively. Earnings per diluted
share for the second quarter of 1999 increased 15.7% to $0.59 from $0.51 in
1998. Six month earnings per diluted share increased 14.9% to $1.16 from $1.01.
The strong 1999 earnings were driven by higher portfolio growth, notably a very
strong year over year increase in commercial financing and leasing assets,
continued high credit quality, and further improvements in operating efficiency.
Return on equity for the second quarter of 1999 was 13.7% compared to 13.2% for
the same period in 1998, and 13.6% for the first six months of 1999, improved
from 13.2% for the same period in 1998. Return on average earning assets ("AEA")
for the second quarter of 1999 was 1.66% compared to 1.67% for the second
quarter of 1998. Return on AEA for the six months ended June 30, 1999 was 1.64%
compared with 1.69% for the same period in 1998.
Managed assets, comprised of financing and leasing assets and consumer finance
receivables previously securitized that we continue to manage, totaled a record
$28.4 billion at June 30, 1999, an increase of 18.7% from $23.9 billion at June
30, 1998 and up 8.3% from $26.2 billion at December 31, 1998. Financing and
leasing assets increased 17.7% to $25.3 billion at June 30, 1999 from $21.5
billion at June 30, 1998, and increased 6.7% from $23.7 billion at December 31,
1998.
8
<PAGE>
NET FINANCE INCOME
A comparison of 1999 and 1998 net finance income is set forth below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended
--------------------------------------------------------------------
June 30, Increase
------------------------------ ---------------------------
1999 1998 Amount Percent
---------- ---------- --------- -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance income $ 554.4 $ 498.2 $ 56.2 11.3%
Interest expense 280.8 257.8 23.0 8.9%
---------- ---------- --------- -------
Net finance income $ 273.6 $ 240.4 $ 33.2 13.8%
========== ========== ========= =======
AEA $ 23,166.2 $ 20,086.0 $ 3,080.2 15.3%
========== ========== ========= =======
Net finance income as a % of AEA 4.72% 4.79%
========== ==========
Six Months Ended
--------------------------------------------------------------------
June 30, Increase
------------------------------ ---------------------------
1999 1998 Amount Percent
---------- ---------- --------- -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance income $ 1,095.9 $ 970.8 $ 125.1 12.9%
Interest expense 554.1 502.4 51.7 10.3%
---------- ---------- --------- -------
Net finance income $ 541.8 $ 468.4 $ 73.4 15.7%
========== ========== ========= =======
AEA $ 22,905.3 $ 19,578.9 $ 3,326.4 17.0%
========== ========== ========= =======
Net finance income as a % of AEA 4.73% 4.79%
========== ==========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Finance income for the three months ended June 30, 1999 increased $56.2 million
or 11.3% from the comparable 1998 period. Finance income for the six month
period ended June 30, 1999 increased $125.1 million or 12.9% from the same
period in 1998. As a percentage of AEA, finance income (excluding interest
income relating to short-term interest-bearing deposits) was 9.45% for both the
quarter and six months ended June 30, 1999 compared to 9.78% for the same
periods in 1998. The decline in yield was primarily due to lower prevailing
market interest rates on average during 1999.
9
<PAGE>
Interest expense for the three months ended June 30, 1999 increased $23.0
million or 8.9% from the comparable 1998 period, and for the six month period
ended June 30, 1999 increased $51.7 million or 10.3% from the same period in
1998. As a percentage of AEA, interest expense (excluding interest expense
relating to short-term interest-bearing deposits and dividends related to the
Company's preferred capital securities) for the second quarter of 1999 decreased
to 4.73% from 4.99%, and to 4.72% from 4.99% for the six month period ended June
30, 1999 and 1998, respectively. The decline from the comparable period of 1998
reflects lower market rates.
We seek to mitigate interest rate risk by matching the repricing characteristics
of our assets with our liabilities. This strategy is, in part, accomplished
through the use of interest rate swaps. A comparative analysis of the weighted
average principal outstanding and interest rates paid on our debt for the three
and six month periods ended June 30, 1999 and 1998, before and after giving
effect to interest rate swaps, is shown in the following table.
10
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1999
----------------------------------------------------------
Before Swaps After Swaps
------------------------ -------------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate senior
notes $ 10,860.1 4.93% $ 8,475.0 4.92%
Fixed rate senior and subordinated notes 8,844.0 6.18% 11,229.1 6.25%
---------- ----------
Composite interest rate paid $ 19,704.1 5.49% $ 19,704.1 5.68%
========== ==========
Three Months Ended June 30, 1998
----------------------------------------------------------
Before Swaps After Swaps
------------------------ -------------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate senior
notes $ 9,542.9 5.61% $ 6,879.1 5.55%
Fixed rate senior and subordinated notes 7,057.0 6.34% 9,720.8 6.42%
---------- ----------
Composite interest rate paid $ 16,599.9 5.92% $ 16,599.9 6.06%
========== ==========
- ----------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
----------------------------------------------------------
Before Swaps After Swaps
------------------------ -------------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate senior
notes $ 10,767.0 4.97% $ 8,406.4 4.94%
Fixed rate senior and subordinated notes 8,670.4 6.19% 11,031.0 6.26%
---------- ----------
Composite interest rate paid $ 19,437.4 5.51% $ 19,437.4 5.69%
========== ==========
Six Months Ended June 30, 1998
----------------------------------------------------------
Before Swaps After Swaps
------------------------ -------------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate senior
notes $ 8,781.6 5.63% $ 6,215.0 5.57%
Fixed rate senior and subordinated notes 7,056.7 6.37% 9,623.3 6.45%
---------- ----------
Composite interest rate paid $ 15,838.3 5.96% $ 15,838.3 6.11%
========== ==========
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Our interest rate swaps principally convert floating rate debt to fixed interest
rates. We do not enter into derivative financial instruments for trading or
speculative purposes. The weighted average composite interest rate after swaps
increased from the weighted average composite interest rate before swaps in each
period, primarily because a larger proportion of our debt, after giving effect
to interest rate swaps, was subject to a fixed interest rate. However, the
weighted
11
<PAGE>
average interest rates before swaps do not necessarily reflect the interest
expense that would have been incurred had we chosen to manage interest rate risk
without the use of such swaps.
FEES AND OTHER INCOME
For the three months ended June 30, 1999, fees and other income totaled $74.8
million, compared to $60.7 million for the second quarter of 1998. For the six
months ended June 30, 1999 and 1998, fees and other income totaled $139.5
million and $127.1 million, respectively. Strong growth in factoring fees
resulted from a factoring acquisition. Additionally, increased lending fees in
our commercial finance and equipment financing businesses, and gains on sales of
leasing equipment, were partially offset by lower gains on venture capital
investments. The following table sets forth the components of fees and other
income.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1999 1998 1999 1998
-------- -------- ------- -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Factoring commissions $ 29.0 $ 22.6 $ 53.0 $ 45.6
Fees and other income 20.4 22.1 51.3 44.2
Gains on sales of leasing equipment 20.7 8.9 29.9 23.7
Gains on securitizations 4.7 5.2 5.3 5.2
Gains on sales of venture capital investments -- 1.9 -- 8.4
------ ------- ------- -------
$ 74.8 $ 60.7 $ 139.5 $ 127.1
====== ======= ======= =======
- -----------------------------------------------------------------------------------------------------------
</TABLE>
SALARIES AND GENERAL OPERATING EXPENSES
Salaries and general operating expenses increased by $9.0 million or 8.7% to
$113.0 million in the second quarter of 1999 from $104.0 million in the
comparable 1998 period. For the six month period ended June 30, 1999, salaries
and general operating expenses increased $16.3 million or 7.9% to $222.0 million
from $205.7 million for the same period in 1998. The increase in expenses
reflects a factoring acquisition and continued portfolio growth and product
12
<PAGE>
expansion in the commercial financing and leasing businesses, incremental costs
relating to the restructuring of our sales finance business, and normal expense
increases.
Management monitors productivity via the efficiency ratio and the ratio of
salaries and general operating expenses to average managed assets ("AMA"). These
ratios are set forth in the following table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Efficiency ratio 39.7% 40.6% 39.9% 40.6%
Salaries and general operating
expenses as a percentage of AMA 1.74% 1.86% 1.73% 1.88%
- ---------------------------------------------------------------------------------------------
</TABLE>
The improvement in the ratios reflects the success of continuing productivity
initiatives and our ability to leverage our existing operating structure and
investment technology.
RESERVE AND PROVISION FOR CREDIT LOSSES/CREDIT QUALITY
The reserve for credit losses is periodically reviewed for adequacy considering
economic conditions, collateral values and credit quality indicators, including
charge-off experience and levels of past due loans and nonperforming assets. The
reserve increased by $13.1 million to $276.8 million (1.32% of finance
receivables) at June 30, 1999 from $263.7 million (1.33%) at December 31, 1998
principally as a result of portfolio growth. A measure of reserve adequacy and
strength used by us and in our industry is the ratio of the balance sheet
reserve for credit losses to trailing twelve-month net credit losses. This
ratio, 3.27 times at June 30, 1999, was relatively unchanged from 3.35 times at
December 31, 1998. The relationship of the reserve for
13
<PAGE>
credit losses to nonaccrual finance receivables was 133.1% at June 30, 1999
compared to 124.7% at December 31, 1998.
The provision for credit losses for the second quarter of 1999 was $23.8
million, up from $21.9 million in the second quarter of 1998 and the six month
total of $45.7 million was up from $44.4 million for the six months ended June
30, 1998.
For the quarter ended June 30, 1999, net credit losses were $21.4 million (0.41%
of average finance receivables) as compared to $16.4 million (0.36%) for the
same period last year. Net credit losses for the six months ended June 30, 1999
were $42.2 million (0.41%) compared to $36.4 million (0.41%) for the same period
of 1998.
The following table sets forth net credit losses as a percentage of average
finance receivables (annualized), excluding consumer finance receivables held
for sale.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1999 1998 1999 1998
----- ----- ----- ----
<S> <C> <C> <C> <C>
Equipment Financing and Leasing 0.15% 0.25 % 0.13% 0.28%
Commercial Finance 0.38% (0.03)% 0.40% 0.07%
----- ------ ----- -----
Total Commercial Segments 0.23% 0.19 % 0.22% 0.23%
Consumer Segment 1.14% 1.12 % 1.16% 1.15%
----- ------ ----- -----
Total 0.41% 0.36 % 0.41% 0.41%
===== ====== ===== =====
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Second quarter commercial net credit losses were 0.23% in 1999 compared to 0.19%
in 1998, and consumer net credit losses were at 1.14% in 1999 compared to 1.12%
in 1998. Overall, Equipment Financing and Leasing net credit losses declined on
continued good credit quality.
14
<PAGE>
The increases in Commercial Finance net credit losses for both periods were
primarily due to large recoveries in 1998.
As a percentage of average consumer managed finance receivables, consumer net
credit losses were 1.03% during the second quarter of 1999 compared to 0.91% for
the same period in 1998, and for the six months ended June 30, 1999 and 1998,
1.00% and 0.91%, respectively.
PAST DUE AND NONPERFORMING ASSETS
The following table sets forth certain information concerning past due and total
nonperforming assets (and the related percentages of finance receivables) at
June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
At June 30, 1999 At December 31, 1998
------------------------ ------------------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance receivables, past due 60 days or more:
Equipment Financing and Leasing $ 148.3 1.38% $ 149.9 1.41%
Commercial Finance 42.9 0.72% 32.1 0.64%
------- ---- ------- ----
Total Commercial Segments 191.2 1.14% 182.0 1.17%
------- ---- ------- ----
Consumer Segment 152.1 3.64% 166.0 3.89%
------- ---- ------- ----
Total $ 343.3 1.64% $ 348.0 1.75%
======= ==== ======= ====
Total nonperforming assets:
Equipment Financing and Leasing $ 122.0 1.14% $ 135.2 1.27%
Commercial Finance 17.7 0.30% 14.5 0.29%
------- ---- ------- ----
Total Commercial Segments 139.7 0.84% 149.7 0.96%
------- ---- ------- ----
Consumer Segment 127.8 3.06% 129.0 3.02%
------- ---- ------- ----
Total $ 267.5 1.28% $ 278.7 1.40%
======= ==== ======= ====
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets reflect both finance receivables on nonaccrual status and
assets received in satisfaction of loans.
15
<PAGE>
From time to time, financial or operational difficulties may adversely affect
future payments relating to certain operating lease equipment. Such operating
lease equipment is not included in the totals for past due and nonperforming
assets. At June 30, 1999, operations at an oil refinery were subject to such
difficulties. The aggregate carrying value of this asset was approximately $21.6
million. We do not believe these difficulties will have a material adverse
effect on our consolidated financial position or results of operations.
OPERATING LEASE EQUIPMENT
The operating lease equipment portfolio was $3.4 billion at June 30, 1999, up
23.8% from December 31, 1998 and up 59.9% from June 30, 1998, driven primarily
by growth in rail transport, commercial aircraft equipment, and construction.
Depreciation for the quarter ended June 30, 1999 was $59.2 million, up from
$40.4 million for the same period in 1998, and for the six months ended June 30,
1999, depreciation was $115.3 million up from $78.7 million in the same period
in 1998 due to growth in the portfolio.
INCOME TAXES
The effective income tax rates for the second quarters of 1999 and 1998 were
34.7% and 35.6%, and for the six month periods ended June 30, 1999 and 1998 were
34.8% and 35.7%, respectively. The decrease in the 1999 effective tax rate was
primarily the result of lower state and local income taxes.
16
<PAGE>
FINANCING AND LEASING ASSETS
Managed assets grew $2,179.2 million (8.3%) to $28.4 billion during the first
six months of 1999, and financing and leasing assets increased $1,587.5 million
(6.7%) to $25.3 billion, as presented in the following table.
<TABLE>
<CAPTION>
At June 30, At December 31, Change
1999 1998 Amount Percent
----------- -------------- ----------- -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Equipment Financing:
Finance receivables $ 8,787.4 $ 8,497.6 $ 289.8 3.4%
Operating lease equipment, net 822.0 765.1 56.9 7.4
---------- ---------- --------- ----
Total 9,609.4 9,262.7 346.7 3.7
---------- ---------- --------- ----
Capital Finance:
Finance receivables 1,632.3 1,655.4 (23.1) (1.4)
Operating lease equipment, net(1) 2,589.6 1,982.0 607.6 30.7
---------- ---------- --------- ----
4,221.9 3,637.4 584.5 16.1
Liquidating portfolio(1)(2) 339.1 466.9 (127.8) (27.4)
---------- ---------- --------- ----
Total 4,561.0 4,104.3 456.7 11.1
---------- ---------- --------- ----
Total Equipment Financing & Leasing 14,170.4 13,367.0 803.4 6.0
---------- ---------- --------- ----
Commercial Services 3,215.0 2,481.8 733.2 29.5
Business Credit 1,674.1 1,477.9 196.2 13.3
Credit Finance 1,094.9 1,036.5 58.4 5.6
---------- ---------- --------- ----
Total Commercial Finance 5,984.0 4,996.2 987.8 19.8
---------- ---------- --------- ----
Total Commercial Segments 20,154.4 18,363.2 1,791.2 9.8
---------- ---------- --------- ----
Other - Equity Investments 91.7 81.9 9.8 12.0
---------- ---------- --------- ----
Consumer Finance 2,432.4 2,244.4 188.0 8.4
Sales Financing 2,608.4 3,009.9 (401.5) (13.3)
---------- ---------- --------- ----
Total Consumer Segment 5,040.8 5,254.3 (213.5) (4.1)
---------- ---------- --------- ----
Total Financing and Leasing Assets 25,286.9 23,699.4 1,587.5 6.7
---------- ---------- --------- ----
Finance receivables previously securitized:
Consumer Finance 502.1 607.6 (105.5) (17.4)
Sales Financing 2,606.5 1,909.3 697.2 36.5
---------- ---------- --------- ----
Total 3,108.6 2,516.9 591.7 23.5
---------- ---------- --------- ----
Total Managed Assets - Consumer Segment 8,149.4 7,771.2 378.2 4.9
---------- ---------- --------- ----
Total Managed Assets $ 28,395.5 $ 26,216.3 $ 2,179.2 8.3%
========== ========== ========= ====
</TABLE>
(1)Operating lease equipment, net, of $21.6 million and $27.0 million are
included in the liquidating portfolios at June 30, 1999 and December 31,
1998, respectively.
(2)Consists primarily of oceangoing maritime and project finance.
17
<PAGE>
Strong originations in rail, commercial aircraft equipment, and construction
resulted in 1999 growth in the Equipment Financing and Leasing operating lease
portfolios. The growth in the Commercial Finance segment resulted from solid
1999 new business generation, reduced liquidations and a factoring acquisition.
Consumer managed assets increased to $8.1 billion at June 30, 1999 from $7.8
billion at December 31, 1998, up 4.9%.
Financing and Leasing Assets Composition
Our ten largest financing and leasing asset accounts at June 30, 1999 in the
aggregate accounted for 5.0% of the total financing and leasing assets, all of
which are commercial accounts secured by equipment, accounts receivable or
inventories.
Geographic Composition
The following table presents financing and leasing assets by customer location.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
At June 30, 1999 At December 31, 1998
--------------------------- --------------------------
Amount Percent Amount Percent
---------- ------- ---------- -------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
United States
West $ 5,792.8 22.9% $ 5,583.2 23.6%
Northeast 5,483.5 21.7 5,143.9 21.7
Midwest 5,367.6 21.2 4,895.3 20.7
Southeast 3,618.9 14.3 3,492.3 14.7
Southwest 3,212.7 12.7 2,993.3 12.6
Foreign (principally commercial aircraft) 1,811.4 7.2 1,591.4 6.7
---------- ----- ---------- -----
Total $ 25,286.9 100.0% $ 23,699.4 100.0%
========== ===== ========== =====
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
Our managed asset geographic diversity does not differ significantly from our
owned asset geographic diversity. Additionally, our financing and leasing asset
portfolio is diversified by state. At June 30, 1999, only California (12.3%),
Texas (8.9%), and New York (8.0%) accounted for more than 4.8% of financing and
leasing assets.
Industry Composition
The following table presents financing and leasing assets by major industry
class.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
At June 30, 1999 At December 31, 1998
---------------------------- -----------------------------
Amount Percent Amount Percent
---------- --------- ---------- ---------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Manufacturing(1) $ 5,575.9 22.1% $ 5,117.0 21.6%
Commercial airlines(2) 2,537.9 10.0 2,325.4 9.8
Home mortgage(3) 2,432.4 9.6 2,244.4 9.5
Retail 2,400.2 9.5 1,882.1 7.9
Construction equipment 2,276.5 9.0 1,947.4 8.2
Transportation(4) 2,122.8 8.4 1,777.6 7.5
Manufactured housing(5) 1,658.5 6.6 1,417.5 6.0
Other(6)(7) 6,282.7 24.8 6,988.0 29.5
---------- ----- ---------- -----
Total $ 25,286.9 100.0% $ 23,699.4 100.0%
========== ===== ========== =====
(1)Includes various categories of manufacturers, including steel and metal
products, textiles and apparel, printing and paper products and other
industries. No individual category is greater than 4.1% of total financing
and leasing assets.
(2)Commercial airlines were 8.9% of managed assets at June 30, 1999. See
"--Concentrations" below for a discussion of the commercial airline
portfolio.
(3)On a managed asset basis, home mortgage outstandings were $2.9 billion or
10.3% of managed assets at June 30, 1999 as compared with $2.9 billion or
10.9% at December 31, 1998.
(4)Includes rail, bus, over-the-road trucking and business aircraft.
(5)On a managed asset basis, manufactured housing outstandings were $1.9
billion or 6.7% of managed assets at June 30, 1999 as compared to $1.7
billion or 6.5% at December 31, 1998.
(6)Includes various categories, none of which is greater than 4.3%.
(7)On a managed asset basis, recreation vehicle outstandings were $1.9
billion or 6.8% of managed assets at June 30, 1999 as compared to $1.9
billion or 7.2% at December 31, 1998. On a managed asset basis,
recreational boat outstandings were $1.1 billion or 3.9% of managed assets
at June 30, 1999 as compared to $1.0 billion or 4.0% of managed assets at
December 31, 1998.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Concentrations
Commercial Airline Industry
Commercial airline financing and leasing assets totaled $2.5 billion (10.0% of
total financing and leasing assets) at June 30, 1999, up from $2.3 billion
(9.8%) at December 31, 1998. These financing and leasing assets relate to
commercial aircraft and ancillary equipment. Over the past few years, we have
been growing this portfolio, and more recently we decided to expand our product
offerings to include newly manufactured commercial aircraft. During the second
quarter of 1999, we entered into agreements with both Airbus Industries and the
Boeing Company to purchase a total of 40 aircraft, with options to acquire
additional units. Deliveries of these new aircraft are scheduled to take place
over a five year period starting in the fourth quarter of 2000.
The following table presents information about the commercial airline industry
portfolio. See also "Operating Lease Equipment".
- --------------------------------------------------------------------------------
At June 30, 1999 At December 31, 1998
---------------- --------------------
(Dollar Amounts in Millions)
Finance Receivables
Amount outstanding(1) $ 1,239.9 $ 1,230.7
Number of obligors 53 54
Operating Lease Equipment, net
Net carrying value $ 1,298.0 $ 1,094.7
Number of obligors 36 33
Total $ 2,537.9 $ 2,325.4
Number of obligors(2) 70 65
Number of aircraft(3) 195 206
(1) Includes accrued rents on operating leases that are classified as finance
receivables in the 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 reqirement than a Stage II
aircraft. The FAA has issued rules that phase out the use of Stage II
aircraft in the United States by the year 2001. At June 30, 1999, the
portfolio consisted of Stage III aircraft of $2,479.3 million (97.7%) and
Stage II aircraft of $38.6 million (1.5%), versus Stage III aircraft of
$2,246.0 million (96.6%) and Stage II aircraft of $55.9 million (2.4%) at
year-end 1998.
- --------------------------------------------------------------------------------
20
<PAGE>
We continue to reduce our Stage II commercial aircraft exposure and increase our
Stage III exposure because FAA rules phase out the use of Stage II aircraft by
the year 2000 in the United States. At June 30, 1999, Stage II aircraft totaled
1.5% of our commercial aircraft portfolio, two-thirds of which are collateral
for full pay out debt obligations and the remaining are aircraft on operating
lease.
Foreign Outstandings
We are primarily a domestic lender, with foreign exposures limited mainly to the
commercial airline industry. Financing and leasing assets to foreign obligors
are U.S. dollar denominated and totaled $1.8 billion at June 30, 1999 and $1.6
billion at December 31, 1998. The largest exposures at June 30, 1999 were to
obligors in England, $181.2 million (0.72% of financing and leasing assets),
Belgium, $140.4 million (0.55%), France, $133.4 million (0.53%), Canada, $131.5
million (0.52%), Ireland, $101.7 million (0.40%), Brazil, $95.0 million (0.38%),
and Germany, $94.4 million (0.37%). The remaining foreign exposure was
geographically dispersed, with no other individual country exposure greater than
$90 million.
Highly Leveraged Transactions ("HLTs")
We use the following criteria to classify a buyout financing or recapitalization
which equals or exceeds $20 million as an HLT:
o The transaction at least doubles the borrower's liabilities and
results in a leverage ratio (as defined) higher than 50%, or
o The transaction results in a leverage ratio higher than 75%, or
o The transaction is designated as an HLT by a syndication agent.
21
<PAGE>
HLTs that we originated and in which we participated totaled $650.7 million
(2.6% of financing and leasing assets) at June 30, 1999 as compared to $561.1
million (2.4%) at December 31, 1998. The increase in HLT outstandings during the
first six months of 1999 was due to new originations. Our HLT outstandings are
generally secured by collateral, as distinguished from HLTs that rely primarily
on cash flows from operations. Unfunded commitments to lend in secured HLT
situations were $338.2 million at June 30, 1999, compared with $287.6 million at
year-end 1998.
LIQUIDITY
We manage liquidity risk by monitoring the relative maturities of assets and
liabilities and by borrowing funds, primarily in the U.S. money and capital
markets. We use such cash 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, and other term debt securities, supplemented by asset-backed
securitizations.
During the first six months of 1999, commercial paper outstanding decreased by
$469.8 million from $6.1 billion at December 31, 1998 to $5.7 billion at June
30, 1999. During this period, we issued $3.0 billion of variable rate term debt
and $1.4 billion of fixed rate term debt. Repayments of debt totaled $2.7
billion for the first six months of 1999. At June 30, 1999, $5.5 billion of
registered, but unissued, debt securities remained available under shelf
registration statements, including $2.0 billion of European Medium-Term Notes.
22
<PAGE>
At June 30, 1999, commercial paper borrowings were supported by $5.5 billion of
committed revolving credit-line facilities, representing 96.3% of operating
commercial paper outstanding (commercial paper outstanding less short-term
interest-bearing deposits).
As part of our continuing program of accessing the public and private
asset-backed securitization markets as an additional liquidity source, $1.0
billion of recreation vehicle and recreational boat finance receivables were
securitized during the first six months of 1999, including $565.5 million of
recreation vehicle finance receivables in the second quarter. At June 30, 1999,
$2.1 billion of registered, but unissued, securities were available under shelf
registration statements relating to our asset-backed securitization program.
CAPITALIZATION
The following table presents information regarding our capital structure.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
At June 30, At December 31,
1999 1998
------------ ---------------
(Dollar Amounts in Millions)
<S> <C> <C>
Commercial paper $ 5,674.3 $ 6,144.1
Term debt 14,161.0 12,507.3
----------- -----------
Total debt 19,835.3 18,651.4
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company 250.0 250.0
Stockholders' equity 2,846.4 2,701.6
----------- -----------
Total capitalization $ 22,931.7 $ 21,603.0
=========== ===========
Total debt to stockholders' equity and Company-
obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of the Company 6.41x 6.32x
Total debt and Company-obligated mandatorily
redeemable preferred securities of subsidiary trust holding
solely debentures of the Company to stockholders' equity 7.06x 7.00x
- -------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
We believe we are well capitalized and that our capital structure is adequate to
support current operations and anticipated growth.
The Board of Directors of CIT has authorized the repurchase of up to 2 million
shares of CIT's common stock to provide for the employee stock option plan, the
employee share purchase plan and for other corporate purposes. The stock
repurchase program is authorized to take place over the next 12 months from time
to time in the open market or in privately negotiated transactions. This program
is an extension to the one-year program approved in August 1998. Through June
30, 1999, CIT has purchased 1.6 million of the 2 million shares previously
authorized.
YEAR 2000 COMPLIANCE
Institutions around the world are reviewing and modifying their computer systems
to ensure they are Year 2000 compliant. The issue, in general terms, is that
many existing computer systems, both information technology systems and
non-information technology systems, contain date-based functions which use only
two digits to identify a year in the date field with the assumption that the
first two digits of the year are always "19". Consequently, on January 1, 2000,
systems that are not Year 2000 compliant may read the year as 1900. Systems that
calculate, compare or sort using the incorrect date may malfunction.
We continue to address the Year 2000 issue as it relates to our systems and
business. We have developed a comprehensive Year 2000 project to remediate our
information technology ("IT") systems and to address Year 2000 issues in our
non-IT systems. The process of remediation includes the following phases:
24
<PAGE>
o Planning
o Assessing
o Designing (as necessary)
o Programming (as necessary)
o Testing and validation
We have categorized our IT systems as high, medium or low priority with respect
to our ability to conduct business. As of June 30, 1999, we had successfully
completed:
o the planning, assessing and designing phases for all of our IT
systems
o the programming phase for all of our high and medium priority IT
systems and 99% of all our IT systems
o the testing and validation phase for all of our high and medium
priority IT systems and 99% of all our IT systems.
We believe that, at June 30, 1999, our Year 2000 project was 100% completed for
our high and medium priority IT systems and 99% completed with respect to all
our IT systems. Our Year 2000 project is substantially completed.
A majority of the software used in our IT systems is provided by outside
vendors. As of June 30, 1999 for our high and medium priority systems, all of
our vendor provided software or software upgrades have been designated by the
software vendors as Year 2000 compliant.
25
<PAGE>
We continue to formulate a contingency plan for business continuation in the
event of Year 2000 systems failures. This contingency plan formulation is based
upon our existing disaster recovery and business continuity plans with
modifications for Year 2000 risks. We expect to complete our Business Year 2000
contingency plans by August 31, 1999, and to test these contingency plans in the
third quarter.
Our non-IT systems used to conduct business at our facilities consist primarily
of office equipment (other than computer and communications equipment) and other
equipment at our leased office facilities. We have inventoried our non-IT
systems and have sent Year 2000 questionnaires to our office equipment vendors
and landlords to determine the status of their Year 2000 readiness.
Since 1997, we have been actively communicating with third parties concerning
the status of their Year 2000 readiness by, among other things, sending written
Year 2000 inquiries. These third parties include our borrowers, obligors, banks,
investment banks, investors, vendors, manufacturers, landlords and suppliers of
telecommunication services and other utilities. As part of the process of
evaluating our options and attempting to mitigate third party risks, we continue
to collect and analyze information from third parties. It is difficult to
predict the effect of any such third party non-readiness on our business.
Significant Year 2000 failures in our systems or in the systems of third parties
(or third parties upon whom they depend) could have a material adverse effect on
our financial condition and results of operations. We believe that our
reasonably likely worst case Year 2000 scenario is (i) a material increase in
our credit losses due to Year 2000 problems for our borrowers and
26
<PAGE>
obligors and (ii) disruption in financial markets causing liquidity stress to
us. The amount of these potential credit losses or the degree of disruption
cannot be determined at this time.
The total cost of our Year 2000 project is expected to be approximately $7
million, of which approximately $6.2 million has been incurred through June 30,
1999. This amount includes the costs of additional hardware, software and
technology consultants, as well as the cost of our systems professionals
dedicated to achieving Year 2000 compliance for IT systems. We have included the
cost of the Year 2000 project in our annual budgets for information technology.
We have postponed some non-Year 2000 IT expenditures and initiatives until after
2000 in order to concentrate resources on the Year 2000 issue. We do not expect
that this will have a material adverse effect on our financial condition and
results of operations.
All Year 2000 information provided herein is a "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Information and Readiness Disclosure Act and is
subject to the terms thereof. This Year 2000 information is provided pursuant to
securities law requirements and it may not be taken as a form of covenant,
warranty, representation or guarantee of any kind.
27
<PAGE>
STATISTICAL DATA
The following table presents components of net income as a percentage of AEA,
along with other selected financial data.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Six Months Ending
June 30,
---------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Finance income(1) 9.45% 9.78%
Interest expense(1) 4.72 4.99
--------- ---------
Net finance income 4.73 4.79
Fees and other income 1.22 1.29
--------- ---------
Operating revenue 5.95 6.08
--------- ---------
Salaries and general operating expenses 1.94 2.10
Provision for credit losses 0.40 0.45
Depreciation on operating lease equipment 1.01 0.80
Minority interest in subsidiary trust holding solely
debentures of the Company 0.08 0.10
--------- ---------
Operating expenses 3.43 3.45
--------- ---------
Income before provision for income taxes 2.52 2.63
Provision for income taxes 0.88 0.94
--------- ---------
Net income 1.64% 1.69%
========= =========
Average earning assets (in millions) $22,905.3 $19,578.9
========= =========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
28
<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 April 27, 1999 was filed with the Commission
reporting the Company's announcement of financial results for the
quarter ended March 31, 1999 and the declaration of the Company's
regular quarterly dividend.
A Form 8-K report dated May 10, 1999 was filed with the Commission
reporting certain computational materials related to CIT RV Trust
1999-A.
A Form 8-K report dated May 17, 1999 was filed with the Commission
setting forth a Form T-1 Statement of Eligibility for The Bank of
New York, as trustee for CIT RV Trust 1999-A.
A Form 8-K report dated June 14, 1999 was filed with the Commission
reporting a joint press release of the Company, and Newcourt Credit
Group Inc. ("Newcourt") announcing a Letter Agreement, dated June
14, 1999, amending the Agreement and Plan of Reorganization, dated
as of March 7, 1999, between the Company and Newcourt and announcing
that CIT and Newcourt had initiated discussions to reassess
Newcourt's earnings expectations and the exchange ratio under the
Agreement and Plan of Reorganization.
29
<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: August 11, 1999
30
EXHIBIT 12
THE CIT GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts In Millions)
Six Months Ended
June 30,
-------------------
1999 1998
------- -------
Net income $ 188.2 $ 165.4
Provision for income taxes 100.5 91.7
------- -------
Earnings before provision for income taxes 288.7 257.1
------- -------
Fixed Charges:
Interest and debt expense on indebtedness 554.1 502.4
Minority interest in subsidiary trust holding solely
debentures of the company 9.6 9.6
Interest factor - one third of rentals on
real and personal properties 4.9 4.9
------- -------
Total fixed charges 568.6 516.9
------- -------
Total earnings before provision for income
taxes and fixed charges $ 857.3 $ 774.0
======= =======
Ratio of earnings to fixed charges 1.51x 1.50x
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets and Consolidated Income Statements and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 93
<SECURITIES> 0
<RECEIVABLES> 20,898
<ALLOWANCES> 277
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,144
<CURRENT-LIABILITIES> 0
<BONDS> 14,161
250
0
<COMMON> 2
<OTHER-SE> 2,846
<TOTAL-LIABILITY-AND-EQUITY> 26,144
<SALES> 0
<TOTAL-REVENUES> 629
<CGS> 0
<TOTAL-COSTS> 113
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 24
<INTEREST-EXPENSE> 281
<INCOME-PRETAX> 147
<INCOME-TAX> 51
<INCOME-CONTINUING> 96
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.59
</TABLE>
