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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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
----------------------
THE CIT GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2994534
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
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(Address of principal executive offices) (Zip Code)
(212) 536-1390
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No ______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 29, 1999: Class A Common Stock - 161,127,581 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 - September 30, 1999 and
December 31, 1998. 2
Consolidated Income Statements for the three and nine month
periods ended September 30, 1999 and 1998. 3
Consolidated Statements of Changes in Stockholders' Equity for
the nine month periods ended September 30, 1999 and 1998. 4
Consolidated Statements of Cash Flows for the nine month
periods ended September 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
and
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 8-27
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 29
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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.
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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 and June 30, 1999
quarterly reports on Form 10-Q for The CIT Group, Inc. ("we", "our", "us",
"CIT", or the "Company").
1
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Millions)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
Assets
Financing and leasing assets
Loans
Commercial $13,151.5 $11,415.5
Consumer 4,068.8 4,266.9
Lease receivables 4,112.6 4,173.6
--------- ---------
Finance receivables 21,332.9 19,856.0
Reserve for credit losses (283.8) (263.7)
--------- ---------
Net finance receivables 21,049.1 19,592.3
Operating lease equipment, net 3,677.2 2,774.1
Consumer finance receivables held for sale 737.8 987.4
Cash and cash equivalents 143.0 73.6
Other assets 1,132.3 875.7
--------- ---------
Total assets $26,739.4 $24,303.1
========= =========
Liabilities and Stockholders' Equity
Debt
Commercial paper $ 5,472.6 $ 6,144.1
Variable rate senior notes 5,758.1 4,275.0
Fixed rate senior notes 8,611.8 8,032.3
Subordinated fixed rate notes 200.0 200.0
--------- ---------
Total debt 20,042.5 18,651.4
Credit balances of factoring clients 1,971.9 1,302.1
Accrued liabilities and payables 738.4 694.3
Deferred federal income taxes 822.0 703.7
--------- ---------
Total liabilities 23,574.8 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: 163,172,966 shares in 1999 and 163,144,879
shares in 1998.
Outstanding: 161,147,581 shares in 1999 and
162,176,949 shares in 1998. 1.7 1.7
Paid-in capital 958.2 952.5
Retained earnings 2,009.3 1,772.8
Treasury stock at cost (2,025,385 shares in 1999 and 967,930
shares in 1998; Class A Common Stock) (54.6) (25.4)
--------- ---------
Total stockholders' equity 2,914.6 2,701.6
--------- ---------
Total liabilities and stockholders' equity $26,739.4 $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 Nine Months
Ended September 30, Ended September 30,
----------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Finance income $ 583.9 $ 510.6 $ 1,679.8 $ 1,481.4
Interest expense 304.1 263.8 858.2 766.2
--------- --------- --------- ---------
Net finance income 279.8 246.8 821.6 715.2
Fees and other income 81.9 69.0 221.4 196.1
--------- --------- --------- ---------
Operating revenue 361.7 315.8 1,043.0 911.3
--------- --------- --------- ---------
Salaries and general operating expenses 115.1 105.3 337.1 311.0
Provision for credit losses 32.2 30.6 77.9 75.0
Depreciation on operating lease equipment 61.6 42.7 176.9 121.4
Minority interest in subsidiary trust holding
solely debentures of the Company 4.8 4.8 14.4 14.4
--------- --------- --------- ---------
Operating expenses 213.7 183.4 606.3 521.8
--------- --------- --------- ---------
Income before provision for income taxes 148.0 132.4 436.7 389.5
Provision for income taxes 51.1 46.3 151.6 138.0
--------- --------- --------- ---------
Net income $ 96.9 $ 86.1 $ 285.1 $ 251.5
========= ========= ========= =========
Net income per basic share $0.60 $0.53 $1.77 $1.55
Net income per diluted share $0.60 $0.53 $1.76 $1.54
</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)
Nine Months Ended
September 30,
------------------------------------
1999 1998
-------------- ---------------
(unaudited)
Balance, January 1 $2,701.6 $2,432.9
Net income 285.1 251.5
Dividends declared (48.6) (32.6)
Treasury stock purchased (29.2) (16.2)
Other 5.7 4.0
-------- --------
Balance, September 30 $2,914.6 $2,639.6
======== ========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1999 1998
---- ----
(unaudited)
CASH FLOWS FROM OPERATIONS
<S> <C> <C>
Net income $ 285.1 $ 251.5
Adjustments to reconcile net income to net cash flows from operations:
Provision for credit losses 77.9 75.0
Depreciation and amortization 202.1 140.5
Provision for deferred federal income taxes 118.3 74.0
Gains on asset and receivable sales (74.0) (60.3)
Increase in other assets (67.0) (37.3)
Increase in accrued liabilities and payables 37.8 47.0
Other 28.6 9.3
----------- -----------
Net cash flows provided by operations 608.8 499.7
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans extended (25,908.5) (25,877.1)
Collections on loans 24,404.6 23,627.9
Proceeds from asset and receivable sales 2,078.1 984.4
Purchases of assets to be leased (1,221.6) (645.5)
Net increase in short-term factoring receivables (552.6) (427.4)
Purchase of loan portfolios (516.6) (477.9)
Purchases of investment securities (33.0) (28.9)
Proceeds from sales of assets received in satisfaction of loans 32.4 35.7
Other (13.2) (24.8)
----------- -----------
Net cash flows used for investing activities (1,730.4) (2,833.6)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of variable and fixed rate notes 6,199.5 4,384.2
Repayments of variable and fixed rate notes (4,136.9) (3,411.5)
Net (decrease) increase in commercial paper (671.5) 1,519.5
Repayments of nonrecourse leveraged lease debt (123.9) (116.5)
Proceeds from nonrecourse leveraged lease debt 1.6 42.0
Cash dividends paid (48.6) (32.6)
Purchase of treasury stock (29.2) (16.2)
----------- -----------
Net cash flows provided by financing activities 1,191.0 2,368.9
----------- -----------
Net increase in cash and cash equivalents 69.4 35.0
Cash and cash equivalents, beginning of period 73.6 140.4
----------- -----------
Cash and cash equivalents, end of period $ 143.0 $ 175.4
=========== ===========
Supplemental disclosures
Interest paid $ 790.9 $ 726.1
Federal and state and local income taxes paid $ 47.1 $ 57.9
</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. Results for interim periods are not
necessarily indicative of results for a full year and are subject to year-end
audit adjustments.
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 September 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 $96.9 160,512,433 $0.60 $86.1 162,143,304 $0.53
============= ============
Effect of Dilutive Securities:
Restricted shares - 951,992 - 934,401
Stock options - - - 226,620
-------------- -------------- ------------- --------------
Diluted EPS $96.9 161,464,425 $0.60 $86.1 163,304,325 $0.53
============== ============== ============= ============= ============== ============
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
For the Nine Months Ended September 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 $285.1 160,850,093 $1.77 $251.5 162,197,469 $1.55
============= ============
Effect of Dilutive Securities:
Restricted shares - 958,748 - 941,161
Stock options - 189,000 - 350,059
-------------- -------------- ------------- --------------
Diluted EPS $285.1 161,997,841 $1.76 $251.5 163,488,689 $1.54
============== ============== ============= ============= ============== ============
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Note 3 - Business Segment Information
The following table presents reportable segment information and the
reconciliation to the consolidated totals as of September 30, 1999 and 1998.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Equipment
Financing Commercial Total Corporate Consolidated
and Leasing Finance Consumer Segments and Other Total
------------- ------------ ----------- -------------- ------------ ---------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
September 30, 1999
Operating revenue $ 555.3 $ 301.9 $ 184.6 $ 1,041.8 $ 1.2 $ 1,043.0
Net income 177.1 101.1 47.1 325.3 (40.2) 285.1
Total managed assets 14,326.0 6,615.3 7,556.6 28,497.9 115.8 28,613.7
September 30, 1998
Operating revenue 452.9 255.2 168.1 876.2 35.1 911.3
Net income 145.1 86.7 36.5 268.3 (16.8) 251.5
Total managed assets 12,587.1 5,357.5 7,392.0 25,336.6 87.3 25,423.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 4 - Pending Acquisitions
We obtained the authorizations from the Federal Reserve Board and the Canadian
regulatory authorities for our acquisition of all of the outstanding voting
shares of Newcourt Credit Group Inc. ("Newcourt"). Additionally, on October 26,
1999, our stockholders, as well as Newcourt's, voted in favor of the
acquisition. As a result, the acquisition is anticipated to close on or about
November 15, 1999.
On October 4, 1999, we also announced our intention to purchase the domestic
factoring operations of Heller Finance Inc. The transaction, which has been
approved by the Federal Reserve Board, is scheduled to close prior to year end.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
and
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
OVERVIEW
Net income for the quarters ended September 30, 1999 and 1998 totaled $96.9
million and $86.1 million, respectively. Nine month net income totaled $285.1
million and $251.5 million for 1999 and 1998, respectively. Earnings per diluted
share for the third quarter of 1999 increased 13.2% to $0.60 from $0.53 in 1998.
Nine month earnings per diluted share increased 14.3% to $1.76 from $1.54. The
strong 1999 earnings were driven by double digit revenue growth, solid asset
growth from the commercial finance and equipment segments, consistent credit
quality, and continued improvements in operating efficiency.
Return on equity for the third quarter of 1999 was 13.5%, improved from 13.2%
for the same period in 1998, and was 13.6% for the first nine months of 1999,
improved from 13.2% for the same period in 1998. Return on average earning
assets ("AEA") for the third quarter of 1999 was 1.63% compared to 1.67% for the
third quarter of 1998. Return on AEA for the nine months ended September 30,
1999 was 1.64% compared to 1.68% 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
$28.6 billion at September 30, 1999, an increase of 12.5% from $25.4 billion at
September 30, 1998 and up 9.1% from $26.2 billion at December 31, 1998.
Financing and leasing assets increased 13.6% to $25.9 billion at September 30,
1999 from $22.8 billion at September 30, 1998, and increased 9.1% 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
-------------------------------------------------------------------------
September 30, Increase
------------------------------------- -------------------------------
1999 1998 Amount Percent
----------------- ----------------- -------------- -------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance income $ 583.9 $ 510.6 $ 73.3 14.4%
Interest expense 304.1 263.8 40.3 15.3%
----------------- ----------------- -------------- -------------
Net finance income $ 279.8 $ 246.8 $ 33.0 13.4%
================= ================= ============== -------------
AEA $23,818.5 $20,669.9 $3,148.6 15.2%
================= ================= ============== =============
Net finance income as a % of AEA 4.70% 4.78%
================= =================
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Nine Months Ended
-------------------------------------------------------------------------
September 30, Increase
------------------------------------- -------------------------------
1999 1998 Amount Percent
----------------- ----------------- -------------- -------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Finance income $ 1,679.8 $ 1,481.4 $ 198.4 13.4%
Interest expense 858.2 766.2 92.0 12.0%
----------------- ----------------- -------------- -------------
Net finance income $ 821.6 $ 715.2 $ 106.4 14.9%
================= ================= ============== -------------
AEA $23,213.9 $19,946.7 $3,267.2 16.4%
================= ================= ============== =============
Net finance income as a % of AEA 4.72% 4.78%
================= =================
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Finance income for the three months ended September 30, 1999 increased $73.3
million or 14.4% from the comparable 1998 period. Finance income for the nine
month period ended September 30, 1999 increased $198.4 million or 13.4% from the
same period in 1998. As a percentage of AEA, finance income (excluding interest
income relating to short-term interest-bearing deposits) was 9.60% and 9.50% for
the quarter and nine months ended September 30, 1999, respectively, as compared
to 9.74% and 9.76% for the respective corresponding 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 September 30, 1999 increased $40.3
million or 15.3% from the comparable 1998 period, and for the nine month period
ended September 30, 1999 increased $92.0 million or 12.0% 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 third quarter of 1999 decreased
to 4.90% from 4.97% in the comparable 1998 period, and for the nine month
periods ended September 30, 1999 and 1998, decreased to 4.78% from 4.98%,
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 portfolio risk management 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 nine month periods ended September 30, 1999 and 1998, before
and after giving effect to interest rate swaps, is shown in the following
tables.
- --------------------------------------------------------------------------------
Three Months Ended September 30, 1999
-------------------------------------------
Before Swaps After Swaps
------------------ ---------------------
(Dollar Amounts in Millions)
Commercial paper and
variable rate senior notes $ 11,413.2 5.33% $ 8,747.6 5.33%
Fixed rate senior and
subordinated notes 8,930.5 6.20% 11,596.1 6.25%
----------- -----------
Composite interest rate paid $ 20,343.7 5.71% $ 20,343.7 5.86%
=========== ===========
Three Months Ended September 30, 1998
-------------------------------------------
Before Swaps After Swaps
------------------ ---------------------
(Dollar Amounts in Millions)
Commercial paper and
variable rate senior notes $ 9,952.1 5.61% $ 7,322.7 5.55%
Fixed rate senior and
subordinated notes 7,074.4 6.29% 9,703.8 6.38%
----------- -----------
Composite interest rate paid $ 17,026.5 5.89% $ 17,026.5 6.02%
=========== ===========
- --------------------------------------------------------------------------------
10
<PAGE>
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 1999
-------------------------------------------
Before Swaps After Swaps
------------------ ---------------------
(Dollar Amounts in Millions)
Commercial paper and
variable rate senior notes $ 10,984.8 5.09% $ 8,521.4 5.08%
Fixed rate senior and
subordinated notes 8,758.0 6.19% 11,221.4 6.26%
----------- -----------
Composite interest rate paid $ 19,742.8 5.58% $ 19,742.8 5.75%
=========== ===========
Nine Months Ended September 30, 1998
-------------------------------------------
Before Swaps After Swaps
------------------ ---------------------
(Dollar Amounts in Millions)
Commercial paper and
variable rate senior notes $ 9,343.8 5.62% $ 6,756.0 5.57%
Fixed rate senior and
subordinated notes 7,062.7 6.35% 9,650.5 6.43%
----------- -----------
Composite interest rate paid $ 16,406.5 5.93% $ 16,406.5 6.08%
=========== ===========
- --------------------------------------------------------------------------------
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 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 September 30, 1999, fees and other income totaled
$81.9 million, compared to $69.0 million for the third quarter of 1998. For the
nine months ended September 30, 1999 and 1998, fees and other income totaled
$221.4 million and $196.1 million, respectively. Increased lending fees in our
commercial finance and equipment financing businesses, strong commissions from
the factoring business bolstered by an acquisition, and
11
<PAGE>
gains on sales of leasing equipment and certain consumer finance receivables
were partially offset by lower gains on venture capital investments and
securitizations. The following table sets forth the components of fees and other
income.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Factoring commissions $ 31.1 $ 24.8 $ 84.1 $ 70.4
Fees and other income 36.2 24.8 87.5 69.0
Gains on sales of leasing equipment 14.6 11.5 44.5 35.2
Gains on securitizations - 7.3 5.3 12.5
Gains on sales of venture capital investments - 0.6 - 9.0
------------ ------------ ------------ ------------
$ 81.9 $ 69.0 $ 221.4 $ 196.1
============ ============ ============ ============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SALARIES AND GENERAL OPERATING EXPENSES
Salaries and general operating expenses increased by $9.8 million or 9.3% to
$115.1 million in the third quarter of 1999 from $105.3 million in the
comparable 1998 period. For the nine month period ended September 30, 1999,
salaries and general operating expenses increased $26.1 million or 8.4% to
$337.1 million from $311.0 million for the same period in 1998. The increase in
expenses reflects a factoring acquisition, product expansion in the equipment
financing and leasing businesses, certain incremental costs relating to the
restructuring of our sales finance business, and normal expense increases,
partially offset by productivity gains in the consumer segment.
12
<PAGE>
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 Nine Months Ended
September 30, September 30,
---------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Efficiency ratio 39.0% 39.2% 39.6% 40.1%
Salaries and general operating
expenses as a percentage of AMA 1.72% 1.82% 1.73% 1.86%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The improvement in the ratios reflects the success of continuing productivity
initiatives and our ability to leverage our existing operating structure,
particularly in our consumer and factoring businesses.
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 $20.1 million to $283.8 million (1.33% of finance
receivables) at September 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, 3.21 times at September 30, 1999, was relatively unchanged from 3.35
times at December 31, 1998. The relationship of the reserve for credit losses to
nonaccrual finance receivables was 123.1% at September 30, 1999 compared to
124.7% at December 31, 1998.
13
<PAGE>
The provision for credit losses for the third quarter of 1999 was $32.2 million,
up from $30.6 million in the third quarter of 1998 and the nine month total of
$77.9 million was up from $75.0 million for the nine months ended September 30,
1998.
For the quarter ended September 30, 1999, net credit losses were $25.3 million
(0.48% of average finance receivables) as compared to $21.6 million (0.46%) for
the same period last year. Net credit losses for the nine months ended September
30, 1999 were $67.5 million (0.44%) compared to $58.0 million (0.42%) 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 Nine Months Ended
September 30, September 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Equipment Financing and Leasing 0.23 % 0.21 % 0.16 % 0.25 %
Commercial Finance 0.44 % 0.47 % 0.42 % 0.21 %
------------- ------------- ------------ ------------
Total Commercial Segments 0.31 % 0.30 % 0.25 % 0.24 %
Consumer Segment 1.17 % 1.08 % 1.16 % 1.12 %
------------- ------------- ------------ ------------
Total 0.48 % 0.46 % 0.44 % 0.42 %
============= ============= ============ ============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
For the nine months ended September 30, 1999, Equipment Financing and Leasing
net credit losses declined on continued good credit quality. The year to date
increase in Commercial Finance net credit losses was primarily due to large
recoveries in 1998.
As a percentage of average consumer managed finance receivables, consumer net
credit losses were 1.01% during the third quarter of 1999 compared to 0.87% for
the same period in 1998,
14
<PAGE>
and for the nine months ended September 30, 1999 and 1998, were 1.01% and 0.89%,
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
September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
At September 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 $ 163.8 1.54% $ 149.9 1.41%
Commercial Finance 51.0 0.77% 32.1 0.64%
------------- ------------- ------------ ------------
Total Commercial Segments 214.8 1.24% 182.0 1.17%
Consumer Segment 170.5 4.19% 166.0 3.89%
------------- ------------- ------------ ------------
Total $ 385.3 1.81% $ 348.0 1.75%
============= ============= ============ ============
Total nonperforming assets:
Equipment Financing and Leasing $ 120.1 1.13% $ 135.2 1.27%
Commercial Finance 23.9 0.36% 14.5 0.29%
------------- ------------- ------------ ------------
Total Commercial Segments 144.0 0.83% 149.7 0.96%
Consumer Segment 144.1 3.54% 129.0 3.02%
------------- ------------- ------------ ------------
Total $ 288.1 1.35% $ 278.7 1.40%
============= ============= ============ ============
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets reflect both finance receivables on nonaccrual status and
assets received in satisfaction of loans.
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 September 30, 1999, operations at an oil
15
<PAGE>
refinery were subject to such difficulties. The aggregate carrying value of this
asset was approximately $20.3 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 $3.7 billion at September 30, 1999,
up 32.6% from December 31, 1998 and up 53.4% from September 30, 1998, driven
primarily by growth in rail transport, commercial aircraft equipment, and
construction equipment. Depreciation for the quarter ended September 30, 1999
was $61.6 million, up from $42.7 million for the same period in 1998, and for
the nine months ended September 30, 1999, depreciation was $176.9 million, up
from $121.4 million in the same period in 1998 due to growth in the portfolio.
INCOME TAXES
The effective income tax rates for the third quarters of 1999 and 1998 were
34.5% and 35.0%, and for the nine month periods ended September 30, 1999 and
1998, were 34.7% and 35.4%, 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 $2.4 billion (9.1%) to $28.6 billion during the first nine
months of 1999, and financing and leasing assets increased $2.2 billion (9.1%)
to $25.9 billion, as presented in the following table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
At September 30, At December 31, Change
1999 1998 Amount Percent
-------------- ------------- ------------- ----------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Equipment Financing:
Finance receivables $ 8,745.9 $ 8,497.6 $ 248.3 2.9%
Operating lease equipment, net 849.9 765.1 84.8 11.1
-------------- ------------- ------------- ----------
Total 9,595.8 9,262.7 333.1 3.6
-------------- ------------- ------------- ----------
Capital Finance:
Finance receivables 1,598.3 1,655.4 (57.1) (3.4)
Operating lease equipment, net (1) 2,807.0 1,982.0 825.0 41.6
-------------- ------------- ------------- ----------
4,405.3 3,637.4 767.9 21.1
Liquidating portfolio(1) (2) 324.9 466.9 (142.0) (30.4)
-------------- ------------- ------------- ----------
Total 4,730.2 4,104.3 625.9 15.2
-------------- ------------- ------------- ----------
Total Equipment Financing and Leasing 14,326.0 13,367.0 959.0 7.2
-------------- ------------- ------------- ----------
Commercial Services 3,714.8 2,481.8 1,233.0 49.7
Business Credit 1,726.9 1,477.9 249.0 16.8
Credit Finance 1,173.6 1,036.5 137.1 13.2
-------------- ------------- ------------- ----------
Total Commercial Finance 6,615.3 4,996.2 1,619.1 32.4
-------------- ------------- ------------- ----------
Total Commercial Segments 20,941.3 18,363.2 2,578.1 14.0
-------------- ------------- ------------- ----------
Other - Equity Investments 115.8 81.9 33.9 41.4
-------------- ------------- ------------- ----------
Consumer Finance 2,229.3 2,244.4 (15.1) (0.7)
Sales Financing 2,577.3 3,009.9 (432.6) (14.4)
-------------- ------------- ------------- ----------
Total Consumer Segment 4,806.6 5,254.3 (447.7) (8.5)
-------------- ------------- ------------- ----------
Total Financing and Leasing Assets 25,863.7 23,699.4 2,164.3 9.1
-------------- ------------- ------------- ----------
Finance receivables previously securitized:
Consumer Finance 464.0 607.6 (143.6) (23.6)
Sales Financing 2,286.0 1,909.3 376.7 19.7
-------------- ------------- ------------- ----------
Total 2,750.0 2,516.9 233.1 9.3
-------------- ------------- ------------- ----------
Total Managed Assets - Consumer Segment 7,556.6 7,771.2 (214.6) (2.8)
-------------- ------------- ------------- ----------
Total Managed Assets $ 28,613.7 $ 26,216.3 $ 2,397.4 9.1%
============== ============= ============= ==========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Operating lease equipment, net, of $20.3 million and $27.0 million are
included in the liquidating portfolios at September 30, 1999 and December
31, 1998, respectively.
(2) Consists primarily of oceangoing maritime and project finance.
17
<PAGE>
Strong originations in rail transport, commercial aircraft equipment, and
construction equipment 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 decreased to $7.6 billion at September 30, 1999 from
$7.8 billion at December 31, 1998, due to sales of certain lower returning
receivables during the third quarter as a result of ongoing risk and return
management strategies.
Financing and Leasing Assets Composition
Our ten largest financing and leasing asset accounts at September 30, 1999 in
the aggregate accounted for 4.9% 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 September 30, 1999 At December 31, 1998
------------------------------- -------------------------------
Amount Percent Amount Percent
---------------- ----------- ----------------- -----------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
United States
West $ 5,846.9 22.6% $ 5,583.2 23.6%
Northeast 5,630.5 21.8 5,143.9 21.7
Midwest 5,465.6 21.1 4,895.3 20.7
Southeast 3,735.9 14.4 3,492.3 14.7
Southwest 3,308.0 12.8 2,993.3 12.6
Foreign (principally commercial aircraft) 1,876.8 7.3 1,591.4 6.7
---------------- ----------- ----------------- -----------
Total $25,863.7 100.0% $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 September 30, 1999, state concentrations
in excess of 5.0% of financing and leasing assets were limited to California
(12.1%), Texas (8.9%), and New York (8.1%).
Industry Composition
The following table presents financing and leasing assets by major industry
class.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
At September 30, 1999 At December 31, 1998
---------------------------------- ----------------------------------
Amount Percent Amount Percent
----------------- ------------- ---------------- ------------
(Dollar Amounts in Millions)
<S> <C> <C> <C> <C>
Manufacturing(1) $ 5,752.8 22.2% $ 5,117.0 21.6%
Retail 2,822.9 10.9 1,882.1 7.9
Commercial airlines(2) 2,596.7 10.0 2,325.4 9.8
Construction equipment 2,348.5 9.1 1,947.4 8.2
Home mortgage(3) 2,229.3 8.6 2,244.4 9.5
Transportation(4) 2,089.9 8.1 1,777.6 7.5
Manufactured housing(5) 1,664.8 6.4 1,417.5 6.0
Other(6)(7) 6,358.8 24.7 6,988.0 29.5
----------------- ------------- ---------------- ------------
Total $25,863.7 100.0% $23,699.4 100.0%
================= ============= ================ ============
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 9.1% of managed assets at September 30, 1999. See
"--Concentrations" below for a discussion of the commercial airline
portfolio.
(3) On a managed asset basis, home mortgage outstandings were $2.7 billion or
9.4% of managed assets at September 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 6.6% of managed assets at September 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 4.1% of total
financing and leasing assets.
(7) On a managed asset basis, recreation vehicle outstandings were $1.9 billion
or 6.6% of managed assets at September 30, 1999 as compared to $1.9 billion
or 7.2% at December 31, 1998. On a managed asset basis, recreational boat
outstandings were $0.8 billion or 3.0% of managed assets at September 30,
1999 as compared to $1.0 billion or 4.0% of managed assets at December 31,
1998.
19
<PAGE>
Concentrations
Commercial Airline Industry
Commercial airline financing and leasing assets totaled $2.6 billion (10.0% of
total financing and leasing assets) at September 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 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 portfolio.
See also "Operating Lease Equipment".
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
At September 30, 1999 At December 31, 1998
----------------------------- ------------------------------
(Dollar Amounts in Millions)
<S> <C> <C>
Finance Receivables
Amount outstanding(1) $1,209.3 $1,230.7
Number of obligors 54 54
Operating Lease Equipment, net
Net carrying value $1,387.4 $1,094.7
Number of obligors 36 33
Total $2,596.7 $2,325.4
Number of obligors(2) 73 65
Number of aircraft(3) 193 206
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 requirement 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 2000. Similar restrictions in
Europe phase out the use of Stage II aircraft by the year 2001. At
September 30, 1999, the portfolio consisted of Stage III aircraft of
$2,544.7 million (98.0%) and Stage II aircraft of $34.1 million (1.3%),
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 aircraft exposure because FAA rules phase out the use of Stage II
aircraft by the year 2000 in the United States. At September 30, 1999, Stage II
aircraft declined to 1.3% of our commercial aircraft portfolio, about 75% of
which represents collateral for full pay out debt obligations and the remaining
represents aircraft on operating leases.
Foreign Outstandings
Our foreign exposures are limited mainly to the commercial airline industry.
Financing and leasing assets to foreign obligors are U.S. dollar denominated and
totaled $1.9 billion at September 30, 1999 and $1.6 billion at December 31,
1998. The largest exposures at September 30, 1999 were to obligors in England,
$150.5 million (0.58% of financing and leasing assets), Canada, $145.7 million
(0.56%), Belgium, $138.7 million (0.54%), France, $134.0 million (0.52%), and
Spain, $110.0 million (0.42%). The remaining foreign exposure was geographically
dispersed, with no other individual country exposure greater than $110 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.
HLTs that we originated and in which we participated totaled $678.6 million
(2.6% of financing and leasing assets) at September 30, 1999 as compared to
$561.1 million (2.4%) at December
21
<PAGE>
31, 1998. The increase in HLT outstandings during the first nine 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 $394.0
million at September 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 nine months of 1999, commercial paper outstanding decreased to
$5.5 billion at September 30, 1999 from $6.1 billion at December 31, 1998.
During this period, we issued $4.4 billion of variable rate term debt and $1.8
billion of fixed rate term debt. The decrease in commercial paper and
corresponding increase in term debt reflects, in part, our strategy to prefund
asset growth in light of Year 2000. Repayments of debt totaled $4.1 billion for
the first nine months of 1999. At September 30, 1999, $18.6 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 September 30, 1999, commercial paper borrowings were supported by $5.5
billion of committed revolving credit-line facilities, representing 99.8% 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 nine months of 1999. At September 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 September 30, At December 31,
1999 1998
---------------- -----------------
(Dollar Amounts in Millions)
<S> <C> <C>
Commercial paper $ 5,472.6 $ 6,144.1
Term debt 14,569.9 12,507.3
---------------- -----------------
Total debt 20,042.5 18,651.4
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company 250.0 250.0
Stockholders' equity 2,914.6 2,701.6
---------------- -----------------
Total capitalization $23,207.1 $21,603.0
================ =================
Total debt to stockholders' equity and Company-
obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of the Company 6.33x 6.32x
Total debt and Company-obligated mandatorily
redeemable preferred securities of subsidiary trust holding
solely debentures of the Company to stockholders' equity 6.95x 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.
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:
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 September 30, 1999, we completed the
entire Year 2000 process for
24
<PAGE>
all of our high and medium priority IT systems and for 99% of all our IT
systems. We will complete the Year 2000 process for all of our IT systems during
the fourth quarter of 1999.
A majority of the software used in our IT systems is provided by outside
vendors. As of September 30, 1999, all vendor-provided software or software
upgrades for our high and medium priority systems has been designated by the
software vendors as Year 2000 compliant.
We formulated a contingency plan for business continuation in the event of Year
2000 systems failures. This contingency plan is based upon our existing disaster
recovery and business continuity plans with modifications for Year 2000 risks.
We completed our Year 2000 contingency plan by August 31, 1999, and have
substantially tested these contingency plans as of September 30, 1999.
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
25
<PAGE>
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 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 $6.4 million has been incurred through September
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.
26
<PAGE>
STATISTICAL DATA
The following table presents components of net income as a percentage of AEA,
along with other selected financial data.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Nine Months Ending
September 30,
--------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Finance income(1) 9.50% 9.76%
Interest expense(1) 4.78 4.98
-------------- --------------
Net finance income 4.72 4.78
Fees and other income 1.27 1.31
-------------- --------------
Operating revenue 5.99 6.09
-------------- --------------
Salaries and general operating expenses 1.94 2.08
Provision for credit losses 0.44 0.50
Depreciation on operating lease equipment 1.02 0.81
Minority interest in subsidiary trust holding solely
debentures of the Company 0.08 0.10
-------------- --------------
Operating expenses 3.48 3.49
-------------- --------------
Income before provision for income taxes 2.51 2.60
Provision for income taxes 0.87 0.92
-------------- --------------
Net income 1.64% 1.68%
============== ==============
Average earning assets (in millions) $23,213.9 $19,946.7
============== ==============
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
27
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders was held on September 8, 1999. The following
individuals, comprising all of the directors of CIT, were elected to the Board
of Directors, each with the number of votes shown, to serve until the next
annual meeting of stockholders, or until he is succeeded by another qualified
director who has been elected:
DIRECTORS FOR AGAINST
- --------- --- -------
Hisao Kobayashi 148,183,447 1,382,248
Albert R. Gamper, Jr. 148,184,866 1,380,829
Daniel P. Amos 149,216,410 349,285
Anthea Disney 147,549,048 2,016,647
Takasuke Kaneko 132,019,477 17,546,218
William M. O'Grady 148,184,539 1,381,156
Joseph A. Pollicino 148,184,606 1,381,089
Paul N. Roth 148,185,340 1,380,355
Peter J. Tobin 149,217,347 348,348
Tohru Tonoike 148,181,268 1,384,427
Keiji Torii 146,532,760 3,032,935
Alan R. White 149,218,214 347,481
In addition to electing the Board of Directors, the stockholders also ratified
the appointment of KPMG LLP as independent accountants to examine the financial
statements of CIT and its subsidiaries for the year ending December 31, 1999,
with 149,502,414 votes for, 25,776 votes against, and 37,505 votes abstaining
and approved CIT's Employee Stock Purchase Plan with 141,578,856 votes for,
7,273,004 votes against, 50,017 votes abstaining and 663,818 broker non-votes.
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 12 - Computation of Ratios of Earnings to Fixed Charges.
(b) Exhibit 27 - Financial Data Schedule.
(c) A Form 8-K report dated July 30, 1999 was filed with the SEC reporting CIT's
declaration of a dividend for the quarter ended June 30, 1999.
A Form 8-K report dated August 5, 1999 was filed with the SEC reporting
CIT's announcement of an amended and restated agreement to acquire Newcourt
Credit Group Inc. and additionally announcing the financial results for the
Quarter ended June 30, 1999.
A Form 8-K report dated August 18, 1999 was filed with the SEC containing
the pro forma financial statements prepared by CIT and Newcourt Credit Group
Inc.
A Form 8-K report dated September 22, 1999 was filed with the SEC containing
the unaudited consolidated financial statements of Newcourt Credit Group
Inc. for the six months ended June 30, 1999 and the audited consolidated
financial statements of Newcourt for each of the two year periods ended
December 31, 1998 and 1997.
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: November 9, 1999
30
EXHIBIT 12
THE CIT GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(Dollar Amounts In Millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Net income $ 285.1 $ 251.5
Provision for income taxes 151.6 138.0
--------------- --------------
Earnings before provision for income taxes 436.7 389.5
--------------- --------------
Fixed Charges:
Interest and debt expense on indebtedness 858.2 766.2
Minority interest in subsidiary trust holding solely
debentures of the Company 14.4 14.4
Interest factor - one third of rentals on
real and personal properties 6.7 7.4
--------------- --------------
Total fixed charges 879.3 788.0
--------------- --------------
Total earnings before provision for income
taxes and fixed charges $ 1,316.0 $ 1,177.5
=============== ==============
Ratio of earnings to fixed charges 1.50x 1.49x
=============== ==============
</TABLE>
<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> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 143
<SECURITIES> 0
<RECEIVABLES> 21,333
<ALLOWANCES> 284
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,739
<CURRENT-LIABILITIES> 0
<BONDS> 14,570
250
0
<COMMON> 2
<OTHER-SE> 2,913
<TOTAL-LIABILITY-AND-EQUITY> 26,739
<SALES> 0
<TOTAL-REVENUES> 666
<CGS> 0
<TOTAL-COSTS> 115
<OTHER-EXPENSES> 65
<LOSS-PROVISION> 32
<INTEREST-EXPENSE> 304
<INCOME-PRETAX> 148
<INCOME-TAX> 51
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.60
</TABLE>
