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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, 2000
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ -------
Commission File Number
1-1861
----------------------
THE CIT GROUP, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-2994534
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1211 AVENUE OF THE AMERICAS, NEW YORK, NEW YORK 10036
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(Address of principal executive offices) (Zip Code)
(212) 536-1390
--------------------------------------------------------------------------------
(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 July 31, 2000: Common Stock including Exchangeable Shares -
262,430,738.
================================================================================
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
(UNAUDITED)
TABLE OF CONTENTS PAGE
----
PART I. FINANCIAL INFORMATION 1
Item 1. Condensed Financial Statements
Consolidated Balance Sheets - June 30, 2000 and
December 31, 1999. 2
Consolidated Income Statements for the three and six months
ended June 30, 2000 and 1999. 3
Consolidated Statements of Changes in Stockholders' Equity for
the six months ended June 30, 2000 and 1999. 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6-12
Item 2. Management's Discussion and Analysis of Financial
and Condition and Results of Operations 13-30
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K 31
================================================================================
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 and the ability to
integrate recent acquisitions.
================================================================================
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,
1999 Annual Report on Form 10-K and the March 31, 2000 Quarterly Report 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
(Dollars in Millions)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
(unaudited)
<S> <C> <C>
Assets
------
Financing and leasing assets
Loans and leases
Commercial $29,098.2 $27,119.2
Consumer 4,023.4 3,887.9
--------- ---------
Finance receivables 33,121.6 31,007.1
Reserve for credit losses (460.3) (446.9)
--------- ---------
Net finance receivables 32,661.3 30,560.2
Operating lease equipment, net 6,427.6 6,125.9
Finance receivables held for sale 2,874.9 3,123.7
Cash and cash equivalents 845.6 1,073.4
Goodwill 2,009.8 1,850.5
Other assets 2,270.2 2,347.4
--------- ---------
Total assets $47,089.4 $45,081.1
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Debt
Commercial paper $ 9,356.2 $ 8,974.0
Variable rate senior notes 10,161.7 7,147.2
Fixed rate senior notes 17,626.7 19,052.3
Subordinated fixed rate notes 200.0 200.0
--------- ---------
Total debt 37,344.6 35,373.5
Credit balances of factoring clients 2,129.5 2,200.6
Accrued liabilities and payables 1,102.8 1,191.8
Deferred federal income taxes 513.7 510.8
--------- ---------
Total liabilities 41,090.6 39,276.7
Company-obligated mandatorily redeemable
preferred securities of subsidiary trust holding
solely debentures of the Company 250.0 250.0
Stockholders' equity
Common stock 2.7 2.7
Paid-in capital 3,525.7 3,521.8
Retained earnings 2,339.6 2,097.6
Accumulated other comprehensive income (0.7) 2.8
Treasury stock at cost (118.5) (70.5)
--------- ---------
Total stockholders' equity 5,748.8 5,554.4
--------- ---------
Total liabilities and stockholders' equity $47,089.4 $45,081.1
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Dollars in Millions, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------- ----------------------
2000 1999 2000 1999
-------- ------ -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Finance income $1,301.8 $554.4 $2,530.6 $1,095.9
Interest expense 630.9 280.8 1,202.8 554.1
-------- ------ -------- --------
Net finance income 670.9 273.6 1,327.8 541.8
Depreciation on operating lease equipment 311.7 59.2 619.5 115.3
-------- ------ -------- --------
Net finance margin 359.2 214.4 708.3 426.5
Fees and other income 232.3 74.8 470.5 139.5
-------- ------ -------- --------
Operating revenue 591.5 289.2 1,178.8 566.0
-------- ------ -------- --------
Salaries and general operating expenses 257.5 108.0 525.7 213.8
Provision for credit losses 64.0 23.8 125.6 45.7
Goodwill amortization 20.6 5.0 41.1 8.2
Minority interest in subsidiary trust holding
solely debentures of the Company 4.8 4.8 9.6 9.6
-------- ------ -------- --------
Operating expenses 346.9 141.6 702.0 277.3
-------- ------ -------- --------
Income before provision for income taxes 244.6 147.6 476.8 288.7
Provision for income taxes 93.2 51.3 181.5 100.5
-------- ------ -------- --------
Net income $ 151.4 $ 96.3 $ 295.3 $ 188.2
======== ====== ======== ========
Basic net income per share $ 0.58 $ 0.60 $ 1.13 $ 1.17
Diluted net income per share $ 0.58 $ 0.59 $ 1.12 $ 1.16
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
2000 1999
-------- --------
(unaudited)
<S> <C> <C>
Balance, January 1 $5,554.4 $2,701.6
-------- --------
Net income 295.3 188.2
Foreign currency translation adjustments (4.0) --
Unrealized gain on equity and securitization investments, net 0.5 --
-------- --------
Total comprehensive income 291.8 188.2
Dividends declared (53.3) (32.4)
Treasury stock purchased (48.0) (15.6)
Other 3.9 4.6
-------- --------
Balance, June 30 $5,748.8 $2,846.4
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------
2000 1999
---------- ----------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net income $ 295.3 $ 188.2
Adjustments to reconcile net income to net cash flows
from operations:
Provision for credit losses 125.6 45.7
Depreciation and amortization 686.2 131.6
Provision for deferred federal income taxes 69.8 71.4
Gains on equipment, receivable and investment sales (192.8) (41.2)
Decrease in accrued liabilities and payables (89.0) (27.0)
Increase in other assets (64.5) (131.3)
Other 14.9 29.3
---------- ----------
Net cash flows provided by operations 845.5 266.7
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans extended (24,203.2) (16,879.7)
Collections on loans 20,395.9 15,535.0
Proceeds from asset and receivable sales 3,004.5 1,663.0
Purchases of assets to be leased (946.3) (879.2)
Purchases of finance receivable portfolios (870.7) (452.7)
Net increase in short-term factoring receivables (217.0) (269.1)
Other (12.6) (0.9)
---------- ----------
Net cash flows used for investing activities (2,849.4) (1,283.6)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of variable and fixed rate notes 6,883.7 4,348.9
Repayments of variable and fixed rate notes (5,294.8) (2,695.3)
Net increase (decrease) in commercial paper 382.2 (469.8)
Net repayments of non-recourse leveraged lease debt (90.5) (99.6)
Cash dividends paid (53.3) (32.4)
Purchase of treasury stock (48.0) (15.6)
---------- ----------
Net cash flows provided by financing activities 1,779.3 1,036.2
---------- ----------
Effect of exchange rate on cash (3.2) --
---------- ----------
Net (decrease) increase in cash and cash equivalents (227.8) 19.3
Cash and cash equivalents, beginning of period 1,073.4 73.6
---------- ----------
Cash and cash equivalents, end of period $ 845.6 $ 92.9
========== ==========
Supplemental disclosures
Interest paid $ 1,163.2 $ 552.5
Federal, state and local and foreign income taxes paid $ 27.6 $ 45.2
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE 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") and diluted EPS is presented below.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
For the Three Months Ended June 30,
---------------------------------------------------------------------------------------
2000 1999
-------------------------------------------- --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
(In Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 151.4 261.6 $ 0.58 $ 96.3 160.9 $ 0.60
====== ======
Effect of Dilutive
Securities:
Restricted shares -- 1.0 -- 1.0
Stock options -- -- -- 0.2
------- ----- ------ -----
Diluted EPS $ 151.4 262.6 $ 0.58 $ 96.3 162.1 $ 0.59
======= ===== ====== ====== ===== ======
------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30,
---------------------------------------------------------------------------------------
2000 1999
------------------------------------------ --------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
(In Millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to
common shareholders $ 295.3 262.3 $ 1.13 $ 188.2 161.0 $ 1.17
====== ======
Effect of Dilutive
Securities:
Restricted shares -- 0.8 -- 1.0
Stock options -- -- -- 0.3
------- ----- ------- -----
Diluted EPS $ 295.3 263.1 $ 1.12 $ 188.2 162.3 $ 1.16
======= ===== ====== ======= ===== ======
------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Stockholders' Equity
The following table summarizes the outstanding common stock, par value $.01 per
share with 1,210,000,000 shares authorized, and exchangeable shares at June 30,
2000, and December 31, 1999.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Common Stock
-------------------------------------
Less Exchangeable
Issued Treasury Outstanding Shares
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 2000 255,372,317 (5,554,836) 249,817,481 12,350,677
=========== =========== =========== ===========
Balance at December 31, 1999 242,285,952 (2,745,685) 239,540,267 24,892,310
=========== =========== =========== ===========
----------------------------------------------------------------------------------------
</TABLE>
Exchangeable shares of CIT Exchangeco Inc., par value of $.01 per share, were
issued in connection with the acquisition of Newcourt. The holders of Exchangeco
shares have dividend, voting and other rights equivalent to those of CIT common
stockholders. These shares may be exchanged at any time at the option of the
holder on a one-for-one basis for CIT common stock, and in any event will be
exchanged no later than November 2004.
7
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Business Segment Information
The following table presents reportable segment information and the
reconciliation to the consolidated totals as of and for the six months ended
June 30, 2000, and 1999. Prior year balances have been reclassified to conform
with the current year presentation. The 2000 balances reflect integration
related portfolio transfers effective December 31, 1999 between Vendor
Technology Finance, Structured Finance and Equipment Financing and Leasing.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Equipment Vendor
Financing Technology Commercial Structured Total Corporate Consolidated
and Leasing Finance Finance Finance Consumer Segments and Other Total
----------- ------- ------- ------- -------- -------- --------- -----
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 2000
Operating revenue $ 338.4 $ 395.6 $ 241.8 $ 64.3 $ 120.5 $ 1,160.6 $ 18.2 $ 1,178.8
Net income 133.1 69.2 74.3 31.5 30.8 338.9 (43.6) 295.3
Total managed assets 19,835.9 16,484.4 7,581.8 2,019.4 7,246.0 53,167.5 203.4 53,370.9
June 30, 1999
Operating revenue $ 250.8 $ -- $ 191.1 $ -- $ 120.3 $ 562.2 $ 3.8 $ 566.0
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
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 2000, we are implementing certain organizational
refinements, which are not reflected in the table above, to better align
marketing and risk management efforts and to further improve operating
efficiencies. Certain North American business lines of Vendor Technology Finance
were transferred to the Equipment Financing business unit. Vendor Technology
Finance will continue to emphasize growing its key vendor finance relationships
and to conduct international operations. The communications and media product
lines previously with Equipment Financing, have been transferred to Structured
Finance. In addition, Equity Investments will operate as part of Structured
Finance.
Note 5 - Newcourt Acquisition
On November 15, 1999, CIT acquired Newcourt, a publicly traded non-bank
financial services enterprise, which originated, invested in and securitized,
syndicated and sold asset-based loans and leases.
8
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The acquisition of Newcourt has been accounted for using the purchase method.
The difference between the purchase price and the fair value of net assets
acquired was allocated to goodwill in the Consolidated Balance Sheets.
The original purchase price allocations were refined during the second quarter
2000, increasing goodwill by $200.1 million, and are summarized, on an after tax
basis, in the table that follows. Goodwill related to the Newcourt acquisition,
which was $1,548.6 million at June 30, 2000, is being amortized on a
straight-line basis over twenty-five years from the acquisition date.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
<S> <C>
(Dollars in Millions)
Retained interests in securitization transactions $117.6
Pre-acquisition contingencies 32.2
Business restructuring, including adjustments to reflect dispositions 26.4
Other 23.9
------
Total second quarter increase $200.1
======
---------------------------------------------------------------------------------------
</TABLE>
The majority of the retained interest adjustment is related to two of the 18
retained securitization interests acquired in the Newcourt transaction. The
receivables underlying these interests were originated in 1999 and included
substantial trucking industry receivables.
9
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the activity in the restructuring liability
related to the Newcourt acquisition.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Severance and
Other Leasehold Transaction
Termination Termination and Other
Costs Costs Costs Total
------------- ----------- ----------- -------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Balance at November 15, 1999 $102.1 $24.5 $ 72.6 $199.2
Cash payments (48.1) -- (38.0) (86.1)
Transaction fees settled in CIT stock -- -- (14.3) (14.3)
Non-cash reductions -- -- (2.5) (2.5)
------ ----- ------ ------
Balance at December 31, 1999 54.0 24.5 17.8 96.3
Cash payments (21.3) -- (5.3) (26.6)
------ ----- ------ ------
Balance at March 31, 2000 32.7 24.5 12.5 69.7
Cash payments (23.7) (6.5) (2.4) (32.6)
Additions 6.7 -- -- 6.7
Non-cash reductions -- (2.4) (7.4) (9.8)
------ ----- ------ ------
Balance at June 30, 2000 $ 15.7 $15.6 $ 2.7 $ 34.0
====== ===== ====== ======
------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6 - Selected Pro Forma Information
The unaudited condensed consolidated statements of income for the three and six
months ended June 30, 2000 and the unaudited pro forma condensed consolidated
statement of income for the three and six months ended June 30, 1999 follow. The
1999 pro forma statement has been prepared assuming that the Newcourt
acquisition had occurred at the beginning of the period.
10
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- --------------------------
2000 1999* 2000 1999*
------ ------- -------- ---------
(Dollars in Millions, except per share amounts)
<S> <C> <C> <C> <C>
Operating revenue $591.5 $632.8 $1,178.8 $1,179.0
Net income 151.4 149.6 295.3 269.7
Basic earnings per share 0.58 0.57 1.13 1.02
Diluted earnings per share 0.58 0.56 1.12 1.01
---------------------------------------------------------------------------------------------
</TABLE>
* 1999 pro forma results include the following: a second quarter disposal of
two automotive leasing units resulting in a $34.3 million pre-tax gain,
$15.5 million after-tax and $0.06 pro forma EPS and a first quarter
non-recurring gain from the extinguishment of certain derivative
instruments by Newcourt of $56.6 million pretax, $31.1 million after tax
and $0.12 pro forma EPS.
The pro forma results have been prepared for comparative purposes only, and are
based on the historical operating results of Newcourt prior to the acquisition.
The pro forma results include certain adjustments, primarily to recognize
accretion and amortization based on the allocated purchase price of assets and
liabilities. Further, the 1999 results do not include cost savings, reduced
securitization activity and other initiatives contemplated by CIT in connection
with the acquisitions. Accordingly, management does not believe that the 1999
pro forma results are indicative of the actual results that would have occurred
had the acquisition closed at the beginning of the year.
Note 7 - Recent Accounting Pronouncements
During 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133". SFAS 137 delayed the
implementation of SFAS 133, which is now effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. During June 2000, the FASB
issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities, an amendment of FASB Statement No. 133", which amends the
accounting and reporting of certain derivative instruments and hedging
activities. We have not yet finalized the evaluation of the impact of SFAS 133
and 138.
11
<PAGE>
THE CIT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Summarized Financial Information of Subsidiaries
The following table shows summarized consolidated financial information for CIT
Holdings LLC and its wholly owned subsidiary, AT&T Capital. CIT has guaranteed
on a full and unconditional basis the existing registered debt securities and
certain other indebtedness of these subsidiaries. Therefore, CIT has not
presented related financial statements or other information for these
subsidiaries on a stand-alone basis. The following summarized consolidated
financial information reflects results as of and for the six months ended June
30, 2000 and also the transfer of various subsidiaries amongst other CIT
entities during January 2000.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2000
--------------------------------------------------
CIT Holdings LLC AT&T Capital
---------------- ------------
(Dollars in Millions)
<S> <C> <C>
Operating revenue $341.3 $192.5
Operating expenses 179.8 127.3
Operating income before taxes 161.5 65.2
Net income 100.1 37.9
</TABLE>
<TABLE>
<CAPTION>
At June 30, 2000
--------------------------------------------------
CIT Holdings LLC AT&T Capital
---------------- ------------
(Dollars in Millions)
<S> <C> <C>
Assets
Cash and cash equivalents $ 175.1 $ 172.6
Financing and leasing portfolio assets 6,907.5 5,052.3
Receivables from affiliates and other assets 1,220.2 765.8
-------- --------
Total assets $8,302.8 $5,990.7
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Debt $5,039.6 $4,641.4
Other 187.0 104.2
-------- --------
Total liabilities 5,226.6 4,745.6
Total stockholders' equity 3,076.2 1,245.1
-------- --------
Total liabilities and stockholders' equity $8,302.8 $5,990.7
======== ========
-----------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
and CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
OVERVIEW
Quarterly and six-month net income, EPS and selected ratio comparisons are
presented in the following table.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
--------------------------------------- ----------------------
June 30, March 31, June 30,
------------------------- ----------------------
2000 1999 2000 2000 1999
-------- --------- -------- -------- --------
(Dollars in Millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net income $151.4 $96.3 $143.9 $295.3 $188.2
Net income per diluted share $ 0.58 $0.59 $ 0.55 $ 1.12 $ 1.16
Return on average stockholders' equity 10.7% 13.7% 10.3% 10.5% 13.6%
Return on average tangible
stockholders' equity 15.9% 15.5% 15.3% 15.6% 15.1%
Return on average earning assets (AEA) 1.49% 1.66% 1.48% 1.48% 1.64%
----------------------------------------------------------------------------------------------------------------
</TABLE>
The earnings per share reflect higher 2000 earnings offset by the dilutive
effect of stock issued in connection with the November 15, 1999 acquisition of
Newcourt. Before the amortization of goodwill, second quarter 2000 earnings per
diluted share improved to $0.66 from $0.62 in both the second quarter of 1999
and the first quarter of 2000. The second quarter and six-month 2000 earnings
reflect growth from our 1999 acquisition activities, solid fee and other income
generation, as well as considerable expense savings related to our operational
integrations. The declines in return on AEA reflect higher leverage due to the
1999 acquisitions and a narrower net finance margin.
New business origination volume, excluding factoring volume, for the second
quarter of 2000 was $6.1 billion compared to $6.8 billion for the first quarter
of 2000 and $2.9 billion in the second quarter of 1999. The increase over last
year was due primarily to the Newcourt acquisition while the decrease from the
prior quarter was due to lower consumer and commercial portfolio acquisition
activity in the second quarter.
Total managed assets increased to $53.4 billion at June 30, 2000, up 3.8% from
$51.4 billion at year-end, and $28.4 billion at June 30, 1999. The net increase
in managed assets of $0.2 billion over March 31, 2000 was achieved after the
sales of non-strategic portfolios amounting to approximately $0.5 billion during
the quarter. Commercial managed assets were $45.9 billion at June 30, 2000,
compared to $44.0
13
<PAGE>
billion at December 31, 1999. Consumer managed assets were $7.2 billion at June
30, 2000, compared to $7.3 billion at December 31, 1999, and were down from $8.1
billion a year ago, reflecting our decision to exit certain lower return product
lines. Total portfolio assets increased to $42.6 billion from $40.4 billion at
year-end 1999 and $25.3 billion at June 30, 1999.
NET FINANCE MARGIN
A comparison of net finance margin is set forth below.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Three Months Ended
---------------------------------------------------
June 30, March 31,
------------------------------
2000 1999 2000
--------- --------- ---------
(Dollars in Millions)
<S> <C> <C> <C>
Finance income $ 1,301.8 $ 554.4 $ 1,228.8
Interest expense 630.9 280.8 571.9
--------- --------- ---------
Net finance income 670.9 273.6 656.9
Depreciation on operating lease equipment 311.7 59.2 307.8
--------- --------- ---------
Net finance margin $ 359.2 $ 214.4 $ 349.1
========= ========= =========
AEA $40,690.9 $23,166.2 $38,968.1
Net finance margin as a % of AEA 3.53% 3.70% 3.58%
------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Six Months Ended
---------------------------
June 30, Increase
--------------------------- --------------------------
2000 1999 Amount Percent
--------- --------- --------- -------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Finance income $ 2,530.6 $ 1,095.9 $ 1,434.7 130.9%
Interest expense 1,202.8 554.1 648.7 117.1
--------- --------- --------- ------
Net finance income 1,327.8 541.8 786.0 145.1
Depreciation on operating lease
equipment 619.5 115.3 504.2 437.3
--------- --------- --------- ------
Net finance margin $ 708.3 $ 426.5 $ 281.8 66.1%
========= ========= ========= ======
AEA $39,778.6 $22,905.3 $16,873.5 73.7%
Net finance margin as a % of AEA 3.56% 3.72%
------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
Net finance margin increased 67.5% to $359.2 million for the three months ended
June 30, 2000 from the same period in 1999, and was up $10.1 million over the
first quarter of 2000. The year over year increase primarily reflects growth in
our financing assets due to our 1999 acquisitions and internally generated
portfolio growth. Net finance margin for the six-month period ended June 30,
2000 increased $281.8 million or 66.1% from the same period in 1999. As a
percentage of AEA, net finance margin declined to 3.53% for the three months
ended June 30, 2000 from 3.70% in the second quarter of 1999, and 3.58% for the
first quarter of 2000. For the six months ended June 30, 2000, net finance
margin as a percentage of AEA declined to 3.56% from 3.72% for the same period
in 1999. The year over year comparisons reflect several factors including rising
market interest rates, wider debt pricing spreads, competitive market pricing,
and the growing operating lease portfolio. Our operating leases, which generally
have lower net margins than finance receivables at inception, also generate
equipment gains, renewal fees and tax depreciation benefits.
Finance income for the three months ended June 30, 2000 increased $747.4 million
and $73.0 million to $1,301.8 million, from the comparable 1999 period and the
first quarter of 2000, respectively. Finance income for the six-month period
ended June 30, 2000 increased $1,434.7 million or 130.9% from the same period in
1999. As a percentage of AEA, finance income (excluding interest income relating
to short-term interest-bearing deposits) was 12.53% for the second quarter ended
June 30, 2000, compared to 9.45% for the same quarter of 1999 and 12.46% for the
first quarter of 2000. For the six months ended June 30, 2000 and 1999, finance
income (excluding interest income relating to short-term interest-bearing
deposits) as a percentage of AEA was 12.51% and 9.45%, respectively. The year
over year increase in yield was due to changes in product mix primarily as a
result of the fourth quarter 1999 Newcourt acquisition.
Interest expense for the three months ended June 30, 2000 increased $350.1
million or 124.7% from the second quarter 1999 and $59.0 million from March 31,
2000, and for the six-month period ended June 30, 2000, increased $648.7 million
or 117.1% from the same period in 1999. 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 2000 increased to 5.93% from 4.73% for the June 30, 1999 period and
5.72% for the March 31, 2000 period, and increased to 5.83% from 4.72% for the
six-month periods ended June 30, 2000 and 1999, respectively. The increases from
the first to second quarters of 2000 and from the comparable periods of 1999
reflect the rising interest rate environment in the latter half of 1999,
which continued into 2000.
15
<PAGE>
The operating equipment lease portfolio was $6.4 billion at June 30, 2000 versus
$6.1 billion at December 31, 1999 and $3.4 billion at June 30, 1999. Operating
lease margin (rental income less depreciation expense as a percentage of average
operating leases) for the second quarter of 2000 was 8.2%, relatively unchanged
from the first quarter of 2000 and up from 6.9% for the prior year second
quarter while the six-month periods were 8.2% and 6.8% for 2000 and 1999,
respectively. Depreciation on operating lease equipment for the quarter ended
June 30, 2000 was $311.7 million, up from $59.2 million for the same period in
1999 and $307.8 million for the first quarter of 2000, and for the six months
ended June 30, 2000, depreciation was $619.5 million up from $115.3 million in
the same period in 1999. As a percentage of average operating leases,
depreciation expense, on an annualized basis, was 19.5% and 7.4% at June 30,
2000 and June 30, 1999, respectively. The year over year increases in operating
lease margin and depreciation reflects the acquired Newcourt portfolios, which
include shorter-term assets with higher margins and more rapid depreciable
lives.
We seek to mitigate interest rate risk by matching the repricing characteristics
of our assets with our liabilities, which is done in part through the use of
derivative financial instruments, principally interest rate swaps, whose
notional amounts were $11,959.9 million at June 30, 2000 and $8,779.4 million at
December 31, 1999. The increase in interest rate swaps reflects our current
strategy to reduce funding costs by issuing floating rate debt and swapping it
into fixed rate. See "Liquidity Risk Management" for further discussion. A
comparative analysis of the weighted average principal outstanding and interest
rates paid on our debt before and after the effect of interest rate swaps is
shown in the following table.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2000
---------------------------------------------------------
Before Swaps After Swaps
---------------------- ----------------------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate
senior notes $20,025.2 6.47% $14,952.9 6.73%
Fixed rate senior and subordinated notes 17,935.4 6.70% 23,007.7 6.62%
--------- ---------
Composite interest rate paid $37,960.6 6.58% $37,960.6 6.67%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
---------------------------------------------------------
Before Swaps After Swaps
---------------------- ----------------------
(Dollars 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%
========= =========
---------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2000
---------------------------------------------------------
Before Swaps After Swaps
---------------------- ----------------------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Commercial paper and variable rate
senior notes $19,290.8 6.26% $15,097.8 6.49%
Fixed rate senior and subordinated notes 17,849.7 6.68% 22,042.7 6.58%
--------- ---------
Composite interest rate paid $37,140.5 6.46% $37,140.5 6.54%
========= =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------
Before Swaps After Swaps
---------------------- ----------------------
(Dollars 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%
========= =========
--------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average composite interest rate after swaps in each of the periods
presented increased from the composite interest rate before swaps 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
Non-spread revenues for the three months ended June 30, 2000 totaled $232.3
million, compared to $74.8 million for the second quarter of 1999 and $238.2
million for the March 31, 2000 quarter. For the six months ended June 30, 2000
and 1999, non-spread revenues totaled $470.5 million and $139.5 million. These
year over year increases reflect the higher proportion of fee-based business in
the acquired Newcourt business units, as the combination of Vendor Technology
Finance and Structured Finance contributed $109.9 million and $208.7 million to
the three and six-month increases, respectively.
17
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
------------------------------------- --------------------
June 30, March 31, June 30,
-------------------- --------------------
2000 1999 2000 2000 1999
------- ------ --------- ------- -------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Fees and other income $121.1 $20.4 $121.4 $242.5 $ 51.3
Gains on sales of leasing equipment 39.4 20.7 21.8 61.2 29.9
Factoring commissions 38.2 29.0 38.5 76.7 53.0
Gains on securitizations 23.0 4.7 19.0 42.0 5.3
Gains on venture capital investments 10.6 -- 37.5 48.1 --
------ ----- ------ ------ ------
$232.3 $74.8 $238.2 $470.5 $139.5
====== ===== ====== ====== ======
-----------------------------------------------------------------------------------------------------------
</TABLE>
The growth in fees and other income reflects fees associated with the acquired
Newcourt businesses, including strong joint venture revenues, syndication and
structuring related fees, as well as gains from consumer whole loan sales. Gains
on equipment sales increased due to the higher volume of equipment coming off
lease. Factoring commissions, for both the three and six months ended June 30,
2000, increased reflecting higher internally generated origination volume and
the 1999 acquisitions. Securitization gains were $23.0 million or 9.4% of pretax
income versus $19.0 million or 8.2% of pretax income for the first quarter of
2000, and $4.7 million or 3.2% of pretax income for the same period in 1999. The
higher year over year gains represents the additional securitization volume from
the former Newcourt operations. Gains of $10.6 million for the second quarter
and $48.1 million for the six months ended June 30, 2000 were realized on a
number of venture capital investment transactions, one of which accounted for a
substantial portion of the gains in the first quarter of 2000.
SALARIES AND GENERAL OPERATING EXPENSES
Salaries and general operating expenses totaled $257.5 million for the second
quarter of 2000, up from $108.0 million in the comparable 1999 period, but down
$10.7 million from the first quarter of 2000 due to continued realization of
integration benefits. For the six-month period ended June 30, 2000, salaries and
general operating expenses increased $311.9 million or 145.9% to $525.7 million
from $213.8 for the same period in 1999. The year over year increases reflect
increased personnel and facilities due to the 1999 acquisitions and normal
expense increases. Although up from the prior year quarter and six months,
second quarter 2000 expense levels reflect annualized run rate savings of
approximately $150 million from pro-forma combined pre-acquisition levels, our
original target for expense reduction. Expense savings to date are primarily
from the elimination of duplicate corporate overhead and consolidation of
non-revenue department activities. Operational savings from the consolidation of
certain servicing
18
<PAGE>
centers, as well as real estate cost reductions, are expected to be realized in
the second half of 2000. Headcount was 7,400 at quarter end, down 855 from
December 31, 1999 and 250 from March 31, 2000.
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, March 31, June 30,
---------------- ----------------
2000 1999 2000 2000 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Efficiency ratio 43.9% 38.0% 46.0% 45.0% 38.4%
Salaries and general operating expenses as
a percentage of AMA 2.03% 1.66% 2.15% 2.09% 1.67%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in expenses as noted above reduced the two ratios from the March
31, 2000 quarter levels. The higher 2000 ratios, when compared to 1999, reflect
the acquired Vendor Technology Finance operations, which carry significantly
higher expense ratios. Management is continuing expense savings initiatives to
further improve the ratios.
GOODWILL AMORTIZATION
Goodwill amortization was $20.6 million and $41.1 million for the three and six
months ended June 30, 2000, versus $5.0 million and $8.2 million for the same
periods in 1999. These increases reflect the impact of the 1999 acquisitions of
Newcourt, Heller and Congress, each of which were accounted for under the
purchase method.
Goodwill related to the Newcourt acquisition was increased by approximately $200
million at June 30, 2000, as described in Note 5. As a result, goodwill, net of
amortization, as of June 30, 2000, increased $159.3 million, or 8.6%, from
December 31, 1999.
Additional restructuring activities, which were contemplated in CIT's overall
integration plan, are expected to occur prospectively. Associated incremental
exit costs or sales of portfolio assets will also be reflected as goodwill
adjustments in 2000, or alternatively in earnings, to the extent applicable.
Based upon currently available information and final determination of fair
values, management anticipates that as a result of the above factors, further
adjustments to goodwill will take place in 2000.
19
<PAGE>
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 non-performing assets.
The reserve increased to $460.3 million (1.39% of finance receivables) at June
30, 2000 from $446.9 million (1.44% of finance receivables) at December 31, 1999
and $276.8 million (1.32% of finance receivables) at June 30, 1999, due to the
portfolio growth for the first six months and the 1999 acquisitions. However,
the reserve ratio has declined in 2000 due to mix changes in the portfolio. The
relationship of the reserve for credit losses to non-accrual finance receivables
was 73.6% at June 30, 2000 compared to 87.6% at December 31, 1999.
The provision for credit losses for the second quarter of 2000 was $64.0
million, up from $23.8 million in the second quarter of 1999 and $61.6 million
for the first quarter of 2000, reflecting higher 2000 net credit losses over
1999 levels and provisions for portfolio growth.
For the quarter ended June 30, 2000, net credit losses were $60.7 million (0.73%
of average finance receivables) as compared to $21.4 million (0.41% of average
finance receivables) for the second quarter last year and $53.0 million for the
first quarter of 2000 (0.67% of average finance receivables). For the six months
ended June 30, 2000 and 1999, net credit losses were $113.7 million (0.70%) and
$42.2 million (0.41%), respectively. The increase in net credit losses as a
percentage of average finance receivables reflects product mix changes due to
the 1999 acquisitions.
20
<PAGE>
The following table sets forth net credit losses as a percentage of average
finance receivables (annualized), excluding finance receivables held for sale.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
----------------------------------- ------------------
June 30, March 31, June 30,
--------------------- ------------------
2000 1999 2000 2000 1999
---- ---- --------- ---- ----
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Equipment Financing and Leasing 0.34% 0.15% 0.45% 0.40% 0.13%
Vendor Technology Finance 1.06 -- 0.76 0.93 --
Commercial Finance 0.79 0.38 0.59 0.70 0.40
Structured Finance 0.11 -- -- 0.05 --
---- ---- ---- ---- ----
Total Commercial 0.64 0.23 0.55 0.60 0.22
Consumer 1.34 1.14 1.48 1.41 1.16
---- ---- ---- ---- ----
Total 0.73% 0.41% 0.67% 0.70% 0.41%
==== ==== ==== ==== ====
----------------------------------------------------------------------------------------------------
</TABLE>
Year over year, commercial net credit losses for the quarter were up from 0.23%
in 1999 to 0.64% due mainly to higher charge-offs in Equipment Financing and
Leasing and Commercial Finance and to the addition of Vendor Technology Finance
and Structured Finance. Consumer net credit losses were 1.34% compared to 1.14%
for the three months ended June 30, 2000 and 1999, respectively, primarily due
to higher losses in the manufactured housing portfolio. Equipment Financing and
Leasing net credit losses increased primarily due to the transfer of assets from
the acquired Newcourt portfolios. The increase in Commercial Finance net credit
losses was primarily due to write-offs associated with a food wholesaler.
21
<PAGE>
PAST DUE AND NON-PERFORMING ASSETS
The following table sets forth certain information concerning past due and total
non-performing assets and related percentages of receivables, excluding
receivables held for sale, at June 30, 2000, March 31, 2000 and December 31,
1999. Non-performing assets reflect both finance receivables on non-accrual
status and assets received in satisfaction of loans.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
At June 30, At March 31, At December 31,
2000 2000 1999
---------------- -------------------- ---------------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C> <C>
Finance receivables, past due 60
days or more
Equipment Financing and Leasing $239.7 1.84% $305.1 2.35% $209.6 1.93%
Vendor Technology Finance 344.8 4.72 322.8 4.26 376.4(1) 4.15(1)
Commercial Finance 74.4 0.98 59.2 0.78 64.0 0.91
Structured Finance 94.9 8.06 86.9 7.83 --(1) --(1)
------ ----- ------ ----- --------- -------
Total Commercial Segments 753.8 2.59 774.0 2.65 650.0 2.42
Consumer 174.2 4.33 178.2 4.32 189.1(2) 4.62(2)
------ ----- ------ ----- --------- -------
Total $928.0 2.80% $952.2 2.85% $839.1 2.71%
====== ===== ====== ===== ========= =======
Total non-performing assets
Equipment Financing and Leasing $267.4 2.05% $303.6 2.34% $139.9 1.29%
Vendor Technology Finance 197.0 2.70 247.2 3.27 309.4(1) 3.41(1)
Commercial Finance 39.6 0.52 22.6 0.30 27.6 0.39
Structured Finance 107.8 9.16 85.9 7.74 --(1) --(1)
------ ----- ------ ----- --------- -------
Total Commercial Segments 611.8 2.10 659.3 2.26 476.9 1.77
Consumer 168.9 4.20 162.3 3.93 158.5(2) 3.87(2)
------ ----- ------ ----- --------- -------
Total $780.7 2.36% $821.6 2.46% $635.4 2.05%
====== ===== ====== ===== ========= =======
---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All Newcourt Segment data, at December 31, 1999, as presented above, is
included in Vendor Technology Finance. Additionally, the 1999 amounts and
ratios do not reflect integration related portfolio transfers between
Vendor Technology Finance, Structured Finance and Equipment Financing and
Leasing.
(2) For these calculations, certain finance receivables held for sale and the
associated past due and non-performing balances are included.
For the second quarter, the decrease in commercial past due and non-performing
accounts reflected the collection of a large account, as well as stabilization
in delinquency levels following the consolidation of the servicing centers.
22
<PAGE>
INCOME TAXES
The effective income tax rates for the second quarters of 2000 and 1999 were
38.1% and 34.7%, respectively. For the six-month periods ended June 30, 2000 and
1999, the effective income tax rates were 38.1% and 34.8%, respectively. The
increase in the 2000 effective tax rate was primarily due to nondeductible
goodwill amortization.
FINANCING AND LEASING ASSETS
Our managed assets grew $1.9 billion (3.8%), to $53.4 billion at June 30, 2000
from $51.4 billion at December 31, 1999. Financing and leasing assets grew $2.2
billion (5.5%) to $42.6 billion at June 30, 2000 from $40.4 billion at December
31, 1999. Owned asset growth was tempered in the second quarter by the planned
sales of non-strategic portfolios amounting to approximately $0.5 billion.
Managed assets include finance receivables, operating lease equipment, finance
receivables held for sale, certain investments, and finance receivables
previously securitized and still managed by us.
The managed assets of our business segments and the corresponding strategic
business units are presented in the following table.
23
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
June 30, December 31, Change
2000 1999 Amount Percent
--------- --------- -------- -------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Equipment Financing
Finance receivables $11,478.5 $10,899.3 $579.2 5.0%
Operating lease equipment, net 1,030.5 1,066.2 (35.7) (3.3)
--------- --------- --------- -----
Total 12,509.0 11,965.5 543.5 4.5
--------- --------- --------- -----
Capital Finance
Finance receivables 1,561.0 1,838.0 (277.0) (15.1)
Operating lease equipment, net 3,235.8 2,931.8 304.0 10.4
Liquidating portfolio (1) (2) 202.9 281.4 (78.5) (27.9)
--------- --------- --------- -----
Total 4,999.7 5,051.2 (51.5) (1.0)
--------- --------- --------- -----
Total Equipment Financing and Leasing Segment 17,508.7 17,016.7 492.0 2.9
--------- --------- --------- -----
Vendor Technology Finance
Finance receivables 8,227.7 7,488.9 738.8 9.9
Operating lease equipment, net 2,105.8 2,108.8 (3.0) (0.1)
--------- --------- --------- -----
Total Vendor Technology Finance Segment 10,333.5 9,597.7 735.8 7.7
--------- --------- --------- -----
Structured Finance
Finance receivables 1,980.6 1,933.9 46.7 2.4
Operating lease equipment, net 38.8 -- 38.8 100.0
--------- --------- --------- -----
Total Structured Finance Segment 2,019.4 1,933.9 85.5 4.4
--------- --------- --------- -----
Commercial Services 4,287.1 4,165.1 122.0 2.9
Business Credit 3,294.7 2,837.0 457.7 16.1
--------- --------- --------- -----
Total Commercial Finance Segment 7,581.8 7,002.1 579.7 8.3
--------- --------- --------- -----
Total Commercial Segments 37,443.4 35,550.4 1,893.0 5.3
--------- --------- --------- -----
Home equity 2,459.7 2,215.4 244.3 11.0
Manufactured housing 1,684.2 1,666.9 17.3 1.0
Recreational vehicles 506.8 361.2 145.6 40.3
Liquidating portfolio (3) 330.0 462.8 (132.8) (28.7)
--------- --------- --------- -----
Total Consumer Segment 4,980.7 4,706.3 274.4 5.8
--------- --------- --------- -----
Other - Equity Investments 203.4 137.3 66.1 48.1
--------- --------- --------- -----
Total Financing and Leasing Portfolio Assets 42,627.5 40,394.0 2,233.5 5.5
--------- --------- --------- -----
Finance receivables previously securitized
Commercial 8,478.1 8,471.5 6.6 (0.1)
Consumer 1,755.3 1,987.0 (231.7) (11.7)
Consumer liquidating portfolio (3) 510.0 580.8 (70.8) (12.2)
--------- --------- --------- -----
Total 10,743.4 11,039.3 (295.9) (2.7)
--------- --------- --------- -----
Total Managed Assets $53,370.9 $51,433.3 $1,937.6 3.8%
========= ========= ========= =====
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Consists primarily of ocean going maritime and project finance. Capital
Finance discontinued marketing to these sectors in 1997.
(2) Operating lease equipment, net, of $16.7 million and $19.1 million are
included in the liquidating portfolios at June 30, 2000 and December 31,
1999, respectively.
(3) In 1999, we decided to exit the recreational boat and wholesale loan
product lines.
24
<PAGE>
CONCENTRATIONS
Financing and Leasing Assets Composition
Our ten largest financing and leasing asset accounts at June 30, 2000 in the
aggregate accounted for 4.1% of 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, 2000 At December 31, 1999*
------------------------- ------------------------
Amount Percent Amount Percent
--------- ------- --------- -------
(Dollars in Millions)
<S> <C> <C> <C> <C>
United States
Northeast $ 8,593.5 20.2% $ 8,257.2 20.5%
West 8,493.0 19.9 7,594.0 18.8
Midwest 7,652.2 17.9 7,042.7 17.4
Southeast 6,221.8 14.6 5,380.5 13.3
Southwest 4,838.7 11.4 4,426.1 11.0
--------- ----- --------- -----
Total United States 35,799.2 84.0 32,700.5 81.0
--------- ----- --------- -----
Foreign
Canada 2,135.6 5.0 2,797.5 6.9
All other 4,692.7 11.0 4,896.0 12.1
--------- ------ --------- ------
Total $42,627.5 100.0% $40,394.0 100.0%
========= ====== ========= ======
---------------------------------------------------------------------------------------------
</TABLE>
* Certain December 31, 1999 balances have been conformed to the current
period presentation.
Our managed asset geographic diversity does not differ significantly from our
owned asset geographic diversity.
25
<PAGE>
Our financing and leasing asset portfolio in the United States is diversified by
state. At June 30, 2000, with the exception of California (11.0%), Texas (8.0%),
and New York (6.3%), no state represented more than 4.3% of financing and
leasing assets. Our managed asset geographic composition did not significantly
differ from our December 31, 1999 managed asset geographic composition.
Financing and leasing assets to foreign obligors totaled $6.8 billion at June
30, 2000. Following Canada, $2.1 billion (5.0% of financing and leasing assets),
the largest foreign exposures were England, $1.1 billion (2.5%), and Australia,
$414.0 million (1.0%). Our remaining foreign exposure was geographically
dispersed, with no other individual country exposure greater than 0.8% of
financing and leasing assets.
Financing and leasing assets to foreign obligors totaled $7.7 billion at
December 31, 1999. After Canada, $2.8 billion (6.9% of financing and leasing
assets), the largest foreign exposures were England, $1.6 billion (4.0%), and
Australia, $397.6 million (1.0%). Our remaining foreign exposure was
geographically dispersed, with no other individual country exposure greater than
0.8% of financing and leasing assets.
26
<PAGE>
Industry Composition
The following table presents financing and leasing assets by major industry
class.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
At June 30, 2000 At December 31, 1999(4)
------------------------- ------------------------
Amount Percent Amount Percent
--------- ------- --------- -------
(Dollars in Millions)
<S> <C> <C> <C> <C>
Manufacturing (1)
(none greater than 4.2%) $ 8,335.0 19.6% $ 8,566.5 21.2%
Retail (2) 4,022.7 9.4 4,032.0 10.0
Transportation (3) 3,560.5 8.3 3,348.2 8.3
Commercial airlines 3,049.8 7.2 3,091.2 7.7
Construction equipment 2,890.7 6.8 2,697.0 6.7
Home mortgage 2,459.7 5.8 2,215.4 5.5
Service industries 1,855.8 4.4 1,768.1 4.4
Manufactured housing 1,684.2 3.9 1,666.9 4.1
Financial institutions 1,312.5 3.1 1,205.3 3.0
Wholesaling 1,227.2 2.9 1,303.6 3.2
Other (none greater than 2.7%) 12,229.4 28.6 10,499.8 25.9
--------- ----- --------- -----
Total $42,627.5 100.0% $40,394.0 100.0%
========= ====== ========= ======
-----------------------------------------------------------------------------------------------
</TABLE>
(1) Includes manufacturers of steel and metal products, textiles and apparel,
printing and paper products, and other industries.
(2) Includes retailers of apparel (3.9%) and general merchandise (2.4%).
(3) Includes rail, bus, and over-the-road trucking industries, and business
aircraft.
(4) Certain December 31, 1999 balances have been conformed to the current
period presentation.
LIQUIDITY RISK MANAGEMENT
Liquidity risk refers to the risk of CIT being unable to meet potential cash
outflows promptly and cost effectively. Factors that could cause such a risk to
arise might be a disruption of a securities market or other source of funds. We
actively manage and mitigate liquidity risk by maintaining diversified sources
of funding. The primary funding sources are commercial paper (U.S., Canada and
Australia), medium-term notes (U.S., Canada and Europe) and asset-backed
securities (U.S. and Canada). During the quarter, we issued $3.8 billion of
variable rate term debt. To reduce our financing costs, we issued floating rate
rather than fixed rate debt, which we swapped into fixed rate. We also maintain
committed bank lines of credit aggregating $8.4 billion to provide backstop
support of commercial paper borrowings and approximately $250 million of local
bank lines to support our international operations. Additional sources of
liquidity are loan and lease payments from customers and whole-loan sales,
syndications and asset-backed receivable conduits. At June 30, 2000, $14.3
billion of registered, but unissued, debt securities remained available under
shelf registration statements, including $2.0 billion of European Medium-Term
Notes.
27
<PAGE>
To ensure uninterrupted access to capital, we maintain strong investment grade
ratings as outlined below:
--------------------------------------------------------------------------------
Short Term Long Term
---------- ---------
Moody's P-1 A1
Standard & Poor's A-1 A+
Duff & Phelps D-1+ AA-
Dominion Bond Rating Service R-1 (mid) A (mid)
--------------------------------------------------------------------------------
As part of our continuing program of accessing the public and private
asset-backed securitization markets as an additional liquidity source, general
equipment finance receivables of $1,593.7 million were securitized ($913.7
million in the second quarter) during the first half of 2000. At June 30, 2000,
we had $3.5 billion of registered, but unissued, securities available under
public shelf registration statements relating to our asset-backed securitization
program.
We also target and monitor certain liquidity metrics to ensure both a balanced
liability profile and adequate alternate liquidity availability. Among the
target ratios are commercial paper as a percentage of total debt and committed
bank line coverage of outstanding commercial paper.
28
<PAGE>
CAPITALIZATION
The following table presents information regarding our capital structure.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
At June 30, At December 31,
2000 1999
----------- ---------------
(Dollars in Millions)
<S> <C> <C>
Commercial paper $ 9,356.2 $ 8,974.0
Term debt 27,988.4 26,399.5
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company 250.0 250.0
Stockholders' equity 5,748.8 5,554.4
--------- ---------
Total capitalization $43,343.4 $41,177.9
========= =========
Total debt (excluding overnight deposits) to stockholders'
equity and Company-obligated mandatorily
redeemable preferred securities of subsidiary trust
holding solely debentures of the Company 6.16x 5.96x
Total debt (excluding overnight deposits) to tangible
stockholders' equity and Company-obligated
mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of the
Company 9.27x 8.75x
Tangible stockholders' equity and Company-obligated
mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of the
Company to managed assets 7.5% 7.8%
---------------------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
STATISTICAL DATA
The following table presents components of net income as a percentage of AEA,
along with other selected financial data.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
For the Six Months Ended
June 30,
-------------------------
2000 1999
-------- ---------
<S> <C> <C>
Finance income (1) 12.51% 9.45%
Interest expense (1) 5.83 4.72
-------- ---------
Net finance income 6.68 4.73
Depreciation on operating lease equipment 3.11 1.01
-------- ---------
Net finance margin 3.56 3.72
Fees and other income 2.37 1.22
-------- ---------
Operating revenue 5.93 4.94
-------- ---------
Salaries and general operating expenses 2.64 1.87
Provision for credit losses 0.63 0.40
Goodwill amortization 0.21 0.07
Minority interest in subsidiary trust holding solely
debentures of the Company 0.05 0.08
-------- ---------
Operating expenses 3.53 2.42
-------- ---------
Income before provision for income taxes 2.40 2.52
Provision for income taxes 0.91 0.88
-------- ---------
Net income 1.48% 1.64%
========= =========
Average earning assets (dollars in millions) $39,778.6 $22,905.3
========= =========
-------------------------------------------------------------------------------------
</TABLE>
(1) Excludes interest income and interest expense relating to short-term
interest-bearing deposits.
30
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 24, 2000. 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
--------- --- -------
Albert R. Gamper, Jr. 225,698,757 940,266
Daniel P. Amos 225,703,141 935,882
Anthea Disney 211,007,475 15,631,548
William A. Farlinger 225,688,297 950,726
Guy Hands 225,689,351 949,672
Hon. Thomas H. Kean 225,696,425 942,598
Paul Morton 225,681,655 957,368
Takatsugu Murai 225,692,745 946,278
William M. O'Grady 225,699,026 939,997
Joseph A. Pollicino 225,699,991 939,032
Paul N. Roth 224,134,030 2,504,993
Peter J. Tobin 225,704,864 934,159
Keiji Torii 225,671,802 967,221
Theodore V. Wells 224,927,537 1,711,486
Alan F. White 225,701,721 937,302
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, 2000,
with 226,547,242 votes for, 53,884 votes against, and 37,897 votes abstaining.
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 May 3, 2000 was filed with the Commission
reporting the Company's announcement of financial results for the
quarter ended March 31, 2000, and the declaration of a quarterly
dividend for the quarter ended March 31, 2000.
A Form 8-K was filed on June 14, 2000 to report the retirement of the
Vice Chairman of the Company.
31
<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 14, 2000
32
