Annual Report

1997
Money Well Lent Since 1908

The CIT Group

The cover of this year’s Annual Report — juxtaposing an early industrial Financial Highlights 1
President’s Letter 2
engine with the making of compact discs — graphically portrays the range
Money Well Lent 5

of manufacturing activity which CIT has financed over the span of 90 years. As Financial Information 22

Independent Auditors’ Report 60

in the other markets CIT serves — construction, retailing, transportation,
Debt Securities 61

technology and consumer — the steadfast theme has been — Money Well Corporate Data 63

Lent Since 1908.

Managed Assets Net Income Stockholders’ Equity

In Billions In Millions In Billions

$25 $350 $2.5

300
20 2.0
250
15 200 1.5

10 150 1.0
100
5 0.5
50
0 0 0.0
93 94 95 96 97 93 94 95 96 97 93 94 95 96 97
 solid performance
Financial Highlights

AT OR FOR THE YEARS ENDED DECEMBER 31, (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995

Operating revenue $ 1,193 $ 1,042 $ 882

Salaries and general operating expenses 428 393 346
Depreciation on operating lease equipment 147 122 79
Provision for credit losses 114 111 92
Pre-tax income 488 416 365
Net income 310 260 225
Net income per diluted share $ 1.95 $ 1.64 $ 1.43

Managed assets $ 22,345 $ 20,005 $ 17,979

Financing and leasing assets:

Commercial $ 15,960 $ 15,160 $ 14,565
Consumer 3,933 3,355 2,456
Other 66 53 41
$ 19,959 $ 18,568 $ 17,062

Capitalization:
Total debt $ 15,315 $ 14,606 $ 13,570
Preferred capital securities 250 — —
Stockholders’ equity 2,433 2,075 1,914
Reserve for credit losses 236 221 206

Key Ratios
Return on average stockholders’ equity 14.0% 13.0% 12.1%
Return on average earning assets 1.70% 1.57% 1.46%
Net credit losses (% of average finance receivables) 0.59% 0.62% 0.50%
Efficiency ratio 41.6% 42.7% 43.1%
Reserve for credit losses (% of finance receivables) 1.33% 1.30% 1.30%
Past due 60+ days (% of finance receivables) 1.67% 1.72% 1.67%
Debt to stockholders’ equity and preferred capital securities 5.71-1 7.04-1 7.09-1

Employees 3,025 2,950 2,750

 President’s Letter

Several noteworthy events took place in the “Habits and customs may change, markets may Ittleson suggested, the intelligent extension of cred-
United States in 1908, some more noteworthy shift from one economic level to another; it is the hallmark of CIT, a company that continues to
than others. For instance, in the business arena, products may enjoy wide use for a few years help fuel the expansion of a growing nation.
the Westinghouse Company introduced con- and be superseded by entirely new and better Nine decades after its founding, CIT is stronger
sumers to the first electric toaster. Hoover vacuum products; but credit—the commodity in which than ever. This past year was the most successful in
cleaner salesmen went door-to-door for the first we deal—is ever in demand...it is our primary our 90-year history, culminating in our 10th consec-
time to sell their product. The Ford Motor job to control and safeguard its use, because utive year of increased earnings. Financial highlights
Company marketed the “Model T” as the first only then will it grow with the growing needs for the year include:
truly affordable automobile. of an expanding nation.” • Record earnings of $310.1 million, up from $260.1
In Washington, DC, Union Station, now Henry Ittleson, Founder million in 1996;
deemed a national historic landmark, was officially • Net income per diluted share was $1.95, up from
dedicated. Statewide prohibition became law in Georgia. Jack Johnson $1.64 in 1996;
became the first African-American to win the heavyweight boxing • Total managed assets were $22.3 billion, an increase of 12 percent over
championship and the Chicago Cubs defeated the Detroit Tigers in the the $20.0 billion reported the prior year;
World Series, marking the last time the Cubs reached that pinnacle. • New business originations of $8.1 billion were also a record.
And on February 11th of that same year, Henry Ittleson, a young CIT’s financial success in 1997 resulted chiefly from our diligent
entrepreneur with roots in the retailing industry, founded the focus on fundamentals, including asset generation, revenue growth,
Commercial Credit and Investment Company in St. Louis, Missouri. improvements in operating efficiencies and “best in class” credit quality.
Ninety years and several name changes later, The CIT Group’s pur- Continuing a trend from its earliest days, CIT remains committed to
pose remains essentially the same as it did then—that is, to provide a a business strategy that incorporates a dogged attention to detail,
diverse range of quality financing products and services to individuals prudent lending practices and superior credit risk management.
and businesses throughout the nation. Then and now, in good times and
bad, credit remains “the commodity in which we deal.” And, as Henry

strong
traditions
 new opportunities
Initial Public Offering “Continuing a trend from its earliest days, CIT learned that there is great value in longevity—that
On November 13, 1997, The CIT Group listed remains committed to a business strategy that customers value the economic and philosophical
its common stock on the New York Stock Exchange incorporates a dogged attention to detail, pru- commitment we have made to their industries.
(NYSE:CIT), highlighting the completion of a very dent lending practices and superior credit risk Subsequent pages in this Annual Report are devoted
successful Initial Public Offering (IPO), and opening management.“ to highlighting some of our relationships—over
yet another chapter in the history of CIT. Analysts, Albert R. Gamper, Jr., President and CEO time—with customers and markets.
institutions and individuals took the CIT story to Whether it consists of providing equipment financ-
heart and invested in our permanence, our performance and our poten- ing for long-term customer Arnold Machinery Company, a home equity line
tial. Our IPO was one of the brightest moments of my 10 years at CIT and of credit for an expectant couple in Minnesota, or a string of freight railcars
I was especially pleased that nearly 50 percent of our employees elected for the Burlington Northern and Santa Fe Railway Company, the CIT busi-
to purchase stock in their Company—investing their own money in a ness model that exists today can be described by five specific characteristics.
Company that benefits from their hard work and commitment. As a
further encouragement to enhance shareholder value, all employees were CONSISTENCY – We strive for and maintain the highest level of consistency

given stock options. As a result, employees represent one of the largest in our financial performance, in customer service, and in our approach to
blocks of CIT stock ownership. the marketplace. CIT is a consistent lender in good and bad times. And
we deliver all of our financial products and services with the same level
Longevity of effort and responsiveness.
Implicit in Henry Ittleson’s quote is the suggestion of permanence.
In 90 years, the American socio-economic landscape has changed QUALITY – CIT’s success is derived from a standard of excellence above

dramatically, companies have come and gone, economies have risen and the norm, with a quiet confidence that continues to raise the bar on
fallen, and consumption trends have shifted again and again. As these individual and organizational performance as goals are met. We hire
changes have occurred, CIT has remained a steady source of credit for quality employees, manage quality assets, produce quality earnings, and
American business owners and individuals. As an organization, we’ve maintain a quality balance sheet. For us, there is no compromise on quality.
 largest lenders to the construction, aerospace and recreation vehicle
industries. We are one of the largest factoring companies in the industry
and a significant player in the retailing, corporate aircraft and railcar leas-
ing industries. In many markets, CIT has achieved a substantial presence.

Looking Ahead
Our job today at CIT is to build upon our strong platform and
take advantage of our new status as a public company. I would stress
to you, our shareholders, the same themes I expressed recently to
another group of shareholders—the CIT employees. In 1998, we will be
challenged to:

Hisao Kobayashi Albert R. Gamper, Jr. Joseph A. Pollicino

• Aggressively grow our business;
Chairman President and CEO Vice Chairman • Continue our mission as a “best in class” credit grantor;
• Improve our returns and again “raise the bar” and grow profits in line
EXPERIENCE – Ninety years in business affords CIT a level of experience with shareholder expectations—if not higher;
that other companies can only dream about. Our strengths are manage- • Think “productivity” and demonstrate the ability to continue to deliver;
ment, market knowledge and lending experience. This is an attribute • Diligently search for appropriate acquisitions that can enlarge our
that distinguishes us from others and one that makes us a formidable franchise;
competitor in the broader lending market. • Continue to operate in a manner that values all of our employees and
benefits all of the communities of which we are members.
DIVERSITY – Diversity has always been a strategic initiative of CIT—diver- As we work together to meet these challenges, we will increase the
sity in geographic reach, in our markets, in our products and services, in the value of our great organization.
distribution channels we employ to market those products and services,
and in our employees.

SCALE – The defining characteristic of a successful commercial and

consumer lender may well be scale. In CIT’s case we have achieved Albert R. Gamper, Jr.
significant leadership positions in a number of markets. CIT is one of the President and Chief Executive Officer
Selected Financial Data AT OR FOR THE YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

Results of Operations
Net Finance Income Net finance income $ 887.5 $ 797.9 $ 697.7 $ 649.8 $ 603.9
In Millions Total operating revenue(1) 1,193.3 1,042.0 882.4 824.2 737.7
$1,000 Salaries and general operating expenses 428.4 393.1 345.7 337.9 282.2
800 Provision for credit losses 113.7 111.4 91.9 96.9 104.9
Net income 310.1 260.1 225.3 201.1 182.3
600
Net income per diluted share $ 1.95 $ 1.64 $ 1.43 $ 1.28 $ 1.16
400

200 Balance Sheet Data

0 Finance receivables:
93 94 95 96 97
Commercial $ 14,054.9 $ 13,757.6 $ 13,451.5 $ 12,821.2 $ 11,185.2
Consumer 3,664.8 3,239.0 2,344.0 1,973.2 1,438.9
Total finance receivables $ 17,719.7 $ 16,996.6 $ 15,795.5 $ 14,794.4 $ 12,624.1
Reserve for credit losses 235.6 220.8 206.0 192.4 169.4
Operating lease equipment, net 1,905.6 1,402.1 1,113.0 867.9 751.9
Consumer finance receivables held for sale 268.2 116.3 112.0 68.7 150.4
Efficiency Ratio Total assets 20,464.1 18,932.5 17,420.3 15,959.7 13,725.0
Commercial paper 5,559.6 5,827.0 6,105.6 5,660.2 6,516.1
50%
Variable rate senior notes 2,861.5 3,717.5 3,827.5 3,812.5 1,686.5
45 Fixed rate senior notes 6,593.8 4,761.2 3,337.0 2,619.4 2,389.0
Subordinated fixed-rate notes 300.0 300.0 300.0 300.0 200.0
40
Company-obligated mandatorily redeemable
35 preferred securities of subsidiary trust
holding solely debentures of the Company 250.0 — — — —
30
93 94 95 96 97
Stockholders’ equity 2,432.9 2,075.4 1,914.2 1,793.0 1,692.2

Selected Data and Ratios

Profitability
Net interest margin as a percentage of
average earning assets (“AEA”) (2) 4.87% 4.82% 4.54% 4.77% 4.93%
Return on average stockholders’ equity 14.0% 13.0% 12.1% 11.5% 11.0%
Net Income per Return on AEA(2) 1.70% 1.57% 1.46% 1.48% 1.49%
Diluted Share
Ratio of earnings to fixed charges 1.51x 1.49x 1.44x 1.52x 1.60x
$2.0
Salaries and general operating expenses
1.5 as a percentage of average
managed assets (“AMA”)(3) 2.16% 2.22% 2.16% 2.44% 2.28%
1.0
Efficiency ratio(4) 41.6% 42.7% 43.1% 44.5% 40.4%
0.5 Dividend payout ratio(5) 26% 38% 46% 50% 50%

0.0 Credit Quality

93 94 95 96 97
60+ days contractual delinquency (as a
percentage of finance receivables)
Consumer – managed (as a percentage
of managed finance receivables)(6) 2.92% 1.97% 1.34% 0.57% 0.99%
Consumer – owned 3.48% 2.24% 1.50% 0.51% 1.13%
Commercial – owned 1.20% 1.60% 1.70% 1.30% 1.79%
Total – owned 1.67% 1.72% 1.67% 1.20% 1.71%
Selected Financial Data (continued) AT OR FOR THE YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
(DOLLARS IN MILLIONS)

Net credit losses (as a percentage of average

Net Credit Losses finance receivables)
As a % of AFR Consumer – managed (as a percentage
1.00 of average managed finance
receivables) 0.91% 0.70% 0.45% 0.54% 0.75%
0.75
Consumer – owned 1.09% 0.75% 0.44% 0.55% 0.77%
Commercial – owned 0.47% 0.59% 0.51% 0.62% 0.77%
0.50
Total – owned 0.59% 0.62% 0.50% 0.61% 0.77%
0.25 Total nonperforming assets (as a percentage
93 94 95 96 97
of finance receivables)(7)
Consumer – owned 2.78% 1.64% 1.02% 0.46% 0.95%
Commercial – owned 0.75% 1.17% 1.33% 1.50% 1.99%
Total – owned 1.17% 1.26% 1.28% 1.36% 1.87%
Reserve for credit losses as a percentage
Past Due Finance Receivables
of finance receivables 1.33% 1.30% 1.30% 1.30% 1.34%
60 Days or More in %
Ratio of reserve for credit losses to
2.0 current period net credit losses 2.33x 2.18x 2.67x 2.29x 1.79x
1.5
Leverage
1.0 Total debt to stockholders’ equity and
Company-obligated mandatorily
0.5
redeemable preferred securities of
0.0 subsidiary trust holding solely
93 94 95 96 97 debentures of the Company 5.71x 7.04x 7.09x 6.91x 6.38x
Total debt to stockholders’ equity (8) 6.40x 7.04x 7.09x 6.91x 6.38x
Other
Total managed assets(9) $ 22,344.9 $ 20,005.4 $ 17,978.6 $ 16,072.1 $ 13,723.6
Employees 3,025 2,950 2,750 2,700 2,400
Total Nonperforming Assets
As a % of Finance Receivables (1) Includes a gain of $58.0 million recorded in 1997 on the sale of an equity interest acquired in connection with a loan workout.
(2) “AEA” reflects the average of finance receivables, operating lease equipment, consumer finance receivables held for sale and certain investments, less credit balances of factor-
2.0 ing clients.
(3) “AMA” reflects average earning assets plus the average of consumer finance receivables previously securitized and currently managed by the Company.
1.5 (4) Efficiency ratio reflects the ratio of salaries and general operating expenses to the sum of operating revenue less depreciation of operating lease equipment and minority interest
in subsidiary trust holding solely debentures of the Company.
1.0 (5) In 1995, the Company operated under a dividend policy requiring the payment of dividends equal to and not exceeding 50% of operating earnings. The actual ratio for 1995,
however, fell below 50% due to the deferral of the declaration and payment of dividends on December 1995 earnings into the first quarter of 1996. In 1996, the Company
0.5 changed its dividend policy to require the payment of dividends equal to and not exceeding 30% of operating earnings.
(6) Managed finance receivables include owned finance receivables, consumer finance receivables held for sale and the remaining balance of consumer finance receivables
0.0 previously securitized and currently managed by the Company.
93 94 95 96 97
(7) Owned nonperforming assets reflect finance receivables on nonaccrual status and assets received in satisfaction of loans.
(8) Total debt includes, and stockholders’ equity excludes, $250.0 million of Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely
debentures of the Company issued in February 1997.
(9) “Managed assets” include (i) financing and leasing assets and (ii) off-balance-sheet consumer finance receivables previously securitized and currently managed by the Company.