Item 1. Business
GENERAL
The CIT Group Holdings, Inc. (the "Corporation"), a Delaware corporation, is a successor to a company founded in St. Louis, Missouri on February 11, 1908. It has its principal executive offices at 1211 Avenue of the Americas, New York, New York 10036, and its telephone number is (212) 536-1950. The Corporation, operating directly or through its subsidiaries primarily in the United States, engages in financial services activities through a nationwide distribution network. The Corporation provides financing primarily on a secured basis to commercial borrowers, ranging from middle-market to larger companies, and to a lesser extent to consumers. While these secured lending activities reduce the risk of losses from extending credit, the Corporation's results of operations can also be affected by other factors, including general economic conditions, competitive conditions, the level and volatility of interest rates, concentrations of credit risk, and government regulation and supervision. The Corporation does not finance the development or construction of commercial real estate. The Corporation has eight strategic business units, seven of which offer corporate financing, dealer and manufacturer financing, and factoring products and services to clients, and an eighth which offers consumer first and second mortgage financing and home equity lines of credit. The Corporation had 2,689 employees at December 31, 1994, up from 2,424 employees at December 31, 1993.
The Dai-Ichi Kangyo Bank, Limited ("DKB") owns sixty percent (60%) of the issued and outstanding shares of common stock of the Corporation, which it purchased from Manufacturers Hanover Corporation ("MHC") at year-end 1989. The remaining forty percent (40%) common stock interest in the Corporation is owned by Chemical Banking Corporation ("CBC") through a subsidiary MHC Holdings (Delaware) Inc. ("MHC Holdings"), which CBC acquired as part of the merger between MHC and CBC on December 31, 1991.
In accordance with a stockholders agreement among DKB, CBC, as successor to MHC, and the Corporation (the "Stockholders Agreement"), the Corporation amended its Certificate of Incorporation and its By-Laws in conformity therewith. Pursuant to the Stockholders Agreement, immediately after MHC sold the sixty percent (60%) interest in the Corporation to DKB, the stockholders elected a new Board of Directors comprised of the President and Chief Executive Officer and the Vice Chairman of the Corporation, six nominees designated by DKB, and two nominees designated by MHC. The Stockholders Agreement also contains provisions for the management of the Corporation, majority voting by DKB on the Corporation's Executive Committee, consent of MHC Holdings with respect to major corporate and business changes, and restrictions with respect to the transfer of the stock of the Corporation to third parties.
BUSINESS AND SERVICES
Corporate Finance Group
The Corporation's Corporate Finance Group is comprised of Business Credit, Capital Equipment Financing and Credit Finance.
The CIT Group/Business Credit offers revolving and term loans secured by accounts receivable, inventories and fixed assets to medium and larger-sized companies. Such loans are used by clients primarily for acquisitions and refinancings. It also offers specialty financing for companies in the paper, printing and chemical industries and debtor-in-possession and workout financing for turnaround situations. The CIT Group/Business Credit sells participation interests in such loans to other lenders and will occasionally purchase participation interests in such loans originated by other lenders. Business is developed through direct calling efforts and through other sources originated by new business development officers. The CIT Group/Business Credit is headquartered in New York City, with sales and customer service offices in New York, Chicago, Dallas, Los Angeles, Atlanta and Charlotte.
The CIT Group/Capital Equipment Financing specializes in customized secured financing and leasing, including single investor leases, the debt and equity portions of leveraged leases, and operating leases for major capital equipment such as aircraft, rail cars, maritime shipping, and containers and chassis, for its own account and for syndications. Such business is developed directly with large companies and through third parties. The CIT Group/Capital Equipment Financing also provides secured financing and leasing products to middle-market and larger companies seeking medium and longer term financings. Such transactions are developed through direct calling efforts and financial intermediaries. Financing products include direct secured loans and leases, sale and leaseback arrangements, operating leases, and project financings. Two business groups within The CIT Group/Capital Equipment Financing augment its marketing efforts and provide services relating to its areas of expertise. The first group, The CIT Group/Capital Investments, acts as an agent, broker, and advisor in financing and leasing transactions. The CIT Group/Capital Investments is a registered broker-dealer and a member of the National Association of Securities Dealers, Inc. The second group, The CIT Group/Asset Management, provides asset management services to financial institutions and certain non-financial institutions for equipment financing transactions and portfolios. The CIT Group/Capital Equipment Financing is headquartered in New York City, with sales offices in twelve cities, including New York, Chicago and Los Angeles.
The CIT Group/Credit Finance offers revolving and term loans to small and medium-sized companies secured by accounts receivable, inventories, and fixed assets. Such loans are used by clients for working capital and in refinancings, acquisitions, and leveraged buyouts. The CIT Group/Credit Finance also offers financing for reorganizations, restructurings, and Chapter 11 situations. Business is developed through direct calling efforts and through other sources developed by new business development officers. The CIT Group/Credit Finance is headquartered in New York City, with sales and customer service offices in New York, Chicago and Los Angeles and loan production in seven other cities.
Dealer and Manufacturer Financing Group
The Corporation's Dealer and Manufacturer Financing Group is comprised of Industrial Financing and Sales Financing.
The CIT Group/Industrial Financing offers secured equipment financing and leasing products, including direct secured loans, leases, secured lines of credit, sale and leaseback arrangements, vendor financing for manufacturers, wholesale and retail financing for dealers/distributors, acquisition of chattel paper and other installment receivables, and acquisition of portfolios originated by others. It has a nationwide network of local offices and business aircraft, intermediary and national accounts financing units. The CIT Group/Industrial Financing is headquartered in Livingston, New Jersey, with sales offices in fourteen cities, including Berwyn, Pennsylvania, Tempe, Arizona and Atlanta, Georgia, which also serve as regional and customer service offices.
The CIT Group/Sales Financing, working through dealers and manufacturers, provides retail secured financing on a nationwide basis for the purchase of recreational vehicles, recreational boats and manufactured housing. The CIT Group/Sales Financing also purchases portfolios of these assets from banks, savings and loans, investment banks and others and provides servicing for portfolios owned by other financial institutions and securitization trusts. The CIT Group/Sales Financing is headquartered in Livingston, New Jersey with an asset service center in Oklahoma City, Oklahoma, and covers the United States from five regional business centers located in Atlanta, Boston, Kansas City, Sacramento and Seattle.
Consumer Finance
In December 1992, The CIT Group/Consumer Finance, a newly formed business unit, began offering loans secured primarily by first or second mortgages on residential real estate. The CIT Group/Consumer Finance generates business through brokers and direct marketing efforts. It also acquires "home equity" portfolios originated by others. In early 1994, The CIT Group/Consumer Finance began offering home equity lines of credit to consumers. This business unit is headquartered in Livingston, New Jersey with 33 sales offices serving 24 states, two of which purchase mortgage loans from third parties. Administrative support is provided by the Sales Financing asset service center located in Oklahoma City, Oklahoma.
Factoring
The CIT Group/Commercial Services offers a full range of factoring services providing for the purchase of accounts receivable, including credit protection, bookkeeping, and collection activities. Financing is also provided in the form of revolving and term loans, and letter of credit support. The CIT Group/Commercial Services is headquartered in New York City, with full service offices in New York, Los Angeles, Dallas and Charlotte and sales offices in Miami and Hong Kong. Bookkeeping and collection functions are located in a service center in Danville, Virginia.
On February 28, 1994, the Corporation acquired, for cash, Barclays Commercial Corporation ("BCC"), a company of The Barclays Group. BCC had total assets of approximately $700.0 million at December 31, 1993 and total factoring volume of approximately $5.00 billion for the year then ended. The business and acquired assets of BCC were transferred to The CIT Group/Commercial Services, Inc., a wholly-owned subsidiary of the Corporation. BCC is engaged in the same lines of business as The CIT Group/Commercial Services, with BCC adding a significant geographical presence in the Southeastern United States.
Equity Investments
The CIT Group/Equity Investments and its subsidiary The CIT Group/Venture Capital originate and participate in purchasing private equity and equity-related securities, and arrange transaction financing and merger and acquisition transactions. These units also invest in emerging growth opportunities in selected industries, including the life sciences, information technology, communications and consumer products. Business is developed through direct solicitation, or through referrals from investment banking firms, financial intermediaries, or the Corporation's other business units. The CIT Group/Venture Capital is a federal licensee under the Small Business Investment Act of 1958. The CIT Group/Equity Investments and The CIT Group/Venture Capital are headquartered in Livingston, New Jersey.
Multi-National Marketing
Supplementing the Corporation's marketing efforts, the Corporation's Multi-National Marketing Group promotes the services of the Corporation's various business units to the U.S. subsidiaries of foreign corporations in need of asset-based financing. Business is developed through referrals from DKB and through direct calling efforts. The Multi-National Marketing Group is located in New York City.
INDUSTRY CONCENTRATION
With the exception of the airline industry, which accounts for $1.90 billion, or 12.1%, of total financing and leasing assets (before the reserve for credit losses) as of December 31, 1994, the portfolio of the Corporation was diversified with no other industry group accounting for more than 8.5% of the Corporation's financing and leasing assets. See the "Industry Composition" and "Commercial Airlines" sections of "Financing and Leasing Assets Concentrations" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
COMPETITION
The business in which the Corporation engages is highly competitive, with business developed primarily on the basis of customizing transaction structure, client service and relationships, and payment terms. The Corporation is subject to competition from many financial institutions, including finance companies, banks, leasing companies and investment banks. The Corporation's Commercial Services unit is the largest factoring operation in the United States.
The interest rates charged by the Corporation for the various classes of financing and leasing assets vary depending upon the credit quality of the borrower, the amount and maturity of the loan, the costs of servicing, the income tax consequences of the transaction, the cost of borrowing to the Corporation, and, to a lesser degree, state usury laws and other governmental regulations, when applicable. The Corporation's finance receivables have both variable rates and fixed rates of interest. Variable rate loans reprice in accordance with various agreed upon indices, usually a published reference or prime interest rate.
REGULATION
Both DKB and CBC are bank holding companies within the meaning of the Bank Holding Company Act of 1956 (the "Act"), and each is registered as such with the Federal Reserve Board. As a result, the Corporation is subject to certain provisions of the Act. In general, the Act limits the activities in which a bank
holding company and its subsidiaries may engage to those of banking or managing or controlling banks or performing services for their subsidiaries and to continuing activities which the Federal Reserve Board has determined to be "so closely related to banking or managing or controlling banks as to be a proper incident thereto." The Corporation's current principal business activities constitute permissible activities for a subsidiary of a bank holding company.
The operations of the Corporation and its subsidiaries are subject, in certain instances, to supervision and regulation by governmental authorities and may be subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including among other things, regulating credit granting activities, establishing maximum interest rates and finance charges, regulating customers' insurance coverages, requiring disclosures to customers, governing secured transactions, and setting collection, repossession, and claims handling procedures and other trade practices. In most states the consumer sales finance and loan business and the consumer second mortgage and home equity line of credit businesses are subject to licensing or regulation. In some states the industrial finance business is subject to similar licensing or regulation. The consumer second mortgage, home equity line of credit, sales finance, and loan businesses, including those conducted by the Corporation, are also subject to a number of Federal statutes, including the Federal Consumer Credit Protection Act, which requires, among other things, disclosure of the finance charge in terms of an annual percentage rate, as well as the total dollar cost.
In the judgment of management, existing statutes and regulations have not had a materially adverse effect on the business conducted by the Corporation and its subsidiaries. However, it is not possible to forecast the nature of future legislation, regulations, judicial decisions, orders, or interpretations, nor their impact upon the future business, earnings, or otherwise, of the Corporation and its subsidiaries.
Item 2.

Item 2. Properties.
The operations of the Corporation and its subsidiaries are generally conducted in leased office space located in numerous cities and towns throughout the United States. Such leased office space is suitable and adequate for the needs of the Corporation. The Corporation utilizes, or plans to utilize in the foreseeable future, substantially all of its leased office space. For a summary of the Corporation's past rental expense and future minimum rentals, see Item 8. Financial Statements and Supplementary Data, "Note 12--Lease Commitments."
Item 3.

Item 3. Legal Proceedings.
Various claims and actions against the Corporation and its subsidiaries arise from time to time in the normal course of business. A number of these actions, some of which purport to be class actions, are now pending. While no prediction can be made as to the ultimate outcome of any particular action, management believes that meritorious defenses are generally available and the aggregate liability, if any, likely to result therefrom will not materially affect the consolidated financial condition of the Corporation.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
On April 14, 1994, DKB and MHC Holdings, by unanimous written consent, elected the following ten persons to the Board of Directors, to serve for a period of one year or until the next annual meeting of shareholders:
Messrs. Hisao Kobayashi (Chairman) Albert R. Gamper, Jr. Michio Murata Joseph A. Pollicino Paul N. Roth Tomoaki Tanaka Peter J. Tobin Toshiji Tokiwa Keiji Torii William H. Turner
Subsequently, on August 15, 1994, Mr. Tomoaki Tanaka resigned from the Board and the stockholders, by unanimous written consent, elected Mr. Hideo Kitahara for the balance of Mr. Tanaka's term as Director.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The outstanding common stock of the Corporation is owned 60% by DKB and 40% by MHC Holdings. There is no public trading market for the Corporation's common stock.
DKB, MHC Holdings and the Corporation operate under a policy requiring the payment of dividends by the Corporation equal to and not exceeding 50% of net operating earnings on a quarterly basis. Such dividends are paid to DKB and MHC Holdings based upon their respective stock ownership in the Corporation.
The Corporation intends to continue to operate under the fifty-percent dividend policy set forth in the preceding paragraph. Below is a listing of the dividends paid during the past two years:
Dividends Paid 1994 1993 -------------- ------ ------ Amounts in Thousands Regular Dividends First Quarter .................. $ 24,596 $21,931 Second Quarter ................. 24,880 23,221 Third Quarter .................. 26,440 23,722 Fourth Quarter ................. 24,420 22,290 -------- ------- Total ...................... $100,336 $91,164 ======== =======
Stockholders' equity at December 31, 1994 was $1.79 billion. Under the most restrictive provisions of agreements relating to outstanding debt, the Corporation may not, without the consent of the holders of such debt, permit stockholders' equity to be less than $300.0 million.
Item 6.

Item 6. Selected Financial Data.
The following table sets forth selected consolidated financial information regarding the Corporation's results of operations, which has been extracted from the Corporation's consolidated financial statements for the five years ended December 31, 1994. Prior period amounts, principally fees and other income and depreciation on operating lease equipment have been reclassified to conform to the current presentation. This information should be read in conjunction with Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
1994 vs. 1993
Highlights
Net income for the year ended December 31, 1994 was a record $201.1 million, an increase of $18.8 million (10.3%) from the $182.3 million earned in 1993. The fourth consecutive year of record earnings reflects improved finance income, increased factoring commissions and a lower provision for credit losses, offset, in part, by increased operating expenses, including those of Barclays Commercial Corporation (BCC) which was acquired in February 1994, and expanded activity in Consumer Finance.
Total financing and leasing assets, which include finance receivables and operating lease equipment, increased to a record $15.66 billion at December 31, 1994, a $2.29 billion (17.1%) improvement, compared to $13.38 billion at December 31, 1993. All operating units experienced year-over-year growth. Particularly noteworthy was Commercial Services which added $914.3 million of finance receivables, including the BCC acquisition involving over $700 million of factored receivables.
Net Finance Income
A comparison of 1994 and 1993 finance income and interest expense is set forth below. The 1993 finance income amount has been restated to exclude fees and other income and depreciation on operating lease equipment in order to conform to the 1994 presentation.
The increase of $152.0 million in finance income reflects earnings on the $1.37 billion growth in AEA and the effect of rising market interest rates, which enabled finance income, as a percentage of AEA, to improve to 9.19% in 1994 from 8.93% in 1993. These factors also impacted interest expense, which totaled $613.9 million in 1994, an increase of $105.9 million (20.9%), compared with $508.0 million in 1993. Net finance income totaled $649.9 million, an increase of $46.1 million (7.6%) from 1993. However, the increased interest expense and more aggressive competition in transaction pricing and structuring, particularly from banks, resulted in a decline in net finance income as a percentage of AEA to 4.77% compared with 4.93% in 1993.
For an analysis of interest rates paid on the Corporation's debt refer to "Interest Rate Risk Management" in the Asset/Liability Management section.
Fees and Other Income
Fees and other income totaled $174.4 million in 1994, an increase of $40.6 million (30.3%), compared with $133.8 million in 1993. The improvement is principally attributable to higher factoring commissions, reflecting additional factored receivable volume from the acquisition of BCC and record new client signings in 1994.
Salaries and General Operating Expenses
Salaries and general operating expenses totaled $337.9 million in 1994, a $55.7 million (19.8%) increase, compared to $282.2 million in 1993. This increase includes a $33.7 million (22.2%) rise in salaries and employee benefits, which totaled $185.9 million in 1994, compared with $152.1 million in 1993, and an additional $22.1 million (16.9%) of general operating expenses,
which totaled $152.1 million in 1994, compared with $130.0 million in 1993. Employee headcount increased to 2,689 at December 31, 1994 from 2,424 in 1993.
These increases are largely attributable to the BCC acquisition and expanded Consumer Finance activity. Since the BCC acquisition, Commercial Services has had an integration plan in place designed to maintain business momentum, provide uninterrupted levels of quality services, and generate economies of scale. Significant progress has been made in integrating operating systems, eliminating duplicate functions and consolidating offices and departments. This process is expected to be substantially complete by year-end 1995. Salaries and other employee benefits in 1994 also included the effect of improvements to employee sales and incentive compensation plans.
The Corporation manages expenditures using a comprehensive budgetary process. Expenses are monitored closely by operating unit management and are reviewed monthly with senior management of the Corporation. To ensure overall project cost control, a review and approval procedure is in place for all major capital expenditures, such as purchases of computer equipment, including a post-implementation analysis of the realization of projected benefits.
Income Taxes
The provision for Federal and state and local income taxes totaled $123.9 million in 1994 compared with $128.5 million in 1993. The effective income tax rate was 38.1% compared to 41.3% in 1993. The 1993 amounts reflect additional provisions to the Corporation's current and deferred taxes to record the impact of a 1% increase in the statutory Federal corporate income tax rate provided for in the Revenue Reconciliation Act of 1993.
Provision and Reserve for Credit Losses
A continued recovery in certain sectors of the U.S. economy contributed to an improvement of $10.3 million (10.9%) in net credit losses for 1994. As a percentage of average finance receivables, net credit losses fell to 0.61% in 1994 from 0.77% in 1993. Information concerning the provision and reserve for credit losses is summarized in the following table.
Years ended December 31, ------------------------ 1994 1993 ---------- ---------- Dollar Amounts in Thousands
Net credit losses .................................... $ 84,152 $ 94,408 Provision for finance receivables increase ........... 12,789 10,466 --------- -------- Total provision for credit losses .................... $ 96,941 $104,874 ========= ======== Net credit losses as a percentage of average finance receivables ................................ 0.61% 0.77% ======== ======== Reserve for credit losses ............................ $192,421 $169,378 ======== ======== Reserve for credit losses as a percentage of: Finance receivables ................................ 1.30% 1.34% ======== ======== Finance receivables past due 60 or more days ....... 108.8% 78.4% ======== ======== Nonaccrual finance receivables ..................... 174.6% 121.0% ======== ========
The reserve for credit losses is maintained at an amount considered adequate by management to provide for potential credit losses, based on periodic evaluation of the overall risk characteristics of the finance receivables portfolio. The decrease in the reserve for credit losses as a percentage of finance receivables reflects the growth in home equity lending in Consumer Finance, for which a lower percentage reserve for credit losses is recorded than the overall portfolio, and a reduction in nonaccrual and past due finance receivables.
In evaluating the adequacy of the reserve for credit losses, management considers such factors as the nature and characteristics of the obligors, economic conditions and trends, charge-off experience, delinquencies, and value of underlying collateral and guarantees (including recourse to dealers and manufacturers).
Financing and Leasing Assets
Financing and leasing assets (finance receivables plus operating lease equipment) increased $2.29 billion (17.1%) in 1994 to $15.66 billion as presented in the following table.
The following table presents the annual volume of financing and leasing assets funded, including purchases of existing finance receivable portfolios.
--------------- (a) Represents initial borrowings under new lines of credit (b) Represents factored accounts receivable
The changes in the preceding tables are discussed below for each business unit.
- Capital Equipment Financing--Customized secured equipment financing and leasing for major capital equipment. Finance receivables rose modestly to $4.49 billion, reflecting improved new business funding volume offset, in part, by higher than usual prepayments and finance receivable sales for credit risk management purposes. The growth in operating lease equipment resulted from the purchase of additional equipment for lease, principally railcars and commercial and business aircraft, and the leasing of a commercial aircraft included in assets received in satisfaction of loans at December 31, 1993.
- Business Credit--Revolving and term loans, including debtor-in-possession and workout financing, to medium and larger-sized companies secured by accounts receivable, inventory and fixed assets. Finance receivables totaled $1.44 billion at December 31, 1994. New business volume and additional borrowings under existing credit arrangements, coupled with a return to more historical customer paydown levels, contributed to the 12.5% growth in finance receivables.
- Credit Finance--Revolving and term loans, including restructurings, for small and medium-sized companies secured by accounts receivable, inventory and fixed assets. Finance receivables continued to grow, rising 11.5% in 1994 to $719.6 million, largely due to record new business volume with various middle-market manufacturing companies.
- Commercial Services--Factoring of accounts receivable, including credit protection, bookkeeping and collection activities and revolving and term loans. Finance receivables totaled $1.90 billion at December 31, 1994. The increase of $914.3 million from 1993 reflects the acquisition of BCC, which added over $700 million of factored receivables, and record new client signings in 1994.
- Industrial Financing--Secured equipment financing and leasing for medium-sized companies, including dealer and manufacturer financing. Finance receivables rose 10.0% in 1994 to $4.27 billion reflecting another year of record new business originations. Operating lease equipment increased 17.7% to $219.2 million principally due to the purchase of tractors, trailers, business aircraft and other equipment for lease.
- Sales Financing--Retail secured financing of recreational vehicles, recreational boats, and manufactured housing through dealers and manufacturers. The increase in finance receivables is the result of improved volume in manufactured housing, partially offset by finance receivable sales and securitizations of $162 million in 1994 and the reclassification of an additional $69 million of manufactured housing finance receivables to assets held for sale in December 1994. In addition to its own portfolio of $1.4 billion, Sales Financing also provides servicing for portfolios owned by other financial institutions and securitization trusts which totaled $498.1 million at December 31, 1994 ($415.0 million in 1993).
- Consumer Finance--Loans secured by first or second mortgages on residential real estate, and home equity lines of credit generated through brokers and direct marketing. Finance receivables rose sharply to $570.8 million, reflecting the full year effect and continued development, in 1994, of the marketing offices added late in 1993. This portfolio is expected to approach $1.0 billion by the end of 1995.
Financing and Leasing Assets Composition
Financing and leasing assets are principally composed of loans and direct financing and leveraged leases with commercial customers located in the United States and operating lease equipment, largely commercial aircraft, placed with lessees both domestically and internationally.
Geographic Composition
The following table presents financing and leasing assets by customer location. Amounts for 1993 have been restated to include operating lease equipment and conform to the 1994 presentation.
Industry Composition
The following table presents financing and leasing assets by industry. Amounts for 1993 have been restated to include operating lease equipment and conform to the 1994 presentation.
-------------- (a) Refer to the Commercial Airlines section of "Financing and Leasing Assets Concentrations" for a discussion on the Commercial Airlines portfolio.
(b) The construction portfolio is geographically dispersed throughout the United States and included approximately 6,900 general contractor and equipment dealer obligors at December 31, 1994.
(c) Transportation included rail, bus, over-the-road trucking, and business aircraft industries and consisted of approximately 700 obligors at December 31, 1994. The portfolio was widely dispersed throughout the United States.
(d) At December 31, 1994, the shipping industry portfolio was widely dispersed and included approximately 50 obligors financing cruise and freight-carrying ships, intermodal equipment, barges, tugboats, containers and chassis.
Financing and Leasing Assets Concentrations
Commercial Airlines
Commercial airline finance receivables of $1.42 billion and operating lease equipment of $482.3 million totaled $1.90 billion (12.1% of total financing and leasing assets before the reserve for credit losses) at December 31, 1994 compared with $1.89 billion (14.2%) in 1993. The portfolio is secured by commercial aircraft and related equipment. Management continues to monitor the growth in this portfolio relative to total financing and leasing assets.
The following table presents information about the commercial airline industry portfolio.
At December 31, ------------------------ 1994 1993 --------- -------- Dollar Amounts in Millions Finance receivables Amount outstanding(a) .......................... $1,417.0 $1,437.3 Number of obligors ............................. 46 43 -------- -------- Operating lease equipment Net carrying value ............................. $ 482.3 $ 457.6 Number of obligors ............................. 21 21 -------- -------- Total ....................................... $1,899.3 $1,894.9 -------- -------- Number of obligors(b) .......................... 62 58 -------- -------- Number of aircraft(c) .......................... 282 276 -------- --------
-------------- (a) Includes accrued rents on operating leases of $1.1 million and $1.0 million at December 31, 1994 and December 31, 1993, respectively, which are classified as finance receivables in the Consolidated Balance Sheets.
(b) Certain obligors have both finance receivable and operating lease transactions.
(c) 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 which phase out the use of Stage II aircraft in the United States through the year 2000. The International Civil Aviation Organization has issued similar requirements for Europe. At year-end 1994, the portfolio consisted of 224 Stage III aircraft (79%) and 58 Stage II aircraft (21%) versus 214 Stage III aircraft (78%) and 62 Stage II aircraft (22%) at year-end 1993.
No obligor included in the Corporation's commercial airline portfolio was subject to bankruptcy proceedings at December 31, 1994. However, as of March 6, 1994, the Corporation has agreed to terms on a restructuring of its outstanding loan and lease transactions with Trans World Airlines, Inc., which has publicly announced that it may seek bankruptcy protection if a major debt reduction plan is not approved. Management does not believe this restructuring will have a significant effect on the Corporation's 1995 consolidated financial position or results of operations.
Foreign Outstandings
Financing and leasing assets to foreign obligors, primarily to the commercial airline industry, are all U. S. dollar denominated and totaled $1.12 billion at December 31, 1994, consisting of $920.3 million in finance receivables and $201.5 million in operating lease equipment. The largest exposures at December 31, 1994 were to England, $177.2 million (1.11% of total assets) and Mexico, $140.0 million (.88%). The Mexican exposure is principally operating and direct financing leases of commercial and business aircraft all of which were current at December 31, 1994. The remaining foreign exposure is geographically dispersed with no individual country representing more than .75% of total assets.
At December 31, 1993, financing and leasing assets to foreign obligors totaled $1.05 billion, consisting of $846.6 million in finance receivables and $204.5 million in operating lease equipment. Outstandings totaled $167.4 million (1.22% of total assets) to obligors in Mexico and $128.0 million (.93%) to obligors in England. Obligors in no other country had aggregate outstandings exceeding .75% of total assets.
Highly Leveraged Transactions
The Securities and Exchange Commission has suggested that registrants may be required to disclose the nature and extent of their involvement with high yield or highly leveraged transactions and non-investment grade loans. The Corporation uses the following criteria to classifly a buyout financing or recapitalization which equals or exceeds $20 million as a highly leveraged transaction (HLT):
- The transaction at least doubles the borrower's liabilities and results in a leverage ratio (as defined) higher than 50%, or
- The transaction results in a leverage ratio higher than 75%, or
- The transaction is designated as an HLT by a syndication agent.
A transaction originally reported as an HLT can be removed from this classification ("delisted") if the leveraged company has demonstrated the ability to operate successfully as a highly leveraged entity for at least two years after the original financing and meets one of the following criteria:
- The original financing has been repaid using cash flow from operations, planned asset sales, or a capital infusion, or
- The debt has been serviced without undue reliance on unplanned asset sales, and certain leverage ratios (related to the original criteria under which the financing qualified as an HLT) have been maintained.
The Corporation, primarily through Business Credit, originates and participates in HLTs, which totaled $436.1 million (2.8% of financing and leasing assets before the reserve for credit losses) at December 31, 1994, down from $476.6 million (3.6%) at December 31, 1993. The decline in HLT outstandings during 1994 was primarily due to delisting companies that met the aforementioned delisting criteria, partially offset by new HLT fundings. The Corporation's HLT outstandings are generally secured by collateral, as distinguished from HLTs that rely primarily on cash flow from operations. Unfunded commitments to lend in secured HLT situations were $202.1 million at December 31, 1994, compared with $123.1 million at year-end 1993.
At December 31, 1994, the HLT portfolio consisted of 32 obligors in 12 different industry groups, with 36.5% of the outstandings located in the Southeast region of the United States and 33.1% in the West. Four accounts totaling $57.7 million were classified as nonaccrual at December 31, 1994, compared with three accounts totaling $34.7 million at year-end 1993.
Credit Risk Management
Financing and leasing assets are monitored for credit and collateral risk both during the credit granting process and periodically after the advancement of funds. Each business unit is responsible for developing and implementing a formal credit management process in accordance with formal uniform guidelines established by the Executive Credit Committee of the Corporation (ECC). These guidelines set forth risk acceptance criteria for: (1) selected target markets and products; (2) the creditworthiness of borrowers, including credit history, financial condition, adequacy of cash flow and quality of management; and (3) the type and value of underlying collateral and guarantees (including recourse to dealers and manufacturers).
Compliance with established credit management processes at each business unit is reviewed by an internal credit audit group within the Corporation's internal audit department. Credit audits examine adherence with established credit policies and procedures, and test for inappropriate credit practices, including whether potential problem accounts are being detected on a timely basis. As economic and market conditions change, credit risk management practices are reviewed and modified, if necessary, to minimize the risk of credit loss.
Periodically, financing and leasing assets are evaluated based upon credit criteria developed under the Corporation's uniform credit grading system and the use of a comprehensive exposure reporting system that analyzes the financing and leasing assets portfolio by obligor, by industry, geographic location, and collateral type. The status of obligors with higher (riskier) credit grades is individually reviewed with the ECC by each operating unit. Concentrations are monitored and limits are changed by management as conditions warrant to minimize the risk of credit loss.
Past Due and Nonaccrual Finance Receivables and Assets Received in Satisfaction of Loans
Finance receivables past due 60 days or more improved to $176.9 million (1.20% of finance receivables before the reserve for credit losses) at December 31, 1994, from $216.1 million (1.71%) at December 31, 1993, reflecting a continued recovery in certain sectors of the economy. Excluding finance receivables in Industrial Financing that have recourse to dealers or manufacturers, the percentage of finance receivables past due 60 or more days was 1.03% at year-end 1994 compared to 1.47% at year-end 1993.
Finance receivables on nonaccrual status, included in past due finance receivables, declined to $110.2 million (0.75% of finance receivables before the reserve for credit losses) at December 31, 1994, from $139.9 million (1.11%) at December 31, 1993. The decrease from December 31, 1993 includes final settlement with a manufacturer on nonaccrual since 1992.
The balance of assets received in satisfaction of loans was relatively unchanged from 1993 at $86.5 million. The December 31, 1994 balance includes two commercial aircraft which are the subject of litigation with the subordinated debt holders wherein the Corporation, as senior debt holder, is foreclosing on the aircraft. An anticipated satisfactory conclusion of the litigation would enable the Corporation to proceed with the foreclosure. These foreclosures were offset by the sale of assets and the placing of a commercial aircraft on operating lease that were included in the 1993 balance.
The following table presents the assets received in satisfaction of loans including in-substance foreclosures.
At December 31, ------------------- 1994 1993 ------- ------- Amounts in Thousands
Commercial aircraft .................................... $36,000 $17,235 Retail merchandise, property and accounts receivable(a) ....................................... 32,353 29,214 Property and equipment ................................. 8,592 13,480 Other transportation(b) ................................ 6,172 15,255 Other .................................................. 3,408 11,773 ------- ------- Total ................................................ $86,525 $86,957 ======= ======= -------------- (a) Retail merchandise, property and accounts receivable includes an equity interest in a building supply retailer.
(b) Other transportation includes buses and recreational vehicles in 1994, and business aircraft, trailers, and recreational vehicles in 1993.
Asset/Liability Management
Management strives to optimize net finance income while managing interest rate and liquidity risk under formal policies established and monitored by the Capital Committee, which is comprised of members of senior management, including the Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, and senior representatives of DKB and CBC. Four of the members of the Capital Committee are also members of the Corporation's Board of Directors. The Capital Committee establishes and regularly reviews interest sensitivity, funding, liquidity, and asset-pricing guidelines used to determine short-term and long-term funding strategies, including the use of off-balance sheet derivative financial instruments. Derivative (hedge) positions are managed conservatively and in such a way that the exposure to interest rate, credit or foreign exchange risk is in accordance with the overall operating goals established by the Capital Committee. There is an approved, diversified list of creditworthy counterparties, each of whom has specific market value exposure limits. The Executive Credit Committee approves each counterparty and its related market value exposure limit annually or more frequently if any changes are recommended. Market values are calculated periodically for each swap contract, summarized by counterparty risk and reported to the Capital Committee. For additional information regarding the Corporation's derivative portfolio, refer to "Note 6--Derivative Financial Instruments" in Item 8.

Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
The Board of Directors The CIT Group Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of The CIT Group Holdings, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended Dec ember 31, 1994. These consolidated financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evide nce supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable b asis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The CIT Group Holdings, Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and cash flows for each of the years in the th ree-year period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, the Corporation adopted the provisions of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," in 1993.
KPMG PEAT MARWICK LLP Short Hills, New Jersey January 17, 1995
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, ------------------------ 1994 1993 ------ ------ Assets (Amounts in Thousands)
Financing and leasing assets Capital Equipment Financing .................. $ 4,493,531 $ 4,394,528 Business Credit .............................. 1,442,049 1,282,133 Credit Finance ............................... 719,642 645,642 ------------ ------------ Corporate Finance .......................... 6,655,222 6,322,303
Commercial Services .......................... 1,896,233 981,935
Industrial Financing ......................... 4,269,693 3,880,991 Sales Financing .............................. 1,402,443 1,307,544 ------------ ------------ Dealer and Manufacturer Financing .......... 5,672,136 5,188,535
Consumer Finance ............................. 570,772 131,321 ------------ ------------ Finance receivables (Note 2) ............... 14,794,363 12,624,094 Reserve for credit losses (Note 3) ........... (192,421) (169,378) ------------ ------------ Net finance receivables .................... 14,601,942 12,454,716
Operating lease equipment (Note 4) ........... 867,914 751,901 ------------ ------------ Net financing and leasing assets ........... 15,469,856 13,206,617
Cash and cash equivalents .................... 6,558 101,554 Other assets ................................. 487,076 420,310 ------------ ------------ Total assets ............................... $ 15,963,490 $ 13,728,481 ============ ============
Liabilities and Stockholders' Equity Debt (Notes 5 and 6) Commercial paper ............................. $ 5,660,194 $ 6,516,139 Variable rate notes .......................... 3,812,500 1,686,500 Fixed rate notes ............................. 2,623,150 2,392,500 Subordinated fixed rate notes ................ 300,000 200,000 ------------ ------------ Total debt ................................. 12,395,844 10,795,139
Credit balances of factoring clients ......... 993,394 521,728 Accrued liabilities and payables ............. 354,714 324,520 Deferred Federal income taxes ................ 426,511 394,859 ------------ ------------ Total liabilities .......................... 14,170,463 12,036,246
Stockholders' equity (Notes 7 and 17) Common stock - authorized, issued and outstanding - 1,000 shares .................. 250,000 250,000 Paid-in capital .............................. 408,320 408,320 Retained earnings ............................ 1,134,707 1,033,915 ------------ ------------ Total stockholders' equity ................. 1,793,027 1,692,235 ------------ ------------ Total liabilities and stockholders' equity . $15,963,490 $13,728,481 ============ ============
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements and accompanying notes include the accounts of The CIT Group Holdings, Inc. and its subsidiaries (the "Corporation"). All significant intercompany transactions have been eliminated. Prior period amounts, principally fees and other income and depreciation on operating lease equipment, have been reclassified to conform to the current presentation.
Consolidated Statements of Cash Flows
Cash and cash equivalents includes cash and interest-bearing deposits, which generally represent overnight money market investments of excess cash borrowed in the commercial paper market and maintained for liquidity purposes. Cash inflows and outflows from commercial paper borrowings and most factoring receivables are presented on a net basis in the Statements of Cash Flows as their term is generally less than 90 days.
Financing and Leasing Assets
The Corporation provides funding for a variety of financing arrangements including term loans, direct financing leases (including leveraged leases for which a major portion of the funding is provided by third-party lenders, including The Dai-Ichi Kangyo Bank, Limited ("DKB"), on a nonrecourse basis, with the Corporation providing the balance and acquiring title to the property) and operating leases. The amounts outstanding on loans and direct financing leases are referred to as finance receivables, and when combined with the net book value of operating lease equipment, represent financing and leasing assets.
Income Recognition
Finance income includes interest on loans, the amortization of income on direct financing leases, and rents on operating leases. Related origination and other nonrefundable fees and direct origination costs are deferred and amortized as an adjustment of finance income over the contractual life of the transactions. Income on finance receivables other than leveraged leases is recognized on an accrual basis commencing in the month of origination using methods that generally approximate the interest method. Leveraged lease income is recognized on a basis calculated to achieve a constant after-tax rate of return for periods in which the Corporation has a positive investment, net of related deferred tax liabilities. Rental income on operating leases is recognized on an accrual basis.
Except for Sales Financing and Consumer Finance accounts, which are subject to automatic charge-off procedures, the accrual of finance income is suspended and an account is placed on nonaccrual status either when a payment is contractually delinquent for 90 days or more and collateral is insufficient to cover both the outstanding principal and accrued finance income or immediately if, in the opinion of management, full collection of all principal and income is doubtful. Accrued but uncollected income at the date an account is placed on nonaccrual status is reversed and charged against income to the extent the collateral does not satisfy the principal and accrued income outstanding. Such accrued but uncollected income is immaterial. Subsequent income received is applied to the outstanding principal balance until such time as the account is collected, charged-off on or returned to accrual status.
Fees and other income includes factoring commissions, commitment and facility fees, letters of credit and syndication fees, as well as gains and losses realized upon the sale of assets coming off lease, the securitization of finance receivables and the disposition of assets received in satisfaction of loans.
Lease Financing
Direct financing leases are recorded at the aggregate future minimum lease payments plus estimated residual values less unearned finance income. Operating lease equipment is carried at cost less accumulated depreciation and is depreciated to estimated residual value using the straight-line method over the lease term or projected economic life of the asset. Equipment acquired in satisfaction of loans and subsequently placed on operating lease is recorded at the lower of carrying value or estimated fair value when acquired. Leveraged
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
leases are recorded at the aggregate value of future minimum lease payments plus estimated residual value, less amounts due to non-recourse third-party lenders and unearned finance income. In the event of default by the lessee, the third-party lenders have no recourse to the Corporation.
Reserve for Credit Losses on Finance Receivables
The reserve for credit losses is established and periodically reviewed for adequacy based on the nature and characteristics of the obligors, economic conditions and trends, charge-off experience, delinquencies, and value of underlying collateral and guarantees (including recourse to dealers and manufacturers). It is management's judgment that the reserve for credit losses is adequate to provide for potential credit losses.
Charge-off of Finance Receivables
Finance receivables are reviewed periodically to determine the probability of loss on individual receivables. Charge-offs are taken after considering such factors as the customer's financial condition and the value of underlying collateral and guarantees (including recourse to dealers and manufacturers). Such charge-offs are deducted from the carrying value of the related finance receivables. To the extent that an unrecovered balance remains due, a final charge-off is taken at the time collection efforts are no longer deemed useful. Automatic charge-offs are taken for Sales Financing and Consumer Finance receivables when no contractual payments are received for 120 days, or at 180 days when partial payments have been received.
Other Assets
Assets received in satisfaction of loans (including in-substance forclosures) are carried at the lower of carrying value or estimated fair value less selling costs, with write-downs at the time of receipt or in-substance foreclosure charged to the reserve for credit losses. Subsequent write-downs of these assets, which may be required due to a decline in estimated fair market value after receipt, or in-substance foreclosure are reflected in general operating expenses.
The excess of the purchase price over the fair market value of assets acquired (goodwill) in connection with an acquisition is amortized on a straight-line basis over a 20 year period.
Fixed assets are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the related assets.
At the time management decides to proceed with a securitization of finance receivables, such finance receivables are considered held for sale and are reclassified to other assets.
Derivative Financial Instruments
The Corporation enters into interest rate swap and interest rate cap agreements as part of its overall interest rate risk management. These transactions are entered into as hedges against the effects of future interest rate fluctuations and, accordingly, are not carried at fair market value so long as a high degree of correlation is maintained between the derivative instrument and the corresponding asset or liability position being hedged. The Corporation's objectives and strategies regarding the management of interest rate and liquidity risks, including the use of derivative instruments, are discussed in the "Interest Rate Risk Management" section of "Asset/Liability Management" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The net interest differential, including premiums paid or received, if any, on interest rate swaps and interest rate caps is recognized on an accrual basis as an adjustment to finance income or interest expense to correspond with the hedged asset or liability position, respectively. In the infrequent event that early termination of a derivative instrument occurs, the net proceeds paid or received are deferred and amortized over the shorter of the remaining original contract life of the interest rate swap or interest rate cap or the maturity of the hedged asset or liability position.
On occasion, the Corporation will also purchase a forward interest rate agreement or option of very short term (up to 4 months) to hedge the interest rate used to price the anticipated securitization of finance receivables. Such transactions are designated as a hedge against a securitization that is probable
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
and for which the significant characteristics and terms have been identified. The finance receivables involved are considered held for sale and reclassified to other assets. The net interest differential on the derivative instrument, including premium paid or received, if any, is recognized as an adjustment to the basis of the corresponding assets at the time of sale. If the anticipated securitization does not occur, the related hedge position is liquidated with any gain or loss recognized at such time, and the related assets are reclassified to finance receivables.
The Corporation may occasionally enter into a compound interest rate cap transaction, which, in the Corporation's case, involves the purchase of an interest rate cap based on commercial paper interest rates linked with the sale of an interest rate cap based on the prime rate. The interest rate cap purchased and the interest rate cap sold are transacted concurrently and have a matched notional dollar amount and maturity. Accordingly, the transaction is treated as a hedge unit for accounting purposes and the net interest differential, including any net premium paid or received, is recognized as an adjustment to interest expense.
Income Taxes
On January 1, 1993, the Corporation adopted, on a prospective basis, Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are determined using enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income at the time of enactment. The adoption of SFAS 109 did not have a significant impact on the Corporation's consolidated results of operations in 1993 due to the prior adoption of Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes".
Federal investment tax credits realized for income tax purposes on lease financing transactions have been deferred for financial statement purposes and are included in deferred Federal income taxes on the Consolidated Balance Sheets. Such credits are amortized as a reduction of the provision for income taxes on an actuarial method over the related lease term.
Note 2--Finance Receivables
The following table presents an analysis of finance receivables.
At December 31, -------------------------------- 1994 1993 ------------- ------------- Amounts in Thousands
Loans .................................... $ 12,380,071 $ 10,657,167 Direct financing lease receivables ....... 3,098,352 2,682,635 Leveraged lease receivables .............. 789,166 766,361 ------------- ------------- Gross finance receivables ................ 16,267,589 14,106,163 Unearned finance income .................. (1,473,226) (1,482,069) ------------- ------------- Finance receivables ...................... $ 14,794,363 $ 12,624,094 ============= =============
Leveraged lease receivables in the preceding table exclude the portion of lease receivables offset by related non-recourse debt payable to third-party lenders of $2.22 billion in 1994 and $2.34 billion in 1993 including amounts owed to affiliates of DKB which totaled $525.7 million at year-end 1994 and $535.7 million at year-end 1993. Also excluded from the preceding table are $498.1 million of finance receivables at December 31, 1994 ($415.0 million in 1993) owned by other financial institutions or securitization trusts which are serviced by Sales Financing.
Information about concentrations of credit risk is set forth in "Industry Composition" and "Geographic Composition" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Contractual maturities of finance receivables at December 31, 1994 and 1993 are set forth in Note 19--Maturity of Finance Receivables.
The following table sets forth information regarding finance receivables on nonaccrual status and assets received in satisfaction of loans.
At December 31, ----------------------- 1994 1993 --------- -------- Nonaccrual finance receivables ................... $ 110,232 $ 139,941 Assets received in satisfaction of loans ......... 86,525 86,957 --------- --------- Total nonperforming assets ....................... $ 196,757 $ 226,898 ========= ========= Percent to total financing and leasing assets .... 1.26% 1.70% ========= =========
The amount of finance income recognized on year-end nonaccrual finance receivables totaled $6.2 million, $3.9 million and $14.9 million in 1994, 1993 and 1992, respectively. The amount of finance income which would have been recorded under contractual terms for such nonaccrual receivables totaled $20.7 million, $21.2 million, and $30.3 million in 1994, 1993 and 1992, respectively.
At December 31, 1994 and 1993, the Corporation had $14.0 million and $15.0 million, respectively, of finance receivables that met the criteria of troubled debt restructurings, which were not included in the preceding table. Finance income recognized on troubled debt restructurings totaled $0.8 million, $0.8 million and $4.1 million in 1994, 1993 and 1992, respectively. Finance income on these restructured receivables would have been $2.1 million, $2.3 million and $5.8 million for 1994, 1993 and 1992, respectively, based on original contractual terms.
Note 3--Reserve for Credit Losses
The following table presents changes in the reserve for credit losses.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4--Operating Lease Equipment
Capital Equipment Financing and Industrial Financing enter into lease transactions (with estimated residual values in excess of 20% of the original purchase price) which are accounted for as operating leases. In accordance with the policy of reviewing and adjusting the net carrying values of leased assets to the lower of fair market or carrying value, management or outside consultants periodically perform appraisals of operating lease equipment. Based upon such periodic appraisals, the aggregate fair values of operating lease equipment exceeded carrying value at December 31, 1994.
The following table provides an analysis of operating lease equipment by equipment type, net of accumulated depreciation of $129.7 million in 1994 and $68.8 million in 1993.
At December 31, ----------------------- 1994 1993 --------- --------- Amounts in Thousands
Commercial aircraft ................................ $ 482,324 $ 457,637 Business aircraft .................................. 97,770 88,390 Trucks, trailers and buses ......................... 94,309 82,996 Oil refinery ....................................... 83,137 86,240 Railroad and other transportation equipment ........ 69,106 11,560 Construction and mining equipment .................. 18,519 15,715 Manufacturing equipment ............................ 10,788 3,418 Other .............................................. 11,961 5,945 --------- --------- Total ............................................ $ 867,914 $ 751,901 ========= =========
Rental income on operating leases, included in finance income, totaled $97.2 million in 1994, $67.2 million in 1993 and $30.8 million in 1992. The following table presents future minimum lease rentals on noncancellable operating leases as of December 31, 1994. Excluded from this table are variable rentals calculated on the level of asset usage, re-leasing rentals, and expected sales proceeds from remarketing operating lease equipment at lease expiration, all of which are important components of operating lease profitability.
Years Ended December 31, Amounts in Thousands
1995 .......................................... $ 101,224 1996 .......................................... 90,344 1997 .......................................... 73,969 1998 .......................................... 57,502 1999 .......................................... 38,455 Thereafter .................................... 61,419 --------- Total .................................... $ 422,913 =========
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5--Debt
The following table presents data on commercial paper borrowings.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following tables present interest rates, contractual maturities and outstanding balances for term debt:
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
------------- (e) The interest rate resets monthly based on one month LIBOR plus .10%.
(f) The interest rate resets quarterly based on three month LIBOR plus a weighted average of .13%.
(g) The interest rate resets quarterly based on the 2 year constant maturity Treasury rate less a weighted average of .22%.
(h) The interest rate resets weekly based on the 6 month Treasury bill rate plus .20%.
(i) The interest rate resets monthly and is equal to the 30-day commercial paper rate plus .15% or at a lower rate under certain circumstances. Repayable quarterly at the option of the holder after nine months' notice to the Corporation. Redeemable at the option of the Corporation on 30 days' notice.
(j) The interest rate resets quarterly based on the 91 day Treasury bill rate plus .30%.
(k) The interest rate resets monthly and is equal to the 30-day commercial paper rate plus .20%, or at a lower rate under certain circumstances. The maturity date on these notes was accelerated from November 12, 2003 to February 8, 1995, in accordance with the terms of the notes.
(l) Subject to the provisions set forth in the Pricing Supplement dated June 18, 1993, the interest rate on this issue was fixed at 5.956% in June 1994.
The following table presents the contractual maturities of total debt at December 31, 1994. Certain debt may be repaid at earlier dates as detailed in footnotes (i) and (k) of the preceding table.
Commercial Variable rate Fixed rate paper notes notes ---------- ---------- ---------- At December 31, ............. Amounts in Thousands 1995 .................... $5,660,194 $2,535,000 $ 430,000 1996 .................... -- 250,000 930,000 1997 .................... -- 556,000 602,950 1998 .................... -- 91,500 250,000 1999-2008 ............... -- 380,000 710,200 ---------- ---------- ---------- Total ............... $5,660,194 $3,812,500 $2,923,150 ========== ========== ==========
After-tax extraordinary losses for premiums and other expenses relating to redemptions of term debt totaled $4.2 million in 1992. In 1994 and 1993, the Corporation did not redeem any term debt.
The following table represents information on unsecured lines of credit with 74 banks at December 31, 1994. There have been no borrowings under lines of credit since 1970.
Credit Lines Amount Maturity ------------ ------ -------- Amounts in Thousands 364-Day revolving credit facility $1,875,000 June 1995(a) Revolving credit facility ....... 1,250,000 April 1998(b) Revolving credit facility ....... 770,000 September 1997(c) Revolving credit facility ....... 400,000 August 1995/September 1997(d,e) Revolving credit facility ....... 325,000 September 1996(f) 364-day renewable credit facility 55,000 Renewable annually(g) ---------- Total committed credit lines .... $4,675,000 ==========
--------------------
(a) The Corporation may, by written notice given no earlier than 60 days prior to the then applicable Termination Date of this Agreement, extend the then applicable Termination Date to a date 364 days after the then applicable Termination Date. This is subject to written consent by two-thirds in principal amount of the participating banks given no earlier than 30 days and no later than 20 days prior to the then applicable Termination Date.
(b) The Corporation may, by written notice to the Agent given no later than 60 days prior to the first, second and/or third anniversary date of this Agreement, extend the then applicable Termination Date to a date one year after the then applicable Termination Date. This is subject to written consent from two-thirds in principal amount of the participating banks given no later than 30 days prior to the first or second anniversary date of this Agreement following the request of such extension. In no event shall the Termination Date be later than April 29, 2000.
(c) The Corporation may, by written notice to the Agent given no later than 60 days prior to the first and/or second anniversary date of this Agreement, extend the then applicable Termination Date to a date one year after the then applicable Termination Date. This extension is subject to written consent by two-thirds in principal amount of the participating banks given no later than 30 days prior to the first or second anniversary date. In no event will the Termination Date be later than September 27, 1999.
(d) The Corporation may, by written notice to the Agent given no earlier than 60 days and no later than 30 days prior to the then applicable Termination Date of this Agreement, extend the then applicable Termination Date to a date 364 days after the then applicable Termination Date. This is subject to written consent by two thirds in principal amount of the participating banks and given no earlier than 30 days and no later than 20 days prior to the then applicable Termination Date. In no event shall the Termination Date be later than September 1, 1999.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
--------------------
(e) The Corporation may, by written notice to the Agent given no later than 60 days prior to the first and second anniversary date of this Agreement, extend the then applicable Termination Date to a date one year after the then applicable Termination Date. This is subject to written consent from two-thirds in principal amount of the participating banks given within 30 days following the request. The Corporation may extend the Termination Date a maximum of two times but in no event will the Termination Date be later than September 1, 1999.
(f) The Corporation may, by written notice to the Agent given no later than 60 days prior to the first and second anniversary date, request the participating banks to consider an extension of the then applicable termination date to a date one year after the then applicable Termination Date. This extension is subject to written consent by two-thirds in principal amount of the participating banks given no later than 30 days prior to the first or second anniversary date. The Corporation may extend this facility a maximum of two times, but in no event beyond September 28, 1998.
(g) The Corporation may, at any time, but in no event more than twice a year, by written notice to the individual bank, request the individual bank to consider an extension of the then Termination Date to a date on which is not later than 364 days after the date on which the individual bank notifies the Corporation of its decision on such extension request.
Credit lines with DKB in the preceding table totaled $245.0 million at December 31, 1994 and $357.0 million at December 31, 1993.
Note 6--Derivative Financial Instruments
As part of managing the exposure to changes in market interest rates, the Corporation, as an end-user, enters into various interest rate swap and interest rate cap transactions, all of which are traded in over-the-counter (OTC) markets, with other financial institutions acting as principal counterparties, including subsidiaries of DKB and CBC. The Corporation's objectives and strategies regarding the management of interest rate risk, including the use of derivative instruments, are discussed in the Interest Rate Risk Management section of "Asset/Liability Management" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. In 1994, The Corporation adopted Statement of Financial Accounting Standards No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments", which requires disclosure about amounts, nature and terms of certain financial instruments.
The following table presents the notional principal amounts, weighted average interest rates, and contractual maturities by class of interest rate swap at December 31, 1994.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the notional principal amounts of interest rate swaps by class and the corresponding hedged liability position.
Additionally, there were cross-currency interest rate swaps with a notional principal amount of $190.0 million on which the Corporation was paying interest at a weighted average rate of 6.03% at December 31, 1994 that effectively converted yen denominated fixed rate debt into variable rate U.S. dollar obligations. These swaps have maturities ranging from 1999 to 2004 to correspond with the terms of the debt. (See footnote (c) under the table presenting the contractual maturities of fixed rate notes in Note 5-Debt.)
In connection with an anticipated securitization of finance receivables, the Corporation entered into a series of forward interest rate agreements with notional principal amounts of $124.0 million maturing in February 1995 that hedge the interest rate used to price the sale of an equivalent amount of finance receivables from interest rate fluctuations.
At December 31, 1993, the Corporation had purchased commercial paper interest rate caps with an outstanding notional principal amount of $1.45 billion which were designated as hedges against an equivalent amount of commercial paper. Included in that amount were caps with a notional principal amount of $1.15 billion which were purchased in conjunction with the sale of an equal amount of prime interest rate caps, creating a compound interest rate cap transaction to hedge the interest rate on commercial paper funding prime interest rate based assets. During 1994, commercial paper interest rate caps with a notional principal amount of $950.0 million and prime interest rate caps with a notional principal amount of $650.0 million matured. The remainder of the commercial paper interest rate caps outstanding at December 31, 1993, with total notional principal amounts of $500.0 million, and the associated prime interest rate caps were terminated in April 1994. The remaining unamortized costs exceeded the net proceeds received to terminate these interest rate caps by the immaterial amount of $0.3 million, which was charged to interest expense. There were no deferred gains or losses resulting from the termination of derivative instruments at December 31, 1994 or December 31, 1993.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Corporation is exposed to credit risk to the extent a counterparty fails to perform under the terms of an interest rate swap. This risk is measured as the market value of interest rate swaps with a positive fair value at December 31, 1994, reduced by the effects of master netting agreements as presented in Footnote 15 - Fair Values of Financial Instruments. However, due to the investment grade credit ratings of all counterparties and limits on the exposure with any individual counterparty, the Corporation's actual counterparty credit risk is not considered significant.
Note 7--Stockholders' Equity
Under the most restrictive provisions of agreements relating to outstanding debt, the Corporation may not, without the consent of the holders of such debt, permit stockholders' equity to be less than $300.0 million.
Note 8--Fees and Other Income
The following table sets forth the components of fees and other income.
Years ended December 31, ----------------------------------- 1994 1993 1992 -------- -------- -------- Amounts in Thousands
Commissions and fees .................. $148,326 $109,860 $ 99,879 Gains on sales of finance receivables . 17,050 15,788 6,604 Gains on asset sales .................. 8,989 8,157 7,279 -------- -------- -------- $174,365 $133,805 $113,762 ======== ======== ========
Note 9--Salaries and General Operating Expenses
The following table sets forth the components of salaries and general operating expenses. Years ended December 31, ----------------------------------- 1994 1993 1992 -------- -------- -------- Amounts in Thousands
Salaries and employee benefits ........ $185,868 $152,139 $137,914 General operating expenses ............ 152,068 130,043 123,721 -------- -------- -------- $337,936 $282,182 $261,635 ======== ======== ========
Note 10--Income Taxes
The effective tax rate of the Corporation varied from the statutory Federal corporate income tax rate as follows: Years ended December 31, ------------------------------- 1994 1993 1992 ---- ---- ---- Percentage of Pretax Income
Federal income tax rate ................... 35.0% 35.0% 34.0% Increase (decrease) due to: State and local income taxes, net of Federal income tax benefit ......... 5.3 5.2 6.3 Effect of 1% tax rate increase on Federal deferred tax balances ................. -- 2.8 -- Investment tax credits .................. (0.3) (0.7) (0.7) Other ................................... (1.9) (1.0) (0.9) ---- ---- ---- Effective tax rate ........................ 38.1% 41.3% 38.7% ==== ==== ====
The Revenue Reconciliation Act of 1993 (the "Act") which became effective in August 1993, provided for a 1% increase in the statutory Federal corporate income tax rate. The rate change resulted in a 1993 increase of $8.2 million to deferred tax balances, primarily related to the lease portfolio. In addition, as required by Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13"), the after-tax rate of return and the allocation of income was recalculated from inception for the leveraged lease portfolio to reflect the impact of the change in rate, the net effect of which was not significant.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The types of temporary differences that give rise to significant portions of the deferred tax liability and the deferred provision (benefit) for income taxes are shown in the accompanying table.
The tax effects of temporary differences that give rise to significant portions of the deferred Federal income tax assets and liabilities are presented below.
Years Ended December 31, --------------------------- Amounts in Thousands 1994 1993 -------- -------- Assets Provision for credit losses ........... $(61,303) $(50,292) Loan origination fees ................. (7,213) (7,493) Market discount income ................ (4,063) (4,698) Other ................................. (8,994) (9,466) -------- -------- Total deferred tax assets ............... (81,573) (71,949) -------- -------- Liabilities Leasing transactions .................. 490,782 451,112 Amortization of intangibles ........... 7,228 4,714 Depreciation of fixed assets .......... 1,180 1,751 Prepaid pension costs ................. 641 746 Other ................................. 1,068 233 -------- -------- Total deferred tax liabilities .......... 500,899 458,556 -------- -------- Net deferred tax liability .............. $419,326 $386,607 ======== ========
Also included in the deferred Federal income taxes caption on the Consolidated Balance Sheets are unamortized investment tax credits of $7.2 million and $8.3 million at December 31, 1994 and December 31, 1993, respectively. Included in the accrued liabilities and payables caption in the Consolidated Balance Sheets are State and local deferred tax liabilities of $77.5 million and $73.6 million at December 31, 1994 and December 31, 1993, respectively, arising from the temporary differences shown in the above tables.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 11--Benefit Plans
Retirement Plan
Substantially all employees of the Corporation who have completed one year of service and have attained the age of 21 years participate in The CIT Group Holdings, Inc. Retirement Plan ("CIT Plan"). The retirement benefits under the CIT Plan are based on the employee's age, years of benefit service, and a percentage of qualifying compensation during the final years of employment. Plan assets consist of marketable securities, including common stock and government and corporate debt securities. The Corporation funds the plan by the amount charged to salaries and employee benefits expense to the extent it qualifies for an income tax deduction.
The following table sets forth the funded status of the CIT Plan and the amounts recognized in the Consolidated Balance Sheets.
The following assumptions were used for calculating the projected benefit obligations shown in the preceding table.
Postretirement Benefits
The Corporation provides certain health care and life insurance benefits to eligible retired employees. In 1994, salaried participants generally become eligible for retiree health care benefits after reaching age 55 with 10 years of benefit service and 10 years of medical plan participation, increasing to 11 years in 1995. Generally, the medical plans pay a stated percentage of most medical expenses reduced by a deductible as well as by payments made by government programs and other group coverage. The plans are unfunded.
The Corporation adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting of Postretirement Benefits Other Than Pensions" ("SFAS 106") as of January 1, 1993. SFAS 106 requires the accrual, during the
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
active service period of the employee, of the cost of providing postretirement benefits, including medical and life insurance coverage. The Corporation elected to amortize the SFAS 106 transition obligation over a twenty-year period.
The postretirement benefit liability at December 31, 1994 and December 31, 1993 is set forth in the following table.
1994 1993 ------- ------- Amounts in Thousands Accumulated postretirement benefit obligation ("APBO"): Retirees ................................... $23,510 $26,042 ------- ------- Fully eligible, active plan participants ... 3,690 3,648 Other active plan participants ............. 10,952 10,872 ------- ------- 38,152 40,562 Fair value of plan assets ...................... -- -- ------- ------- Unfunded postretirement obligation ............. 38,152 40,562 Unrecognized net (gain)/loss ................... (1,073) 3,240 Unrecognized transition obligation ............. 29,964 31,629 ------- ------- Accrued postretirement benefit obligation ...... $ 9,261 $ 5,693 ======= =======
The components of net periodic postretirement benefit cost were as follows.
Years Ended December 31, ------------------------ 1994 1993 ------- ------- Amounts in Thousands
Service cost -- benefits earned during the period ..... $1,220 $1,065 Interest cost on accumulated postretirement benefit obligation .................................. 2,818 2,920 Amortization of unrecognized transition obligation .... 1,665 1,665 ------ ------ Net periodic postretirement benefit cost .............. $5,703 $5,650 ====== ======
The following assumptions were used for calculating the APBO shown in the preceding tables.
1994 1993 ------ ------- Discount Rate....................................... 8.75% 7.50% Rate of future compensation increases............... 5.00% 5.00% Assumed Health Care Cost Trend Rate: Retirees prior to reaching age 65................. 11.00% 12.00% Retirees older than 65............................ 8.00% 9.00%
The assumed health care cost trend rates decline to an ultimate level of 6.25% at December 31, 1994 and 5.5% at December 31, 1993.
If the health care cost trend rates were increased by 1%, the APBO as of December 31, 1994, would be increased by $4.2 million (11.0%), and the sum of the service cost and interest cost components of net periodic postretirement benefit cost for 1994 would be increased by $0.5 million (12.4%).
Savings Incentive Plan
Certain employees of the Corporation participate in The CIT Group Holdings, Inc. Savings Incentive Plan. This plan qualifies under section 401(k) of the Internal Revenue Code. The Corporation's expense is based on specific percentages of employee contributions and plan administrative costs and aggregated $8.0 million, $6.8 million and $6.3 million for the years 1994, 1993 and 1992, respectively.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12--Lease Commitments
The Corporation has entered into noncancellable long-term lease agreements for premises and equipment. The following table presents future minimum rentals under such noncancellable leases that have initial or remaining terms in excess of one year at December 31, 1994.
At December 31, Amounts in Thousands
1995 .................................................. $ 20,833 1996 .................................................. 19,244 1997 .................................................. 16,967 1998 .................................................. 15,115 1999 .................................................. 13,030 Thereafter ............................................ 82,982 -------- Total ............................................... $168,171 ========
In addition to fixed lease rentals, leases require payment of maintenance expenses and real estate taxes, both of which are subject to escalation provisions. Minimum payments have not been reduced by minimum sublease rentals of $25.8 million due in the future under noncancellable subleases.
Rental expense, net of sublease income on premises and equipment, was as follows.
Years Ended December 31, --------------------------------- 1994 1993 1992 ------- ------- -------- Amounts in Thousands
Premises ................................ $18,361 $17,265 $17,444 Equipment ............................... 5,202 6,738 7,391 Less sublease income .................... (1,314) (1,347) (1,316) ------- ------- ------- Total ................................. $22,249 $22,656 $23,519 ======= ======= =======
Rental expense paid to CBC totaled $1.6 million, $2.1 million and $5.3 million in 1994, 1993 and 1992, respectively.
Note 13--Legal Proceedings
In the ordinary course of business, there are various legal proceedings pending against the Corporation. Management believes that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position of the Corporation.
Note 14--Credit-Related Commitments
In the normal course of meeting the financing needs of its customers, the Corporation enters into various credit-related commitments. These financial instruments generate fees and involve, to varying degrees, elements of credit risk in excess of the amounts recognized in the Consolidated Balance Sheets. To minimize potential credit risk, the Corporation generally requires collateral and other credit-related terms and conditions from the customer. At the time credit-related commitments are granted, the fair value of the underlying collateral and guarantees approximates or exceeds the contractual amount of the commitment. In the event a customer defaults on the underlying transaction, the maximum potential loss to the Corporation represents the contractual amount outstanding less the value of all underlying collateral and guarantees.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes the contractual amounts of credit-related commitments.
Note 15--Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS 107") requires disclosure of the estimated fair value of the Corporation's financial instruments, excluding leasing transactions accounted for under SFAS 13. The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instrument. Since no trading market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involving uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions or estimation methods may significantly affect the estimated fair values. Because of these limitations, management provides no assurance that the estimated fair values presented would necessarily be realized upon disposition or sale.
Actual fair values in the marketplace are affected by other significant factors, such as supply and demand, investment trends and the motivations of buyers and sellers, which are not considered in the methodology used to determine the estimated fair values presented. In addition, fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of future business transactions and the value of assets and liabilities that are part of the Corporation's overall value but are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include customer base, operating lease equipment, premises and equipment, assets received in satisfaction of loans, and deferred tax balances. In addition, tax effects relating to the unrealized gains and losses (differences in estimated fair values and carrying values) have not been considered in these estimates and can have a significant effect on fair value estimates.The carrying amounts for cash and cash equivalents approximate fair value because they have short maturities and do not present significant credit risks. Credit-related commitments, as disclosed in Note 14, are primarily short term floating rate contracts whose terms and conditions are individually negotiated, taking into account the creditworthiness of the customer and the nature, accessibility and quality of the collateral and guarantees. Therefore, the fair value of credit-related commitments, if exercised, would approximate their contractual amounts.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Estimated fair values, recorded carrying values and various assumptions used in valuing the Corporation's financial instruments at December 31, 1994 and December 31, 1993 are set forth below.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--Investments in Debt and Equity Securities
Effective January 1, 1994, the Corporation adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115) which addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. At December 31, 1994, the book value of the Corporation's investment in debt and equity securities subject to the provision of SFAS 115 totaled $20.3 million, all of which was designated as available for sale. Unrealized gains and losses, representing the difference between amortized cost and current fair market value were immaterial.
Note 17--Ownership of the Corporation
The Dai-Ichi Kangyo Bank, Limited owns 60% of the issued and outstanding stock of the Corporation, which it purchased from Manufacturers Hanover Corporation ("MHC") at year-end 1989. The remaining 40% of the Corporation's issued and outstanding stock is owned by Chemical Banking Corporation ("CBC") through a subsidiary MHC Holdings (Delaware) Inc., which CBC acquired as part of the merger between MHC and CBC on December 31, 1991.
At year-end 1992, the Corporation paid a one-time special dividend in the aggregate amount of $150.0 million to its stockholders, DKB and MHC Holdings (Delaware) Inc. The stockholders then immediately contributed $150.0 million to the Corporation's additional paid-in capital in proportion to their 60% and 40% common stock ownership interests.
Note 18--Acquisition of Barclays Commercial Corporation
On February 28, 1994, the Corporation acquired, for cash, Barclays Commercial Corporation ("BCC"), a company of the Barclays Group. BCC had total assets of approximately $700.0 million at December 31, 1993 and total factoring volume of approximately $5.0 billion for the year then ended. The business and acquired assets of BCC were transferred to The CIT Group/Commercial Services, Inc., a wholly-owned subsidiary of the Corporation, offering a full range of factoring services, including purchase of accounts receivables, credit protection, bookkeeping, and collection activities.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19--Maturity of Finance Receivables, Net of Unearned Finance Income--Contractual Basis
---------------- The maturities shown above are based on contractual terms. Also shown, for comparative purposes, are unaudited percentage data based on a liquidation basis, which gives effect to estimated prepayments.
THE CIT GROUP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 20--Selected Quarterly Financial Data (Unaudited)
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
The names and ages of all directors, executive officers and certain significant employees of the Corporation as of February 1, 1995, and a biographical summary of each such person, appear on the following pages. No family relationship exists among these persons. The executive officers were appointed by and hold office at the will of the Board of Directors.
Stockholders Agreement
The Corporation entered into a Stockholders Agreement simultaneously with the acquisition of a sixty percent (60%) interest in the Corporation by DKB. The agreement provides for a Board of Directors consisting of ten directors, two of which shall be the Chief Executive Officer of the Corporation and the Vice Chairman of the Corporation designated by the Board of Directors. DKB, as majority stockholder, has the right to designate six nominees for director and MHC Holdings, as minority stockholder, has the right to designate two nominees for director. DKB and MHC Holdings each agreed to vote for the other's nominees for director. Regular meetings of the Board of Directors shall be held quarterly. See Item 1 "Business--General".
Outside Directorships
As indicated in the table, some of the Directors of the Corporation concurrently hold positions as directors or executive officers of DKB or CBC or of subsidiaries or other affiliates of the Corporation, DKB, or CBC. Mr. Turner is a director of Franklin Electronic Publishers, Inc., an electronic publishing company, Grow Group, Inc. a chemical company, and Standard Motor Products, Inc., a manufacturing company, none of which is affiliated with the Corporation and each of which is listed on the New York Stock Exchange. Mr. Kobayashi is a director of AFLAC, Inc., a life insurance company, which is not affiliated with the Corporation and which is listed on the New York Stock Exchange. A number of the Executive Officers are also directors of privately held and not-for-profit organizations not affiliated with the Corporation.
The table below sets forth the annual and long-term compensation, including bonuses and deferred compensation, of the President and Chief Executive Officer, the Vice Chairman, and the other three most highly compensated executive officers of the Corporation for services rendered in all capacities to the Corporation and its subsidiaries during the fiscal years ended December 31, 1994, 1993, and 1992.
SUMMARY COMPENSATION TABLE
LONG-TERM INCENTIVE PLAN
Under The CIT Group Holdings, Inc. Career Incentive Plan (the "CIT Career Incentive Plan"), awards are granted in the form of phantom shares of stock by the Executive Committee of the Board of Directors in its discretion. Participants in the CIT Career Incentive Plan are selected by the Executive Committee from among the executives of the Corporation and its subsidiaries who are in a position to make a substantial contribution to the long-term financial success of the Corporation or its subsidiaries. Grants to the members of the Executive Committee are made by the Board of Directors. The amount of phantom shares eligible for allocation during a Performance Period is determined by the Committee. The Performance Period is at least three consecutive calendar years. The Committee determines the Performance Goals for each Performance Period, which are tied to net income growth targets and return on equity performance. The value of the phantom shares is determined at the end of each Performance Period and compared against the pre-established Performance Goals. Following the end of a Performance Period, one-third vest immediately and one-third vest at the end of each of the next two years. Cash dividends on individual shares are paid quarterly during the performance period and the vesting period based on the number of phantom shares granted to a participant. The basis of the dividend is the quarterly return on equity of the Corporation.
All or a part of the value of a vested award may either be paid currently in cash or deferred in up to 5 annual installments. Deferred amounts are credited with interest at a rate determined annually by the Committee.
LONG-TERM INCENTIVE PLANS AWARDS IN LAST FISCAL YEAR
DEFINED BENEFIT PLANS Retirement plans
Effective January 1, 1990, The CIT Group Holdings, Inc. Retirement Plan (the "CIT Retirement Plan") was established. Assets necessary to fund the CIT Retirement Plan were transferred from the MHC Retirement Plan, Inc., the predecessor plan in which the Corporation's employees participated. Accumulated years of benefit service under the MHC Retirement Plan are included in the benefit formula of the CIT Retirement Plan, which covers officers and salaried employees who have one year of service and have attained age 21.
Subject to certain exceptions, at the normal retirement age of 65, an employee's pension is 1.25% of final average salary, as defined below, for each of the first 20 years of benefit service as a participant and .75% of such salary for each year of the next 20 years of benefit service. In general, an employee who was a participant in the MHC Retirement Plan before 1985 will not receive a pension of less than 2% of final average salary for each of the first 20 years of benefit service as a participant and 1% of such salary for each of the next 20 years of benefit service, reduced by .4% of the participant's covered compensation for each year of such benefit service up to a maximum of 35 years and further reduced by the value of certain benefits under the CIT Savings Plan. An employee who was a participant in the former CIT Retirement Plan on June 30, 1986, will not receive a pension of less than 1.1% of final average salary up to certain Social Security limits plus 1.5 % of final average salary in excess of the Social Security limits, for each year of benefit service to a maximum of 35 years, reduced by certain benefits under the CIT Savings Plan. "Final average salary" is the highest average annual salary received in any five consecutive years in the last ten years. "Salary" includes all wages paid by the Corporation, including before-tax contributions made to the CIT Savings Plan and salary reduction contributions to any Section 125 Plan, but excluding commissions, bonuses, incentive compensation, overtime, reimbursement of expenses, directors' fees, severance pay, and deferred compensation. This salary is comparable to the "Salary" shown in the Summary Compensation Table. After completing 5 years of service, an employee whose employment with the participating company has terminated is entitled to a benefit, as of the employee's normal retirement date, equal to the benefit earned to the date of termination of employment, or an actuarially reduced benefit commencing at any time after age 55 if the participant is eligible for early retirement under the CIT Retirement Plan. Certain death benefits are available to eligible surviving spouses of participants.
Since various laws and regulations set limits on the amounts allocable to a participant under the CIT Savings Plan and benefits under the CIT Retirement Plan, the Corporation has a supplemental retirement plan (the "CIT Supplemental Retirement Plan"). The CIT Supplemental Retirement Plan provides retirement benefits on an unfunded basis to participants (whose benefits under the CIT Retirement Plan would be restricted by the limits) of an amount equal to the difference between the annual retirement benefits permitted and the amount that would have been paid but for the limitations imposed.
The amounts set forth in the table are the amounts which would be paid to employees hired before 1985 pursuant to the CIT Retirement Plan and the CIT Supplemental Retirement Plan at a participant's normal retirement age assuming the indicated final average salary and the indicated years of benefit service and assuming that the straight life annuity form of benefit will be elected and that CIT Supplemental Retirement Plan benefits will be paid in the form of an annuity. The amounts may be overstated to the extent that they do not reflect the reduction for any benefits under the CIT Savings Plan.
--------------
(1) At December 31, 1994, Messrs. Gamper, Pollicino, Marsiello, Merritt, and Zdanow had 27, 30, 19, 20 and 27 years of benefit service, respectively.
Permanent Life Insurance Options Plan
Twenty-two officers of the Corporation, including Mr. Gamper, Mr. Pollicino, Mr. Marsiello, Mr. Merritt and Mr. Zdanow, are participants under the Permanent Life Insurance Options Plan. The benefit provided is paid-up life insurance equal to approximately three times salary with a life annuity option payable monthly by the Corporation upon retirement. The Participant pays a portion of the annual premium and the Corporation pays the balance on behalf of the participant. The Corporation is entitled to recoup its payments from the proceeds of the policy. Upon the participant's retirement a life annuity will be payable out of the current income of the Corporation and the Corporation anticipates recovering the cost of the life annuity out of the proceeds of the life insurance policy payable upon the death of the employee.
In addition to the table of pension benefits shown on the preceding page, the Corporation is conditionally obligated to make annual payments under the Permanent Life Insurance Options Plan in the amounts indicated to the following persons at retirement: Mr. Gamper, $263,130, Mr. Pollicino, $161,642, Mr. Marsiello, $136,008, Mr. Merritt, $152,383 and Mr. Zdanow, $93,616.
Compensation Committee Interlocks and Insider Participation
The Executive Committee of the Board of Directors functions as the compensation committee and sets the compensation for all executives except Messrs. Gamper, Pollicino, Murata and Torii. The members of the Executive Committee are as follows:
Albert R. Gamper, Jr. Michio Murata Joseph A. Pollicino Peter J. Tobin Keiji Torii
The Board of Directors, except for Messrs. Gamper and Pollicino, who are absent from any portion of meetings when their compensation is discussed, deliberates over the compensation of Messrs. Gamper and Pollicino. DKB determines the compensation for Messrs. Murata and Torii. Mr. Tobin is an executive of CBC.
EMPLOYMENT AGREEMENTS
Mr. Gamper has an employment agreement with the Corporation which provides that he will serve as the Chief Executive Officer, President, Chairman of the Executive Committee and member of the Board of Directors of the Corporation. His employment agreement initially ran for five years from December 29, 1989 and provides for the payment of an annual base salary of $400,000, to be reviewed at least annually by the Board of Directors of the Corporation, subject to increases but not to decreases. In December 1992, Mr. Gamper's employment agreement was extended for one additional year. In December 1994, Mr. Gamper's employment agreement was extended until December 1997. Mr. Gamper's employment agreement also provides for executive incentive compensation under Incentive Plans which will be designed to be no less favorable to him than the Incentive Plans in effect prior to the purchase by DKB of 60% of the Corporation's shares.
Mr. Pollicino has an employment agreement with the Corporation which provides that he shall serve as the Vice Chairman and member of the Board of Directors of the Corporation. Mr. Pollicino's employment agreement initially ran for five years from December 29, 1989 and provides for the payment of an annual base salary of $300,000, to be reviewed at least annually by the Board of Directors of the Corporation, subject to increases but not to decreases. In December 1992, Mr. Pollicino's employment agreement was extended for one additional year. In December 1994, Mr. Pollicino's employment agreement was extended until December 1997. Mr. Pollicino's employment agreement also provides for executive incentive compensation under Incentive Plans which will be designed to be no less favorable to him than the Incentive Plans in effect prior to the purchase by DKB of 60% of the Corporation's shares.
In addition to Mr. Gamper and Mr. Pollicino, Mr. Marsiello, Mr. Merritt and Mr. Zdanow have employment agreements with the Corporation, each of which initially ran for three years from December 29, 1989 through December 31, 1992
and provides for the payment of base salary of not less than the amount received prior to the purchase by DKB of 60% of the Corporations's shares, to be reviewed at least annually by the Chief Executive Officer, subject to increases but not to decreases. In December 1992 and December 1994 the employment agreements were extended for an additional two years. These employment agreements also provide for executive incentive compensation under Incentive Plans which will be designed to be no less favorable to the executive officers than the Incentive Plans in effect prior to the aforesaid share purchase by DKB.
TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
Mr. Gamper's and Mr. Pollicino's employment agreements with the Corporation provide that if their employment is terminated without cause (as defined in the agreement) or if they resign for good reason (as defined in the agreement) they will be entitled to receive severance payments equal to their base salary for the greater of thirty-six months or the remainder of the term, provided that they do not violate the non-competition or confidentiality provisions of the agreement, in which case the Corporation would have no obligation to make any remaining payments. Further, if Mr. Gamper's and Mr. Pollicino's employment is terminated without cause or if they resign for good reason, they will be entitled to receive, among other things, full employee welfare benefit coverage as if they had retired with the Corporation's consent at age 55, a pension benefit commencing at age 55 in an amount equal to their accrued benefit under the Corporation's Retirement Plan as of the date of their termination of employment as if they had attained age 55 and had retired on such date with the Corporation's consent, a lump sum equal to the then full value of their restricted stock award under the Long Term Incentive Program of Manufacturers Hanover Corporation and its subsidiaries (the "MHC Long Term Incentive Plan") and any vested award under any similar plan as may have been adopted by the Corporation, and a single life annuity equivalent to the single life annuity they would have normally been entitled to receive under the Corporation's Permanent Life Insurance Options Plan. If, during the Term of their employment agreements, a "Change of Control" occurs, Mr. Gamper and Mr. Pollicino will be entitled to receive a "Special Payment." With respect to Mr. Gamper, the amount of such Special Payment shall equal the sum of Mr. Gamper's prior four years annual bonuses under The CIT Bonus Plan and will be payable over a two year period as follows: 1/3 of the payment shall be paid within 30 days after the Change of Control; 1/3 shall be paid on or before the first anniversary of such Change of Control; and 1/3 shall be paid on or before the second anniversary date of such Change of Control. With respect to Mr. Pollicino, the amount of such Special Payment shall equal the sum of Mr. Pollicino's prior three years annual bonuses under The CIT Bonus Plan and will be payable over a two year period as follows: 1/3 of the payment shall be paid within 30 days after the Change of Control; 1/3 shall be paid on or before the first anniversary of such Change of Control; and 1/3 shall be paid on or before the second anniversary date of such Change of Control. If, during the two year period commencing on the date of such Change of Control and ending on the second anniversary of such date, Mr. Gamper's or Mr. Pollicino's employment is involuntarily terminated by the Company for cause or he voluntarily terminates employment for any reason other than "Good Reason" as defined in his employment agreement or he breaches the non-compete or confidentiality provisions of his agreement, he shall not receive any remaining unpaid installments of this "Special Payment."
The employment agreements of Mr. Marsiello, Mr. Merritt and Mr. Zdanow provide that if their employment is terminated without cause (as defined in the agreement) or if they resign for good reason (as defined in the agreement), they will be entitled to receive severance payments equal to their base salary for the greater of 24 months or the remainder of the term, provided that they do not violate the non-competition or confidentiality provisions of the agreement, in which case the Corporation would have no obligation to make any remaining payments. Further, if the employment of such executive officer is terminated without cause or if he resigns for good reason, he will be entitled to continued participation in employee welfare benefit coverage for eighteen months, a lump sum equal to the then full value of his restricted stock award under the MHC Long Term Incentive Program and any vested award under any similar plan as may have been adopted by the Corporation, and if age 55 or older on the date of termination, the benefits payable under the Corporation's Permanent Life Insurance Options Plan or if under age 55 a lump sum payment which represents the equivalent of the net after-tax present value of the single life annuity that would have been payable to the individual executive officer at age 55. If, during the Term of their employment agreement, a "Change of Control" occurs, Mr.
Marsiello, Mr. Merritt and Mr. Zdanow will be entitled to receive a "Special Payment." The amount of such Special Payment shall equal the sum of their prior two years annual bonuses under The CIT Bonus Plan and will be payable over a two year period as follows: 1/3 of the payment shall be paid within 30 days after the Change of Control; 1/3 shall be paid on or before the first anniversary of such Change of Control; and 1/3 shall be paid on or before the second anniversary date of such Change of Control. If during the two year period commencing on the date of such Change of Control and ending on the second anniversary of such date, their employment is involuntarily terminated by the Company for cause or they voluntarily terminate employment for any reason other than "Good Reason" as defined in their employment agreements or they breach the non-compete or confidentiality provisions of their agreements, they shall not receive any remaining unpaid installments of this "Special Payment."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the ownership of all of the issued and outstanding common stock of the Corporation, as of March 1, 1995.
Name and Address of Owner Shares Owned Percentage ------------------------- ------------ ---------- The Dai-Ichi Kangyo Bank, Limited 600 60% 1-5, Uchisaiwaicho 1-chome Chiyoda-ku, Tokyo 100
MHC Holdings (Delaware) Inc. 400 40% 270 Park Ave New York, NY 10017
No officer or director of the Corporation owns any common stock of the Corporation. In addition, the voting securities of DKB and CBC, the parent of MHC Holdings, owned by each officer and director of the Corporation individually, and all officers and directors as a group, does not exceed one percent of the issued and outstanding securities comprising and such class of stock so owned.
Item 13. Certain Relationships and Related Transactions.
Transactions with Management and Others
The Corporation has in the past and may in the future enter into certain transactions with affiliates of the Corporation. It is anticipated that such transactions will be entered into at a fair market value for the transaction.
The Corporation's interest-bearing deposits generally represent overnight money market investments of excess cash that are maintained for liquidity purposes. At December 31, 1994, the Corporation had no interest-bearing deposits with DKB or CBC. From time to time, the Corporation may maintain such deposits with DKB or CBC.
At December 31, 1994, the Corporation's credit line coverage with 74 banks totaled $4.675 billion of committed facilities. Additional information regarding these credit lines can be found in Item 8. Financial Statements and Supplementary Data, "Note 5--Debt". At December 31, 1994, DKB was a committed bank under a $1.25 billion Revolving Credit Facility, a $770.0 million revolving credit facility, and a $325.0 million revolving credit facility, with commitments of $60.0 million, $80.0 million and $105.0 million, respectively. DKB is a Co-Agent under the $1.25 billion and $770.0 million Revolving Credit Facilities and the Agent under the $325.0 million facility.
The Corporation has entered into interest rate swap and cross currency interest rate swap agreements with financial institutions acting as principal counterparties, including affiliates of DKB and CBC. At December 31, 1994, the notional principal amount outstanding on interest rate swap agreements with DKB and CBC totaled $270.0 million and $300.0 million, respectively. The notional principal amount outstanding on foreign currency swaps totaled $140.2 million with DKB at year-end 1994.
The Corporation has entered into leveraged leasing arrangements with third party loan participants, including affiliates of DKB. Amounts owed to affiliates of DKB are discussed in Item 8. Financial Statements and Supplementary Data, "Note 2--Finance Receivables".
The Corporation holds a $9.0 million letter of credit from CBC as additional collateral on a $24.4 million business aircraft loan to a third party. CBC is also indebted to the Corporation in the amount of $8.0 million for financing relating to the purchase of a business aircraft by CBC.
The Corporation has also entered into various noncancellable long-term facility lease agreements with CBC. Future minimum rentals under these leases are $1.6 million in 1995, $1.5 million in 1996, $.6 million in 1997, and $.1 million in 1998.
At December 31, 1994, the Corporation had entered into a credit-related commitment with DKB in the form of a letter of credit totaling $6.7 million equal to the amount of the single lump sum premium necessary to provide group life insurance coverage to certain eligible retired employees.
The Corporation has issued a Prospectus, dated August 8, 1994, relating to certain debt securities of the Corporation that are currently issued and outstanding with respect to which offers and sales relating to market-making transactions may be made by Chemical Securities Inc. and/or its affiliates. Chemical Securities Inc. is a wholly-owned subsidiary of CBC. Chemical Securities Inc. paid all expenses of the Corporation of preparing the Prospectus.
A subsidiary of the Corporation has entered into a cash collateral loan agreement with DKB pursuant to which DKB made a loan to a cash collateral trust in order to provide additional funds to make payments on the certificates of a contracts trust. The contracts trust was formed for the purpose of securitizing certain recreational vehicle finance receivables that were acquired by the contracts trust from another subsidiary of the Corporation. At December 31, 1994, the principal amount outstanding on the cash collateral loan was $9.5 million.
Schulte Roth & Zabel, of which Mr. Roth is a partner, provides legal services to the Corporation. Attorney's fees for services to the Corporation did not constitute more than 5% of the law firm's gross revenues for the last fiscal year. Schulte Roth & Zabel has been retained in the past and will continue in the future to serve as outside counsel for DKB.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
(a) The following documents are filed with the Securities and Exchange Commission as part of this report:
1. The financial statements of The CIT Group Holdings, Inc. and Subsidiaries as set forth on pages 28-53.
2. All schedules are omitted because they are not applicable or because the required information appears in the consolidated financial statements or the notes thereto.
3. The following is an index of the Exhibits required by Item 601 of Regulation S-K filed with the Securities and Exchange Commission as part of this report:
3(a) Restated Certificate of Incorporation of The CIT Group Holdings, Inc., amended as of December 29, 1989 (incorporated by reference to Exhibit 3(a) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1989).
3(b) By-Laws of The CIT Group Holdings, Inc., amended as of December 29, 1989 (incorporated by reference to Exhibit 3(b) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1989).
4(a) Upon the request of the Securities and Exchange Commission, the Registrant will furnish a copy of all instruments defining the rights of holders of long-term debt of the Registrant.
10(a) Stockholders Agreement (incorporated by reference to Exhibit 10(a) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1989).
10(b)(1) Employment Agreement of Albert R. Gamper, Jr. (incorporated by reference to Exhibit 10(b) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1989).
10(b)(2) Extension of Employment Agreement of Albert R. Gamper, Jr. (incorporated by reference to Exhibit 10 (b)(2) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
10(b)(3) Extension of Employment Agreement of Albert R. Gamper, Jr.
10(c)(1) Employment Agreement of Nikita Zdanow (incorporated by reference to Exhibit 10(c)(1) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
10(c)(2) Extension of Employment Agreement of Nikita Zdanow (incorporated by reference to Exhibit 10(c)(2) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
10(c)(3) Extension of Employment Agreement of Nikita Zdanow.
10(d) The CIT Group Bonus Plan (incorporated by reference to Exhibit 10(d) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
10(e) The CIT Group Holdings, Inc. Career Incentive Plan (incorporated by reference to Exhibit 10(e) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
10(f) The CIT Group Holdings, Inc. Supplemental Savings Plan (incorporated by reference to Exhibit 10(f) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
10(g) The CIT Group Holdings, Inc. Supplemental Retirement Plan (incorporated by reference to Exhibit 10(g) to Form 10-K filed by the Corporation for the fiscal year ended December 31, 1992).
12 Computation of Ratios of Earnings to Fixed Charges.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney.
27 Financial Data Schedule (filed electronically)
(b) A Current Report on Form 8-K dated October 21, 1994 was filed with the Commission reporting the Corporation's announcement of results for the quarter ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE CIT GROUP HOLDINGS, INC.
By: /s/ ERNEST D. STEIN ......................................... Ernest D. Stein Executive Vice President, General Counsel and Secretary March 14, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Original powers of attorney authorizing Albert R. Gamper, Jr. Ernest D. Stein, and Donald J. Rapson and each of them to sign on behalf of the above mentioned directors and are held by the corporation and available for examination by the Securities and Exchange Commission pursuant to Item 302(b) of Regulation S-T.